(109) Article 107(1) TFEU provides: ‘Save as otherwise provided in the Treaties, any aid granted by a Member State or through state resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market’. The question whether these cumulative tests apply to the tax exemption granted by France to EDF is examined below.

(110) Since Act No 97-1026 established that EDF was deemed to have been the owner of the high-voltage transmission network (RAG) for which it had been granted the concession, it has to be ascertained whether the Act involved a transfer of ownership of the RAG.

(111) According to the information provided by the French authorities, EDF can reasonably be regarded as the owner of the RAG before the entry into force of the Act. This finding is supported by the following considerations: the features of the different types of concession contract under French law; the special features of the original concession granted to EDF, which did not include an explicit retrocession clause; the procedure for the acquisition of the assets concerned, for which EDF had to pay a fee similar to compensation under a compulsory purchase procedure; and the conditions for the financing, maintenance and extension of the RAG at EDF's expense. The ‘clarification’ of the ownership of the RAG provided by Act No 97-1026 does not therefore in itself appear to confer an economic advantage on EDF.

(112) It therefore has to be examined whether Act No 97-1026 addressed all the tax implications of the ‘clarification’ of ownership of the RAG and, if not, whether an economic advantage in the form of a tax concession was granted to EDF.

(113) During the period between 1987 and 1996, EDF created tax-free provisions for the renewal of the RAG, provisions which were identified as irregular by the French Court of Auditors. Article 4 of Act No 97-1026 declaring that EDF was deemed to be the owner of the RAG rendered those provisions superfluous and they therefore had to be reallocated to other items in the balance sheet.

(114) The letter from the Minister for Economic Affairs setting out the tax implications of the restructuring of EDF's balance sheet shows that the unused provisions for renewal of the RAG were subjected by the French authorities to corporation tax at 41,66 %, the rate applicable in 1997.

(115) On the other hand, the provisions corresponding to renewal operations already carried out, also called grantor rights, were reclassified as capital contributions amounting to FRF 14,119 billion without being subjected to corporation tax. The tax authorities acknowledge that this transaction was illegal, as can be seen from the memorandum dated 9 April 2002 addressed by the Directorate-General for Taxation to the Commission and quoted in recital 35.

(116) In line with the National Accountancy Council opinion, corrections to accounting errors should be posted in the accounts for the financial year in which they are discovered. Moreover, since the unused provisions amounting to FRF 38,5 billion that had been created free of tax were subjected to corporation tax at the rate of 41,66 % in 1997, there is no objective reason why the rest of the provisions created free of tax should not have been taxed at the same rate.