State Aid Measures May not be Funded through Discriminatory Taxes

A tax that is levied on both imported and domestic products but its revenue finances only domestic products infringes fundamental provisions of the EU Treaty.


Member States finance the generation of electricity from renewable energy sources [RES] with revenue they raise through levies or charges on consumers of electricity. On 14 April 2021, the General Court in judgment in case T‑300/19, Achema v European Commission, examined one such system of levies on electricity consumers and concluded that it was likely to infringe fundamental provisions of the EU Treaty. Consequently, the aid scheme could not be considered compatible with the internal market.

The case concerned Commission decision SA.45765 that had authorised a Lithuanian scheme that supported producers of electricity from RES. Achema contested the Commission decision on the grounds that the Commission should have had serious doubts about the compatibility of the scheme and should have opened the formal investigation procedure.

The Lithuanian RES aid scheme is made up of the following three measures:

  1. A fee-in premium [a supplement on top of the purchase price of electricity] for RES producers and a feed-in tariff for smaller RES producers.
  2. Compensation of electricity producers for their connection costs.
  3. Exemption of RES producers from the “electricity balancing obligation”.

The RES aid scheme is financed through a levy imposed on end electricity consumers on the basis of their electricity consumption; the so-called “PIS levy”.

While all electricity consumers are subject to the PIS levy, there are five exemptions from the levy:

  1. The electricity produced by plants using RES and consumed for their own needs.
  2. The electricity which was necessary for combined production of heat and electricity.
  3. The electricity purchased by network operators to compensate for natural losses of electricity through the grid.
  4. The electricity produced by small RES producers.
  5. The electricity which was consumed by data processing and internet server (hosting) services.

The General Court examined whether the Commission should have had serious doubts arising from the length of the preliminary examination and from the substance of the scheme itself.

Procedural difficulties

The General Court, first, reiterated that “(43) the notion of serious difficulties is an objective one.” “(46) It is for the applicant to prove the existence of doubts, which it may do by reference to a body of consistent evidence, concerning, first, the circumstances and the length of the preliminary examination procedure and, second, the content of the contested decision.”

Then the Court recounted the various contacts that the Commission had with the Lithuanian authorities after it received a complaint from Achema in January 2016 and noted that while the RES aid scheme was formally notified to the Commission on 20 November 2018, it had already been put into effect in 2011. That meant that the scheme was unlawful until January 2019 when the Commission authorised it and that the Commission was dealing with it for three years [2016 to 2019].

“(86) It follows that the particularly long duration of the administrative procedure, […] constitutes objective evidence of the serious difficulties encountered by the Commission during its examination of the scheme at issue.” “(87) That said, […] while the length of the preliminary examination can constitute an indication of the existence of serious difficulties, it does not of itself suffice to show the existence of such difficulties […] It is only if it is reinforced by other factors that the expiry of a time period may lead to the conclusion that the Commission encountered serious difficulties necessitating initiation of the procedure under Article 108(2).”

Problems with the contents of the Commission decision

Next, the General Court took into account evidence relating to the incomplete and incorrect analysis of the relevant national legal framework. The Commission referred in its decision to the RES levy, while the Court held that the scheme was based on the PIS levy which had broader objectives than the support of RES producers by financing the feed-in premium and the feed-in tariff.

“(135) Consequently, the contested decision is based, in part, on an incomplete and insufficient analysis of the relevant national legal framework. According to the case-law, the partially incomplete and insufficient content of the contested decision may show […] the existence of serious difficulties”.

The General Court also agreed with Achema that the Commission did not examine in sufficient detail the investments of the RES producers.

Problems with the assessment of the exemptions from the PIS levy

But, the most important and critical part of the judgment was the analysis of the General Court of the status of the exemptions from the PIS levy.

The Commission had found that RES producers enjoyed an advantage stemming from the feed-in premium or the feed-in tariff and that that advantage was selective, since, as electricity producers, they were in a situation factually and legally comparable to that of other electricity producers. The Commission also examined the exemptions from the PIS levy which it considered to be the reference system. It concluded that even though they were selective, the first four of them were nevertheless justified by “the logic and nature of the system” and they did not constitute State aid. [Please see the list above]

Please note that in the case law the term “logic and nature of the system” is synonymous to the “objective and general structure of the system” or the “nature and general scheme of the system” or the “aim and general scheme of the system”.

First, the General Court clarified that “(158) when reference is made to the nature of the ‘normal’ system, it is the objective attributed to that system which is being referred to, whereas when the general structure of the ‘normal’ system is mentioned, reference is being made to its rules of taxation”.

The Court then proceeded to find that “(163) the Commission defined the nature and general scheme of that system in an inconsistent manner.”

“(164) In respect of the exemption concerning the consumption of electricity used to produce electricity (see the second exemption), it is common ground that that exemption benefits producers of all types of electricity, without limitation, such that it is not aimed at promoting the consumption or production of RES electricity.”

“(167) If the nature and general scheme of the reference system defined by the Commission lie in the promotion of RES energy, that exemption should logically have been limited to the consumption of electricity used for the production of RES electricity, thereby excluding polluting electricity sources.”

“(168) The same is true of the exemption concerning the volume of electricity purchased by [the network operators] to compensate natural losses of electricity through the grid (see the third exemption), which is also unrelated to the support for the production of RES electricity.”

The General Court also criticised the analysis of the Commission of the other exemptions.

However, the Court rejected Achema’s plea that the Commission applied incorrectly its own Guidelines on environmental and energy aid on the grounds that the assessment of the Commission was brief. Brevity does not on its own constitute evidence of existence of serious difficulties with regard to the compatibility of an aid scheme.

The Court concluded its review of the Commission decision by appraising Achema’s plea that the Commission had infringed Articles 30 and 110 TFEU.

Problems with Articles 30 and 110 TFEU

Achema claimed that the method of financing the RES scheme constituted discrimination against producers of RES electricity established in other Member States, in so far as they did not benefit from the feed-in premium or the feed-in tariff, even though the consumption of imported electricity, including that generated from RES, was subject to the PIS levy.

First, the General Court rejected the argument of the Commission that Achema’s plea was inadmissible because it was not “directly and individually concerned”, as required by Article 263. The Court held that when an applicant challenges a Commission decision on the grounds that its procedural rights have been affected by the not opening of the formal investigation procedure, it has standing if it can show that the Commission should have had serious doubts about the compatibility of the aid. According to the procedural Regulation [Reg 2015/1589], any interested party, not just those who are directly and individually concerned, can submit its views to the Commission in response to the opening of an investigation.

Then the Court reiterated that “(212) any levy that has the aim of financing a State aid measure needs to comply in particular with Articles 30 and 110 TFEU.” “(213) Thus, the method by which aid is financed may render the entire State scheme at issue incompatible with the internal market, requiring, in such a case, the Commission to examine the aid, taking into account also the economic and legal effects which its financing may produce.”

Next the Court explained how Articles 30 and 110 TFEU are applied.

“(214) A charge which is imposed on domestic and imported products according to the same criteria may nevertheless be prohibited by the FEU Treaty if the revenue from such a charge is intended to support activities which specifically benefit the taxed domestic products. If the advantages which those products enjoy wholly offset the burden imposed on them, the effects of that charge are apparent only with regard to imported products and that charge constitutes a charge having equivalent effect within the meaning of Article 30 TFEU. If, on the other hand, those advantages only partly offset the burden borne by domestic products, the charge in question constitutes discriminatory taxation for the purposes of Article 110 TFEU, the collection of which is prohibited as regards the proportion used to offset the burden borne by the domestic products.”

“(215) Where the charge specifically intended to finance the aid proves to be contrary to Articles 30 and 110 TFEU, the Commission cannot declare the aid scheme of which the charge forms part to be compatible with the internal market.”

“(216) In the present case, […] the PIS levy financing the RES aid scheme is imposed without distinction on the consumption of both domestic and imported electricity. It is also common ground that the revenue from that levy or part thereof is ultimately used to support domestic RES producers, in particular by paying the feed-in premium or the feed-in tariff. It follows that the RES aid scheme benefits only national producers, even though its method of financing derives from a charge placed on the consumption of electricity, including electricity generated from RES, both imported and domestic.”

“(217) It follows that, […] a parafiscal charge, such as the PIS levy, is liable to constitute either a charge having equivalent effect prohibited by Article 30 TFEU or discriminatory taxation prohibited by Article 110 TFEU.”

“(218) It should be recalled that Articles 30 and 110 TFEU do not provide for derogations.” “(219) Indeed, as far as Article 30 TFEU is concerned, it is settled case-law that the prohibition in that provision is of a general and absolute nature”. “(220) As regards Article 110 TFEU, the Court of Justice has held that differentiation in the field of internal taxation was compatible with EU law only if, inter alia, the detailed rules were such as to avoid any form of discrimination, direct or indirect, against imports from other Member States or any form of protection of competing domestic products”. “(221) Advocate General Bot observed that Article 110 TFEU did not prohibit internal taxation as such but its discriminatory or protective effect, so that it was sufficient to eliminate that discriminatory or protective effect in order to comply with Article 110 TFEU. He also observed that scope for justification, such as that provided for in Article 36 TFEU, was not provided for in the context of the application of Article 110 TFEU.” “(222) It follows that a parafiscal charge falling within the scope of Article 30 TFEU or of Article 110 TFEU cannot be the subject of any exception or justification.”

“(224) In the case at hand, the Commission nevertheless considered that the ‘potential discrimination’ instituted by the RES aid scheme could be remedied by the investment commitment of the Lithuanian authorities.” “(226) However, […] the investment commitment of the Lithuanian authorities is not liable to put an end, either for the past or for the future, to the discrimination against RES producers established in other Member States and exporting their electricity to Lithuania, since the commitment at issue leaves unchanged both the discriminatory aspect of the method of financing the RES aid scheme and the limitation of the benefit of that scheme to domestic RES producers alone.”


Because of all the procedural and substantive problems, the General Court held that the Commission should have had serious doubts as to the compatibility of the scheme and should have opened the formal investigation procedure. On these grounds it annulled Commission decision SA.45765.



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.

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