Other member states
| Author | Th. Jestaedt; J. Derenne; T. Ottervanger |
| Profession | Jones Day; Lovells; Allen & Overy |
| Pages | 649-677 |
Page 649
* Austria
* Denmark
* Finland
* Greece
* Luxembourg
* The Netherlands
* Portugal
* Sweden
* United Kingdom
Page 651
Once the Commission has ascertained the illegality of a particular aid measure, it will order its repayment. Abolishing unlawful aid by means of recovery is the logical consequence of a finding that it is unlawful (Spain v Commission: "Province of Teruel"). The technique of recovery (and the applicable rules) will largely depend on the legal basis on which the aid was granted. For instance, whether aid consists of a tax incentive or of a capital increase in a public undertaking does make a major difference for recovery proceedings. In the following, we only consider the straightforward case of aid in the form of a direct monetary transfer. Even here, one has to distinguish between two different types of case:
* aid that has been granted by contract under civil law; and
* aid that has been granted by an administrative order.
If the aid was awarded by contract, the rules of the Austrian General Civil Code ("ABGB") apply. Pursuant to section 879 ABGB, a contract is void (and may be revoked with retroactive effect) if it infringes bonos mores or a statutory prohibition. Based on the ECJ's case law in Lorenz and its progeny, it is hardly disputable that the Community State aid rules contain statutory prohibitions within the meaning of section 879 ABGB.
Consequently, a subsidy contract which infringes Article 87 (1) EC is void and restitution can be ordered pursuant to the ABGB provisions on unjust enrichment (section 877 ABGB).
Under Austrian law, a Bescheid can only be revoked under exceptional circumstances. In particular, it can be declared void by a higher body if it contains a defect explicitly dealt with by nullity under the applicable law (see section 68(4)(4) AVG, "Allgemeines Verwaltungsver fahrensgesetz"); special rules apply in tax matters. As for aid granted by way of civil law contracts, the main question is whether the provisions of the EC Treaty relating to State aid are statutory prohibitions in the meaning of section 68(4)(4) AVG. For the same reasons (i.e. in particular with regard to the unconditional obligation of Member States to give effect to Community law) we believe that this is the case. However, there is still much uncertainty. For instance, it is unclear whether the order with which a Bescheid is revoked for failure to meet Article 87 EC may also provide details of how repayment should be effected (interest etc).
Please note that section 68(4) AVG does not entail any possibility to have orders avoided which were issued by the highest administrative instance. With regard to such measures, Austria could find itself in the position of being unable to comply, on the basis of the law as itPage 652 stands, with Community rules regarding recovery of illegal State aid. Here again, the Supreme Administrative Court might be forced to set aside those provisions in the AVG which would render the recovery of aid impossible.
Page 653
A Danish court may order the repayment of illegal aid at the request of a public authority, in accordance with the general rules of Danish law. This implies that an authority may generally recover payments made in breach of the relevant rules, even if this is due to a mistake by the authority itself. It may generally be assumed that the Danish courts will follow this rule, also taking into account the case law of the ECJ concerning recovery of illegal aid.
Moreover, a third party may be able to obtain a judgment against the recipient, ordering repayment of illegal aid. Further, the courts may order the responsible public authority to pay damages to third parties, including competitors, under the same conditions, as a means of enforcing a negative Commission decision. The fact that third parties suffering loss due to the recovery of the aid from the recipient may be in a position to claim damages from the authority is likely to be problematic. Finally, injunctions may be granted against the implementation of aid which the Commission has declared illegal. In this situation, the Bailiff's Court ("Fogedretten") can rely on the Commission's decision.
Page 655
Under the Act on Application of Certain European Community Law Provisions Relating to State Aid ("Laki eräiden valtion tukea koskevien Euroopan yhteisöjen säännösten soveltamisesta", statute number 300/2001), aid pursuant to Article 87 EC may be recovered from its recipient, either wholly or in part, in accordance with the Commission's decision to that effect.
Page 657
If the Commission issues a negative decision declaring aid incompatible with the EC Treaty, the Member State in question, i.e. Greece, must, as the case may be, either abolish, alter or refuse to grant the unauthorised aid.
Under these circumstances interested third parties may challenge the compatibility of such aid with Article 87 (1) EC before the Greek courts, once this provision has been applied by a specific decision of the Commission under Article 88 (2) EC. The courts with jurisdiction are those described under sections 2.1 and 2.2 above.
Beneficiary undertakings which are requested to reimburse aid illegally granted have locus standi to challenge the relevant administrative act and also to request damages where they can establish extraordinary circumstances justifying a legitimate expectation in the legality of the administrative act which awarded them such aid in the first place. A preliminary question may be addressed to the ECJ in this respect101.
In Decision 5024/1995, the Administrative Court of First Instance of Thessaloniki held that the course of action above would be open to the claimant, but that it did not have to rule on it.
In Decisions 1957/1999, 1916/2002, 1917/2002, 1918/2002 and 1335/2002 the Hellenic Conseil d'Etat had to rule on whether Article 78 (2) of the Greek Constitution was infringed by the retroactive revocation of a tax exemption concerning the export activity of Greek undertakings while this tax exemption was found by a Commission decision to constitute illegally granted State aid, a ruling which was subsequently confirmed by the ECJ. This constitutional provision prohibits the retroactive application of taxation or financial charges beyond the year during which they were imposed, and could allegedly invalidate the legislative provision by which the exemption of the export activity of Greek undertakings from the relevant tax had been revoked. The Hellenic Conseil d'Etat, however, ruled that the initial provision exempting the export activity of Greek undertakings from taxation had been invalid from the start (as contrary to Article 87 (1) EC) and therefore the imposition of the tax payment to the export activities of Greek undertakings did not constitute an infringement of a constitutional provision.
Facts and legal issues: In 1988, a decision of the Minister of Finance, later ratified by law, imposed an extra charge on the profits of undertakings. It exempted, however, their profits from export activity. The Commission considered this exemption to constitute illegal State aid to the undertakings with an export activity, which infringed Article 88 (3) EC and was notPage 658 compatible with the Common Market in accordance with Article 87 (1) EC. It therefore requested, in its Decision 89/659/EEC102, that the Greek State revoke the State aid by collecting the part of the exempted charge. Further, the Commission brought an action before the ECJ on the basis of Article 88 (2) EC, second subparagraph, and the ECJ, by its judgment of 10 June 1993103, ruled that Greece had not complied with the above Commission decision, without there being any valid reason of impossibility of executing such decision, and thus had infringed its Treaty obligations. In view of the above developments, Greece subsequently introduced a legislative provision, which retroactively replaced the initial ministerial decision, and revoked the initial exemption from the extra tax on profits relating to exports to EC Member States.
In all of these judgments, the Hellenic Conseil d'Etat had to rule, as a supreme court of appeal on previous decisions of the administrative courts, on whether Article 78 (2) of the Greek Constitution was infringed by the retroactive revocation of a tax exemption concerning the export activity of Greek undertakings, while this tax exemption was found by a Commission decision (which was confirmed by a judgment of the ECJ) to constitute illegally granted State aid. This constitutional provision prohibits the retroactive application of taxation or financial charges beyond the year during which they are imposed and could allegedly invalidate the legislative provision by which the exemption of the export activity of Greek undertakings from the relevant tax had been revoked.
Decision: The Hellenic Conseil d'Etat, however, ruled that the initial provision exempting from taxation the export activity of undertakings had been invalid from the start (as contrary to Article 87 (1) EC) and therefore, the imposition of a tax payment to the export activities of Greek undertakings which were initially exempt from it did not constitute an infringement of a constitutional provision.
Comments: It is very positive that in all of the above judgments, the Hellenic Conseil d'Etat did not hesitate to uphold the constitutionality and validity of the provisions imposing the reimbursement of illegal aid as a result of the enforcement of a negative Commission decision.
Facts and legal issues: In this case, the claimant requested suspension of the execution of a ministerial decision against which it had lodged an action before the Hellenic Conseil d'Etat. This decision revoked the submission of the complainant company's business plan under the provisions of law 1892/1990 and requested the reimbursement by the claimant of a State grant. The complainant claimed, inter alia, that the administration had infringed Article 88 (3) EC by deciding that its failure to notify the Commission of the submission of the abovePage 659 business plan (under the State aid system introduced by law 1892/1990) obliged it to revoke such aid.
Decision: The Hellenic Conseil d'Etat rejected the above and the other grounds for suspension of the execution of the administrative act as being clearly unfounded.
Comments: The Hellenic Conseil d'Etat did not allow the suspension of the execution of a ministerial decision imposing the reimbursement by the claimant of a State grant which, in the opinion of the Greek State, infringed Article 88 (3) EC and thus facilitated the reimbursement thereof.
The Hellenic Conseil d'Etat did not hesitate to uphold the constitutionality and validity of the provisions imposing the reimbursement of illegal aid as a result of the enforcement of a negative Commission decision in a series of its judgments (1916/2002, 1917/2002, 1918/2002,1335/2002 and 1957/1999).
Although the Legal Council of State is not a court of justice but a State advisory body giving legal advice to the State sector, its legal opinions 441/1994 and 438/2003 on issues involving the EC law on State aid constitute a positive element, assisting in the correct application of EC State aid law in Greece.
The Legal Council of State advised the Greek State that it should legally request the reimbursement by Olympic Airways of the restructuring State aid, which was found incompatible with the Common Market104 in accordance with Article 87 EC.
Page 661
It often happens that the Commission, in ordering the discontinuance of incompatible State aid, also orders the public authority to recover the funds from the recipient.
In this case, the public authorities first have to withdraw the administrative act which previously granted the aid.
Pursuant to Article 8 of the grand-ducal decree dated 8 June 1979 on the procedure to be followed by the local or State administrations, the retroactive withdrawal of a decision which has created or recognised rights is -unless otherwise provided -only possible during the period in which contentious proceedings may be introduced against the decision, as well as during the period of the contentious proceedings themselves. The withdrawal of such a decision is only permitted for the same reasons as those that would have justified its annulment.
This provision nevertheless has to be viewed in the context of European case law, according to which the recovery of aid should be ordered in accordance with national procedures, including the national provisions relating to legal certainty and legitimate expectations on the withdrawal of an administrative act. On the other hand, the recipient of State aid may only have legitimate confidence in the regularity of this State aid if it has been granted to it in accordance with Article 88 EC105. In relation to national provisions regarding the period of time during which a withdrawal of an administrative act is possible, the ECJ has stated that these provisions are, like any other national provisions, to be applied in a way which does not render the recovery practically impossible106.
Should the recipient refuse to refund the aid, the public authority has to initiate ordinary proceedings before the civil courts in accordance with the general rules of civil law.
The commercial company Moulins de Kleinbettingen filed for a subsidy with the Ministry of Agriculture, in accordance with the Act dated 18 December 1986, promoting agricultural development. The application was refused by the Ministry on the grounds that the claimant did not fall within the scope of application of Article 39 paragraph 1 of the act, which lists the potential beneficiaries of such subsidy, stating that such beneficiaries may, inter alia, be those undertakings whose main purpose is to increase the income of farmers in general.
Page 662
The claimant instituted an administrative action against this decision before the Sate Council by arguing, firstly, that the act had not been correctly applied by the Ministry and, secondly, that, by such incorrect application of the act, Article 87 EC had been infringed in the sense that anti-competitive structures had been created.
As far as the first argument is concerned, the State Council held that the aim of the act was to enable the Ministry of Agriculture to promote the agricultural sector. Hence, the potential beneficiaries of the subsidies were to be found amongst the agricultural population and the rural establishments. The subsidies foreseen by the act were paid by the budget of the Ministry of Agriculture. As public expenditures must not be diverted from the purpose given to them by the legislator, it was held that the Minister of Agriculture must restrict the granting of subsidies to those entities for which his Ministry is in charge. This was not the case of the company Moulins de Kleinbettingen, a private company which falls under the competence of the Department of Industry and Middle Class affairs. Accordingly, the decision of the Minister of Agriculture was upheld by the State Council.
As far as the claimant's second argument is concerned, the State Council simply considered, without any further comments or explanations, that the aid granted under the act, just like the aid benefiting to the industrial sector as provided by an act dated 14 May 1986, was compatible with the exceptions set out under Article 87 (2) and (3) EC. The State Council also stated that the claimant could not reasonably assert that there was a risk of the balance of the Common Market being disturbed by the mere fact that Luxembourg granted structural aid to the agricultural sector by means of the act.
Page 663
A Commission decision by which aid is declared incompatible with the Common Market should be enforced by the agency that granted the aid. The agency should order repayment of the aid from the recipient.
Under Dutch law there are - depending on the nature of the aid - three legal possibilities to recover the aid: (i) a recovery procedure based on administrative law (for example, in the case of subsidies), (ii) a civil law procedure (for example, in the case of selling State property under the market value or financing a company on favourable conditions), and (iii) a procedure based on the General Tax Act ("Algemene Wet inzake Rijksbelastingen").
9.6.1.1 Recovery procedure on the basis of administrative law
A decision by an agency to recover State aid is governed by the Algemene wet bestuursrecht ("Awb"). The legal basis for such a decision is the (originally civil law) concept of "undue payment" ("onverschuldigde betaling") or "unjust enrichment" ("ongerechtvaardigde verrijking"). This was established in respect of "undue payment" by the Council of State's decision of 21 October 1996 in the case Nanne v Secretary of State, and in respect of "unjust enrichment" in its decision of 26 August 1997 in the case between Noord Kennemerland and the Ministry of Housing, Planning and the Environment. According to the Council of State, these principles are administrative in nature if they are applied in a case governed by administrative law107. An appeal against such a decision by a State aid beneficiary ordered to repay the aid can therefore be lodged before the competent administrative court.
The Awb and a number of Subsidy Framework Acts provide for special provisions on recovery in the case of subsidies. Note that Article 4:57 Awb states that the agency has to recover the subsidy within a period of five years (instead of ten years for a decision by the Commission108) after the decision to recover the State aid was made by the agency. It is questionable whether this rather short time limit is in conformity with EC law on State aid.
A complication arises when the agency is a local public authority that does not intend to enforce a negative Commission decision (in the case referred to in section 9.6.2.(1) below, the court held that the negative Commission decision has direct effect). It is assumed that the Central Government does not have authority to force recovery by such agencies. However, competitors may request a review procedure and subsequently lodge an appeal at the competent administrative court against a written refusal by an agency to recover illegal aid. Even if the Commission would take a positive decision and declare unlawfullyPage 664 introduced aid compatible with the Common Market, a court has to find measures which have been adopted before such finding to be unlawful. A beneficiary is therefore not protected against actions to order an agency to recover aid.
The cases referred to in sections 9.6.2.(1) and 9.6.2.(2) below demonstrate the obstacles faced by a beneficiary when requesting annulment of the decision on the basis of the principles of good faith and legal certainty. The court found that the claimant failed to show facts or circumstances that could enable it to successfully argue that it could legitimately presume that the aid would not be recovered. The court reiterated the continuous line of jurisprudence in which the ECJ has determined that a legitimate expectation only exists if the aid was granted in accordance with Article 88 EC, something that a normal, cautious undertaking could be expected to determine by itself without too much difficulty. In both cases, there could be no legitimate expectations on the part of the recipients. The application for annulment was dismissed. The claimants in the case referred to in section 9.6.2.(3) successfully relied on the principles of proper administration in their defence against an action for recovery.
9.6.1.2 Recovery procedure on the basis of civil law
Private law instruments to recover State aid are based on the legal concept of "undue payment" ("onverschuldigde betaling") or "unjust enrichment" ("ongerechtvaardigde verrijking"). In order for legal obligations arising from a legal transaction to end under Dutch civil law, a new judicial act is required. An exception applies in regard of void legal transactions. Presumably, private law transactions in violation of Article 88 EC can be considered as void109.
There is a time limit of five years for recovering sums of money. This rather short time limit may conflict with EC law on State aid.
9.6.1.3 Recovery procedure on the basis of tax law
The General Tax Act provides explicit statutory provisions in the case of the imposition of too little tax. The tax inspector is authorised to impose additional tax but, as far as important categories of taxes are concerned, only if a 'new fact' emerges. It is unclear whether a negative decision by the Commission, finding the tax to be illegal because of State aid, can qualify as a 'new fact'. Under Dutch Tax Law there is a five-year time limit to impose additional taxes after the duty to pay the taxes arose. Again, this rather short time limit may conflict with EC law on State aid.
Page 665
Facts and legal issues: Proceedings in first instance (administrative law), agricultural sector.
X applied for subsidies under the "Bijdrageregeling proefprojecten mestverwerking" (contribution scheme for a pilot manure processing project), which were initially granted by the Secretary. As a result of a Commission decision declaring the subsidy granted to the applicant contrary to the EC provisions on State aid110, the Secretary ordered recovery of the subsidies granted, including interest. The central issue was whether the decision revoking the aid was unjustified.
Decision: The Court found that the recovery decision was justified as it had been based on a directly effective Commission decision. Since the Commission decision had not been appealed within the time limits, it had become definitive. Moreover, X failed to substantiate that it could rely on a legitimate presumption that the aid would not be recovered. The court reiterated the ECJ's case law, stating that legitimate expectations only exist if aid is granted in accordance with Article 88 EC, something that a normal, cautious undertaking could be expected to determine without too much difficulty. Since the aid had not been granted in accordance with the Article 88 EC procedure, the claimant could not rely on the principle of legitimate expectations. Finally, the court found that it could not be expected of the Secretary to act in defiance of a Commission decision and that this Commission decision did not provide the Secretary with any leeway to test the recovery decision against the principle of reasonableness. The action was dismissed.
Facts and legal issues: Proceedings in first instance (administrative law), petrol.
Demarol BV operated a number of petrol stations along the Dutch-German border. According to a specific Act, such petrol stations were eligible for a maximum of euros 100,000 worth of aid over a three-year period to compensate the negative competition effects arising from excise differences in the Netherlands and Germany. Demarol BV applied for, and subsequently received, aid under the Act. Since the Commission deemed the aid granted under the Act incompatible with EC State aid provisions, the Secretary notified Demarol BV that the aid received was to be repaid, including interest. The Secretary denied the application for annulment of the recovery decision upon which Demarol BV initiated these proceedings.
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Decision: The Court found that the Secretary was justified in ordering the recovery of part of the aid based on the Commission's decisions111 declaring the aid incompatible with Article 88 (2) EC. Moreover, Article 4:49(1) and sub (b) of the Awb (General Administrative Act) and the identical Article 13 (1) and sub (b) of the Act in question enable the Secretary to recover or amend the amount of aid granted if the decisions by which the aid was granted were flawed and the recipient was or should have been aware of such flaw. Through the correspondence between the State and Demarol BV, Demarol BV was, or should have been, aware that the Commission had initiated proceedings at the time of the aid grant without having reached a definite conclusion, and that any aid granted pending such proceedings would fall under the prohibition of Article 87 (1) EC. The Court found, moreover, that Demarol BV could not invoke the principle of legitimate expectations or legal certainty because ECJ case law clearly states that those principles may be relied on only if the aid in question is granted in accordance with Article 88 EC, something that a normal, cautious undertaking could be expected to determine without too much difficulty. In light of the above, the Secretary was justified in making this decision and therefore the application for annulment was dismissed.
Facts and legal issues: Application for an interim injunction (administrative law), petrol.
X operated petrol stations along the Dutch-German border. According to a specific Act ("Tijdelijke regeling subsidie tankstations grensstreek Duitsland") such petrol stations were eligible for a maximum of euros 100,000 (NLG 223,250) worth of aid over a three-year period to compensate the negative competition effects arising from excise differences in the Netherlands and Germany. X was granted aid in the amount of euros 95,556 (NLG 210,600) under the condition of possible amendments or recovery of the aid. Before and after the aid was granted there had been extensive written contact between the claimant and the defendant. Because of the fact that the claimant did not respond to several requests by the defendant for information, the defendant decided to recover the aid. The claimant was of the opinion that by ordering recovery of the aid and interest within a period of four weeks after publishing the relevant decision, the defendant had acted in violation of several administrative principles, most notably the principles of proportionality, legitimate expectations and reasonable consideration of the interests involved. The defendant argued that it was confronted with a Commission decision declaring the aid illegal and, thus, with an incontrovertible obligation to recover the aid granted, which in turn led it to demand repayment within the contested period.
Decision: The President of the Court firstly considered that injunction proceedings were not suitable for the case at hand as several proceedings had been commenced at the European Courts which could potentially result in overturning prior national court rulings. The scope ofPage 667 the present proceedings was thus limited to the recovery order for the entire subsidy sum within a four-week period. Pursuant to a Commission decision112, the aid should be recovered in accordance with the relevant national rules. The President thus found that the recovery the principles of proper administration ("algemene beginselen van behoorlijk bestuur") applied. As the total sum granted was spread over several years and the defendant had not indicated from the outset that there was a possibility of recovery due to issues at European level, this could have created expectations. The President found that the defendant could have offered a longer repayment schedule than the four-week period and annulled the decision in so far as it referred to a four-week period for repayment.
Page 669
The enforcement by national authorities of Commission decisions declaring State aid to be incompatible may be effected by non-judicial means, under the provisions on the revocation of administrative acts, as long as the aid has been granted by an administrative decision. However, the reimbursement may be challenged in these cases by the beneficiary of the aid, on the basis of the rule under which unlawful acts are only revocable within the longest time limit for bringing an action for annulment (currently one year). This rule has a long-standing tradition in Portuguese law because of the accepted principle that time eliminates the consequences of invalidity, unless the law exceptionally considers the act as being null and void as opposed to merely voidable113.
The ECJ considered, in the Alcan114 case, that the expiry of national time limits for revocation cannot prevent Member States from enforcing Commission decisions and that the beneficiary undertaking may not invoke its legitimate expectations in the maintenance of an aid considered incompatible with the Common Market or granted in violation of Article 88 (3) EC. This understanding is not in accordance with the rationale behind Portuguese law, which tends to protect individuals, irrespective of their good faith, and to preserve the stability of non challenged administrative acts, which has been consistently applied by administrative courts.
The courts may also take the view that if a positive Commission decision does not eliminate the illegality, then a negative decision should similarly not harm the individual by extending the time limit for revocation.
Another difficulty which may arise in the enforcement of Commission negative decisions concerns the aid granted by public administration independent entities, whether at local level ("autarquias locais", mainly municipalities) or at regional level ("regiões autónomas").
As a consequence of their constitutionally protected autonomy, the government has no means of imposing on these local or regional entities the enforcement of the reimbursement of an aid granted in violation of last sentence of Article 88 (3). Government supervisory powers over municipalities are restricted to inspections and other investigative procedures. The results of these inspections can lead to the dismissal of the authority responsible for recovery or authority member, but only in a certain number of situations strictly defined by law, none of which cover the infringement of Article 88 (3) EC. As to the "regiões autónomas" (Azores and Madeira), they are not subject to any control by government.
Page 670
This lack of means of enforcement can hardly be compensated by the use of judicial remedies, either before the administrative courts or any other courts. Outside the collection of taxes and debts, judicial enforcement of public authority decisions is exceptional in the Portuguese law system. The government, as a rule, will not by itself apply to the courts for any kind of orders or injunctions against individuals or lower authorities. Such orders or injunctions may be sought by special magistrates acting as public attorneys ("Ministério Público" agents), but "Ministério Público" magistrates are seen as a judiciary rather than an executive body, and accordingly enjoy a large degree of autonomy. Unless the law imposes on them a specific obligation to apply to the courts (as in the case of actions for dismissal of local authorities or their members, when applicable), the decision to bring an action remains within their discretion, although they are expected to act on the government's well-grounded requests. In any case, all that the government would be likely to be able to obtain through this narrow path would be an action for annulment brought against the local or regional authority's decisions. A Ministério Público has locus standi to seek injunctions in administrative courts only when fundamental rights or a "specially relevant public interest" are involved.
The possibility of competitors requesting judicial enforcement of negative Commission decisions is of considerable importance. After the 2004 reform, Portuguese law extended the possibility for competitors to obtain appropriate remedies, allowing them to request, not only the annulment of an administrative decision granting aid declared incompatible with the Common Market, but also an order requiring the administration to do what is necessary to redress the situation. Some difficulties may arise from locus standi rules, as the latter remedy can be sought only by those who show a right or a legally protected interest in obtaining it. The competitor's interest is accepted as a direct one, but it is not certain that the courts will see it as an interest specifically protected by State aid rules.
We are not aware of any cases in which the Portuguese courts have applied Articles 87 EC or 88 EC to invalidate administrative decisions, or any other acts of a public body. The search of all available databases has not shown any annulment or injunction decisions, or the awarding of damages, as a result of the direct application of Article 88 (3) EC.
State aid has been discussed in a small number of cases, in which the court has either ruled on an issue other than the legality of the act granting the aid, or has decided that there was no illegal State aid at all.
Page 671
According to the Act regarding the implementation of the European Communities competition and State aid rules ("Lag 1994-1845° om tillamningen av Europeiska ge, enskapernas konkurrensoch statstödsregler") the government may annul a municipality or Court Council decision granting aid if the Commission or the ECJ has declared the aid to be in breach of Article 87 EC. The government is responsible for such a decision ex officio.
If a private complaint is lodged before a court prior to such action by the government, the courts are also competent to annul the decision.
There are no explicit rules on recovery in Swedish law. This means that it is far from clear how a recovery decision would be implemented. As there has only been one Swedish case on recovery, it is also difficult to say how it would work in practice. However, it seems as if the government would have to act ad hoc in this situation. In the case of recovery described under in Part I (3.2), the government (without prior court decision) required the Swedish National Tax Board ("Skatteverket") to execute the recovery in accordance with Council Regulation (EC) No 659/1999 of 22 March 1999, laying down detailed rules for the application of Article 88 EC. By formal letter, the National Tax Board successfully requested the recovery from the beneficiaries.
To the best of our knowledge, a decision by a Swedish national authority implementing a negative Commission decision has not yet been challenged before a Swedish court. It should be noted, however, that, according to information that we received from the Ministry of Industry, the Swedish Government is currently handling its first case for recovery of illegal aid (tax benefits granted to companies active in the electricity sector).
The government informed the Commission by a letter dated the 12 July 2005 that the recovery had been completed (N2005/5064/NL).
Page 673
The Commission has the exclusive power to declare State aid compatible with the Common Market. The Commission can therefore require the recovery of that State aid by the government if that State aid has been found incompatible and it was granted before the Commission reached its final decision in the case.
National courts can declare that a measure is a State aid and that the government should recover that aid where it has not been notified on the sole basis that the aid has not been notified. Thus, a claimant can go before a national court and secure a finding that a certain State aid is illegal (i.e. unnotified). The national court can then order the government to recover the State aid.
Where the Commission has issued a decision finding that certain benefits equivalent to State aid under Article 87 (1) EC are incompatible and illegal, and requiring the UK Government to ensure that the aid is refunded, the practice appears to be for the UK Government to bring an action in the High Court against the recipient of the illegal aid. The statement of claim accompanying the action is founded upon the UK Government's duty to comply with the decision of the Commission, and that duty affords the government the right to seek recovery through the domestic courts for the whole of the illegal State aid. It is clear from the ECJ's jurisprudence that the government is under a duty to ensure that a suitable mechanism is in place which allows recovery of illegal aid, even if this means changing its own laws.
Facts and legal issues: In 1988, the Commission approved certain aid to British Aerospace to assist in the purchase of Rover from the UK Government. Following that decision, the UK Government made available a further £44.4 million in aid, which had not been approved by the Commission. By a second decision of 17 July 1990, the Commission declared that the £44.4 million in question amounted to State aid within the meaning of Article 87 (1) EC and ordered the UK to obtain from British Aerospace repayment of the £44.4 million. The UK Government duly instituted proceedings in the High Court for the recovery of the money. On 24 September 1990, British Aerospace and Rover brought proceedings in the ECJ under Article 173 (2) EC for annulment of the Commission's decision of 17 July 1990 on the grounds that in taking this decision, the Commission had failed to observe the procedural rules laid down in Article 88 (2) EC. British Aerospace and Rover also applied in the High Court for a stay of the recovery proceedings. The Court held that it was appropriate to exercise its inherent jurisdiction and grant a stay until delivery of judgment by the European Court.
Page 674
In the report of the case relating to the stay of the High Court proceedings, the judge comments in passing upon the claim made by the DTI against British Aerospace and Rover. The report states that the government's claim for repayment of the illegal State aid is founded upon the government's duty to comply with the 1990 decision of the Commission and that it was also claimed that the duty imposed upon the government by the Commission afforded the government the right to seek recovery through the English courts for the entirety of the aid.
Counsel for British Aerospace apparently told the High Court that British Aerospace would be submitting that the government's pleadings, as framed, disclosed no cause of action in English law and that it would invite the Court to strike them out.
Following the stay of the High Court proceedings, on 4 February 1992, the ECJ, annulled the 1990 decision insofar as that decision required the UK Government to recover from British Aerospace State aid of £44.4 million115. The Court found for British Aerospace on procedural grounds, namely that in taking its 1990 decision, the Commission had failed to observe the procedural rules laid down in Article 88 (2) EC, which includes a hearing of the interested parties.
Subsequently, the Commission followed the procedure under Article 88 (2) EC in respect of the aid of £44.4 million and found that it was illegal State aid and required repayment. Repayment was made and the initial High Court proceedings for recovery brought by the Department of Trade and Industry were not continued.
Facts and legal issues: in January 1999, three judges of the Court of Appeal heard an appeal by the Commissioners of Customs and Excise against a decision of the previous year by the High Court, finding that the differential rates of Insurance Premium Tax ("IPT") provided for in the Finance Act 1997 constituted an unlawful State aid contrary to Article 87 EC.
That earlier application for judicial review before the High Court had been brought by Lunn Poly Ltd, a travel agent, and Bishopsgate Insurance Ltd, specialist insurers who provided Lunn Poly with a range of travel insurance policies which Lunn Poly endorsed and sold as Lunn Poly insurance. The case arose because the Finance Act 1997 replaced the previously uniform rate of 2.5% IPT with two different rates: a standard rate of 4%; and a higher rate of 17.5% which applied only to certain travel insurance contracts. The effect of the change made the premiums on travel insurance arranged by tour operators or travel agents or persons connected with them subject to the higher rate. By contrast, if the insurance was arranged by an independent insurance company, only the lower rate was payable.
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The High Court accepted that those paying IPT at the lower rate were receiving State aid because the UK was foregoing the difference between the higher rate tax and the lower rate tax in the case of those who were not subject to the higher rate.
The Commissioners appealed the High Court finding that the differential rates were State aid under Article 87 EC.
Decision: before assessing the State aid point, Lord Justice Woolf considered a preliminary point raised by the Commissioners. They queried the role of the High Court in the earlier proceedings, suggesting that it might be limited only to reviewing the decision for breach of the principles of sound administration, rather than extending to finding a breach of the State aid rules. Lord Woolf responded that "if the provision in national legislation conflicts with a requirement of the Treaty, it is the responsibility of the domestic courts to provide a remedy of the type granted by the Divisional Court in this case if the provision which is contravened is of direct effect". The relevant provisions (Article 88 (3) EC) were of direct effect.
In considering what constitutes 'aid', the Commissioners had argued that in this case there was no transfer of State resources and no foregoing by the State of tax revenue. Rather, there were simply different rates of taxation set by Parliament. Lord Woolf found that to determine this issue, it was necessary to look at the position before the differential tax rates were introduced. If there were an objective justification for the introduction of the differential this would be relevant.
By way of justification for the differential, the Commissioners had argued that the different rates were introduced to avoid the loss of revenue as a result of value shifting -the travel sector allegedly sold insurance by earning low margins on the principal product of holidays, whilst earning high margins on the related travel insurance. Lunn Poly and Bishopsgate Insurance denied that any of their activities could be seen as tax avoidance. It was found, however, that there was "no loss of tax which provides an objective justification for the discriminatory rate of tax imposed on tour operators and agents providing insurance. The higher rate contrary to the stand adopted by the Commissioners cannot be objectively justified as an anti-tax avoidance measure".
Lord Woolf went on to find that the reason high margins could be achieved on travel insurance was because "demand for travel insurance is highly price inelastic. This enables travel agents, in particular, to charge their customers a premium which they should find uncompetitive. They do not do so because they are guided by factors other than price when making their purchasing decision on insurance".
The Commissioners then argued that there was no State aid because the 'selectivity' requirement was not met. The higher rate applied to "the generality of taxpayers" as opposed to a "specific undertaking". Lord Woolf responded that "specific (euros ) should not be regarded as meaning that there can only be a State aid in relation to an individual undertaking." APage 676 group of taxpayers could receive State aid where another body of taxpayers does not receive the same benefit. In this case, Lord Woolf stated that "those providing travel insurance, who are not subject to the higher rate of tax, are a clearly defined part of the group providing travel insurance and they received a benefit in the form of a lower tax rate which another defined part of those providing travel insurance, namely the travel operators and travel agents, did not receive. The aid was both specific and selective".
As for the distortion of competition and the effect on inter-state trade, Lord Woolf held that the High Court was "entitled" to find that the differential tax rates were bound to affect trade between Member States. He commented that "the extent of the difference between the two rates would make it surprising if there was no distortion".
Lord Justice Clarke continued that the differential tax rates were "not justified by the general scheme of the tax system in the United Kingdom" and "not objectively justified by the considerations advanced by the applicants".
The appeal was therefore dismissed.
Facts and legal issues: the Commissioners of Customs and Excise appealed from two interlocutory decisions of the Value Added Tax and Duties Tribunal concerning, inter alia, its jurisdiction to hear, and the conduct of, appeals by Gil Insurance Ltd and others (the "taxpayers") against the Commissioners' refusal of their claims to repayment of Insurance Premium Tax.
The taxpayers all provided insurance for domestic appliances. A change to the Finance Act 1994 in 1997 introduced Insurance Premium Tax ("IPT") at a higher rate for premiums of some descriptions and at a standard rate on others. The taxpayers, who had been taxed at the higher rate, alleged that the differential rate was unlawful State aid and sought repayment of sums paid by way of higher rate IPT. The Commissioners rejected the claim. They asserted that even if the differential did constitute State aid, it would not follow that amounts paid by way of higher rate IPT would have been paid by way of tax that was not due to the Commissioners.
The taxpayers appealed on the basis that differential tax was contrary to Community law as it was a State aid which had not been notified to the Commission.
The Commissioners applied for a direction that the State aid issue be struck out or be heard as a preliminary issue of law. On 26 October 1999, the Value Added Tax and Duties Tribunal held that it was arguable that the higher rate or the differential was illegal. It declined to strike out the State aid issue or direct that it be heard as a preliminary issue of law.
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Decision: the Commissioners' appeals were dismissed.
The Value Added Tax and Duties Tribunal's decision not to strike out the ground of appeal on the State aid issue was a decision properly open to it.
Furthermore, the Value Added Tax and Duties Tribunal was entitled to take the view that there were reasonable grounds for the taxpayers to raise the State aid issue. It was acknowledged that the remedy was not obvious. The Commissioners argued that the taxpayers could not be repaid the differential as this would exacerbate rather than alleviate the State aid issue. Richards J. held that, while these arguments had considerable force, it was possible that the taxpayers might succeed in a restitutionary claim as this was an uncertain and developing area of the law. The fact that it was a lead case, and substantial amounts of tax were at stake, was also relevant in determining whether the matter should be dealt with at a full hearing. Moreover, the Value Added Tax and Duties Tribunal had not erred in refusing to direct that the State aid issue be heard as a preliminary issue because a resolution of that point would not be decisive of the litigation.
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[101] Decision 5024/1995, Administrative Court of First Instance of Thessaloniki, reported in Dikitiki Diki/1996 (1039) (E. G).
[102] Commission Decision 89/659/EEC (OJ (1989) L 394/1).
[103] Case C-183/91, Commission v Hellenic Republic [1993] ECR I-3131.
[104] By Commission decision 2003/372/EC of 11 February 2002.
[105] Case C-5/89, Commission v République Fédérale d'Allemagne [1990] ECR I-3437.
[106] Idem.
[107] According to national case law, a public law basis is required in order for the recovery to include interest. Even though the Council of State considers for Article 14(2) of Regulation 659/1999 to have direct effect, this provision does not authorise the State to claim interest as to the recovery of the State Aid. Such claim can only be based on civil law. See ruling by the Council of State of 11 January 2006, LJN:AU9416.
[108] Regulation (CEC) No 659/1999, Article 15.
[109] Please see report by Centrum voor Wetgevingsvraagstukken of Tilburg University, "Terugvordering van staatssteun - een rechtvergelijkend onderzoek", available at http://www.wodc.nl/Onderzoeken/Onderzoek_346.asp.
[110] 2001/521/EC, 13 December 2000 (OJ (2001) L 189/13).
[111] 1999/705/EC, 20 July 1000 (OJ (1999) L 280/87).
[112] 1999/705/EC, 20 July 1999 (OJ (1999) L 280/87).
[113] The principle that unlawful acts are merely voidable is a main feature of the Portuguese system of administrative law, in contrast with common law systems, and implies the consolidation of non-challenged acts as definitive and conclusive resolutions: see, for example, decision by STA of 24 May 1994 (AD n. 395, November 1994, p. 1250).
[114] Case C-24/95, Land Rheinland-Pfalz v Alcan Deutschland [1997] ECR I-1591.
[115] Case C-294/90, British Aerospace and Rover Group Holdings v Commission [1992] ECR I-493.
