a) Natural Disasters and b) Absolute Impossibility to Recover Incompatible State Aid

Aid to remedy the damage caused by natural disasters can be granted only if the damage is the direct consequence of the disaster and the amount of aid must be limited to the actual damage suffered by each individual undertaking. Absence of documentary evidence can lead to absolute impossibility to recover incompatible aid.



Article 107(2) TFEU declares three categories of aid to be compatible with the internal market. This means that aid granted for the purposes allowed by Article 107(2) is not subject to an assessment by the Commission on whether its benefits outweigh the distortions it causes. However, Member States still have to comply with requirements stemming directly from the Treaty. In numerous decisions, the Commission has interpreted and elaborated these requirements and Member States have to ensure that their measures are in conformity with the Commission’s decisional practice which has been endorsed by EU courts in numerous cases.

The aid that is permitted by Article 107(2) concerns social aid granted to individuals, compensation for damage caused by natural disasters or exceptional occurrences and aid to remedy the effects of the division of Germany. Germany is no longer divided, so this provision has not been applied in the past 25 years. Social aid to individuals is rarely granted and exceptional occurrences, well, occur only exceptionally. Therefore, most aid that is granted on the basis of Article 107(2) is intended to compensate for the damage suffered from natural disasters such as earthquakes, severe floods and major forest fires.

The case which is reviewed in this article is a lesson of the mistakes that Member States should avoid. The Commission, in decision 2016/195, ordered the recovery of aid that had been granted in the form of reduced taxes and social insurance contributions. The ostensible purpose of the aid was to offer relief to companies that suffered damage from natural disasters in certain regions of Italy.[1] The aid, granted through several measures, benefitted undertakings which were based or otherwise located in areas affected by various natural disasters that occurred in Italy over a twenty-year period.


Why the aid measures were poorly designed

Since there was no doubt that the measures constituted State aid, the Commission focused on their compatibility. Its first task was to verify whether they concerned “natural disasters” in the meaning of Article 107(2)(b).

In addition, the measures had to satisfy the following conditions:

  1. The damage was a direct consequence of a natural disaster.
  2. The compensation aid only made good the damage caused by the natural disaster.
  3. There was no overcompensation.

Italy identified regions affected by earthquakes, floods and volcanic eruptions. The Commission accepted that these events constituted natural disasters within the meaning of Article 107(2)(b).

However, it found that the measures in question suffered from serious problems [paragraph 123]:

  1. They did not lay down any definition of damage (whether material or economic).
  2. They did not establish a direct link between the aid and the damage actually suffered as a result of the natural disaster.
  3. The measures did not limit the compensation to the amount necessary to make good the direct damage actually suffered by the beneficiaries.
  4. Eligible costs were not determined on the basis of the damage suffered by the undertakings as a direct consequence of the natural disaster.

In a nutshell, Italy targeted the affected regions but failed to limit the aid to the truly affected companies and for the amount that corresponded to the extent of the damage. Not all the companies located in an effected region necessarily suffered damage. And even if they suffered damage, there was no direct correspondence between the benefits from reduced taxes and contributions and the amount of the damage.

Do you know we also publish a journal on State aid?

EStAL banner
The European State Aid Law Quarterly is available online and in print, and our subscribers benefit from a reduced price for our events.


Inevitably, “(124) the Commission concludes that the schemes provided benefits not just to undertakings that suffered actual damage, but to all companies having their registered office or place of business in the areas designated as disaster areas by the Italian authorities, irrespective of whether they actually did suffer any damage as a result of the respective disaster.”

“(125) In the light of the above, the measures under investigation are not, by their nature and operational arrangements, designed to ensure that the aid granted is limited to the amount needed to make good the damage caused by natural disasters.”

However, several interested parties from Italy submitted comments to the Commission arguing that “(132) […] the aid provided for by some of the measures was granted only after the actual damage suffered by each undertaking had been verified.” In response, the Commission pointed out that “the measures in question are not, by their nature and operational arrangements, designed to rule out any form of overcompensation of damage, and only to make good the damage caused by the natural disaster. […] [T]heir scope is far wider, because they do not require that the aid be linked directly to the damage suffered as a result of the natural disaster. […] Even where beneficiaries are required to prove that they have suffered heavy damage, […], the legislation does not limit the amount of aid to the ascertained loss caused by the floods. […] A link [between the disaster and the damage] must be established at the level of the individual undertaking, and not at the macroeconomic level.” [Emphasis added]

Consequently, the Commission found the measures to be incompatible with the internal market.

Claimed reasons for not enforcing recovery of incompatible aid

Interested parties invoked legitimate expectations as a defence to a recovery order. The Commission reiterated well-established case law that “(141) […] the beneficiary of an aid measure that was not notified cannot challenge a recovery order by submitting that it holds a legitimate expectation that the grant of aid is lawful, as a diligent businessman should normally be able to determine whether the aid was notified. Moreover, in the cases at hand the Commission itself has not given the Italian authorities or the beneficiaries any grounds for entertaining legitimate expectations.”

The Commission also responded to the argument that the aid was granted more than 10 years earlier so it was subject to the 10-year period of limitation laid down in Article 15 of procedural Regulation 659/1999. According to the Regulation, the powers of the Commission to order recover aid cover only aid that is granted within the previous 10 years. The Commission observed that “(142) […] the limitation period is interrupted by any action taken with regard to the unlawful aid by the Commission, or by a Member State acting at the Commission’s request, and starts running afresh after each interruption. The Commission was informed of the existence of the measures in 2011, and took action with regard to the unlawful aid by requesting information from the Italian authorities on 25 July 2011. The Commission adopted the decision opening the formal investigation on 17 October 2012; the law introducing the first of the measures under investigation had been adopted by Italy on 27 December 2002. Thus the limitation period for recovery of the aid which is laid down in Article 15 of Regulation (EC) No 659/1999 has not expired in respect of any of the rebate measures dealt with in this Decision.”

In addition, “(143) […] it should be borne in mind that mere inaction on the part of national or Community institutions cannot provide grounds for legitimate expectations.”

Another interested party mentioned that legal proceedings had been initiated before national courts and that the national courts found the aid to be compatible. The response of the Commission was terse. The Commission is not bound by decisions of national courts. “(144) […] The Commission therefore considers that the existence of final judgments by national Courts does not prevent recovery.”

Absolute impossibility of recovery

The Commission also addressed a number of arguments alleging that it was absolutely impossible for the Italian authorities to recover the aid. In the case law it is well-established that Member States must do everything possible within their powers to recover incompatible aid. The only two defences are legitimate expectations, which as seen in the previous section did not succeed, and absolute impossibility. But simply claiming that it is difficult or impossible to recover the aid is not enough. Normally, it is not accepted that it is absolutely impossible to recover aid if the Member State in question has not even tried to get the aid back. But in this case, the Commission did not insist that Italy ought first to try to effect recovery.

The Commission noted that “(146) Member States usually raise this argument in discussions with the Commission after the adoption of a decision ordering recovery. However, in this case, Italy has argued prior to the adoption of the decision that for certain measures recovery should not be ordered because it would be absolutely impossible to implement the order. Since Italy raised this issue in the course of the formal investigation, and since a general principle of law states that no-one can be required to do the impossible, the Commission considers it appropriate to deal with the question in the Decision itself.”

“(147) It should first be recalled that the Court of Justice has consistently given a very strict interpretation to the concept of ‘absolute impossibility’. The condition that recovery must be absolutely impossible is not fulfilled where the Member State merely informs the Commission of the legal, political or practical difficulties involved in implementing the decision. The only instance where ‘absolute impossibility’ can be accepted is where recovery would, from the beginning, be impossible in objective and absolute terms.”

“(148) In the case at hand, the Italian authorities have repeatedly argued that a precise calculation of the amount of incompatible aid to be recovered is absolutely impossible. Under the Italian tax law, they say, undertakings have a duty to keep business and accounting records only for 10 years. The documentary evidence of damage caused by a natural disaster has to be assembled on the basis of official documents (business and accounting records) drawn up at the time of the event. For events that happened more than 10 years ago, therefore, it is no longer possible to determine the amount of damage suffered by individual beneficiaries, or the amount already compensated from other sources, such as insurance or other aid measures. For most of the measures under investigation, more than 10 years have elapsed since the natural disaster.”

“(149) Under Article 107(2)(b) of the TFEU, aid ‘to make good damage caused by natural disasters’ is compatible with the internal market, and aid is incompatible and must be recovered only if it exceeds the damage suffered. However, the vast majority of beneficiaries that have suffered damage as a result of natural disasters that occurred more than 10 years ago no longer have the documents needed to show that they suffered damage, or to prove the amount of the damage suffered, because under Italian law companies are not required to keep business and accounting records for more than 10 years.” “(150) […] Therefore, the Commission accepts that for natural disasters that occurred more than 10 years before the date of the present Decision it is legally and factually impossible to obtain the information necessary to calculate the precise amount of incompatible aid to be recovered. To enforce a recovery order under these conditions would therefore be impossible in objective and absolute terms.”

“(151) However, the impossibility of calculating the precise amount of incompatible aid to be recovered does not apply to undertakings that did not have a place of business (such as their principal place of business or another business unit) in the area affected by the natural disaster at the time of the event. These beneficiaries […] must not be excluded from recovery, since they could not have suffered any direct damage caused by the natural disaster, and consequently could not be entitled to aid that was compatible with the internal market under Article 107(2)(b) of the TFEU.”


This is a textbook case of how aid measures for remedying the damage caused by natural disasters should be designed. The link between the natural disaster and the damage suffered has to be established at the level of the individual company.

This case is also unusual because it is one of the rare occasions where the Commission has accepted the absolute impossibility of recovering the incompatible aid. It is, I believe, the second or third case where the absolute impossibility was the result of absence of documentary evidence. Hence, not having the necessary records can lead to absolute impossibility, but constitutional difficulties or protracted legal challenges do not prove absolute impossibility.


[1] OJ L 43, 18/2/2016.




Phedon Nicolaides

Dr. Nicolaides was educated in the United States, the Netherlands and the United Kingdom. He has a PhD in Economics and a PhD in Law. He is professor at the University of Maastricht and the University of Nicosia. He has published extensively on European integration, competition policy and State aid. He is also on the editorial boards of several journals. Dr. Nicolaides has organised seminars and workshops in many different Member States, and has acted as consultant to several public authorities.

Leave a Reply

Related Posts

04. Oct 2022
by Phedon Nicolaides

Recovery of Incompatible Aid and the Application of General Provisions for the Avoidance of Double Taxation

The amount of incompatible State aid that has to be recovered can be reduced by any credit the aid recipient could have legally obtained from the application of general provisions of national law. Introduction The recovery of incompatible State aid has to be carried out immediately and effectively. The Commission gives guidance to the Member State concerned how to calculate […]
08. Jun 2021
State Aid Uncovered by Phedon Nicolaides

Economic Continuity and Recovery of Indirect State Aid

Special insolvency procedures can confer a selective advantage that constitutes State aid. A recovery order can be extended to the new owner of a company that had received incompatible State aid. Introduction Recipients of State aid that is found to be incompatible with the internal market have to pay it back with interest. This liability for repayment also extend to […]
01. Jun 2021
State Aid Uncovered by Phedon Nicolaides

The Impossibility of Proving the Absolute Impossibility to Recover Incompatible State Aid

It is not sufficient to claim that is it absolutely impossible to recover incompatible State aid. It must be shown that alternative methods have been actually tried without success. Introduction It is rather impossible for Member States to prove that it is absolutely impossible to recover State aid that has been found by the Commission, and confirmed by EU courts, […]
02. Jun 2020
State Aid Uncovered by Phedon Nicolaides

i) Investor-State Arbitration ii) Recovery of Incompatible State Aid iii) State Aid Scoreboard 2019

Member States abolish bilateral investment treaties between themselves. When the Commission orders recovery of incompatible State aid, interest has to be added to the recoverable amount for the whole period of illegality regardless of any national limitation rules. In 2018, Member States granted EUR 121 billion to industry and services, EUR 6.3 billion to agriculture and EUR 50 billion to […]
05. May 2020
State Aid Uncovered by Phedon Nicolaides
corona virus poster

Non-recovery of Incompatible State aid Is Costly

Legal and practical difficulties in the recovery of incompatible State aid do not constitute justifiable “absolute impossibility”. Temporary Framework On 1 May, the total number of State aid measures to combat covid-19 approved by the European Commission reached 102. Their legal basis was: Article 107(2)(b): 9; Article 107(3)(b): 86; Article 107(3)(c): 7   Introduction The 2020 Temporary Framework for State […]
07. Apr 2020
State Aid Uncovered by Phedon Nicolaides

EU Decisions Override National Decisions on Compensation for Public Service Obligations

The principle of res judicata cannot be used to avoid recovery of incompatible State aid.   An update on State aid measures to counter the impact of COVID-19 As of 3 April 2020, the Commission has approved 29 measures submitted by 16 Member States. Article 107(3)(b) is the legal basis for 26 of those measures, while Article 107(2)(b) is the […]
05. Nov 2019
State Aid Uncovered by Phedon Nicolaides
Lab test

Economic Continuity in Recovery of Incompatible State aid

The new owner of a company that received incompatible State aid may be liable to pay it back. Introduction   Companies rarely escape from the obligation to repay incompatible State aid. Over the past decade or so, very few companies have successfully argued that they legitimately expected that the aid they received was compatible with the internal market. When a […]
30. Oct 2019
State Aid Uncovered by Phedon Nicolaides

The Operator of an Economic Infrastructure is an Undertaking

The assignment of public service tasks to an infrastructure operator is not sufficient to prevent the application of State aid rules. Introduction The characterisation of an entity as an undertaking is activity based, not status based. If it carries out activities for which there is a market, it becomes an undertaking, regardless of providing services which are in the general […]
08. Oct 2019
State Aid Uncovered by Phedon Nicolaides

Public Service Obligations, Duration of Entrustment and Reasonable Profit

The duration of entrustment should not exceed the economic life of the investment and the rate of return should reflect the commercial risk of that investment. Introduction Is a 55-year entrustment through a direct award compatible with EU rules? And is a profit rate that exceeds the risk-free rate of return reasonable? These are some of the questions that the […]
25. Jun 2019
State Aid Uncovered by Phedon Nicolaides

How to Value Land in Complex Land Swaps

A private investor assesses all components of a complex transaction and takes into account not just profit, but also the legal implications of the prospective transaction and possible future liability.   Introduction   When a public authority sells land, it should either auction it through a competitive and unconditional process or have it valued beforehand by an independent expert.Sometimes, public […]