It Might Walk Like A Duck, But Is It? By Andrew Tottenham, Managing Director, Tottenham & Co September 6, 2018 at 3:27 pm The European Commission has finally decided to drop its action for illegal State aid against the Greek government in a case about entry fees payable by visitors to the Greek casinos. The background to the case is that each Greek casino, until a change in the law in November 2012, had to charge an entry fee to every visitor, but the amount charged depended on whether the casino was originally owned by the Government or the by the private sector. When six new casino licenses were originally issued in 1995, there were three existing casinos, all state-owned: Mont Parnes (Athens), Thessaloniki, and Corfu. The law stated that the new casinos had to charge €15 for each entry and the government-owned casinos only €6. For their troubles the casinos were allowed to keep 20% of the amount collected, handing over the remaining 80% to the government. (Today, “government-owned casino” is a bit of a misnomer; two are now privately owned and Mont Parnes is 51% owned by Regency casinos.) All was well until 2009, when the owners of the casino in Loutraki, some eighty-plus kilometres (fifty miles) from Athens, complained to the European Commission that this arrangement unfairly advantaged the three government-owned casinos. That’s a position I have some sympathy with, and even more in the case of Loutraki, which competes directly with Mont Parnes for Athenian customers. However, the 1995 licenses were issued by a tender process, so any bidder knew beforehand what the conditions were, including the level of entry fees demanded by the government. So it seems a bit churlish to complain about the fees 14 years later, not coincidentally when revenues were significantly down due to the economic crisis. The European Commission reviewed the case and came to the conclusion that making the privately-operated casinos charge more (or, if you will, the state-owned casinos charge less) amounted to illegal State aid. That is a phrase that strikes terror into the heart of any European business, and so it should. What follows is a short explanation of State aid and why it matters.The Single Market is a common set of rules that allows all companies to compete fairly across the 28 (soon to be 27, sigh) countries of Europe. The State aid rule is one of the main pillars of European Union policy to protect that market from unfair competition. Government monopolies cannot use their favoured status to compete unfairly against other companies, even for business outside of the European Union. To stop Governments subsidising businesses in order to attract investment or to prop up ailing businesses, the 28 countries agreed to disallow any measure that selectively benefits a particular company or companies. They believe that if this were allowed it would be a race to the bottom, with each country outbidding the other with incentives in order to obtain investment and jobs. This is seen in the US, where cities and states try to attract major employers like Amazon and Disney with offers of free land, tax holidays, and the like. There are some exceptions to the State aid rule; for example, aid could be offered to attract investment in a particular area that is determined to be exceptionally deprived, but this area would have to have been already designated as such and the Commission would need to approve it.In order to be for State aid to be illegal it needs to meet all four of the following criteria: The aid/incentive confers a selective advantage The advantage is granted to one or more companies The advantage is granted through State resources (including a loss of tax revenues) The advantage could distort competition in the European market On the face of it, the reduced fees collected by the Greek government-owned casinos would appear to meet all four of these criteria. So, what are the risks if aid that has been granted is determined by the Commission to be illegal? Considerable. The Commission will order the country that granted the aid to recover the total amount of aid granted plus interest. If the country refuses to comply the Commission will bring a case in the General Court, a lower court in the European Court of Justice, and it can be appealed all the way to the highest court. During the process it is not the company that received the aid that does the running, but the country; it has the job of defending its position and proving that the aid does not meet one or more of the criteria. Some countries do a better job than others of defending their actions, and some countries, having received the benefit of the investment and jobs, do little knowing that a company is unlikely to move away should the country lose the case and the company have to pay back the aid, plus interest. The amounts involved can be eye-wateringly high. Shipyards and car manufacturers have been ordered to repay hundreds of millions of euros to Greece, German, Spain, Poland, and other countries. Ireland and Luxembourg are currently appealing the Commission’s decision against tax advantages granted to Apple and Amazon; Ireland was ordered to collect €13 billion from Apple, plus interest. In the case of the entry fees to the Greek casinos, the General Court and on appeal the European Court of Justice found that not all four of the criteria were met. The court focussed on the amount of tax paid, the third point above, and said that the lower amount paid by the government-owned casinos reflected the lower amount collected from each visitor. The same 80% applied equally to all casinos in Greece and therefore the four criteria were not met – there was no State aid. The final decision was handed down in October 2015; it took the Commission almost three years to withdraw the complaint. Did the rule requiring a higher entry fee give a selective advantage? Yes. Was it granted to one or more companies? Yes. Did it distort competition? Very probably yes. Was it granted through State resources? Apparently no. It follows that governments can distort competition as long as they do not use the tax system selectively to do so or discriminate on the grounds of nationality. So in this case something might walk like a duck and quack like a duck yet not be a duck after all.