The Standard of Proof in State Aid Complaints and the “Informational Disadvantage” of Complainants

The Commission must use its investigative powers to seek clarification from Member States in order for it to establish whether a measure constitutes State aid, or is compatible aid, or is existing aid.

Introduction

Complaints are an important source of information to the Commission. The possibility afforded to undertakings to lodge such complaints with the Commission is intended to dissuade Member States from granting illegal aid.

However, complaints alleging that illegal aid has been granted can also be frivolous or unfounded. Their ulterior motive may be to harass competitors or intimidate public authorities. They may also be based on a misunderstanding of the actual terms of the public measure that is thought to contain State aid.

In this respect, competitors of suspected aid recipients are at what may be called an “informational disadvantage” because normally they are not privy to the terms of a transaction between a public authority and an undertaking.

This raises a fundamental question. If the complaint procedure is vital to safeguarding the integrity of the State aid control system, how much information must complainants provide to the Commission, given that they have an informational disadvantage?

The General Court dealt with this issue in its judgment of 27 April 2022, in case T‑392/20, Petra Flašker v European Commission.[1] Although the judgment was mostly about whether existing aid had been altered, it also dealt with the obligations of the Commission to clarify the terms of public measures that are critical to the determination of the presence or not of State aid.

Petra Flašker, a pharmacist in Grosuplje, Slovenia, sought the annulment of Commission decision SA.43546 that had found, without a formal investigation, that the Slovenian public pharmacy Lekarna Ljubljana had not benefitted from State aid. The Commission also concluded that if aid had been granted, it was existing aid.

The Commission decision was examined here on 9 June 2020. It can be accessed at:


https://www.lexxion.eu/en/stateaidpost/private-investor-and-preferential-regulatory-treatment/


Lekarna Ljubljana operates approximately 50 pharmacies in Ljubljana and in 15 other municipalities. In Grosuplje, where the applicant operates her private pharmacy, two pharmacies of Lekarna Ljubljana are established.

The applicant had lodged a complaint with the Commission in which it claimed that Lekarna Ljubljana was granted State aid in several forms. In particular, four measures of alleged State aid were identified: A long-term lease by the municipality of Skofljica free of charge, assets (premises) under management by the municipality of Ljubljana, an exemption from concession fees by several municipalities and a relief of the obligation to share profits with several municipalities. The judgement focused on the second of those measures: the public assets under the management of Lekarna Ljubljana.

What are the obligations of the Commission in case of existing aid?

The Commission may conclude the preliminary assessment of an alleged State aid measure that is the subject to a complaint by a finding that the measure in question does not constitute State aid or that it is compatible aid. Such a finding implies that it must reject the complaint. If, by contrast, it has any serious doubt about the absence of aid or the compatibility of aid it must open the formal investigation procedure.

Given that in its contested decision the Commission concluded that had there been aid it would have been existing, the General Court began its analysis by examining what the Commission needs to do when the complaint concerns existing aid.

“(33) As regards the situation in which the Commission concludes, following the examination of a complaint and at the end of the preliminary examination stage, that the measures complained of constitute existing aid, it should be noted that existing aid is of course subject to the constant review provided for in Article 108(1) TFEU and must be regarded as lawful so long as the Commission has not found that it is incompatible with the internal market. However, when the Commission receives a complaint about allegedly unlawful aid, by classifying the measure as existing aid, it subjects it to the procedure laid down in Article 108(1) TFEU and thus implicitly refuses to initiate the procedure laid down in Article 108(2) TFEU in respect of that aid which the complainant considers to be unlawful aid, that is to say new aid put into effect without the requisite authorisation […] It should be noted that those considerations concern existing aid within the meaning of the systems of existing aid referred to in Article 108(1) TFEU, but that, similarly, where the Commission considers that the measure at issue is individual existing aid, in other words past existing aid not granted under an aid system, it also refuses implicitly to initiate the procedure laid down in Article 108(2) TFEU in respect of that aid.”

“(34) In such situations, the persons intended to benefit from the procedural guarantees afforded by that provision may secure compliance therewith only if they are able to challenge before the EU judicature the decision refusing to initiate the procedure provided for in that provision, both where that decision is taken on the ground that the Commission regards the aid as compatible with the internal market and where, in its view, the very existence of aid must be discounted or where it considers that there is existing aid”.

“(36) Thus, where the Commission examines a measure in the light of Articles 107 and 108 TFEU and, following a preliminary examination which it carried out under Article 108(3) TFEU, it is faced with persistent difficulties or doubts, in other words serious difficulties, either as regards the classification of that measure as State aid or as regards its classification as existing aid or new aid, or as regards its compatibility with the internal market if it considers that there is new aid, it is required to initiate the procedure provided for in Article 108(2) TFEU.”

That is, the Commission must open the formal procedure not only when it has doubts about the existence of aid and/or the compatibility of aid, but also about whether the aid is existing or new.

Then the General Court proceeded to apply the principles above to the case at hand.

Doubts with respect to alteration of existing aid

The contested Commission decision found that in so far as the assets under management of Lekarna Ljubljana constituted State aid, they amounted to existing aid.

The applicant, however, alleged that new aid had been granted through alteration of existing aid. In this connection, the General Court noted that “(39) the Commission, […], adopted in that regard a mixed decision, combining the type of decision provided for in Article 4(2) of Regulation 2015/1589, according to which, ‘where the Commission, after a preliminary examination, finds that the […] measure does not constitute aid, it shall record that finding by way of a decision’, and a decision of a type not provided for in that regulation, finding merely that, assuming that a measure constitutes aid, it amounts to existing aid.”

Rather importantly, the General Court stressed that “(43) the review of legality carried out by the Court on the existence of serious difficulties goes beyond the search for a manifest error of assessment”.

The General Court pointed out that the Commission was aware of a document that “(45) refers, in one of its paragraphs, to two properties which Lekarna Ljubljana has at its disposal, in respect of which a specific comment is made following the presentation of the total value of all the immovable property set out in the accounts of Lekarna Ljubljana, from which comment it is clear that that both those properties have a particular status and that they were transferred to it under management, but without any indication of the terms of that transfer.”

Then the Court recalled that “(47) it is true that not every grant by public authorities of physical assets to public entities necessarily constitutes State aid within the meaning of Article 107(1) TFEU, having regard in particular to the criterion that an entity does not receive an advantage where the public authority acts towards it in the same way that an investor in a market economy would […] or the criterion that trade between Member States must be affected by a public support measure in order for it to constitute such aid […] Nevertheless, that may sometimes be the case. The Court refers in that regard to the Commission Notice on the notion of State aid as referred to in Article 107(1) of the Treaty on the Functioning of the European Union […] and, for an example in which the Commission found that the conditions for the transfer of land gave rise to State aid, to Commission Decision 2002/14/EC of 12 July 2000 on the State aid granted by France to Scott Paper SA/Kimberly-Clark”.

The Court also noted that there were other public documents indicating discrepancies in the valuation of the assets under management by Lekarna Ljubljana. “(48) It is not possible to know by merely looking at those public accounts, what, among the assets granted under management to Lekarna Ljubljana, corresponds respectively to real assets that would have been given to it free of charge or on preferential terms by the Municipality of Ljubljana, to real assets acquired under market conditions by Lekarna Ljubljana or to financial or monetary assets. Contrary to what the Commission argues, in essence, it was not for the applicant to prove beyond all doubt that the assets under management of Lekarna Ljubljana included assets corresponding to State aid, but rather for the Commission, when faced with a situation of uncertainty in that regard, to carry out more thorough investigations.”

“(49) While the contested decision, as regards the assets under management incorporated by Lekarna Ljubljana o.p. and Lekarna Ljubljana after 1979, merely refers to the Slovenian authorities’ assertion that all of those assets were acquired under market conditions, the evidence put forward by the applicant during the administrative procedure, referred to in paragraphs 45 to 48 above, shows a situation that is unclear as regards the nature and status of the assets under management of Lekarna Ljubljana. Moreover, the Commission states in the rejoinder that, in its reply to the Commission’s first preliminary assessment, the applicant stated that the conditions under which Lekarna Ljubljana received its assets under management were not known. However, the Commission itself has not clarified the issue on a documented basis, which it cannot criticise the applicant for failing to produce to it. It may indeed be much more difficult for a complainant to obtain the relevant information from the public authorities which may have granted State aid than for the Commission, which has extensive powers to that effect, deriving directly from the TFEU, but also from Regulation 2015/1589 […] It must be pointed out that the Commission’s second preliminary assessment, sent before the adoption of the contested decision, does not address that issue further, but refers to an analysis, which moreover was not ultimately accepted, according to which the dispensing of pharmaceutical products in Slovenia does not constitute an economic activity subject to the rules of the TFEU on State aid to undertakings.”

“(50) It follows from the foregoing that, at the end of the preliminary examination which it carried out under Article 108(3) TFEU, the Commission did not dispel the doubts concerning whether all the assets under management incorporated by Lekarna Ljubljana o.p. and Lekarna Ljubljana after 1979 were incorporated by themselves under market conditions, as the Slovenian authorities stated, and, consequently, whether State aid was not provided to those entities through those assets.”

The General Court also examined other measures and again concluded that the Commission failed to investigate to the specific terms under which public assets were put under the management of Lekarna Ljubljana.

For these reasons the General Court annulled the contested Commission decision.

Conclusion

Although this case is about whether aid was existing or new, what is important about it is that a complainant does not have to clarify the contents of public documents when such documents are not sufficiently clear or do not sufficiently explain the terms of transactions between public authorities and undertakings. It is then incumbent on the Commission to use the investigative powers with which it is vested to obtain the relevant clarifications from Member States.


[1] The full text of the judgment can be accessed at:

CURIA – Documents (europa.eu)


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About

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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