Analysis: “Case C-627/18 and the burden on the aid beneficiary to make the deterrence from granting illegal State aid work” by Anna Nowak-Salles
It was predictable that application of a national limitation period shorter than the ten-year period for recovery of State aid would undermine the principle of effectiveness. Still, the Court of Justice’s judgment in Nelson Antunes (C-627/18) is the necessary corollary of the peculiarity of EU State aid law, where the sanction is borne not by the State that grants illegal aid, but by the undertaking that receives it.
Between 1994 and 1996, Nelson Antunes received 7,526 EUR under a credit line for the recovery of agricultural and breeding livestock activities on the basis of the Portuguese Decree-Law 146/94. In 1999, the Commission concluded that the credit line was incompatible and illegal aid and charged Portugal with the recovery of its amount with interest. In 2001 and 2009, Nelson Antunes received two letters requesting repayment of the total amount of 14,953 EUR, and in 2013 a tax execution procedure was initiated. That procedure was challenged by Nelson Antunes before the Tribunal Administrativo e Fiscal de Coimbra.
The problem was that according to the Portuguese Civil Code, contractual or statutory interest, even if not yet due, is time-barred after a period of 5 years. Therefore, since Nelson Antunes had been summoned for the purposes of the enforcement procedure only in 2013, all interest accrued before 2008 was time-barred. However, Article 17(1) of Regulation 2015/1589 provides for a longer, ten-year limitation period for recovery of aid with interest. Hence, the referring court was concerned that a period of lesser duration laid down in national law (even if referring only to the interest) might call into question the principles of effectiveness and of the incompatibility of State aid.
The Court of Justice first recalled that the limitation period laid down in Article 17(1) of the Procedural Regulation applies only to relations between the Commission and the Member State concerned, and not to relations between that State and the aid beneficiary (paragraphs 29 to 33). On the main question, the Court found that the national judge must not apply a national limitation period for the recovery of aid where that period expired even before the adoption of the Commission decision, or where that period elapsed principally because of the delay on the part of the national authorities in implementing that decision. An interpretation to the contrary would be incompatible with the principle of effectiveness. The findings of the Court are consistent with the previous case law, in particular with the similar case Eesti Pagar (C-349/17), so it was very unlikely that it would judge in favour of Nelson Antunes.
In this judgment, the Court made a brief but interesting remark on the question of legitimate expectations and legal certainty. Indeed, it confirmed the long-standing case law, according to which ‘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 that article’ (paragraph 46). However, the Court followed the Advocate General (AG) in considering that the principle applies both to individual aid and, importantly, to aid granted under an aid scheme. While the AG suggested that there was no need to draw a distinction between the two situations (point 78 of the Opinion), neither he nor the Court elaborated on that point.
On the one hand, undertakings receiving benefits on the basis of an aid scheme could not be excused from being diligent and interested in the legality of the funds they receive. On the other hand, when the aid scheme is, as in the case at hand, a national decree, an undertaking concluding an agreement on the basis of that law becomes expected to retrace, and investigate, the process of adoption of that legislative or executive act, assess its qualification as State aid and, potentially, its compatibility with the General Block Exemption Regulation (GBER). Indeed, the beneficiary may not presume that each unnotified aid is illegal because a large number of measures is exempted from the notification obligation. It seems not only a burdensome and costly task for an undertaking that, even if diligent, still lacks the competence to carry out a State aid assessment, but it also undermines any trust that an operator would normally put in its national legislator or government.
In addition, the Court seems to say that no matter how long the limitation period for recovery, the recipient cannot rely on legal certainty in the case where the national authority fails to act in the prescribed period in the prescribed legal form. In fact, such a lack of action amounts to that limitation period not applying to the case (paragraphs 57 to 59). However, not only does the obligation to repay illegal aid without any time limit appear stricter than many national criminal laws, it also puts into question the extent to which the objective to restore the situation existing before the granting of aid remains realistic as the time passes.
It is a difficult mission of the Court to strike a balance between the aimed deterrence from granting illegal aid on the one hand, and the fundamental weaknesses of architecture of State aid law on the other. The problem of State aid control is that its nucleus, the granting State, is free from any sanction, which instead is imposed on the beneficiary in order to discourage and impede massive granting of aid without notification. For this mechanism to work, a strict approach must be adopted toward the recovery of aid, with the effect that the beneficiaries assume responsibility for compatibility of State measures with State aid law more than the States are motivated to assume it themselves.
Anna Nowak-Salles is a PhD Researcher at the European University Institute. Her recent publications include: ‘The Optimal Assessment Rule for EU State Aid Assessment’ 43(1) World Competition, 2020, and ‘Individual Concern in the State Aid Action for Annulment in Light of the Notion of State Aid,’ 15(2-3) European Competition Journal, 2019.