Novatex v Council [2012] EUECJ T-556/10 (11 October 2012)

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(Subsidies -� Imports of certain types of polyethylene terephthalate originating in Iran, Pakistan and the United Arab Emirates -� Definitive countervailing duty and definitive collection of provisional duty -� Article 3(1) and (2), Article 6(b), and Article 7(2) of Regulation (EC) No 597/2009)

1 The applicant, Novatex Ltd, is a company incorporated under the law of the Islamic Republic of Pakistan which produces bottle-grade polyester chips (that is to say polyethylene terephthalate, -�PET-�), textile and film grade polyester chips and PET performs for domestic and export sales.

2 On 3 September 2009, following a complaint by the Polyethylene Terephthalate Committee of Plastics Europe, the Commission of the European Communities announced, pursuant to Council Regulation (EC) No 597/2009 of 11 June 2009 on protection against subsidised imports from countries not members of the European Community (OJ 2009 L 188, p. 93; -�the basic regulation-�), by a notice published in the Official Journal of the European Union (OJ 2009 C 208, p. 7), the initiation of an anti-subsidy proceeding concerning imports of certain types of PET originating in, inter alia, Pakistan.

3 On the same day, the Commission sent questionnaires to the applicant and the Government of Pakistan, to which they responded by letter dated 20 October 2009.

4 Requests for additional information were sent to the applicant on 9 November 2009, 13 November 2009 and 1 December 2009 respectively. The applicant responded to those requests by letters of 19 November 2009, 24 November 2009 and 10 December 2009 respectively.

5 On 15, 16 and 17 December 2009, Commission officials carried out a verification visit at the applicant-�s premises.

6 On 23 and 24 February 2010 the Commission heard representatives of the Government of Pakistan.

7 On 12 April 2010 the representatives of the Government of Pakistan made further submissions to the Commission.

8 On 31 May 2010 the Commission adopted Regulation (EU) No 473/2010 imposing a provisional countervailing duty on imports of certain polyethylene terephthalate originating in Iran, Pakistan and the United Arab Emirates (OJ 2010 L 134, p. 25).

9 On 1 June 2010 the Commission sent a letter to the applicant and the Government of Pakistan, setting out the facts and essential considerations on the basis of which it had adopted the provisional countervailing measures on imports of PET. The Commission stated that the applicant benefited from seven countervailable subsidies, and imposed countervailing duties on the applicant in respect of each of those alleged subsidies.

10 On 1 July 2010 the Government of Pakistan and the applicant submitted comments on the provisional countervailing measures.

11 On 12 July 2010 the Commission organised a hearing with representatives of the Government of Pakistan.

13 On 19 and 21 July 2010 the applicant made new submissions following the discussions that took place at the hearing.

14 On 26 July 2010 the Commission sent the representatives of the Government of Pakistan and the applicant the final disclosure document setting out the facts and essential considerations on the basis of which it intended to recommend the imposition of a definitive countervailing duty.

15 On 3 August 2010 the Government of Pakistan and the applicant submitted comments on the final disclosure document.

16 On 27 September 2010, the Council of the European Union adopted Implementing Regulation (EU) No 857/2010 imposing a definitive countervailing duty and collecting definitely the provisional duty imposed on imports of certain polyethylene terephthalate originating in Iran, Pakistan and the United Arab Emirates (OJ 2010 L 254, p. 10, -�the contested regulation-�).

17 On 29 September 2010, the Commission sent the applicant a copy of the contested regulation and replied to the applicant-�s comments on the final disclosure document.

18 By application lodged at the Registry of the General Court on 6 December 2010, the applicant brought this action.

19 By document lodged at the Court Registry on 15 February 2011, the Commission sought leave to intervene in the present case in support of the form of order sought by the Council.

20 By order of 28 March 2011, the President of the Seventh Chamber of the General Court granted the Commission leave to intervene.

22 The parties presented oral argument and replied to the Court-�s oral questions at the hearing on 21 March 2012.

25 Two pleas are raised in support of the application for annulment of the contested regulation and concern regimes that the Council made subject to countervailing duties, namely the Final Tax Regime (-�FTR-�) and the Export Long-Term Fixed Rate Financing Scheme (-�LTF-EOP-�). In its first plea, the applicant argues that the FTR is not a subsidy within the meaning of the basic regulation. The second plea alleges infringement of the same regulation on the ground that the calculation of the amount of the subsidy granted under the LTF-EOP scheme was erroneous.

The first plea, claiming that the FTR is not a subsidy within the meaning of the basic regulation

26 In the first plea the applicant submits that the FTR is not a subsidy within the meaning of the basic regulation, as interpreted in accordance with the Agreement on Subsidies and Countervailing Measures (OJ 1994 L 336, p. 156; -�the Agreement on Subsidies and Countervailing Measures-�), appearing in Annex 1 A to the Agreement establishing the World Trade Organisation (WTO) (OJ 1994 L 336, p. 3).

27 In a first claim, the applicant maintains that the contested regulation infringes Article 3(1) of the basic regulation, interpreted in accordance with the relevant provision of the Agreement on Subsidies and Countervailing Measures. It considers that, having regard both to the nature of the FTR and to its content, it should be considered that no financial contribution exists.

28 In a second claim, the applicant maintains that, contrary to what the Council states, it did not take advantage of the application of the FTR to its export transactions. The contested regulation thus infringed Article 3(2) of the basic regulation, interpreted in accordance with the relevant provision of the Agreement on Subsidies and Countervailing Measures.

29 By way of preliminary observation, it should be noted that it is undisputed between the parties that the relevant Pakistan legislation -� the Income Tax Ordinance 2001 -� imposed income tax at the rate of 35% on the taxable income of companies (-�the profit on domestic sales-�). In order to obtain the amount of profits on domestic sales, many deductions are authorised. That system is designated as the normal tax regime (-�NTR-�). The parties also agree that, for export transactions, the FTR imposes a tax at the rate of 1% of export revenue (-�the turnover on export sales-�). No deduction is authorised for costs relating to realisation of the turnover on export sales. That tax, which is deducted at the time when the amount of the export transaction is actually paid to the exporting undertaking, is final.

30 As has, moreover, been confirmed by the parties at the hearing, there is thus no dispute that the bases of assessment under the NTR and the FTR are different, the former being the profit on domestic sales and the latter being the turnover on export sales.

31 In its first claim, the applicant argues that the FTR cannot be regarded as constituting a -�financial contribution-�.

32 In support of its claim, it submits an analysis of the concept of a -�financial contribution in the form of forgone government revenue-� referred to in Article 3(1) of the basic regulation. It emphasises that the said Article 3 must be interpreted in the light of the relevant provision of the Agreement on Subsidies and Countervailing Measures and the interpretation which follows from the decision-making practice of the WTO. Analysis carried out in the light of the Agreement and the decision-making practice referred to above reveals, in the applicant-�s submission, that, in order to be able to establish the existence of a -�financial contribution-�, the FTR would have to be assessed in relation to a relevant normative benchmark. The applicant considers that, in that assessment, account must be taken of the nature of the FTR. The FTR is a generalised taxation system which also applies to several domestic transactions, as a result of which there is no higher taxation level which would otherwise be due under the relevant normative benchmark. The Council was therefore wrong to refer to the NTR as the normative benchmark system. The applicant considers that the existence of a financial contribution must be determined on the basis of the nature of the FTR and that, taking into account precisely the nature of the latter, it is obvious that there is no financial contribution.

33 In the first place, it must be emphasised that, as the applicant argues without being challenged by the Council, Article 3(1) of the basic regulation must be interpreted as meaning that the FTR must be assessed by reference to a relevant normative benchmark. Thus, the applicant-�s arguments to demonstrate that the abovementioned provision as interpreted in the light of the Agreement on Subsidies and Countervailing Measures and the decision-making practice of the WTO must lead to the conclusion that the subsidy regime in question must be assessed by reference to a relevant normative benchmark confirm what appears to be obvious.

34 In the second place, it needs to be determined whether, as the applicant essentially argues, the Council was wrong to take the view that the relevant normative benchmark in order to assess whether the FTR constitutes a financial contribution was the NTR.

35 In that regard, account must be taken of the fact that, in the sphere of measures to protect trade, the EU institutions enjoy a wide discretion by reason of the complexity of the economic, political and legal situations which they have to examine, and that, therefore, review by the EU judicature of the assessments of the institutions must be confined to ascertaining whether the procedural rules have been complied with, whether the facts on which the contested decision is based have been accurately stated and whether there has been any manifest error of assessment of the facts or any misuse of powers (see, to that effect, Case T-462/04 HEG and Graphite India v Council [2008] ECR II-�3685, paragraph 68 and case-�law cited).

36 It is important to remember that, according to Article 2 of the basic regulation, a product is considered to be subsidised if it benefits from a countervailable subsidy as defined in Articles 3 and 4 of that regulation. It follows that the existence of a subsidy must be assessed taking account of the product concerned by the enquiry, namely in this case certain types of PET.

37 As has been noted in paragraph 29 above, the relevant Pakistan legislation provides for different taxation of the turnover arising from the sale of those products according to whether they are sold on the domestic market or exported. Revenue arising from the sale of those products on the national market is subject to the tax on companies (NTR). The tax rate is 35% of the profit on domestic sales, that is to say that obtained after making several deductions, for example costs or tax losses.

38 As for revenue arising from the sale of those same types of product on export, the abovementioned Income Tax Ordinance provides for the application of the FTR on certain categories of revenue. The latter are subject to the levying of a withholding tax at source and that withholding tax constitutes the final tax of the person concerned. Revenue from exports falls precisely within that category of revenue forming the subject-matter of a withholding tax at source. The applicable tax rate is 1% of turnover on export sales, that is to say the gross turnover without any deductions being capable of being made.

39 It needs to be examined whether, in order to reply to the question whether the Pakistan Government charged less tax on the applicant under the FTR than it would have charged under general taxation, the institutions correctly referred to the NTR as the relevant normative benchmark. The applicant denies that the NTR constitutes the relevant normative benchmark and in doing so relies on decisions of the Appellate Body of the WTO.

40 The Appellate Body of the WTO took the view that determination of a relevant normative benchmark was indeed an important step in order to demonstrate the existence of a financial contribution, in that it allows comparable situations to be compared. It added, however, that account also needed to be taken of the fact that, by reason of the diversity and complexity of systems of taxation, it often appears extremely difficult to establish that, in respect of a given form of revenue, one tax regime constitutes the general rule and another constitutes the exception. It thus considers that Article 1(1)(a)(ii) of the Agreement on Subsidies and Countervailing Measures does not require that, for the purposes of comparing the tax treatment of the revenue concerned by the contested measure and that of other revenue, a general rule must be isolated in an absolute manner and that the exceptions to the latter be identified. By contrast, the Appellate Body considered that it was necessary to compare what was legitimately comparable.

41 The Court considers that such an interpretation of Article 1(1)(a)(ii) of the Agreement on Subsidies and Countervailing Measures is equally relevant in relation to Article 3(1)(a)(ii) of the basic regulation.

42 In this case, first, it is apparent from the Ordinance of 2001 that the NTR represents the normal system of taxation whereas the FTR applies to certain categories of revenue, which are moreover expressly enumerated. In that regard, it should be noted that, in his decision of 27 October 2009, the Commissioner of Taxes himself presented the NTR as the normal tax regime.

43 Moreover, the tax regime on revenue from domestic sales of a product and that from export sales of the same product appear to be legitimately comparable. In this case, the comparison made by the Council between the tax regime on revenue from domestic sales of PET and that on revenue from exports of the said PET is not therefore manifestly erroneous.

45 Firstly, with a view to demonstrating that the relevant normative benchmark was the FTR itself, the applicant argues that the latter constitutes a generalised system of taxation which also applies to certain domestic transactions other than exports and that there is therefore no forgoing of tax revenue which would be -�otherwise due-�. It is, the applicant maintains, clear from the Income Tax Ordinance 2001 that the FTR is also applicable to receipts from certain domestic transactions such as commissions, brokerage and dividends.

46 The applicant-�s reasoning thus amounts to an argument that the FTR applied to revenue from export sales should be compared with the FTR applied to domestic revenue. However, such a reasoning cannot be accepted, as it would amount to a comparison being made between totally different sources of revenue. In this case, as has been emphasised in paragraph 43 above, revenue from domestic sales of PET and revenue from export sales of the same product appear to be legitimately comparable.

47 Thus, it is also necessary to dismiss the applicant-�s argument that the amount of income tax levied on domestic transactions subject to the FTR would be equivalent to 40% of the total tax levied under the FTR. The fact that the portion of the tax on certain domestic transactions levied under the FTR is not minor does not permit the conclusion that, in this case, the FTR constituted a generalised system of taxation and that it represented the relevant normative benchmark. As has been emphasised above, only that which is legitimately comparable may be compared.

48 By the same token, it is also necessary to dismiss the applicant-�s assertion that the contested regulation distorted its argument by mentioning that -�a withholding tax of 1% [is charged] at the time of the realisation of foreign exchange proceeds-�, whereas the applicant had clearly emphasised that -�the generalised rule of taxation -� refers to the application a withholding tax to several types of transaction, and not just to the realisation of foreign exchange proceeds-�. The fact that the FTR referred to a greater or lesser number of domestic transactions does make it any less necessary to refer to what may legitimately be compared, in this case revenue from domestic sales and revenue from export sales of the product concerned.

49 Secondly, the fact that the method of levying the tax -� retrospectively in the case of the NTR, at source in the case of the FTR -� and the basis of assessment -� 35% of the profit on domestic sales in the case of the NTR, 1% of export sales turnover in the case of the FTR -� are different does not mean that those two taxation regimes cannot be compared. It is sufficient that the comparison be legitimate.

50 In that respect, the diversity and complexity of domestic tax systems necessarily imply different methods of levying the tax and different bases of assessment. Possible differences between tax regimes on the basis of those two factors do not however in themselves suffice to render any comparison between those regimes illegitimate. Non-member States might easily circumvent the provisions of the basic regulation and the Agreement on Subsidies and Countervailing Measures by creating different systems of taxation on those bases alone.

51 Thirdly, it is necessary to dismiss the applicant-�s argument that, in this case, the FTR does not constitute an exception in relation to the NTR and that it thus in itself represents the relevant normative benchmark.

52 It has been pointed out in paragraph 42 above that the Ordinance of 2001 and the Commissioner of Taxes present the NTR as the normal tax regime, which means by implication that other tax regimes are exceptions.

53 In any event, as recalled in paragraphs 40 to 43 above, the question whether the NTR constitutes the generalised system and the FTR the exception is not a determining factor. As the Council emphasises, the fact that one or several -�generalised-� systems of taxation exist does not imply that there is no subsidy. States might easily set up a tax system under which there was no general rule formally applicable to particular sources of revenue in order to escape all commercial defence measures.

54 Thus, the applicant has not demonstrated that the Council made a manifest error of assessment by holding that the NTR which applies to domestic sales revenue from PET and the FTR which applies to export sales of the same product appear to be legitimately comparable.

55 In the third place, it must be determined whether the Council might legitimately take the view, without committing a manifest error of assessment, that the FTR constituted a financial contribution.

56 Firstly, it should be remembered that Article 3(1)(a)(ii) of the basic regulation provides that a subsidy is deemed to exist if there is a financial contribution by the public authorities of the country of origin or export, that is to say in cases where public revenue normally due is forgone or not levied. In this case, it is apparent from the comparison between the NTR and the FTR that export sales are much more lightly taxed than domestic sales. The difference between the rates of taxation (35% of the profit on domestic sales and 1% of export sales turnover) is itself considerable. The fact that the bases of assessment are not the same -� tax on revenue from export sales being levied on the export sales turnover, that on revenue from domestic sales being levied on the profit on domestic sales, namely revenue to which a series of deductions has been applied -� is irrelevant in that respect.

57 It is vain for the applicant to argue that, by reason of that difference between the bases of assessment, the FTR could give rise to a higher tax than that which the undertaking would pay under the NTR in the case where, on the one hand, the undertaking suffers losses on its export sales but, on the other, has a very high turnover but a reduced profit margin. First, it does not in any way follow from the basic regulation that, in order to be capable of being regarded as a subsidy, the measure in question must always confer a financial contribution. Next, as the Council rightly argues, the aim of the anti-subsidy investigation is to determine whether the measure in question actually conferred a subsidy during the investigation period. Moreover, the vocation of an undertaking is, by definition, to ensure its development by making profits. Thus, the situation of an undertaking which suffers losses on export is specific. In the normal course of economic life, it must be recognised that the system established by the FTR favours an undertaking which is in profit. Finally, the other hypothesis envisaged by the applicant is likewise specific. The applicant has not demonstrated that, in its business of selling PET, it was in such a specific situation.

58 Therefore, it must be held that the applicant has not demonstrated that the Council made a manifest error of assessment by concluding in the terms of the anti-�subsidy investigation, at recital 64 of the contested regulation, that the FTR is regarded as a subsidy within the meaning of Article 3(1)(a)(ii) of the basic regulation, in so far as that tax regime entails the application of a lower rate of tax on profits from exports than on profits made from domestic sales.

59 It is thus useless for the applicant to attempt to demonstrate that the Council erroneously assimilated the -�existence of a contribution-� with the -�conferring of an advantage-� and thus failed to take account of the fact that the -�financial contribution-� refers to the nature of the measure. The applicant-�s assertions concerning that alleged assimilation of the -�existence of a contribution-� with the -�conferring of an advantage-� must therefore be dismissed.

60 Even supposing, as the applicant claims, that, by its nature, the FTR does not have the aim of differentiating between domestic and export transactions and thus allowing export undertakings to enjoy a subsidy, but rather of facilitating the levying of income tax on export revenue and favouring the growth of turnover and export profits, the fact remains that taxes on revenue from domestic sales and taxes on that from export sales are levied in a different manner and that the FTR objectively establishes a financial contribution from which exporting companies benefit.

61 Moreover, the applicant has not in any way supported the argument that, taking account of the objectives consisting in facilitating the levying of the tax and increasing turnover, it would be contrary to the ratio legis and the objective of commercial defence measures to regard the FTR as constituting a financial contribution.

62 Secondly, the applicant argues in vain that, even if it is compared to revenue taxed under the NTR, the FTR does not establish a financial contribution since it leads to lower and higher taxes than those due under the NTR. In other words, the applicant is wrong to maintain that, for it to be possible to be concluded that the FTR established a financial contribution, public revenue would invariably have had to be forgone under the said system.

63 Article 3(1) of the basic regulation does not have to be interpreted as requiring institutions to envisage all hypotheses of application of the measure in question and that they cannot conclude that a subsidy exists where, on one of the hypotheses, the measure concerning export sales does not give rise to a tax lower than that levied under the regime for domestic sales. What matters is that it be established, in the context of the anti-subsidy investigation, that the measure in question actually established a countervailable subsidy during the investigation period.

64 It follows that the hypothesis according to which the FTR may lead, in specific hypotheses such as those referred to in paragraph 57 above, to a tax higher that that which would have been levied under the NTR is not sufficient to demonstrate that the contested regulation is legally or factually defective.

65 Thirdly, the argument that the Council infringed the sovereignty of Pakistan by adopting the contested regulation is irrelevant. The applicant is wrong to maintain that such a system of taxation cannot establish a subsidy where it is a generalised system of taxation that is not aimed at granting a financial contribution to export undertakings. First, recital 64 of the contested regulation indicates that -�it is not Pakistan-�s sovereignty that is questioned, but the alleged subsidies granted to certain exporting producers-�. Second, the fact that a non-�member State describes a system of taxation as general and assigns to that system an objective other than that of granting a financial contribution to the undertakings concerned does not in any way prevent the Union from verifying whether the latter does not objectively establish a subsidy. As the Council points out, the opposite solution would amount to taking the view that neither the Union nor any other country in the world would be able to adopt countervailing measures in relation to public subsidies granted by a non-member country.

66 The applicant has therefore not demonstrated that the Council made a manifest error of assessment by taking the view that, in this case, there was a financial contribution.

67 Having regard to the above, the first claim, alleging infringement of Article 3(1) of the basic regulation, must be dismissed.

68 In its second claim, the applicant argues that the FTR did not confer any advantage upon it, either generally or from a specific angle.

69 In the first place, the assertion that, in general, the FTR does not lead to more advantageous taxation must be dismissed bearing in mind the considerations set out in the context of the first claim (see, in particular, paragraphs 56 to 58 above).

70 In the second place, it needs to be determined whether, by the calculations, evidence and observations submitted during the administrative procedure, the applicant has demonstrated that it paid more tax on its export transactions under the FTR than it would have done under the NTR and, thus, whether the institutions have wrongly argued that there was an advantage in this case.

72 The applicant raises two arguments to call into question the grounds indicated in recitals 66 to 68 of the contested regulation. First, it maintains that the Council failed to take into account the assessment order issued by the Deputy Commissioner of income tax concerning the revision of its tax declaration for 2008. That revision involved a modification of the amount shown in line 74 of its income tax declaration, that is to say of the amount of net export profit, and led to the conclusion that it would not have paid tax if the said net export profits had been subject to the NTR. Second, it argues that the calculation of the tax theoretically due in the absence of the FTR has not been carried out correctly, since account has not been taken of the deductions applicable under the NTR.

73 It should be recalled as a preliminary observation that, in order to calculate the advantage conferred on the applicant under the FTR, the institutions compared the normal tax due under the NTR -� 35% of the net export profits mentioned in line 74 [950 137 677 Pakistan rupees (PKR) x 35% = PKR 332 548 186] -� with the amount of tax actually paid under the FTR -� 1% of turnover on the export sales indicated in line 162 (PKR 7 611 507 109 x 1% = PKR 76 115 071). According to the Commission and the Council, the subsidy amounted to PKR 256 433 115, which corresponds to the difference between the normal tax due under the NTR (35% of the amount referred to above mentioned in line 74) and the amount of the tax actually paid under the FTR (1% of turnover on the export sales indicated in line 162). The said amount of subsidy was spread over the total export turnover of the company during the investigation period and a subsidy margin of 1.97% (that is to say PKR 256 433 115: PKR 13 001 437 800) was obtained.

74 As regards the first argument, claiming failure to take account of the decision to revise the tax return, the applicant argues that the Deputy Commissioner of income tax made a revised assessment of the tax declaration for 2008 and that that assessment had an impact on the net export profits mentioned in line 74 of the said return.

75 The applicant emphasises that, in its 2008 tax return, it fully deducted from its domestic revenue the amount of PKR 552 770 971 from line 72, headed -�Tax depreciation-�. However, the Deputy Commissioner of income tax took the view that the said tax depreciation in line 72 should be spread proportionately between the NTR and the FTR. He thus considered that only a part of the amount referred to above could be deducted from domestic revenue by way of tax depreciation. The applicant argues that the other part should be deducted from the amount of net export profits, indicated in line 74, and that line 74 had thus been revised.

76 In the first place, it is apparent from the assessment of the Deputy Commissioner of income tax that the latter did not revise the amount of net export profits indicated in line 74 of the tax return. That assessment indicates that, contrary to what was done in the applicant-�s tax return, the tax depreciation must be allocated proportionately between the NTR and the FTR, in accordance with what is provided by the Pakistan legislation of 2001 on income tax.

77 The assessment of the Deputy Commissioner of income tax concerning allocation of the amount of the authorised tax depreciation in the context of line 72 of the tax return nowhere indicates that line 74 (net export profits subject to the FTR) is revised, or, a fortiori, that the amount of PKR 950 137 677 indicated in that line must be reduced to an amount of PKR 569 283 740. In other words, it is not apparent from the assessment of the Deputy Commissioner that the latter pronounced in any way on the amount indicated in line 74 of the tax return.

78 Thus, the applicant-�s assertion that the Commissioner amended the amount indicated in line 74 is factually incorrect.

79 In the second place, it needs to be determined whether the applicant has demonstrated that, by the declaration according to which the amount of the tax depreciation indicated in line 72 had to be allocated proportionately between the revenue subject to the NTR and that subject to the FTR, the amount indicated in line 74 was impliedly revised following the assessment of the Deputy Commissioner.

80 That analysis implies an examination of information which the applicant submitted during the administrative procedure, concerning that alleged modification of line 74 of the 2008 tax return.

81 In that respect, it should be noted that the Commission and the Council are under an obligation to examine the documents submitted by the undertakings concerned by an anti-subsidy procedure even if they are submitted at a very advanced stage of the administrative procedure. However, it must be emphasised that the basic regulation does not confer on the Commission investigating powers enabling it to compel companies in respect of whom a complaint has been filed to participate in an investigation or to produce information. In those circumstances, the Council and the Commission depend on the voluntary cooperation of the parties in supplying the necessary information within the time-limits set. In that context, the replies of the parties to the questionnaire referred to in Article 11(2) of the basic regulation, and the subsequent on-the-spot verification which the Commission may carry out under Article 26 of that regulation, are essential to the operation of the anti-�subsidy procedure (see, to that effect and by analogy, Case T-413/03 Shandong Reipu Biochemicals v Council [2006] ECR II-�2243, paragraph 65). It is therefore for the cooperating companies to be precise and accurate in the information and evidence they submit both in their replies to the written and oral questions and during the verification visit.

82 In its replies to the questionnaire, the applicant attached its 2008 tax return and stated that it had not taxable income under the NTR.

83 On 13 November 2009, the Commission requested clarifications on that return, particularly regarding line 70, which concerns authorised deductions, and line 72, concerning tax depreciation. It also wished to know whether that return should be understood as the last tax return of the combined FTR and NTR system.

84 By letter of 24 November 2009, the applicant supplied details of the authorised deductions and indicated that the tax deduction indicated in line 72 -�represent[ed] the full amount of tax depreciation claimed by Novatex in the tax return of tax year 2008-�. It added, however, that -�the admissible amount by the tax authorities was restricted to the proportion applicable to domestic sales only-� and that, therefore, -�the proportion of tax depreciation relating to export sales was disallowed and therefore lost as being an inadmissible expense-�. It further confirmed that -�the -�Return of total income/statement of final taxation-� [was] the final tax return of the combined system of Normal Tax Regime (NTR) and Final Tax Regime (FTR)-�.

85 It must be noted that that letter does not indicate that the figures mentioned in the tax return were no longer valid, does not mention the existence of the assessment of the Deputy Commissioner of income tax and cannot therefore contain the amount of the depreciation which the Deputy Commissioner is said to have revised. The letter further states that, -�in the case of Novatex, there was no taxable income; therefore, NTR tax [was] not applicable-�.

86 It was thus by taking account of the information contained in the tax return submitted by the applicant itself as definitive that the Commission calculated the amount of the advantage conferred by applying, to the net export profits (namely the amount of PKR 950 137 677 indicated in line 74), the rate of 35% applicable under the NTR.

87 It must be held that, at that stage of the administrative procedure, the Commission was not aware of the assessment of the Deputy Commissioner of income tax, which, moreover, was not attached to the letter of 24 November 2009. The Commission cannot therefore be blamed for not requesting production of the assessment of the Deputy Commissioner of income tax before or during the verification visit and for not examining at that stage of the procedure the arguments of the applicant based on that assessment. Equally irrelevant, for the same reasons, is the applicant-�s argument that the officials carrying out the anti-�dumping investigation, who also carried out the verification visit for the anti-�subsidy investigation, did not correctly carry out the verification work.

88 The applicant cannot reasonably maintain, therefore, that, by the letter of 24 November 2009, the Commission was duly informed of the alleged revision of the depreciation following the assessment of the Deputy Commissioner. On the contrary, as emphasised in paragraph 85 above, the applicant has not called into question the figures mentioned in its return. Thus, having regard to the succinct information concerning a revision of the tax depreciation contained in the letter of 24 November 2009, the Commission could not have supposed the existence of an impact of that revision on the amount indicated in line 74.

89 It is necessary, next, to point out that it was only in the context of the additional observations of 12 April 2010 submitted by the Government of Pakistan that the institutions were informed of the assessment of the Deputy Commissioner of income tax concerning revision of the amount of the taxable revenue of the applicant under the NTR.

91 By letter of 21 April 2010, the applicant adopted the observations of the Government of Pakistan and made reference to them. It was only in its observations of 1 July 2010 on the provisional information that the applicant invoked for the first time the two arguments cited in paragraph 72 above. It also expressed its views on the alleged modification of line 74 of the tax return in the context of its additional observations on the provisional information of 19 July 2010 and in its observations of 3 August 2010 on the final information.

92 It therefore needs to be determined whether, having regard to the observations of the applicant referred to above and the documents which were submitted to them, the Commission and the Council were wrong to refuse to take into account the fact that line 74 of the tax return had been impliedly revised.

93 Firstly, it is clear from the assessment of the Deputy Commissioner of income tax and the confirmatory decision of the Commissioner of taxes that the tax depreciation mentioned in line 72 had to be carried out pro rata by reference to receipts levied in the context of the FTR and the NTR. In that respect, they found essentially that the share of domestic revenue in the net sales turnover was 30.781% and that that is the only tax depreciation percentage mentioned in line 72 (namely 30.781% of PKR 552 770 971) which could be deducted from domestic revenue by way of tax depreciation.

94 Secondly, it must be emphasised that calculation of the income tax on export under the NTR alone can be only a purely theoretical calculation. Thus, first, the absence of express modification, by the abovementioned Commissioners, of line 74 of the 2008 tax return can be perfectly explained by the inutility of making such a modification in the context of the FTR. Second, it may reasonably be acknowledged that it would have been difficult, or impossible, for the applicant to obtain an official document from the Pakistan authorities containing that purely theoretical calculation. It cannot therefore be blamed in that regard for not having been able to submit one.

95 Thirdly, it was on the basis of the two official documents, namely the assessment of the Deputy Commissioner of income tax and the confirmatory decision of the Commissioner of income tax, that the Government of Pakistan submitted a theoretical calculation of income tax on export due under the NTR alone.

96 In the circumstances of the case, it must be held that the said theoretical calculation rests directly on two official documents of the Pakistan tax authorities. The conclusion of the Government of Pakistan as to the modification of line 74 of the 2008 tax return constitutes only an extension, theoretical but nevertheless logical, of the conclusions of the Pakistan tax authorities. The calculation submitted does not therefore in any event constitute an unrealistic interpretation of the data contained in the official documents.

97 Fourthly, the applicant has also submitted a theoretical calculation of the tax due under the NTR alone. In that respect, for each amount mentioned at the various stages of the calculation, a precise reference was made to the corresponding amounts in the decision of the Commissioner of income tax.

98 Fifthly, the ambiguity of some of the information submitted by the applicant is not sufficient to call into question the fact that the Commission and the Council had sufficient information contained in the two official documents and accompanied by precise explanations to acknowledge that the amount mentioned in line 74 of the 2008 tax return had to be revised.

99 The applicant is open to criticism for not annexing the assessment of the Deputy Commissioner of income tax to its letter of 24 November 2009 sent in response to a request for additional information, or for indicating that no tax was due under the NTR whereas it is apparent from the assessment of the Deputy Commissioner that a tax of more than PKR 62 million was due. However, those elements are not sufficient for a finding that, objectively, the Commission and the Council did not have sufficient and probative information to take into account the amount of the revised depreciation of line 74 of the tax return referred to above.

100 Sixthly, the argument that the information submitted by the applicant and the Government of Pakistan does not clearly show that the amount of the tax was actually paid or whether the applicant appealed against the tax notice of the Deputy Commissioner of income tax must be rejected.

101 In its observations of 12 April 2010, the Government of Pakistan informed the Commission that the assessment of the Deputy Commissioner of income tax had been confirmed by the decision of the Commissioner of income tax. Neither the Government nor the applicant have raised the existence of any appeal against that decision. Even if the administrative procedure was well advanced, the Commission was perfectly able to ask the applicant whether an appeal had been made against that decision, which it did not do.

102 In the light of the whole of the above, the Court considers that the Commission and the Council should have taken account of the fact that line 74 of the 2008 tax return had been revised following the assessment of the Deputy Commissioner of income tax and the confirmatory decision of the Commissioner of income tax.

103 Therefore, the second claim of the first plea, alleging infringement of Article 3(2) of the basic regulation, must be upheld, without it being necessary to examine the argument claiming failure to take account of the deductions authorised under the NTR.

The second plea, claiming infringement of the basic regulation by reason of erroneous calculation of the amount of the subsidy for the LTF-EOP scheme

104 In support of its second plea, based on erroneous calculation of the amount of the subsidy which it enjoyed under the LTF-EOP scheme, the applicant submits two claims. The first alleges infringement of Article 3(2) and Article 6(b) of the basic regulation, in that reference was made to an inappropriate interest rate. The second claims infringement of Article 7(2) of the same regulation, in that an inappropriate denominator was used.

106 Firstly, the LTF-EOP scheme, which the Council classifies as a countervailable subsidy, is designed to allow eligible financial institutions to provide borrower undertakings with financing facilities on attractive conditions for the importation of machines, installations, equipment and accessories.

107 Secondly, it is necessary to remember the characteristics of the LTF-EOP scheme.

108 First of all, in its pleadings, the Council has described the LTF-EOP scheme as being that which allows a company authorised to benefit from financing of a given amount not to withdraw the whole of the amount at the time of subscription. The Council thus emphasises that the said scheme allows the drawing of sums according to the needs of the company and at the time when the latter wishes it and that it is therefore comparable to a line of credit.

109 Next, recital 122 of Regulation No 473/2010 mentions that interest rates for financing under LTF-EOP scheme may be up to 3% higher than those published by the National Bank of Pakistan and are benchmarked with the weighted average yields of 12 months Treasury Bills and 3 and 5 years Pakistan Investment Bond, depending on the period of financing. The Council emphasises that the interest actually due is therefore not fixed until the time when the company draws an amount under the said scheme.

110 Finally, recital 73 of the contested regulation indicates that, in this case, -�the financing negotiated in 2004/2005 was drawn down in tranches by the exporter concerned-�. It also states that -�when calculating the subsidy amount, the amount of credit drawn down for the investigation period, as reported by the cooperating exporting producer, was used-�.

111 None of the considerations in paragraphs 108 to 110 above have been challenged by the applicant. It was only at the hearing that, for the first time, the latter challenged the assertion that the loan which it enjoys is comparable to a line of credit. As the Council has pointed out, that challenge at the oral procedure stage is out of time. In any event, the applicant has not submitted any convincing argument capable of calling those considerations into question.

112 It can moreover be inferred from Circular No 14 of the National Bank of Pakistan of 18 May 2004 that the LTF-EOP scheme is not comparable with a simple long-�term loan system with a fixed rate of interest, but is a very flexible system of financing, comparable with a line of credit, which allows companies fulfilling the conditions in order to benefit from it to raise funds if and when they need them to finance the importation of machines and other equipment, at an indexed rate which may fluctuate below a ceiling of 3% above the interest rate published by the National Bank of Pakistan.

113 Thirdly, in April 2005, the applicant contracted a loan of PKR 1 550 million under the LTF-EOP scheme, at a fixed rate of 6.8% for a duration of seven and a half years. The institutions determined the amount of the subsidy by comparing the fixed interest rate of 6.8% with the commercial rate available during the investigation period (years 2008/2009).

114 It is in taking account of these three preliminary observations that it is necessary to analyse the two claims referred to in paragraph 104 above.

The first claim, alleging infringement of Article 3(2) and Article 6(b) of the basic regulation by referring to an inappropriate interest rate

115 The applicant maintains that the Council referred to the commercial interest rate available on the market during the investigation period (2008/2009), namely 14.44%. In its submission, however, reference should have been made to the interest rate in force at the time when the fixed-rate loans were contracted. First, it considers that the contested regulation does not contain any indication as to the allegation of the Council that it had not established the existence of comparable commercial financing facilities which it could have obtained on the market. Second, it argues that the reference interest rate must be that which applied at the time when the loan was negotiated.

116 At the outset, it must be emphasised that, applying Article 3(2) and Article 6(b) of the basic regulation, the advantage conferred by the LTF-EOP scheme must be calculated by comparing the interest rate applicable under that scheme with the commercial interest rate in force, which, moreover, the parties do not deny.

117 In the first place, the applicant argues that, in interpreting the abovementioned articles in accordance with the relevant provisions of the Agreement on Subsidies and Countervailing Measures, it must be held that the appropriate interest rate is the rate available on the market at the time when the loans were contracted and not that which applied during the investigation period, particularly in the case of a fixed-rate financing.

119 Article 3(2) of the basic regulation merely indicates that a subsidy exists only if an advantage has been conferred. As for Article 6(b) of the basic regulation and Article 14(b) of the Agreement on Subsidies and Countervailing Measures, they both provide that -�a loan by a government shall not be considered to confer a benefit, unless there is a difference between the amount that the firm receiving the loan pays on the government loan and the amount that the firm would pay for a comparable commercial loan which the firm could actually obtain on the market. In that event the benefit shall be the difference between these two amounts-�. It cannot be inferred merely from the wording of those provisions that the commercial interest rate which has to be taken into account is that in force at the time when a long-term loan is negotiated. Reference is made simply to an -�amount that it would pay for a comparable commercial loan which it could actually obtain on the market-�.

120 The applicant argues that the interpretation which must be made of Article 6(b) of the basic regulation is confirmed by reports of the Appellate Body and special groups of the WTO and by an arbitral decision of the WTO.

121 The Court finds that it is nowhere apparent from the decision-making practice of the WTO invoked by the applicant that the interpretation of Article 14 of the Agreement on Subsidies and Countervailing Measures for which it argues is the only one that is relevant.

122 First of all, as the Council emphasises, none of the controversies cited by the applicant concerns the specific question of the date to be taken into account in order to determine the reference interest rate for establishing the existence of an advantage.

123 Next, the considerations concerning the tenses of the verbs used in the extracts of the panel reports invoked by the applicant are irrelevant. As the Council observes, the use of the conditional in the hypothetical observations appearing in those reports is at the very most neutral.

124 Finally, it is apparent from the considerations of the Appellate Body of the WTO extracted from a report which the applicant itself relied on in order in support of its argument that the said Appellate Body considers that the interpretation whereby the advantage must be determined by reference to market practice prevailing at the time when each of the four cases of financial contribution listed in that provision, namely, in particular, the loan from the public authorities referred to in the said Article 14(b) is granted is not compatible with the ordinary meaning of the text of Article 14 of the Agreement on Subsidies and Countervaling Measures. The Appellate Body considers that that provision does not limit analysis of the four cases of financial contribution referred to in Article 14(a) to (d), to the time when the financial contribution concerned was granted. In its view, Article 14 provides guidelines to be complied with when the advantage is calculated, whether the latter is determined at the time of the granting of the financial contribution or at a subsequent time. It concludes that the wording of Article 14 does not permit determination of the date on which calculation of the benefit must take place.

125 Thus, and contrary to what the applicant has been able to argue, it cannot be inferred either from Article 6(b) of the basic regulation, or from Article 14 of the Agreement on Subsidies and Countervailing Measures, or from the decision-�making practice of the WTO that the appropriate interest rate must be the rate available on the market at the time when the loans were contracted.

126 In any event, the interpretation given by the Council of Article 6(b) of the basic regulation is in accordance with EU law. That provision provides that it must be determined whether an advantage exists and that the latter is determined by reference to the difference between the amount that the firm receiving the loan pays on the government loan and the amount that it would pay for a comparable commercial loan which it could actually obtain on the market. The question as to which commercial loan available on the market may be taken into account by way of comparison with the government loan depends on the characteristics of that latter loan both from the angle of the financing mechanism and the duration of the latter and that of the amounts granted. Thus, in the circumstances of a loan granted by the public authorities in the form of a system of flexible financing -� that is to say a system characterised by the possibility for the recipient of the loan to borrow the whole or part of the sum placed at its disposal, when it wishes and in accordance with its needs -�, which applies in particular during the investigation period, it is in conformity with Article 6(b) of the basic regulation to consider that the commercial interest rate which must be taken into account is that in force during the investigation period rather than the rate in force at the time when the system of flexible financing was contracted.

127 In the second place, the applicant has not succeeded in demonstrating that, in this case, it could have obtained comparable commercial financing facilities if the LTF-EOP scheme had not existed.

128 First, the Court considers that the examples of contracts, simple long-term fixed interest rate credit or swap contracts, submitted by the applicant to demonstrate that it could have obtained a fixed-rate loan at a rate of between 6.5 and 7.35% during the period 2004/2005, are irrelevant. Having regard to the essential differences concerning in particular their nature and duration, the latter cannot constitute a valid basis of comparison in relation to the flexible system of financing under the LTF-EOP scheme, as described in paragraphs 106 to 110 above.

129 In particular, the applicant cannot usefully rely on a loan of PKR 150 million at a fixed rate of 7.25% which a bank granted to it in July 2003. That was a simple loan contract which is not comparable to the very flexible system of financing under the LTF-EOP scheme. Moreover, as the Council emphasises, it is not clear that the loan under that contract was of a duration comparable to that concluded under the LTF-EOP scheme.

130 The applicant also claims in vain that it could have obtained a loan at 6.5% from another bank. The document which it produced during the administrative investigation indicates only that a fixed-rate loan option at 6.5% was discussed, but that, if the applicant gave priority to that option, an internal approval procedure would be initiated and the application would be submitted to other members of the banking group.

131 Second, it is apparent from a document produced by the applicant that, pursuant to the contract concluded in 2005 under the LTF-EOP scheme, amounts were granted during the investigation period, that is to say between 1 July 2008 and 30 June 2009.

132 Therefore, the applicant has not shown that the Council infringed Article 3(2) and Article 6(b) of the basic regulation by comparing the interest which would have been due in accordance with the market interest rate during the investigation period, that is to say at the time when the applicant requested financing pursuant to the 2005 contract, with the interest actually due pursuant to that same contract.

133 In the third place, the applicant claims that the Council-�s accusation that it did not establish the existence of comparable commercial financing facilities or the rate of interest which would have been applied to that type of financing was not mentioned in the contested regulation.

134 That argument must be rejected. The Council observed in recitals 72 and 73 of the contested regulation as follows:

135 The Council thus clearly indicated the grounds why the rate to be taken into account had to be that in force on the market during the investigation period. It follows, impliedly but certainly, that the factors submitted by the applicant, namely the loan contracts and the interest rates under them, were thus not relevant in that they concerned only the year 2004/2005.

136 In that regard, it should be noted that, during the administrative procedure, the applicant did not present any argument capable of calling into question the very principle that the relevant commercial credit rate to be taken into consideration in the case of a credit line negotiated in 2004/2005, but under which withdrawals were made during the investigation period, is that in force during the said period.

137 Moreover, given that the Council rightly took into account the interest rate in force on the market during the investigation period, the applicant-�s argument that interest rate fluctuations were phenomenal in all economies is irrelevant.

138 Therefore, the first claim, alleging infringement of Article 3(2) and Article 6(b) of the basic regulation, must be dismissed.

The second claim, alleging infringement of Article 7(2) of the basic regulation by reason of the use by the Council of an inappropriate denominator

139 The applicant argues that the Council wrongly used the export turnover of the product concerned as the denominator in calculating the amount of the subsidy. It argues that account should have been taken of the total turnover of the product concerned on the alleged ground that the same production equipment, financed under the LTF-EOP scheme, was used to produce both domestic and exported products.

141 It should first be noted that Article 7(2) of the basic regulation provides that -�[w]here the subsidy is not granted by reference to the quantities manufactured, produced, exported or transported, the amount of countervailable subsidy shall be determined by allocating the value of the total subsidy, as appropriate, over the level of production, sales or exports of the products concerned during the investigation period-�.

142 In recital 73 of the contested regulation, the Council rightly rejected the claim already raised by the applicant by emphasising, first, that the precondition for benefiting from that scheme was that the company had to export directly or indirectly at least 50% of its annual production and by then observing that -�the subsidy amount (numerator) [had] to be allocated over the export turnover of the product concerned during the investigation period because the subsidy [was] contingent upon export performance-�.

143 By so doing, the Council complied with Article 7(2) of the basic regulation by taking into account one of the solutions envisaged in that provision, namely -�the level of [...]exports of the products concerned-� and gave the reason why allocation of the amount of the subsidy over export turnover was appropriate.

144 By arguing that it was manifestly inappropriate to allocate the value of the subsidy over the export turnover, the applicant is in reality arguing that the Council made a manifest error of assessment.

145 In that respect, account must be taken of the criterion whereby companies having access to the LTF-EOP scheme are those which directly or indirectly export at least 50% of their annual production. The subsidy is thus aimed at stimulating exports. Thus, the purpose for which the financing is requested or the specific use of the financing made by the company are not relevant for classifying the scheme in question as a subsidy. Consequently, the fact that the manufacturing installations financed under the LTF-EOP scheme are also used to produce goods sold on the domestic market and that the subsidies thus also helped domestic sales is irrelevant.

146 It follows that that approach consisting in taking account of the export turnover is perfectly appropriate given that it corresponds to the above-cited criteria for determining the countervailable nature of the LTF-EOP scheme and does not therefore appear to be manifestly erroneous.

147 Consequently, the second claim, alleging infringement of Article 7(2) of the basic regulation, must be dismissed.

148 It follows from the above considerations that the second plea, alleging infringement of the basic regulation, interpreted in accordance with the Agreement on Subsidies and Countervailing Measures, by reason of erroneous calculation of the subsidy amount for the LTF-EOP scheme, must be dismissed.

149 The Council recalls that the countervailing duty established by the contested regulation is based on the rate of countervailable subsidies, expressed on an ad valorem basis, which amounts to 5.1%. The latter is allocated as follows: 1.97% for the FTR, 0.60% for the LTF-EOP scheme and 2.57% the other subsidies which are not in dispute in this action.

150 In its view, should the General Court consider that the assessment of the Deputy Commissioner of income tax had the effect that 69.219% of the tax depreciation mentioned in line 72 should have been deducted from the amount indicated in line 74 of the 2008 tax return, the countervailable subsidy should be reduced by 1.02%.

151 At the hearing, the applicant stated that it did not challenge the calculation submitted by the Council on that point. It indicated, however, that, in any event, such a hypothesis implied a complete, not a partial, annulment of the contested regulation.

152 First of all, it should be noted that, in the present case, the Court is required only to review the lawfulness of the contested measure and does not have unlimited jurisdiction. Thus, whilst it has the power to annul the contested measure, it does not have the power to amend it (see, to that effect and by analogy, Case T-88/98 Kundan and Tata v Council [2002] ECR II-�4897, paragraph 147).

153 Next, it should be considered that failure to take account of the figure resulting from the revision of line 74 of the 2008 tax return and the error resulting therefrom affect the legality of Article 1 of the contested regulation only in so far as the definitive countervailing duty fixed by the Council exceeds that applicable in the absence of that error.

154 Consequently, by annulling Article 1 of the contested regulation only in part, in so far as the definitive countervailing duty fixed in respect of the applicant exceeds that applicable in the absence of that error, the General Court merely draws the necessary consequences from its assessment, without however substituting its own analysis for that of the defendant institution (see, to that effect and by analogy, Kundan and Tata v Council, cited in paragraph 152 above, at paragraph 149).

155 For those reasons, and having regard to the whole of the above, Article 1 of the contested regulation must be annulled in so far as it concerns the applicant, in so far as the definitive countervailing duty fixed in relation to the applicant exceeds that applicable in the absence of the error in question.

156 Under Article 87(3) of its Rules of Procedure of the General Court, where each party succeeds on some and fails on other heads, the Court may order that the costs be shared or that each party bear its own costs. In the present case, the applicant-�s claim for annulment has been upheld in part. The Court considers it to be fair in the circumstances of the case to order the Council to bear its own costs and 50% of the costs of the applicant and to order the applicant to bear 50% of its own costs.

157 Under the first subparagraph of Article 87(4) of the Rules of Procedure, institutions which intervene in the proceedings are to bear their own costs. Therefore, the Commission is to bear its own costs.

1. Annuls Article 1 of Council Implementing Regulation (EU) No 857/2010 of 27 September 2010 imposing a definitive countervailing duty and collecting definitively the provisional duty imposed on imports of certain polyethylene terephthalate originating in Iran, Pakistan and the United Arab Emirates in so far as it concerns Novatex Ltd, in so far as the definitive countervailing duty for imports of certain types of polyethylene terephthalate into the European Union exceeds that applicable in the absence of the error concerning the amount indicated in line 74 of the 2008 tax return.

3. Orders the Council of the European Union to bear its own costs and 50% of those incurred by Novatex. Novatex is ordered to bear 50% of its own costs. The European Commission is ordered to bear its own costs.

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You are here: BAILII >> Databases >> Court of Justice of the European Communities (including Court of First Instance Decisions) >> Novatex v Council [2012] EUECJ T-556/10 (11 October 2012) URL: http://www.bailii.org/eu/cases/EUECJ/2012/T55610.html Cite as: [2012] EUECJ T-556/10

Court of Justice of the European Communities (including Court of First Instance Decisions)