Aid granted illegal must be recovered by the granting authority without any need for a prior Commission decision ordering recovery.
The amount of recovered aid may be limited to that which is in excess of what is allowed by the GBER.
Introduction
It is a well-established principle in the case law that a “prudent market operator” is responsible to check that the aid it receives is granted legally. This means that it is authorised by the Commission, or it is in full compliance with a block exemption regulation or a de minimis regulation. Any deviation from the terms of the Commission’s authorising decision or from the provisions of the block exemption regulation or de minimis regulation makes the aid automatically illegal. The consequence of illegality is that the aid must be recovered by the granting authority regardless of whether the aid was granted as a result of its own mistake.
On 7 April 2022, the Court of Justice dealt with such illegal aid in joined cases C-102/21 and C-103/21, KW and SG v Autonomous Province of Bolzano.[1]
In 2012, the European Commission authorised an Italian aid scheme for the construction of hydroelectric plants. The maximum allowable aid rate was 80%. The scheme expired in December 2016.
In 2018, the authorities of the Province of Bolzano granted aid to the two applicants, KW and SG, corresponding to 80% of their investment in micro hydroelectric plants. Subsequently, in 2020, the Province informed the two applicants that they could receive State aid only at a lower rate of intensity of 60%. This is the maximum allowable rate under Article 41 of Regulation 651/2014 [the General Block Exemption Regulation]. Article 41 concerns investment aid for the generation of energy from renewable sources [at a basic rate of 40% plus 20% for small enterprises]. The Province asked for the repayment of the excess aid.
The two companies then initiated proceedings before a local court which submitted a request for a preliminary ruling and asked the Court of Justice for clarification on a number of issues.
[1] The full text of the judgment can be accessed at:
CURIA – Documents (europa.eu).
Question 1: Was the authorisation of the aid scheme resulting from the Commission’s 2012 decision still in force when the Province of Bolzano granted subsidies to KW and SG?
The Court examined the 2012 Commission decision and pointed out that the aid was authorised for the period 2011-2016. Therefore, the Court concluded that the scheme was no longer approved by the Commission when the aid was granted in 2018. [paragraphs 31-32 of the judgment]
Question 2: Is it for the Commission to request Member States to recover aid in cases of misuse of aid?
First, the Court of Justice pointed out that individual aid granted under an aid scheme after the expiry of a Commission decision authorising that scheme does not constitute misuse of aid in the meaning of Article 1(g) of Regulation 2015/1589. [para 37]
Article 1(g) of Regulation 2015/1589 refers to situations in which aid is used by the beneficiary in breach of a decision taken pursuant to Article 4 or 9 of that regulation or Article 4 or 7 of the GBER, which refer to decisions not to raise objections, positive decisions and conditional decisions of the Commission. [para 38]
Therefore, the Court concluded that, since the 2012 Commission decision was no longer applicable, the aid that was granted in 2018 could not be regarded as misused. [para 40]
More importantly, the aid that was granted in 2018 had to be regarded as “new aid” which was in breach of Article 108(3) TFEU, and constituted “unlawful aid” within the meaning of Article 1(f) of Regulation 2015/1589. [para 42]
Then the Court of Justice re-formulated the question and examined whether it was for the Commission to request Member States to recover unlawful [rather than misused] aid.
In this connection, the Court observed that Article 108(3) TFEU has direct effect and that the immediately applicable prohibition on implementation of aid extends to any aid which has been put into effect without prior notification to the Commission. [para 44]
It is for the national courts to ensure that all the consequences of an infringement of the last sentence of Article 108(3) TFEU are drawn, in accordance with their national law, in particular as regards both the validity of implementing acts and the recovery of aid granted in breach of that provision. National courts must adopt appropriate measures to remedy the illegality of the implementation of the aid, so that the recipient does not retain the benefit from the aid until the Commission eventually decides on the matter. [para 45]
The Court added that any provision of EU law which has direct effect is binding on all authorities of Member States, not only on national courts, but also on all administrative bodies, including decentralised authorities. [para 46]
It follows that, where a national authority finds that aid has been granted in breach of the last sentence of Article 108(3) TFEU, it is for it to recover on its own initiative the aid that was unlawfully granted. [para 47]
Then the Court made a clarification that must be very important in practice. Accordingly, Member States may recover only the part of the aid that does not fulfil the criteria laid down by the GBER. In the words of the Court, “(49) It should be added that, in such a case, there is nothing to prevent, in principle, the Member State concerned from taking the view that only the part of the aid which does not satisfy the criteria laid down by Regulation No 651/2014 must be repaid.”
This a clarification with practical importance because until now it was not obvious whether the illegality extends to the whole amount of aid or only that which exceeds what is allowed by the GBER.
Next, the Court reiterated established case law on the different roles of national courts and the Commission.
The Commission may not require the recovery of aid solely on the ground that it is unlawful. It must first carry out a full assessment of its compatibility with the internal market before ordering its recovery. [para 51]
Therefore, the answer to the second question was that it is not for the Commission to request Member States to recover unlawful aid. [para 52]
Question 3: Was the aid compatible with the internal market within the meaning of Article 107(3)(c) TFEU?
Although the Court of Justice considered the third question to be inadmissible because the referring court had not provided sufficient information, it still went on to recall that national courts do not have jurisdiction to rule on the compatibility of State aid with the internal market. [para 58]
The assessment of the compatibility of aid measures with the internal market falls within the exclusive competence of the Commission. National courts ensure that the rights of individuals are safeguarded in the event of infringement of the obligation of Member States to notify State aid to the Commission. [para 59]
[1] The full text of the judgment can be accessed at:
CURIA – Documents (europa.eu).
