At the beginning of March 2018, the Court of Justice of the EU (“CJEU”) clarified the limits of the private investor principle, also known as the “market economy operator criterion” (“MEO criterion”) in two fundamental rulings.
- In SNCF Mobilités v Commission (case C-127/16) the CJEU clarified the limitations of the applicability of the MEO criterion. The CJEU ruled that the MEO criterion is not applicable to the implementation of a compensatory measure (the forced sale of favoured activities) of unlawful State aid because it has the objective of remedying the distortion of competition.
- In Commission v FIH Ehrversbank (case C-579/16 P) the CJEU clarified which elements should not be used when applying the MEO criterion. The CJEU ruled that when applying the MEO criterion the risks relating to previously granted State aid should not be taken into account during the assessment of the state measure.
The MEO criterion means that a transaction between a Member State and an undertaking does not grant an advantage to the undertaking when the Member State acts in an economically rational way and its actions can be compared with that of an economic operator under normal market conditions, such as an investor or creditor. The MEO criterion does not apply when the Member State acts in its capacity as a state (public authority), for example, by using its state prerogatives in areas such as social security. When applying the MEO criterion, it must be assessed whether the beneficiary company could have enjoyed the same advantage under normal market circumstances.
Limitations on the applicability of the MEO criterion
In previous case law, the CJEU followed a broad approach regarding to the applicability of the MEO criterion. In the judgments of EDF (case C-124/10) and Frucona Košice (case C-73/11 P), the CJEU ruled that the MEO criterion is applicable when the Member State acts in its capacity as a shareholder of the undertaking regardless of whether the advantage was granted via prerogatives that only belonged to States (for instance, tax exemptions). For the State aid test, the form of action is in principle not relevant, but the nature, subject, context and objectives are. EDF dealt with the question of whether the economic reasons for the investment, in the form of a tax exemption, are comparable to those of a private investor under the same market circumstances. When a private investor would have made a similar investment for the same amount the MEO criterion is satisfied. In SNCF Mobilités the CJEU ruled that the sale at market price or through an open and transparent tender procedure, which normally corresponds to the application of the MEO criterion, does not necessarily mean that the MEO criterion is applicable. The CJEU confirmed that the MEO criterion is not applicable to the conditional sale of assets to remedy unlawful State aid. The rationality of such a forced sale cannot be compared to the economic rationality of a private investor.
Limitations on the application of the MEO criterion
The broad ‘applicability’ of the MEO criterion must be distinguished from aspects that can and cannot be take into consideration regarding the ‘application’ of the MEO criterion. The CJEU has ruled in the ING Group case (C-224/12 P) that the applicability of the MEO criterion to the assessment of whether the early repayment of rescue and restructuring aid constitutes new State aid, cannot be excluded. The application of that criterion entailed the examination of the economic rationality of the amendments proposed by the Dutch state to the terms governing repayment of the capital injection, which had previously been made by means of State aid, by reference to the approach that a private investor might have adopted.
In the FIH Ehrversbank judgment, the CJEU clarified the distinction between the applicability and application of the MEO criterion. In line with its ruling in Land Burgenland (joined cases C-214/12 P, C-215/12 P en C-223/12 P), the CJEU ruled in the FIH Ehrversbank judgment that the risks for the Member State associated with the previously granted State aid should not be taken into account when applying the MEO criterion on a latter measure. Both the previously approved State aid and the latter measure were granted by the Member State in the capacity of its public powers and not in the capacity of market participant.
Burden of proof for MEO criterion
In the FIH Ehrversbank case, the CJEU ruled that it is for the Commission to ask the Member State concerned to provide it with all the relevant information enabling it to determine whether the conditions for applying the MEO criterion are satisfied. The CJEU follows the established case law from the EDF case (case C-124/10). In the EDF case, the CJEU additionally ruled that the evidence must be produced before the adoption of the decision to implement the investment in question. In the most recent EDFcase (case T-747/15) the General Court concluded that France did not meet these requirements. This is in line with SACE (case C-472/15 P) in which the CJEU confirmed that a Member State can only successfully argue that its investment does not result in State aid on the basis of MEO criterion if it can demonstrate that its investment decision is based on a prior economic assessment of the profitability of the investment. Such evidence cannot be produced retroactively. However, see Frucona Košice (case C-300/16 P) for a different approach, in which the CJEU ruled that the Commission should have concluded a comprehensive investigation when applying the MEO criterion irrespective of the relevant information provided by the Member State. Although in this case it shifted the burden of proof to the Commission, the CJEU seems not to have intended that the Commission should also have taken account of economic assessments made after the investment decision.
Compliments of Houthoff, a member of the EACCNY