State Aid

January 20th, 2020

In Case T-257/18, Iberpotash S.A. v European Commission, CJEU General Court Judgment on 16 January 2020, the first issue was whether there was a transfer of State resources.  The Court said:-

“49. Under Article 107(1) TFEU, ‘any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market’.

50. It should also be borne in mind that, in order for it to be possible to categorise advantages as ‘State aid’ within the meaning of Article 107(1) TFEU, they must be granted directly or indirectly through State resources and be attributable to the State … Those two conditions are separate and cumulative …

51. Regarding the condition of use of State resources, it is apparent from the case-law that it is not necessary to establish in every case that there has been a transfer of State resources for the advantage granted to one or more undertakings to be capable of being regarded as a State aid within the meaning of Article 107(1) TFEU. In particular, measures which, in various forms, mitigate the burdens normally included in the budget of an undertaking, and which therefore, without being subsidies in the strict meaning of the word, are similar in character and have the same effect, are considered to be aid  …

52. It is settled case-law that Article 107(1) TFEU defines measures of State intervention in relation to their effects …

53. Thus, State intervention capable of both placing the undertakings which it applies to in a more favourable position than others and creating a sufficiently concrete risk of imposing an additional burden on the State in the future, may place a burden on the resources of the State …

54. Moreover, the Court of Justice has had occasion to state that advantages given in the form of a State guarantee can entail an additional burden on the State …

55. Furthermore, it has been held in the case-law that, where, in economic terms, the alteration of the market conditions which gives rise to an advantage given indirectly to certain undertakings is the consequence of the public authorities’ loss of revenue, even the fact that investors then take independent decisions does not mean that the connection between the loss of revenue and the advantage given to the undertakings in question has been eliminated …

56. Consequently, for the purposes of establishing the existence of State aid, the Commission must establish a sufficiently direct link between, on the one hand, the advantage given to the recipient and, on the other, a reduction of the State budget or a sufficiently concrete economic risk of burdens on that budget …”

“73. … the uncertainty or degree of probability as to whether the risk for the State will materialise is not a factor capable of rendering purely hypothetical the link between the advantage conferred on the applicant and the additional burden placed on the State budget, but represents solely an intrinsic characteristic of the concept of ‘risk’.”

On a second issue, the Court said:-

“92. It is apparent from settled case-law that the question whether aid is State aid within the meaning of the FEU Treaty must be determined on the basis of objective elements, which must be appraised on the date on which the Commission takes its decision. Accordingly, it is the appraisal of the situation carried out by the Commission on that date which is to be reviewed by the EU Courts …

93. Moreover, it has been held that the lawfulness of a decision concerning State aid is to be assessed in the light of the information available to the Commission at the time when the decision was adopted … EU:T:2013:144, paragraph 33 and the case-law cited. Similarly, it cannot be complained that the Commission failed to take into account matters of fact or law which could have been submitted to it during the administrative procedure but which were not, as the Commission is under no obligation to consider, of its own motion and on the basis of prediction, what information might have been submitted to it …”

“95. According to the Court’s settled case-law, State aid, as defined in the FEU Treaty, is a legal concept which must be interpreted on the basis of objective factors. For that reason, the EU Courts must in principle, having regard both to the specific features of the case before them and to the technical or complex nature of the Commission’s assessments, carry out a comprehensive review as to whether a measure falls within the scope of Article 107(1) TFEU …

96. However, when conducting such a review, the EU Courts must not substitute their own economic assessment for that of the Commission. The review by the European Union judicature of the complex economic assessments made by the Commission is necessarily limited and confined to verifying whether the rules on procedure and on the statement of reasons have been complied with, whether the facts have been accurately stated and whether there has been any manifest error of assessment or misuse of powers …”

The third issue concerned alleged breach of the principles of legitimate expectation and legal certainty.  The Court said:-

“130. In accordance with the Court’s settled case-law, the logical consequence of a finding that aid is unlawful is the removal of that aid by means of recovery in order to re-establish the situation previously obtaining. The main objective pursued in recovering unlawfully paid State aid is to eliminate the distortion of competition caused by the competitive advantage which such aid affords. By repaying the aid, the recipient forfeits the advantage which it had enjoyed over its competitors on the market, and the situation prior to payment of the aid is restored …

131. It also follows from that function of repayment of aid that, as a general rule, the Commission will not, save in exceptional circumstances, exceed the bounds of its discretion if it asks the Member State to recover the sums granted by way of unlawful aid, since it is only restoring the previous situation …

132. With regard to the allegation of a breach of the principle of the protection of legitimate expectations, according to settled case-law, the right to rely on that principle extends to any person who has been caused by an EU institution to entertain expectations which are justified by precise assurances provided to him …  Such assurances, in whatever form they are given, are precise, unconditional and consistent information from authorised and reliable sources. However, a person may not plead breach of that principle unless he has been given precise assurances by the administration …

133. It follows from that principle, which is especially applicable in relation to the review of State aid pursuant to Article 16 of Regulation 2015/1589, that the protection of the legitimate expectations of the recipient of the aid can be relied upon, provided that the recipient has sufficiently precise assurances, arising from a positive action taken by the Commission, which leads the recipient to believe that a measure does not constitute State aid for the purposes of Article 107(1) TFEU …

134. It should moreover be recalled that the notification requirement is one of the fundamental features of the system of control put in place by the FEU Treaty in the field of State aid. Under that system, Member States are under an obligation, first, to notify to the Commission each measure intended to grant new aid or alter aid for the purposes of Article 107(1) TFEU and, second, not to implement such a measure, in accordance with Article 108(3) TFEU, until that institution has taken a final decision on the measure.

135. Consequently, in view of the mandatory nature of the review of State aid by the Commission, undertakings to which aid has been granted may not, in principle, entertain a legitimate expectation that the aid is lawful unless it has been granted in compliance with the procedure laid down in Article 108 TFEU and a diligent business operator should normally be able to determine whether that procedure has been followed. In particular, where aid is implemented without prior notification to the Commission, with the result that it is unlawful under Article 108(3) TFEU, the recipient of the aid cannot have at that time a legitimate expectation that its grant is lawful …

136. However, a recipient of unlawfully granted aid is not precluded by the case-law from relying on exceptional circumstances on the basis of which it had legitimately assumed that aid to be lawful and thus from declining to refund that aid …

137. It has also been held that a diligent business operator should normally be able to determine whether the notification procedure has been followed …

138. Moreover, it is established case-law that the principle of legal certainty requires European Union legislation to be certain and its application foreseeable by those subject to it …”

The fourth issue related to selective advantage.  The Court said:-

“157. According to settled case-law, the concept of ‘aid’ embraces not only positive benefits, such as subsidies, but also measures which, in various forms, mitigate the charges which are normally included in the budget of an undertaking and which, therefore, without being subsidies in the strict sense of the word, are similar in character and have the same effect …. Thus, State measures which, whatever their form, are likely directly or indirectly to favour certain undertakings or are to be regarded as an economic advantage which the recipient undertaking would not have obtained under normal market conditions, are regarded as aid …

158. In this examination of what constitutes an advantage, the Commission must therefore assess whether the applicant was favoured directly or indirectly or obtained an advantage that it could not have obtained under normal market conditions.”

The fifth issue related to the establishment of the amount of any aid, and was closely related to the fourth issue. The Court said:-

“187. …  the recovery of aid entails the restitution of the advantage procured by the aid for the beneficiary, not the restitution of the economic benefit that may have been conferred by the aid as a result of the exploitation of the advantage. …”

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