Summary of EC law on recovery unlawful aid
| Author | Th. Jestaedt; J. Derenne; T. Ottervanger |
| Profession | Jones Day; Lovells; Allen & Overy |
| Pages | 513-518 |
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The procedure for the application of Articles 87 EC and 88 EC has been described in Part I of this study. Part II of this study is dedicated to examining recovery issues in five Member States (Belgium, France, Germany, Italy and Spain).
Before describing and discussing the ways in which these Member States deal with these issues, it is useful to recall briefly the main EC rules applicable to recovery of unlawful aid as derived from Articles 87 and 88 EC and construed by case law, as well as from Regulation No. 659/1999 and Regulation No. 794/2004. These regulations have, in fact, consolidated most of the principles on recovery of State aid which have been established over a period of 40 years in the case law of the ECJ and of the CFI.
Recovery of State2 aid only concerns unlawful State aid, which is defined by Article 1 (f) of the Procedural Regulation as "new aid put into effect in contravention of Article [88] (3) of the Treaty".
Recovery can also concern the misuse of aid, which is assimilated to unlawful aid following a Commission decision (aid used by a beneficiary in contravention of a decision not to raise objections, a positive decision or a conditional decision; Article 1 (g) of the Procedural Regulation). All rules applicable to unlawful aid apply to "misused aid".
A 'recovery injunction' can first be ordered by the Commission pursuant to Article 11 (2) of the Procedural Regulation. However, the conditions imposed on the Commission when seeking such provisional recovery are so strict that it has not yet been used. The conditions are that there must be (i) no doubt that the measure concerned constitutes aid; (ii) urgency to act; and (iii) a serious risk of substantial and irreparable damage to a competitor.
If the unlawful aid is not recovered pursuant to such a recovery injunction, Article 12 of the Procedural Regulation empowers the Commission to refer the matter directly to the ECJ and to apply for a declaration that non-compliance by the Member State concerned constitutes an infringement of the EC Treaty. In the case of non-compliance by a Member State, the Commission will also be entitled to take a decision on the basis of the information available (Article 13 of the Procedural Regulation).
The most important provision of the Regulation concerning recovery decisions is Article 14, which sets out the following principles:
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* the Commission should order recovery of State aid once it has declared the aid unlawful and incompatible with the Common Market (confirmed by case law in 19733although this was deemed to constitute merely a power of the Commission);
* the amount of aid to be recovered includes interest, payable from the date on which the unlawful aid was at made available to the beneficiary until the date of its recovery; Articles 9 to 11 of Regulation 794/2004 implementing the Procedural Regulation contain detailed rules on the method for fixing the interest rate, on its publication and on the method of applying interest (see below);
* recovery has to be effected:
* "without delay" (without prejudice to any order of the ECJ pursuant to Article 242 EC);
- "in accordance with the procedures under the national law of the Member State concerned";
- "provided that they allow the immediate and effective execution of the Commission's decision"; and
* (in order to achieve recovery) Member States are obliged to take "all necessary steps which are available in their respective legal systems, including provisional measures, without prejudice to Community law".
These rules, echoing an underlying political compromise existing at the time of the adoption of the Regulation, nevertheless contain a powerful potential development in the light of the interpretation of the principle of supremacy of EC law over national laws (notably the words "provided that...").
Finally, Article 15 of the Procedural Regulation lays down a limitation period of ten years for the Commission to recover aid4. The limitation period starts to run from the day on which the unlawful aid was awarded to the beneficiary. It is interrupted by any action taken by the Commission, or by a Member State acting at the request of the Commission (the ten-year period starts to run afresh after the interruption)5. It will be suspended when proceedings are pending before the ECJ or the CFI.
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Recital 10 of the Implementing6 Regulation specifies that the purpose of recovery is to reestablish the situation existing before the aid was unlawfully granted. Therefore, as recital 10 continues, in order to ensure equal treatment, the advantage should be measured objectively from the moment when the aid was made available to the beneficiary.
In order to achieve this objective, Articles 9 to 11 of the Implementing Regulation lay down the methods for fixing the interest rate and of applying interest in recovery cases.
Article 9 specifies that, unless otherwise provided for in a specific decision, the interest rate to be used for recovering State aid granted in breach of Article 88 (3) EC shall be an annual percentage rate fixed for each calendar year. The interest rate will be calculated on the basis of the interbank swap rate and, where no such rate or similar reference point exists in a Member State, the Commission will fix the applicable rate in close cooperation with the Member State concerned (Article 9 (4)). This possibility will be of relevance mainly for new Member States.
The Commission publishes current and relevant historical interest rates in the Official Journal of the European Union (Article 10).
The Implementing Regulation further provides that the interest rate to be applied shall be the rate applicable on the date on which the unlawful aid was first at the disposal of the beneficiary (Article 11 (1)). Compound interest will be applied in order to ensure full neutralisation of the financial advantages resulting from the unlawfully paid aid (Article 11 (2)). Furthermore, the interest rate shall be recalculated at five-yearly intervals (Article 11 (3)).
This approach is in line with the Commission communication of 8 May 2003, which makes clear that the effect of unlawful aid is to provide the recipient with funding on conditions similar to those of a medium-term non-interest-bearing loan7.
The case law of the ECJ and the CFI has formed the basis of the Procedural Regulation and the Implementing Regulation. Nevertheless, it is useful to recall the principles on recovery set out in the case law of the Community courts.
First, the ECJ established the principle that the obligation on a Member State to abolish aid, which the Commission considers to be incompatible with the Common Market, has as its purpose to re-establish the situation previously existing. The ECJ considered that thisPage 516 objective is attained once the aid in question, increased where appropriate by interest, has been repaid by the recipient to the relevant public body that granted the aid. Indeed, according to the ECJ, by repaying the aid, the recipient forfeits the advantage enjoyed over its competitors on the market, and the situation existing prior to payment of the aid is restored8.
Secondly, with regard to the amounts to be reimbursed, established case law sets out the following principles:
* there is no obligation on the Commission to quantify the aid9;
* it is for the relevant authorities of the Member States to calculate the amount of aid to be recovered, particularly where that calculation is dependent on information which that Member State has not provided to the Commission10;
* interest to be recovered on the sums illegally granted is aimed at eliminating any financial advantages incidental to such aid; to refrain from claiming payment of interest on the sums illegally granted would be tantamount to enabling the undertaking in receipt of those sums to retain financial advantages resulting from the grant of the unlawful aid, in the form of an interest-free loan, and that, in itself, would constitute aid which could distort, or threaten to distort, competition; the CFI did, however, observe that interest may only be recovered in order to offset financial advantages that actually result from the allocation of the aid to the recipient, and must be in proportion to the aid11;
* such interest is not "default interest", i.e. interest payable by reason of the delayed performance of the obligation to repay the aid; the interest must, instead, be equivalent to the financial advantage arising from the availability of the funds in question, free of charge, over a given period12;
* the interest period cannot start to run before the date (a date which, in principle, must be fixed by the Commission and not the national authorities) on which the recipient of the aid actually had those funds at its disposal13;
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* the national authorities must take account of any potential tax implications (for example, tax deductions as a result of the aid) when calculating the basis of assessment in accordance with procedures and provisions of national law14; and
* where an aid has been granted in the form of a tax exemption and has then been declared unlawful, it is not correct to assume that recovery of the aid in question must necessarily take the form of a retroactive tax, which would as such be absolutely impossible to enforce; indeed, the Member State must merely take measures ordering the undertakings which have received the aid to repay sums equivalent in amount to the tax exemption unlawfully granted to them15.
Thirdly, the ECJ has set out a number of principles with respect to the recovery of unlawful aid from a third party which has bought shares in the company that is the beneficiary of the aid:
* where an undertaking that has benefited from unlawful State aid is bought at the prevailing market price, i.e. at the highest price which a private investor acting under normal competitive conditions would be prepared to pay for that company in the situation that it was in, in particular after having benefited from State aid, the aid element is assessed at prevailing market price and is included in the purchase price; according to the ECJ, the buyer cannot, in such circumstances, be regarded as having benefited from an advantage in relation to other market operators16;
* however, this case law is far from being final since the ECJ has, in an earlier decision, held that "the sale of shares in a company which is the beneficiary of unlawful aid by a shareholder to a third party does not affect the requirement for recovery" and that, accordingly, in the case of a sale of shares by the beneficiary, the State aid must, in any event, be reimbursed by the beneficiary17; and
* moreover, in the recent Olympic Airways decision, the ECJ endorsed the view of the Advocate General that the Commission may be compelled to require that recovery is not restricted to the original undertaking, but is extended to the undertaking which continues the activity of the original undertaking in cases where certain elements of the transfer point to economic continuity between the two undertakings; indeed, the ECJ considered that, where a transfer of assets from the beneficiary to a new company was structured in such a way that it would be impossible to recover the debts of the beneficiary from the new company, that operation created an obstacle to the effective implementation of the recovery decision18.
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Fourthly, with regard to Member States' arguments relating to difficulties encountered when recovering aid, the ECJ has made the following observations:
* it is for the Member State concerned to present a proposal on how the difficulties relating to the recovery of the aid should be overcome, including those difficulties relating to the calculation of the aid19; and
* the only defence available to a Member State in opposing an application by the Commission under Article 88 (2) EC for a declaration that it has failed to fulfil its Treaty obligations is to plead that it was absolutely impossible for it to properly implement the decision ordering recovery; a Member State cannot justify the non-application of a Commission recovery decision on the grounds that it was impossible to execute the decision in question if its difficulties were of a merely technical and administrative nature; moreover, an absolute impossibility to execute the decision does not exist if there are indirect ways of calculating the amount of the aid to be recovered20.
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[2] Council Regulation No. 659/1999 of 22 March 1999 laying down detailed rules for the application of Article [88] of the EC Treaty, OJ (1999) L 83/1.
[3] Case 70/72, Commission v Germany [1973] ECR 813.
[4] The CFI interpreted the scope of Article 15 in Case T-366/00, Scott SA v Commission [2003] ECR II-1763. This case has been appealed to the ECJ (Case C-276/03 P); the appeal was dismissed on 11 October 2005.
[5] It can be deduced from the CFI's decision in the Scott case that they considered that a request for information from the Commission addressed to a Member State constitutes an action brought by the Commission which interrupts the limitation period.
[6] Commission Regulation No. 794/2004 of 21 April 2004 implementing Council Regulation No. 659/1999, OJ (2004) L 140/1.
[7] Commission communication on the interest rates to be applied when aid granted unlawfully is being recovered, OJ (2003) C 110/21.
[8] Case C-350/93, Commission v Italy [1995] ECR I-699, para. 21 and 22 (also in Case C-348/93, Commission v Italy [1995] ECR I-673).
[9] Joined Cases C-67/85, C-68/85 and C-70/85, Kwekerij Gebroeders van der Kooy BV and others v Commission [1988] ECR 219.
[10] Case C-382/99, The Netherlands v Commission [2002] ECR I-5163; see also Case T-67/94, Ladbroke v Commission [1997] ECR II-1.
[11] Case T-459/93, Siemens v Commission [1995] ECR II-1675, para. 97 to 99.
[12] Ibid, para. 101.
[13] Ibid. para. 103.
[14] Ibid. para. 82-84 and 107.
[15] Case C-193/91, Commission v Greece [1991] ECR I-3131, para. 17.
[16] See, for example, Case C-277/00, Germany v Commission [2004] ECR I-3925, para. 80.
[17] Case C-328/99 and C-399/00, Italy and SIM 2 Multimedia v Commission [2003] I-4035, para. 83.
[18] Judgment of 12 May 2005, Case C-415/03, Commission v Greece, not yet published, para. 33 and 34, and Opinion of Advocate General Geelhoed of 1 February 2005, also at para. 33 and 34.
[19] See, for example, Case C-378/98, Commission v Belgium [2001] ECR I-5107, para. 41.
[20] Ibid.
