Non-imposition of Fines on Non-illegal Behaviour

Non-imposition of Fines on Non-illegal Behaviour - Untitled design 9

Introduction

Advantage is any benefit that an undertaking obtains from the intervention of the state. In some situations, however, an undertaking may derive an advantage the non-intervention of the state or, more broadly, from the failure of the state to act. This would be the case where the state does not charge a fee to a user of a state asset or does not levy a fine on an undertaking the infringes a certain regulation.

On 14 September 2023, in joined cases C-508/21 P and C-509/21 P, European Commission, v Dansk Erhverv, the Court of Justice dealt with the problem of non-imposition of fines.1

The Commission sought the annulment of the judgment of the General Court in case T-47/19, Dansk Erhverv v European Commission by which the General Court annulled Commission decision on SA.44865. In that decision, the Commission found that no State aid had been granted by Germany to border shops that sold beverages to visitors from Denmark who consumed those beverages outside Germany.

According to EU Directive 94/62 Member States must establish systems for the return and/or collection of used packaging and/or packaging waste from consumers and for the reuse or recycling of the collected packaging and/or packaging waste.

German law requires a deposit for certain non-reusable packaging for beverages. This deposit is charged by retailers and is included in the price of beverages. Non-compliance by retailers results in administrative fines.

Dansk Erhverv, a Danish trade association, lodged a complaint with the Commission alleging that Germany had granted State aid to border shops in the form of exemption from the deposit on non-reusable drinks packaging. Moreover, the relevant authorities did not impose any fines on the border shops. Also, the exemption from the deposit entailed an exemption from VAT relating to the amount of that deposit.

About 60 border shops on the German side of the German-Danish border catered to Danish consumers who by purchasing alcoholic beverages in Germany avoided paying higher prices in Denmark due to higher excise and VAT taxes there. The exemption applied only when the buyers declared in writing that they would export the beverages and dispose the packaging outside Germany.

The Commission examined three measures capable of constituting an advantage financed through state resources: non-charging of the deposit itself, non-collection of the VAT relating to the deposit and the non-imposition of a fine on undertakings which did not charge the deposit.

What is the relevant domestic law?

With respect to the non-charging of the deposit, the Commission took the view that it did not constitute State aid, since the deposit scheme was not financed through state resources.

The non-collection of the VAT relating to the deposit was the normal consequence of the application of the general VAT rules and the Commission inferred from this that the non-collection was not intended, by its purpose and structure, to create an advantage which would constitute an additional burden for the state and that therefore that measure did not constitute State aid either.

With respect to the non-imposition of a fine on undertakings which did not apply the deposit scheme, the Commission considered that a release from the obligation to pay fines could in principle constitute an advantage granted through state resources. However, the Commission stated that it was also necessary to distinguish cases where the public authorities had introduced the possibility of avoiding the payment of fines that would normally be due from cases where the public authorities did not impose a fine because they had expressly authorised certain behaviour.

The Commission considered that where national authorities are faced with serious and reasonable doubts concerning the scope and the meaning of a national rule imposing an obligation, the non-imposition of a fine is not necessarily the result of a decision taken by those authorities not to collect fines which are payable, but might be the consequence of difficulties of interpretation inherent in any legal system. Consequently, the Commission concluded that a distinction should also be made between situations in which the authorities were faced with difficulties of interpretation of the relevant provision inherent in the normal exercise of their police power and situations in which they decided not to collect fines, which were payable, or provided undertakings with the means to avoid the payment of such fines.

The Commission also observed that the competent German regional authorities took the view that, as a matter of law, there was no obligation on the border shops to charge the deposit, so that not charging the deposit did not, in their view, constitute an offence and the non-imposition of a fine was merely the consequence of no offence having been committed.

The Commission concluded that the competent German regional authorities were faced, in the normal exercise of their police power, with serious and reasonable doubts concerning the

scope and the meaning of the obligation to charge the deposit and that, consequently, the non-imposition of a fine did not involve an advantage granted through state resources.

However, the General Court annulled the Commission decision on the grounds that the Commission erred in law in concluding that the condition relating to state resources was not satisfied without examining whether the difficulties of interpretation on which it relied were temporary and inherent in the gradual clarification of the legislative provisions. Moreover, the General Court observed that the Commission was wrong to take the view that it could rely on the existence of difficulties in interpreting the applicable legislative provision, when the competent German regional authorities did not rely on the existence of such difficulties in order to justify their practice of not imposing fines on border shops when they did not charge the deposit.

The procedural rights of competitors and the obligations of the Commission

First, the Court of Justice recall the case-law relating to the obligations binding on the Commission in the context of the preliminary examination procedure under Article 108(3) TFEU, when the Commission adopts a decision at the end of that procedure without initiating the formal investigation provided for in Article 108(2) TFEU.

Then the Court explained that “(69) the procedure under Article 108(2) TFEU is essential whenever the Commission has serious difficulties in determining whether aid is compatible with the internal market. The Commission may therefore confine itself to the preliminary examination under Article 108(3) TFEU when taking a decision in favour of aid only if it is able to satisfy itself after the preliminary examination that that aid is compatible with the internal market. If, on the other hand, the initial examination leads the Commission to the opposite conclusion or if it does not enable it to overcome all the difficulties involved in determining whether that aid is compatible with the internal market, the Commission is under a duty to obtain all the requisite opinions and for that purpose to initiate the procedure provided for in Article 108(2) TFEU”.

“(70) As the concept of ‘serious difficulties’ is objective in nature, proof of the existence of such difficulties, which must be looked for both in the circumstances in which the decision was adopted after the preliminary investigation and in its content, must be furnished by the applicant seeking the annulment of that decision, by reference to a body of consistent evidence”.

“(72) When an applicant seeks the annulment of a decision not to raise objections, it essentially contests the fact that the Commission adopted the decision in relation to the aid at issue without initiating the formal investigation procedure, thereby infringing the applicant’s procedural rights. In order to have its action for annulment upheld, the applicant may invoke any plea to show that the assessment of the information and evidence which the Commission had at its disposal during the preliminary investigation phase of the measure notified should have raised doubts as to the compatibility of that measure with the internal market. The use of such arguments does nothing, however, to bring about a change in the subject matter of the action or in the conditions for its admissibility. On the contrary, the existence of doubts concerning that compatibility is precisely the evidence which must be

adduced in order to show that the Commission was required to initiate the formal investigation procedure under Article 108(2) TFEU”.

Use of state resources

The applicants argued that the General Court was wrong in finding that the measure in question did not involve state resources.

First, the Court of Justice recalled that “(75) only advantages granted directly or indirectly through State resources or constituting an additional burden on the State are to be regarded as ‘aid’ within the meaning of Article 107(1) TFEU. The very wording of this provision and the procedural rules laid down in Article 108 TFEU show that advantages granted from resources other than those of the State do not fall within the scope of the provisions in question”.

“(77) Consequently, for the purposes of determining the existence of State aid, it is necessary to establish a sufficiently direct link between, on the one hand, the advantage given to the beneficiary and, on the other, a reduction of the State budget or a sufficiently concrete economic risk of burdens on that budget”.

“(78) In order to assess the existence of that link, it is necessary, in particular, to ascertain whether, by virtue of its object and general scheme, the measure seeks to create an advantage which constitutes an additional burden for the State”.

“(79) In the present case, […], the General Court noted that the competent German regional authorities consider that there is no infringement, when beverages are purchased under the export declaration, of the legislation punishable by a fine, with the result that, since the non-charging of the deposit complies with that legislation, as interpreted by those authorities, the imposition of a fine on the border shops is necessarily precluded. The General Court concludes that such a context, in which the non-imposition of a fine is inseparable from the non-charging of the deposit and, therefore, from the interpretation of the relevant legislation, does not correspond to any of the situations hitherto considered in the case-law of the Court of Justice. In particular, the exemption from the deposit and, accordingly, the non-imposition of a fine does not, therefore, stem either from an explicit exemption adopted by the author of the national legislation at issue or from a prior and transparent authorisation, laid down by legislation, but from a mere practice on the part of the competent German regional authorities. Therefore, the Commission was right to rely on a new legal test, based on difficulties in interpreting the relevant provision.”

Link between non-imposition of deposit and non-imposition of fines

After the Court of Justice dismissed certain procedural pleas, it turned its attention to the question whether the non-imposition of a fine could be justified by the non-imposition of the deposit. “(83) As regards the merits [of the] argument that a sufficiently direct link between the non-imposition of a fine and the State budget could be established only if the imposition of a fine was legally possible, it should be noted that it is inherent in any legal system that conduct previously defined as being lawful and permitted does not expose individuals to penalties”.

“(84) German regional authorities decided, following the orders of the German courts of 2003, […], not to adopt new administrative constraint measures in respect of border shops which did not apply the deposit. As the General Court noted […], those authorities consider that, where beverages are purchased under the export declaration, there is no infringement of [the relevant German law on waste packaging], punishable by a fine and that, in such a situation, since the non-charging of the deposit complies with that legislation, imposing a fine on border shops was necessarily precluded.”

“(85) It is thus apparent from the General Court’s own findings that the competent German regional authorities applied the national legislation without encountering difficulties in interpreting the relevant legislative provision.”

“(88) In that context, it is apparent that the General Court’s findings, […], according to which, in the decision at issue, an insufficient and incomplete examination of the non-imposition of fines on the border shops was carried out are vitiated by errors of law.”

“(89) In that regard, […] the General Court criticises the Commission for failing to examine whether the difficulties of interpretation faced by the competent German regional authorities were temporary and were part of a process of gradual clarification of the legislative provisions.”

“(90) However, it must be held that, […], only conduct which is clearly defined – and, if need be, with the assistance of the courts’ interpretation of it – as an infringement which makes the person concerned liable, allows administrative penalties to be imposed.”

“(91) It follows that, even if there were difficulties of interpretation of the relevant legislative provisions which are likely to persist, that finding would not be sufficient to conclude that the condition relating to State resources was satisfied.”

“(94) In this instance, Article 7(1) of Directive 94/62 does not oblige a Member State to require a deposit to be charged to retail purchasers of non-reusable packaging for the consumption of drinks outside its territory, as the Commission found […] and without that finding having been called into question by the General Court in the judgment under appeal.”

“(95) When consumers residing in one Member State purchase drinks packaging in another Member State in order to consume the contents of that packaging in their Member State of residence, the empty packaging becomes waste, within the meaning of Article 3(1) of Directive 2008/98, in the latter Member State.”

“(96) It follows, […], that Article 7(1) of Directive 94/62 does not require a deposit to be collected in circumstances such as those that furnish the background to this appeal”.

“(98) It follows from all the foregoing considerations that the General Court erred in law in holding, […], that the Commission, in the decision at issue, had carried out an insufficient and incomplete examination of the non-imposition of fines on the border shops, in that it did not verify whether the difficulties of interpretation which the competent German regional authorities had encountered were temporary and were part of a process of gradual

clarification of the legislative provisions, so that the Commission was not in a position to overcome, at the preliminary examination phase, all the serious difficulties encountered in determining whether that non-imposition of a fine constituted State aid.”

The Court of Justice rendered final judgment

The Court considered that it had sufficient information before it to render final judgment without returning the case to the General Court.

“(107) The Commission was correct to state, […], that the competent German regional authorities did not exempt border shops from administrative penalties and from the payment of fines which would normally be due to the State budget, but took the view, without having encountered difficulties in interpreting the relevant legislative provision, that, where beverages are purchased under the export declaration, there is no infringement of national legislation punishable by a fine, in which case the non-charging of the deposit being consistent with that legislation, the imposition of a fine on the border shops was necessarily precluded.”

Despite the ambiguities in the relevant German law, the Court of Justice held that “(108) the Commission […] considered, […], that the absence of such an obligation for border shops if they sold canned beverages exclusively to ‘foreign resident’ consumers who committed to consume those drinks outside Germany could be regarded as consistent with the VerpackV’s objective of promoting the return of non-reusable drinks packaging in Germany.”

“(109) Furthermore, […], the Commission was right to observe, […], that […] Article 7(1) of Directive 94/62 does not oblige […] Member States to require a deposit to be charged to retail purchasers of non-reusable packaging for the consumption of drinks outside their territory.”

“(111) In so far as the practice of the border shops not to charge deposits thus constitutes conduct previously defined as being lawful and permitted which does not expose those shops to penalties, the non-imposition of a fine is therefore not a measure granted through State resources”.

On the basis of the above reasoning, the Court of Justice proceeded to set aside the judgment of the General Court and to dismisses the action for annulment lodged by Dansk Erhverv before the General Court

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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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