THE COURT OF JUSTICE CLARIFIES THE CONDITIONS UNDER WHICH A TAX EXEMPTION MAY BE PROHIBITED UNDER EU LAW.

#149The Court of Justice clarifies the conditions under which a tax exemption may be prohibited under EU law.

The Court of Justice, in its judgment in case C-453/23 of 29.04.2025, decided under what conditions a tax exemption may be incompatible with Union law.

A Polish company, which has a railway siding on its land, provided it to a railway operator in order to obtain an exemption from property tax. It requested a binding opinion confirming its entitlement to the exemption. Although it met all the conditions under Polish law, the exemption was refused because it constituted unlawful State aid under EU law, as it had not been notified to the Commission in advance.

The company challenged the decision to refuse the exemption before the Polish courts. The Supreme Administrative Court of the Republic of Poland, which had doubts as to whether the exemption from real estate tax in question could be considered State aid within the meaning of Union law, referred the question to the Court of Justice of the European Union as to whether that exemption conferred an advantage on the beneficiaries and distorted or threatened to distort competition.

In the Court’s view, the exemption from property tax in question does not appear to confer a selective advantage and therefore does not likely constitute State aid. However, the Court considers that the final assessment of this question is a matter for the national court. The Court further stated that a general and abstractly formulated exemption from direct tax, as provided for in the Polish legal order, cannot, as a rule, be regarded as State aid. Since it is considered to be part of the ‘normal’ tax system, it does not normally confer a selective advantage on the beneficiaries.

According to the Court, a tax exemption can be considered selective in two cases. The first is where it is part of a tax system that is manifestly discriminatory. The second is where the conditions for granting the exemption depend on the specific characteristics of the undertakings or their activities, so that it applies only to a certain group of undertakings as a single category.

The Court concluded that in this case the exemption is granted to those who own land as part of the railway infrastructure and make it available to railway undertakings. This condition does not appear to be linked to the specific characteristics of the undertakings to which the exemption is granted or to a discriminatory tax system.

The exemption can thus be granted to a variety of entities – including non-profit organisations and businesses of various sizes and sectors. The fact that only those who meet certain conditions can obtain the exemption does not in itself mean that it is a selective advantage.