French media law sets out specific measures to support cinematographic and audiovisual production through the allocation of subsidies which are managed by the National Council for Cinema and Motion Picture (CNC). These subsidies are notably financed by taxes on the turnover of television service providers and on the sales prices of DVDs and theatre tickets.
CNC subsidies are intended to promote the production of audiovisual works by companies established in France. Pursuant to Article 107 of the European Treaty, any aid granted by a member state or through state resources in any form that distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods will – insofar as it affects trade between member states – be considered incompatible with the internal market, unless such aid promotes culture and heritage conservation and does not affect trading conditions and competition in the European Union to an extent that is contrary to the common interest.
To ensure compliance with this general principle, Article 108 of the treaty provides that the European Commission will examine, under the control of the European Court of Justice, all systems of aid in member states. Member states are required to notify the commission of the implementation of their national aid systems so that the commission may review their compatibility with the internal market.
Television channel TF1 introduced proceedings before the Administrative Court of Montreuil for the reimbursement of the turnover tax under Article 302 Kbis KB of the Tax Code (henceforward under Article L115-9 of the Code of Cinema and Motion Pictures), according to which television service providers owe a tax for broadcasts of films or television programmes in the previous year that are eligible for the cinema and audiovisual industry aid schemes (an approximate rate of 5.5%).
To the extent that the collection of this tax is dedicated to the financing of the CNC – a public institution whose mission is notably to distribute this aid – the administrative court deemed that:
"there exists a binding affection link demonstrating that the tax on TV services fully belongs to the French aid system managed by the CNC; and that this tax may impact the intra-Community trade and competition and therefore constitutes an aid granted by a Member State which falls into the scope of the provisions of Article 87 TEC."
Consequently, the French government should have notified the commission of this tax provision for its approval. The commission had approved this system in 1998, but the validity of the approval was limited to six years (ie, until 2004). Although the government had unsuccessfully requested a temporary extension of the approval, the commission did not approve the new French cinema and audiovisual support system until March 22 2006. For this reason, TF1 claimed reimbursement of the tax it had already paid for the period between June 2004 and April 2006.
Although the administrative court admitted that the tax levied on TF1's turnover between 2004 and 2006 was irregular, it considered that in accordance with applicable prescription rules, TF1 was eligible to claim reimbursement only for the taxes that it had paid from December 1 2005 to March 31 2006. Pursuant to Article R-196-1 of the Register of Tax Procedures, complaints relating to taxes must be submitted to the administration by December 31 of the second year after payment of the disputed tax. Since the TF1 complaint had been registered on December 29 2008, the claims covering 2004 and 2005 had been made after the deadline had elapsed and were thus dismissed.
According to information made public by the press, the government should reimburse €30 million to TF1. The Ministry of Finance recently announced that it was abandoning the appeal it initially intended to file against this judgment.
The decision follows the action brought by TF1 to the General Court of the European Union seeking annulment of the commission's second approval of the aid system on March 22 2006. This approval also covered the obligation for television service providers to invest a percentage of their turnover in cinematographic and audiovisual production. The commission held that this mechanism was compatible with the common market, since the investment obligations did not involve public resources and therefore did not constitute state aid. On September 13 2010 the EU General Court dismissed the TF1 action, finding that TF1 did not put forward elements showing that its competitive position had been substantially affected in relation to other television service providers and therefore did not demonstrate that it was individually targeted by the commission approval.
In spite of this dismissal, TF1 won its legal battle before the domestic courts for the government's non-compliance with European procedural rules. Nevertheless, the bill for reimbursement could have been much steeper for the government had other French television channels also introduced actions within the required time limit.
TF1 will be unable to repeat this success, as on December 20 2011 the commission renewed its approval of the CNC aid system for an additional six years (ie, until December 31 2017). The commission has since approved additional funding issues, notably the World Cinema Support, which is a government subsidy for French companies that take part in international co-productions.
For further information on this topic please contact Sabine Deloges at Nomos by telephone (+33 01 43 18 55 00), fax (+33 01 43 18 55 55) or email ([email protected]).