Executive Summary:
- Domestic procedures that allow the suspension of repayment of incompatible state aid or repayment in instalments or non-repayment in case of insufficient resources are contrary to EU law on immediate and effective recovery.
Table of Contents:
- Introduction
- The obligation of Member States to recover incompatible state aid
- Was the procedure of the Portuguese tax law compatible with EU law?
- Automatic suspensory effect
- Guarantees
- Inability to provide guarantee
- Payment in Instalments
- Conclusions
Introduction
It is almost impossible for Member States to avoid recovery of incompatible state aid. Indeed, Article 16 of the Procedural Regulation [Regulation 2015/1589] requires that recovery is effected immediately and effectively. At the same time, Article 16 stipulates that the recovery is to be pursued in accordance with the relevant national procedures.
On 21 May 2026, the Court of Justice of the EU [CJEU], in case C‑545/24, Utiledulci – Comércio Internacional e Serviços, Sociedade Unipessoal – Zona Franca da Madeira v Autoridade Tributária e Assuntos Fiscais da Região Autónoma da Madeira, had to decide whether national procedures that allowed for the suspension of tax payments were compatible with the principle of immediate and effective recovery of incompatible aid.
Five years ago, the Commission, in decision 2022/1414, ordered Portugal to recover state aid that had been granted to companies operating within the free zone of Madeira. Companies authorised to operate within the free zone were subject to a lower rate of corporate tax, on condition that they complied with certain obligations such as the creation of jobs. Although the favourable tax treatment had been authorised by the Commission, it later transpired that those obligations were not enforced properly. Consequently, the Commission concluded that the aid was incompatible. That decision of the Commission was appealed by both Portuguese authorities and a number of aid beneficiaries. None of those appeals has been successful.
The present case originated from a dispute concerning the process of the recovery of the aid. The Portuguese legal system does not lay down any specific rules on the recovery of state aid. However, the Portuguese tax law allows companies to request the suspension of a tax enforcement procedure. In the present case, Utiledulci requested such a suspension, given that the aid it had received was in the form of a reduced tax. Therefore, the recovery process consisted of payment of tax due plus interest.
Under the Portuguese tax law, tax payers have a right to request the suspension of the tax enforcement procedure in three instances: 1) dispute over the tax debt, 2) objection to the enforcement procedure and 3) payment in instalments, on submission of a guarantee on the tax liability or proof that the taxpayer can is unable to provide such a guarantee.
The tax authorities rejected Utiledulci’s request on the grounds that, given the primacy of EU law, they had an obligation to recover the aid immediately and effectively. When Utiledulci appealed against that rejection, the national court hearing that case was uncertain whether the immediate and effective enforcement of the Commission’s recovery decision required it to disregard the provisions of Portuguese tax law relating to the suspension of the tax enforcement procedure. Therefore, it asked the CJEU for guidance on the meaning of Article 16 of Regulation 2015/1589.
The obligation of Member States to recover incompatible state aid
The CJEU, first, recalled that “(19) under Article 16(3) of Regulation 2015/1589, …, recovery of aid is to be effected without delay and in accordance with the procedures under the national law of the Member State concerned, provided that they allow the immediate and effective execution of the Commission’s recovery decision. To that effect, in the event of a procedure before the national courts, the Member States concerned shall take all necessary steps which are available in their respective legal systems, including provisional measures, without prejudice to EU law.”
“(20) Recital 25 of that regulation states that, in cases of unlawful aid which is not compatible with the internal market, effective competition should be restored and for that purpose it is necessary that the aid concerned be recovered without delay. The application of national procedures should not therefore impede the restoration of effective competition by preventing the immediate and effective execution of the Commission’s recovery decision. To achieve that result, Member States should take all necessary measures ensuring the effectiveness of that decision.”
“(21) Thus, although Article 16(3) of Regulation 2015/1589 reflects the requirements of the principle of effectiveness, it is also apparent that the law of the Member State concerned must, for the purposes of the recovery of unlawful aid, be applied in accordance with the principle of the procedural autonomy of that Member State, in the absence of applicable provisions of EU law, while at the same time ensuring that fundamental rights are observed, in particular the right to a fair hearing, including the rights of defence”.
“(22) The freedom of the Member States with regard to the choice of method of recovery of such aid is, however, limited in so far as those rules and procedures cannot have the effect of making the recovery required by EU law practically impossible. The application of national procedures is thus subject to the condition that those procedures allow the immediate and effective execution of the Commission’s recovery decision”.
Then the CJEU stressed that “(23) a Member State which, by virtue of a Commission decision, is obliged to recover the unlawful aid, cannot fulfil that obligation unless the measures which it adopts are appropriate for the purpose of restoring the normal conditions of competition which were distorted by the grant of the unlawful aid”.
The CJEU reiterated that “(24) the objective of the recovery of unlawful State aid is to restore the situation which existed on the internal market prior to the payment of that aid. That objective is attained once that aid, together with default interest where appropriate, has been repaid by the beneficiary of that aid or, in other words, by the undertakings which actually enjoyed the benefit of it. By repaying the aid, the beneficiary consequently forfeits the advantage it had enjoyed on the market in relation to its competitors, and the situation prior to the payment of that aid is restored”.
“(26) In conclusion, …, the procedural autonomy granted to Member States in relation to the recovery of unlawful State aid is limited by the need to ensure the effectiveness of the action taken by the administrative authorities responsible for carrying it out. It therefore falls to both the national courts and, subject to review by those courts, those authorities to ensure implementation in accordance with the objective pursued by the Commission decision ordering the recovery of that aid, which is to prevent any distortion of the functioning of the market resulting from the grant of State aid harmful to competition. In that regard, it should be noted that it is settled case-law that a Member State may not rely on provisions of its national legal order, even constitutional provisions, to justify failure to fulfil obligations arising from EU law”.
Was the procedure of the Portuguese tax law compatible with EU law?
Next, the CJEU applied the principles above to the case at hand.
“(27) In the present case, …, the provisions of Portuguese law applicable when the Portuguese Republic takes steps to recover unlawful State aid that is incompatible with the internal market establish the right to request the suspension of that procedure, inter alia in the event of a dispute over the tax debt or opposition to enforcement measures and in the event of payment in instalments, subject to the provision of a guarantee consisting of a bank guarantee, a security, suretyship insurance, an attachment, a voluntary charge or any other appropriate means of guaranteeing the recovery of the tax liability, or even, in the absence of such a guarantee, where the taxpayer demonstrates that that would cause it irreparable harm or in the event of a manifest lack of financial means.”
“(28) It is therefore necessary to examine whether the application of those provisions, while taking into account the general context of the national law of which they form part, is irreconcilable with the requirement for immediate and effective recovery of the aid concerned.”
Automatic suspensory effect
“(29) In that regard, it must be borne in mind, in the first place, that national legislation providing for the automatic suspensory effect of actions brought against a decision seeking to recover unlawful aid cannot be regarded as allowing the immediate and effective enforcement of a Commission decision seeking the recovery of that aid. On the contrary, the granting of such suspensive effect may considerably delay the recovery of that aid and thus prolong the undue competitive advantage resulting from it … Such national legislation, which provides for the automatic suspensory effect of actions brought against decisions seeking to recover unlawful aid, must therefore be disregarded”.
“(30) In the present case, the national tax enforcement procedure is also characterised, …, by factors of a systematic and automatic nature, in so far as the Portuguese tax authorities have no discretion as regards, at the very least, the suspension of enforcement, where the condition relating to the provision of a guarantee is satisfied.”
“(31) Accordingly, it must be held that the automatic nature of the suspension provided for by a national enforcement procedure such as the one at issue in the main proceedings is liable to delay significantly the recovery of unlawful aid and, in so doing, to prolong the undue competitive advantage which that aid conferred on its beneficiary, thereby undermining the requirement for immediate and effective recovery of that aid, as set out in Article 16(3) of Regulation 2015/1589.”
Guarantees
“(32) Instruments such as a bank guarantee, a surety, suretyship insurance, an attachment or a voluntary charge do not, a priori, have the effect of extracting the aid from the beneficiary’s assets, thus depriving it of the advantage pertaining to that aid. Neither the accounting consequences nor the costs associated with the provision of a guarantee, as regards their effect on the beneficiary’s economic situation, may be treated as repayment of the aid received. The explicit objective of those instruments is to provide security to protect the creditor’s claim for the period during which the enforcement procedure is suspended, which differs from the aim pursued by the recovery of unlawful aid.”
“(33) The situation would be different only if the distortion of competition were fully eliminated, for example by an attachment to or a payment into a blocked account for the amount of the unlawful aid and the interest thereon, which it will be for the referring court to ascertain. In such cases, the objective pursued by the Commission’s decision seeking the recovery of that unlawful aid, namely the restoration of normal conditions of competition distorted by the grant of that aid, would be achieved.”
Inability to provide guarantee
“(34) As regards the possibility of exempting the party defending the enforcement procedure from the obligation to provide a guarantee, it must be stated that considerations relating to the economic loss resulting from the repayment of the aid concerned cannot justify a delay in the recovery procedure. Even where unlawfully granted State aid is to be recovered from beneficiary undertakings in difficulty or in a state of insolvency, such difficulties do not affect the obligation to recover that aid … It follows that the Member State is therefore required, depending on the case, to bring about the winding-up of that company, to have its claim registered as one of that company’s liabilities or to take any other measure enabling that aid to be recovered”.
Payment in instalments
“(35) As regards the possibility of payment in instalments of the sums due, it must be pointed out that such payment arrangements, where they are authorised beyond the period for recovery set by the Commission, cannot be reconciled with the obligation to enforce recovery without delay, which is intended, inter alia, to ensure that the Commission’s recovery decision, …, is fully effective and to achieve an outcome consistent with the objective pursued by that decision, namely to ensure that funds corresponding to the aid that has already been reimbursed are not once again made available to the beneficiary of the aid, even provisionally”.
“(36) Lastly, it should be recalled that it follows from the case-law of the Court that the elimination of unlawful aid by means of recovery is the logical consequence of a finding that it is unlawful. Consequently, the recovery of State aid unlawfully granted for the purpose of re-establishing the previously existing situation cannot in principle be regarded as disproportionate to the objectives of the Treaty with regard to State aid. The measure to recover the unlawful aid is in breach of the principle of proportionality only if the amount which the beneficiary is required to repay exceeds the discounted value of the aid received”.
Conclusions
Given the findings of the CJEU, the inevitable conclusions was that “(37) national legislation, …, providing for the automatic suspensory effect of payment in instalments or of actions brought against a decision seeking to recover unlawful aid appears, subject to the checks which it is for the national court hearing the case to carry out, to be incompatible with the objectives of eliminating unlawful aid declared incompatible with the internal market and with the requirement to ensure the immediate and effective enforcement of the decisions ordering its recovery. Therefore, …, such national provisions must be disregarded.”
