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EU General Court confirms alumina tax exemptions constitute illegal state aid

The EU General Court has ruled that state aid must be recovered from three alumina producers in France, Ireland and Italy, in contradiction to its own two previous rulings on the matter.    25 Apr 2016

Alumina is a white powder extracted from bauxite that is principally used in smelters to produce aluminium, using mineral oil as a fuel. France, Ireland and Italy each only have one producer, and each country exempted its producer from paying excise duty on mineral oil. The Council of the European Union authorised those exemptions until 31 December 2006, the EU General Court said.

However, the European Commission ruled in 2005 that this constituted illegal state aid, and that aid granted after 2 February 2002 should be recovered. Aid granted up to that date did not need to be recovered as that would be contrary to "the principles of legitimate expectation and legal certainty", the Commission said.

The Court has annulled this decision on two previous occasions.

In its first ruling in 2006, the Court said that the Commission had breached its obligation to state reasons for its decision. In the second, in 2012, the Court annulled the Commission's decision on the grounds that it partly nullified the earlier decision by the Council. The exemptions had been given by the Council rather than the countries themselves, and so did not constitute state aid, it said.

This time, however, the Court said that it considers the Commission's decision to be valid and state aid must therefore be recovered for the period from 3 February 2002 to 31 December 2003.

The Commission did have the power to examine whether the exemptions granted constituted state aid, despite the Council's authorisation, the Court said.

The Commission did comply with state aid rules in its decision, and clearly indicated why the exemptions could affect trade between member countries and distort competition.

Lastly, the Court said that the Commission did not infringe the principle of "protection of legitimate expectations" by taking 49 months to reach a formal decision on the case. This delay was not enough to lead the producers to believe that there would be no objections to the state aid, it said.

Last year the UK's HM Revenue & Customs (HMRC) began the process of clawing back the benefit of a levy exemption on aggregates that the European Commission said constituted illegal state aid.

The exemption was for the deliberate extraction of shale aggregate for commercial exploitation.

Aggregates levy is a UK tax on the commercial exploitation of rock, sand and gravel. It was introduced as an environmental tax in 2002 to encourage the recycling of aggregate. Aggregates levy is charged at a flat rate of £2 for every tonne of aggregate extracted, and proportionally for any amount under that weight. 

In August 2013, the European Commission notified the UK government that it had decided to open a formal investigation into whether certain aggregate levy exemptions were compliant with EU State aid rules. This followed an earlier decision by the Commission not to raise objections to the levy when it was introduced in 2002. The UK suspended all the exemptions under investigation from 1 April 2014.