(Case C-110/13, Judgment of 27 February 2014)

A question for a preliminary ruling referred by a German Court has been answered by the EU Court of Justice in relation to the interpretation of the concept of linked enterprises as laid down in Article 3 (3) of the Commission Recommendation 2003/361/EC  concerning  the  definition  of micro, small and medium-sized enterprises (the “Commission SMEs Recommendation”).

Article 3 (3) of the Commission SMEs Recommendation

  1. ‘Linked enterprises’ are enterprises which have any of the following relationships with each other:
  1. an enterprise has a majority of the shareholders’ or members’ voting rights in another enterprise;
  2. an enterprise has the right to appoint or remove a majority of the members of the administrative, management or supervisory body of another enterprise;
  3. an enterprise has the right to exercise a dominant influence over another enterprise pursuant to a contract entered into with that enterprise or to a provision in its memorandum or articles of association;
  4. an enterprise, which is a shareholder in or member of another enterprise, controls alone, pursuant to an agreement with other shareholders in or members of that enterprise, a majority of shareholders’ or members’ voting rights in that enterprise.

[…]

Enterprises which have one or other of such relationships through a natural person or group of natural persons acting jointly are also considered linked enterprises if they engage in their activity or in part of their activity in the same relevant market or in adjacent markets.

In the case at stake, the company HaTeFo was denied in 2006 an aid increase granted by the German Finanzamt Haldensleben. This decision was based on the fact that the company was linked to another undertaking and that, therefore, it did not qualify as an SME.

In these circumstances, the German Finance Court asked the EU Court of Justice whether, in order to qualify a company as an SME for the purpose of granting a subsidy, attention shall be exclusively paid to the legal/formal criteria established in the Commission SMEs Recommendation or also to other factual circumstances that may determine that a group of companies act as a single economic entity (cooperative conduct).

The Court states that the SME Recommendation must be interpreted by taking into account the reasons for its adoption, and reminds that the objective of the Recommendation is to include only undertakings that are genuinely independent SMEs. Therefore, it is necessary to examine the real corporate structure of SMEs (e.g. whether they are part of an economic group) and to ensure that the definition of SMEs is not circumvented by purely formal means.

The Court notices that it is apparent from the wording of the  first  and  fourth  subparagraphs of Article 3(3) of the Annex to the SME Recommendation that as a general rule those provisions cover only a case where enterprises have one or other of the relationships set out in points (a) to (d) of the first subparagraph of Article 3(3) of that annex. Nevertheless, it cannot be concluded from this that formal non-compliance with that condition precludes, in all cases, a finding that the enterprises concerned are linked. 

In this sense, undertakings which are not formally linked through the relationships referred to in Article 3(3) of the Recommendation, but which, based on the role played by a natural person or group of natural persons acting jointly, constitute a single economic unit, must also be regarded as linked undertakings, since they engage in their activities or in part of their activities in the same relevant market or in adjacent markets. Moreover, the condition that natural persons are acting jointly is satisfied where those persons work together in order to exercise an influence over the commercial decisions of the enterprises concerned which precludes those enterprises from being regarded as economically independent of one another.