Member States Must Recover of their Own Initiative Illegally Granted Aid

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).


Tags

Über

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.

Zusammenhängende Posts

03. Mai 2022
State Aid Uncovered von Phedon Nicolaides

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 […]
28. Dez 2021
State Aid Uncovered von Phedon Nicolaides

Illegal Aid Cannot be Regularised a Posteriori

A Commission decision finding non-notified aid to be compatible with the internal market cannot remedy the illegality that existed before the Commission decision. Introduction In November 2021, the General Court rejected an appeal by the recipient of illegal aid who had asked the Commission to declare the aid compatible with the internal market even though the Member State concerned had […]
07. Dez 2021
State Aid Uncovered von Phedon Nicolaides

An Unusual Case of a “Self Notification” of State Aid by an Aid Beneficiary

Aid beneficiaries may not “notify” State aid to the Commission. Only Member States may notify aid. Beneficiaries of non-notified aid may ask national courts to penalise the granting authorities. Introduction What should an undertaking do when it finds out that a public measure from which it has been benefitting contains State aid that has not been notified to the European […]
08. Jun 2021
State Aid Uncovered von Phedon Nicolaides

Economic Continuity and Recovery of Indirect State Aid

Special insolvency procedures can confer a selective advantage that constitutes State aid. A recovery order can be extended to the new owner of a company that had received incompatible State aid. Introduction Recipients of State aid that is found to be incompatible with the internal market have to pay it back with interest. This liability for repayment also extend to […]
01. Jun 2021
State Aid Uncovered von Phedon Nicolaides

The Impossibility of Proving the Absolute Impossibility to Recover Incompatible State Aid

It is not sufficient to claim that is it absolutely impossible to recover incompatible State aid. It must be shown that alternative methods have been actually tried without success. Introduction It is rather impossible for Member States to prove that it is absolutely impossible to recover State aid that has been found by the Commission, and confirmed by EU courts, […]
08. Dez 2020
State Aid Uncovered von Phedon Nicolaides

A Rare Case of Altmark-compliant SGEI (Part II)

For a service to be in the general economic interest, it must be shown to fill a gap in the market or to offer what the market fails to provide adequately. [In case you have missed part I, you can access it here.] Introduction Services of general economic interest [SGEI] are important for the functioning of European societies. However, the […]
01. Dez 2020
State Aid Uncovered von Phedon Nicolaides

A Rare Case of Altmark-compliant SGEI (Part I)

For a service to be in the general economic interest, it must be shown to fill a gap in the market or to offer what the market fails to provide adequately. Introduction Services of general economic interest [SGEI] are important for the functioning of European societies. However, the granting of compensation to an undertaking for the provision of SGEI must […]
06. Okt 2020
State Aid Uncovered von Phedon Nicolaides

Member States Beware: Compliance with the GBER and the SME Criteria has just Become more Difficult

I am grateful to Péter Staviczky for comments on an earlier draft of this article. I am solely responsible for its contents. The European Commission retains its sole right to assess the compatibility of aid granted on the basis of the GBER. Criteria defined in national law need not be taken into account by the Commission. The SME status has […]
25. Aug 2020
State Aid Uncovered von Phedon Nicolaides

The Non-economic Nature of Certain IT Services for Higher Education

Publicly funded educational services are not economic in nature. Activities intrinsically linked to public tasks are not economic in nature. Update on Temporary Framework: Number of approved and published covid-19 measures, as of 21 August 2020: 262* Legal basis: Article 107(2)(b): 28; Article 107(3)(b): 220; Article 107(3)(c): 20 Four Member States have implemented 16 or more covid-19 measures each: Belgium, […]
14. Jul 2020
State Aid Uncovered von Phedon Nicolaides
report

2019 Competition Report

The Annual Competition Report is a useful document, but it should provide more information on the results of the ex post evaluations and ex post monitoring. Update on Temporary Framework: Number of approved and published COVID-19 measures, as of 10 July 2020: 202* Legal basis: Article 107(2)(b): 20; Article 107(3)(b): 171; Article 107(3)(c): 17 Six Member States have implemented 11 […]