Investor Protection and Existing Aid

Aid granted before accession to the EU may not be assessed by the Commission.


It is fairly safe to say that in the sixty years of case law on State aid, the Court of Justice has ruled that there are just four instances in which payment of public money to an undertaking does not constitute State aid on the grounds that, even though it satisfies all of the other criteria of Article 107(1), it does not confer an advantage:

  1. The state acts as a private investor.
  2. The state compensates for the extra cost of public service obligations in conformity with the Altmark conditions.
  3. The state buys goods and services for its own needs at market rates.
  4. The state is liable for damage it has caused.

There are not many cases of payments for damage. When the state expropriates the land of an undertaking, say to build a road, one can easily see that the compensation does not confer an advantage, as long as the compensation equals the market value of the land.

But should the state compensate undertakings whenever it tightens its regulations or changes its laws? For example, should the state compensate undertakings for the extra cost they incur if it raises safety standards?

This articles reviews a case concerning compensation for withdrawal of investment incentives.

Before Romania became a member of the European Union on 1 January 2007, it sought to attract foreign investors by offering them incentives in the form of exemption from customs duties, value added tax and profit tax.

In August 2004, while Romania was preparing for accession to the EU, it repealed all incentives for foreign investors.

As was the normal practice with all new Member States, Romania’s Treaty of Accession to the EU contained a list of measures that granted State aid before its entry into the EU. Any measure that was included in that list was considered to be existing aid. None of the incentives to foreign investors was listed in Annex V of Romania’s Treaty of Accession.

The applicants in the joined cases which are reviewed in this article, T‑624/15, T‑694/15 and T‑704/15, European Food et al v European Commission, had invested in Romania prior to its accession to the EU.[1]

They initiated proceedings against Romania before an arbitration tribunal claiming compensation, in the context of a bilateral investment treaty. The tribunal found in their favour and awarded compensation amounting to EUR 178 million.

However, in May 2014, the Commission, in decision 2015/1470, concluded that the arbitration award constituted incompatible State aid and prohibited Romania from paying the applicants. The Commission decision was reviewed here on 15 September 2015 [] Therefore, the present court case concerns applications under Article 263 TFEU for annulment of Commission decision 2015/1470.

Commission competence

The main plea of the applicants was that the Commission was not competent to adopt decision 2015/1470, since all Romanian measures were designed and implemented before Romania’s accession to the EU and since EU State aid rules did not apply to Romania before it became an EU member. The applicants also argued that it was irrelevant that the payment of the compensation took place after its entry into the EU.

The General Court recalled that “(66) under Article 2 of the Act of Accession, the provisions of the original Treaties and the acts adopted by the institutions before accession are binding on Romania as from that accession and apply in that State under the conditions laid down in those Treaties and in that act.”

“(67) Thus, EU law became applicable in Romania only as from its accession to the European Union on 1 January 2007. It is therefore only on that date that the Commission acquired the competence enabling it to review Romania’s actions pursuant to Article 108 TFEU”.

“(68) The applicants’ arguments alleging that the Commission lacked the competence to adopt the contested decision are based on the premise that all the events occurred, and any possible advantage was granted, before Romania’s accession to the European Union. It follows that, in order to assess the merits of those arguments, it is necessary first to define the date on which the alleged aid was granted.”

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.


When is aid granted?

“(69) In that regard, it should be noted that, according to the case-law, State aid must be considered to be granted at the time that the right to receive it is conferred on the beneficiary under the applicable national rules, taking account of all the conditions laid down by national law for obtaining such aid”.

“(70) In the present case, first, according to the contested decision, the implementation or execution of the arbitral award was intended to re‑establish the situation in which the applicants would have, in all likelihood, found themselves had the [aid] scheme not been repealed”.

“(71) It is apparent from the background to the disputes … that all the events relating to [the aid], …, took place before Romania’s accession to the European Union on 1 January 2007.”

“(73) The arbitral award was thus intended to compensate ‘retroactively’ the revocation of [the aid] in 2005, that is to say that the compensatory effects which it produces are applicable to the past.”

“(75) Contrary to what the Commission stated, …, the right to receive the compensation awarded by the arbitral tribunal was therefore not conferred on the applicants only after Romania’s accession to the European Union”.

“(76) It is true that the arbitral award, stating the infringements committed by Romania when [the aid measure] was repealed and determining the damages to be paid to the applicants on that basis, was issued in 2013 and therefore after that accession.”

“(77) However, …, the arbitral tribunal confined itself to determining the exact damage suffered by the applicants on the basis of the infringements committed by Romania in 2005. Since the arbitral award is thus merely an ancillary element of the compensation at issue and is not, as such, severable from the earlier tax incentives, it cannot be classified as new aid and serve as a basis for the competence of the Commission and the applicability of EU law for all the events occurring in the past, namely the events giving rise to the disputes which predate Romania’s accession to the European Union”.

“(79) As EU law and, more specifically, Articles 107 and 108 TFEU were not applicable in Romania before its accession to the European Union … the Commission could not exercise the powers conferred on it by Article 108 TFEU and could not, in particular, censure the incentives laid down by [the aid measure] for the period predating that accession. It is only as from Romania’s accession that the Commission acquired the competence enabling it to review Romania’s actions pursuant to Article 108 TFEU”.

“(80) It should also be noted, …, that the fact that the compensation was paid after that accession is irrelevant in that context, because those payments made in 2014 represent the enforcement of a right which arose in 2005.”

When is an advantage conferred?

“(83) According to settled case-law, new rules apply, as a matter of principle, immediately to the future effects of a situation which arose under the old rule”.

“(84) In the present case, due to the specific nature of the arbitral award, …, it cannot be considered that the effects of that award constitute the future effects of a situation arising prior to accession …, since that award retroactively produced definitively acquired effects which it merely ‘stated’ for the past, that is to say, effects which, in part, were already established before accession.”

“(87) In that regard, it must be pointed out that, in the present case, the arbitral tribunal was not bound to apply EU law to events occurring prior to the accession before it”.

“(88) Furthermore, given that all the events of the dispute taken into account by the arbitral tribunal took place before that accession, the arbitral award cannot have the effect of making the Commission competent and EU law applicable to those earlier events in so far as they produced their effects before that accession”.

Was the arbitral award an advantage in the meaning of Article 107(1) TFEU?

The applicants also argued that the arbitral award did not confer an economic advantage to them, but was intended solely to compensate them for the damage they had suffered.

“(103) Compensation for damage suffered cannot be regarded as aid unless it has the effect of compensating for the withdrawal of unlawful or incompatible aid (see, to that effect, judgment of 27 September 1988, Asteris and Others, 106/87 to 120/87, EU:C:1988:457, paragraphs 23 and 24), as recalled by the Commission in recital 104 of the contested decision. That recital 104 confirms that the Commission considers the arbitral award to be incompatible aid because it compensates for the withdrawal of a measure which it considers to be aid which is incompatible with EU law.”

“(104) However, … EU law is not applicable to the compensation for the withdrawal of [the aid measure], at least in respect of the period predating accession, because the arbitral award, which found that a right to compensation arose in 2005, did not have the effect of triggering the applicability of EU law and the Commission’s competence to that earlier period.”

“(105) Therefore, the compensation for the withdrawal of the [the aid] scheme, at least in respect of the amounts relating to the period from 22 February 2005 to 1 January 2007, cannot be regarded as compensation for the withdrawal of aid which is unlawful or incompatible with EU law.”

In other words, the General Court did not comment on whether indeed the Romanian measures constituted incompatible aid. It merely repeated the assessment of the Commission and reiterated the principle that Member States may not compensate undertakings for withdrawing illegal or incompatible aid.

Do bilateral investment treaties have any value?

The General Court also did not examine the substance of the case which was whether investor protection provisions in intra-EU bilateral investment treaties are compatible with EU law. However, it is fairly clear that the protection they afford to investors is rather limited.

Apparently there are 200 or so bilateral investment treaties among EU Member States.[2] The Commission has taken a position against such provisions for being contrary to the internal market rules on equal treatment and non-discrimination.

Article 3(2) TFEU stipulates that the EU is to have “exclusive competence for the conclusion of an international agreement when its conclusion … may affect common rules or alter their scope”. The Court of Justice in the Pringle case [C-370/12] ruled that “(101) it follows also from [Article 3(2) TFEU] that Member States are prohibited from concluding an agreement between themselves which might affect common rules or alter their scope.”

More recently, the Court of Justice ruled explicitly in its Achmea judgment [C-284/16] that investor-state arbitration contained in bilateral investment treaties between Member States was not compatible with EU law. However, the Court of Justice reached that conclusion not because awarding damages against a Member State infringed EU law, but because arbitration tribunals operating wholly or partly outside the judicial systems of Member States weakened the system of legal remedies which the EU Treaty requires them to establish in the fields covered by EU law.


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

[2] See Commission guidance on BIT of 19 July 2018. It can be accessed at:



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.

Hinterlasse eine Antwort

Zusammenhängende Posts

13. Okt 2020
State Aid Uncovered von Phedon Nicolaides

Market Economy Operator Principle: The Case of FIH

Negotiated transactions are not necessarily market conform. Update on Temporary Framework: Number of approved and published covid-19 measures, as of 9 October 2020: 295* Legal basis: Article 107(2)(b): 32; Article 107(3)(b): 248; Article 107(3)(c): 23 – Average number of measures per Member State: 10.5 – Median number of measures per Member State: 12 – Mode number of measures per Member […]
05. Mai 2020
State Aid Uncovered von 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 […]
09. Apr 2020
Guest State Aid Blog von Lexxion Publisher
Woman sitting by the computer

Follow Up Webinar with Phedon Nicolaides on ‚COVID-19 and State Aid Law‘ on 20 April

The European Commission is working on quickly adapting the existing State aid legal framework to address the current Covid-19 pandemic. Join us on 20th April from the comfort and safety of your (home) office to get an insider update on the Covid-19 response by State aid experts from the European Commission and national governments. ✓ Join from wherever you are – […]
23. Dez 2019
State Aid Uncovered von Phedon Nicolaides

A Preferential Electricity Tariff Is Selective, Confers an Advantage and Distorts Competition

A judicial decision on interim measures is a selective measure. The private investor test does not apply to judicial decisions on interim measures. Introduction On 11 December 2019, in case C‑332/18 P, Mytilinaios Anonymos Etairia — Omilos Epicheiriseon v European Commission, the Court of Justice probably wrote the last chapter in a long-running case concerning privileges that had been granted […]
17. Dez 2019
State Aid Uncovered von Phedon Nicolaides

Can a Tax (rather than a Tax Exemption) Confer a Selective Advantage?

A tax that is levied at one level of government and does not apply to products and activities at a different level of government need not be selective. Introduction A tax exemption normally confers a selective advantage, unless it is justified by the logic of the tax. Counterintuitively, a tax itself can be selectively advantageous if its scope is too […]
03. Dez 2019
State Aid Uncovered von Phedon Nicolaides

Separability of Economic from Non-economic Activities

Activities which are inseparable from the exercise of official powers are non-economic. Introduction   Pure research whose results are widely disseminated is undoubtedly a non-economic activity. Research reports are often published on the internet. But the design and management of a research organisation’s website can be an economic activity. Plenty of private companies provide these services for a fee. Does […]
03. Sep 2019
State Aid Uncovered von Phedon Nicolaides

Presumed v Actual Compatibility of State aid with the Internal Market

State aid granted on the basis of the GBER may not be considered as authorised by the Commission. The task of Member States is to ensure that all of the requirements of the GBER are fulfilled. In particular, Member States must confirm the incentive effect of aid to large enterprises. Introduction[1]   In March 2019, the Court of Justice delivered […]
30. Apr 2019
State Aid Uncovered von Phedon Nicolaides

The Commission Must Explain its Decision

A Commission decision that affects the legal position of an undertaking is actionable before EU courts. The opening of the formal investigation procedure must lead the Member State concerned to suspend the aid measure and may result in a recovery ruling by a national court. The Commission must be consistent in its reasoning. If it cannot use certain information at […]
19. Mrz 2019
State Aid Uncovered von Phedon Nicolaides

Many Tax Rulings Do Not Make a Single Aid Scheme

The autonomy that Member States enjoy in the field of direct taxation must be exercised in compliance with EU State aid law. A State aid measure is considered to be a “scheme” when (a) no further implementing acts are necessary, (b) the granting authority has no discretion in how the measure is applied and (c) the measure defines the eligible […]
29. Jan 2019
State Aid Uncovered von Phedon Nicolaides

Services of General Economic Interest: Proper Definition and Avoidance of Overcompensation

Member States need to demonstrate that public service obligations imposed on undertakings are necessary and proportional to the need for public service. A change in the funding of public services does not constitute new aid if it does not alter its objectives, the beneficiaries or the amount of aid by more than 20%.   Introduction It is a well-established principle […]