Introduction
Sometimes the Commission is uncertain whether a public measure constitutes State aid. Nonetheless, it decides not raise objections on the grounds that if the measure constituted State aid, it would be compatible with the internal market.
One can understand why the Commission follows this approach. If it is not sure whether a measure falls outside the scope of Article 107(1) TFEU, it does not want to weaken the prohibition of State aid by finding, possibly wrongly, that it does not constitute State aid. After all, a wrong interpretation of Article 107(1) may be exploited by Member States which may claim that other similarly ambiguous measures also fall outside the scope of Article 107(1). By not objecting to the measure, the Commission allows the Member State concerned to implement it without creating possible loopholes. It appears to be a win-win outcome.
However, it creates other problems. First of all, the Commission’s ambiguity necessarily means unclear guidance for Member States other than the granting one. The Commission may be unsure whether a measure falls within Article 107(1), but Member States must always be sure because if a non-notified measure is later found to be State aid, it is unlawful from the date it was granted. It also creates uncertainty of how the measure that may or may not be aid is to be treated in conjunction with other aid granted to the same undertaking.
On 13 June 2024, in case C‑40/23 P, Commission v Netherlands, the Court of Justice resolved this conundrum. The Commission must decide clearly whether a measure constitutes State aid or not.[1]
The Commission had asked the Court of Justice to set aside the judgment of the General Court in case T-469/20, Netherlands v Commission, by which it upheld the appeal of the Netherlands against Commission decision SA.54537. In that decision the Commission was not sure whether compensation granted by the Netherlands to an electricity producer for forcing it to close its coal-fired plant was State aid. However, if it were State aid it would be compatible with the internal market anyway. Therefore, the Commission authorised the measure.
In fact, the Dutch measure required the closure of five coal-fired plants over a certain period of time. But, because one of those plants was more polluting than the others, it was forced to stop generating electricity immediately. That meant that the operator of the plant could not recoup its investment costs. For that reason, the Netherlands provided compensation of EUR 53 million.
The Netherlands was of the opinion that the compensation did not confer any advantage in the meaning of Article 107(1) TFEU. On appeal the General Court annulled the Commission decision on the grounds that the procedural regulation [Regulation 2015/1589] empowers the Commission to decide only whether a measure is State aid and if it is State aid whether it is compatible aid. Furthermore, the General Court held that by not being clear whether the measure constituted aid or not, the Commission created uncertainty for the Netherlands which would not know, in case of cumulation with other aid, whether the sum of compensation and the other aid would exceed the maximum allowable threshold.
The powers of the Commission
The Commission argued that, by holding that it had no power to decide that a measure was compatible with the internal market without first having found that that measure constituted State aid, the General Court interpreted Article 107(3) TFEU and Article 4(3) of Regulation 2015/1589 unduly restrictively.
The Court of Justice, first, outlined the main points of the reasoning of the General Court.
“(30) After recalling, […], the wording of Article 107(1) and (3)(c) TFEU, the General Court stated, […], that the use of the term ‘aid’ in Article 107(3) TFEU implies that the compatibility of a national measure with the internal market can only be assessed once that measure has been classified as State aid.”
“(31) The General Court added, […], that it is settled case-law, where the Commission is unable to conclude, following an initial examination, that the State measure in question either is not ‘aid’ within the meaning of Article 107(1) TFEU or, if classified as aid, is compatible with the Treaty, or where that procedure does not enable it to overcome all of the difficulties involved in determining whether the aid is compatible, the Commission is under a duty to initiate the procedure under Article 108(2) TFEU, without having any discretion in that regard.”
“(32) The General Court concluded from those considerations that only a measure falling within the scope of Article 107(1) TFEU, being a measure classified as State aid, may be considered by the Commission as being compatible with the internal market.”
“(33) It stated that that conclusion is supported by the provisions of Article 4 of Regulation 2015/1589 which, […], set out an exhaustive list of the decisions which the Commission may adopt following the preliminary examination, decisions which do not include a decision declaring the measure under examination compatible with the internal market without the Commission having first decided whether to classify that measure as State aid.”
“(35) It should, […], be observed that, although the term ‘aid’ is, in fact, used in Article 107(1) TFEU, in conjunction with the other indications set out in that provision, according to the usual meaning in everyday language, it is, by contrast, used in Article 107(3) TFEU to designate only State aid It follows from Article 107(1) TFEU, read as a whole, that only measures which fulfil the conditions arising from paragraph 1 and which, consequently, constitute State aid are, save as otherwise provided in the Treaty, incompatible with the internal market. Therefore, Article 107(3) TFEU, which, by way of exception to that provision, lists the measures which may be considered to be compatible with the internal market, can concern only State aid.”
“(36) The Commission is therefore wrong to claim that the General Court’s literal interpretation of Article 107(3) TFEU is incorrect.”
“(37) Furthermore, […], it is apparent from [Article 107 TFEU] that the classification of a measure as State aid within the meaning of paragraph 1 of that provision is a precondition for the possible application of the exception laid down in paragraph 3. The European Union thus has the power to decide on the compatibility with the internal market of measures constituting State aid, and has no power to decide on the compatibility with the internal market of measures which have not been established as being State aid. Articles 108 and 109 TFEU confer on the Commission and the Council of the European Union, subject to review by the Court, the exercise of that power. The EU institutions may only act within the limits of the powers conferred on them”.
“(40) The expression ‘in so far as it falls within the scope of Article 107(1) TFEU’ in Article 4(3) of Regulation 2015/1589 must be interpreted in accordance with the meaning, correctly accepted by the General Court, […], of Article 107(1) and (3) TFEU. In that regard, it should be borne in mind that, according to settled case-law, where it is necessary to interpret a provision of secondary EU law, preference should as far as possible be given to the interpretation which renders the provision consistent with the Treaties and the general principles of EU law”.
“(41) The fact remains that, […], the Court of Justice, consistently with the wording of Article 107 TFEU, considered that the determination of whether a measure constitutes State aid must be carried out in advance in relation to the examination of whether that measure is compatible with the internal market.”
“(42) It should be added, first, that the Court of Justice has, in other judgments, stated that ‘the Commission is required to initiate the formal investigation procedure if, following the preliminary examination referred to in Article 4 of Regulation 2015/1589, it […] entertains doubts as to the actual classification as “aid” within the meaning of Article 107(1) TFEU of [the] measure’”.
“(43) Furthermore, it held that the question whether a measure must be categorised as State aid arises upstream of the question which involves examining, where necessary, if incompatible aid, within the meaning of in Article 107 TFEU, is nevertheless necessary to the performance of the tasks assigned to the beneficiary of the measure at issue, under Article 106(2) TFEU”.
“(44) As regards the Commission’s argument that the General Court’s position leads the Commission to an impasse, preventing it, in circumstances such as those of the present case, from adopting any decision at the end of the preliminary examination, suffice it to note, as the Kingdom of the Netherlands did, that that impasse derives solely from the incorrect view that the Commission has the power to conclude that there is no doubt as to the compatibility of a measure which it has not classified as State aid and therefore, by extension, that it does not have the power to initiate the formal investigation procedure in such a situation. When that view is rejected, the impasse disappears and the formal investigation procedure can be initiated, in accordance with Article 4(4) of Regulation 2015/1589 and the case-law referred to in paragraph 42 of the present judgment.”
“(46) As regards the fact that Article 6(1) of Regulation 2015/1589 refers to a ‘preliminary assessment’ of the measure, it should be noted that that reference does not mean, contrary to what the Commission maintains, that the Commission may terminate the preliminary examination by a decision not to raise objections to a measure which it has not classified as State aid.”
“(47) As regards the Commission’s assertion that there are situations in which it is, both in the light of the principle of good administration and the interests of the parties concerned, more appropriate to determine whether the measure is compatible with the internal market than to determine whether it constitutes aid, it should be noted that that principle and the considerations of appropriateness thus invoked cannot call into question the scheme and consistency of Article 107 TFEU”.
“(48) The issue raised by the present case, for its part, relates to the very power of the Commission to adopt certain decisions. That power of the Commission must be exercised in compliance with the conditions laid down by the Treaties, which, in the present case, and as is apparent in particular from paragraphs 35 and 37 of the present judgment, requires that institution to decide whether to classify a measure as State aid before it can, if required, examine whether such aid may, notwithstanding that classification, be regarded as compatible with the internal market.”
Conclusions
This judgment will bring clarity to the Commission’s practice. But I am not sure that it will also be in the interests of Member States. Whenever the Commission is uncertain it will have to open the formal investigation procedure. That will necessarily delay the implementation of disputed measures. Member States will be able to avoid the delay and the possible complications that may be created by comments from interested parties, either by admitting that the measures in question constitute State aid or by adjusting them. In the end, greater legal certainty will come at the cost of less discretion in the design of public support measures.
[1] The full text of the judgment can be accessed at:
