Introduction
This article reviews two cases in which courts found that it had not been proven that all of the criteria of Article 107(1) TFEU had been satisfied.
Case I: Not being able to prove that the measure is attributed to a decision of the state
With decision 2024/2033, published in OJ L, 29 July 2024, the Commission corrected its earlier decision 2016/1208 that was annulled by the General Court in case T-98/16, Italy v Commission. The judgment of the General Court was upheld by the Court of Justice in case C-425/19 P, Commission v Italy.1
Background
The Commission had considered that the intervention of the Italian deposit guarantee scheme, Fondo interbancario di tutela dei depositi [FITD], to save Banca Tercas constituted incompatible State aid. Both the General Court and the Court of Justice found that the intervention by FITD could not be imputed to the Italian state. Even though Banca Tercas had suffered significant losses and was practically insolvent, FITD chose to inject capital in the bank rather than wait for the bank to collapse and then compensate the covered depositors as the law obliged it to do.
Under Italian law, non-cooperative banks were required to become members of FITD which could intervene to support its members under certain conditions. Such interventions were financed ex post by contributions of the member banks. The amount of the individual contributions was determined in accordance with the relevant statutory provisions in proportion to the amount of covered deposits held by each bank. FITD decided on interventions on the basis of majority of its members. Although membership was compulsory by law, FITD was not a public authority, nor was it controlled by the state in any other way.
The measure to support and in effect save Banca Tercas, through a non-repayable grant to cover Banca Tercas’s losses and additional guarantees, was authorised by the Bank of Italy.
The Commission considered that the intervention of FITD involved state resources and was attributed to the state. Moreover, it concluded that the intervention was not compatible with the 2013 Banking Communication and therefore it was incompatible State aid that had to be recovered. As mentioned above, both EU courts disagreed with the reasoning of the Commission. According to both courts, FITD was legally required to provide protection to covered depositors. The decision to save Banca Tercas was taken by FITD independently and could not be imputed to the state.
Of course, FITD saved Banca Tercas because the amount of money it committed for that purpose was smaller than the amount that it would have paid had the bank gone bankrupt. One may argue that FITD behaved just like any other private investor would have done to avoid even larger losses. But, on this point there is no clear case law. On the one hand, avoiding loss is indeed what rational investors do. On the other, private investors are not compelled to compensate covered depositors. Could the case law concerning the market economy investor principle be applied to a non-state entity that, nonetheless, has legally imposed obligations?
In its new decision, the Commission, first, recalls the main facts of the case and then summarises the main points of the two judgments. After it outlines the comments it received from Italy and interested parties, the Commission reassesses the measure in question in the light of the two judgments. Since the decisive issue was whether the measure could be attributed to the state, the Commission ignores other issues in this decision. Given that the criteria of Article 107(1) TFEU are cumulative, if one of them does not hold, then the public measure in question does not constitute State aid.
Imputability
The Commission, first, refers to the relevant judgments of the two EU courts. “(72) By means of the judgment in joined cases T-98/16, T-196/16 and T-198/16, the General Court annulled Decision (EU) 2016/1208. Notably, the General Court held that the measures taken by the FITD did not give effect to a public mandate conferred by Italian law, contrary to what the Commission had considered in Decision (EU) 2016/1208. It further assessed the evidence relied upon by the Commission in Decision (EU) 2016/1208, and held that, in the light of that evidence, the Commission had not proven to the requisite legal standard that the Italian public authorities were involved in the adoption of the measures taken by the FITD or that those measures were imputable to the State within the meaning of Article 107(1) TFEU.”
“(73) That judgment was upheld upon appeal by the Court of Justice, which, by its ruling, sitting as Grand Chamber, clarified its case-law on the imputability to the State of measures granted by an entity governed by private law which is neither an organisation of the State nor a public undertaking.”
“(74) In particular, as held by the Court of Justice, in a situation in which the entity that provided the aid is a private entity, the appropriate evidence for demonstrating that a measure is imputable to the State differs from that required in a situation where the entity providing the aid is a public undertaking, and the absence of a link of a capital nature between the entity concerned and the State is clearly relevant in that regard. According to the Court of Justice, since such links are missing in a situation of that type, the Commission cannot rely on the existence of links of a capital nature between such an entity and the State. Therefore, in such situations there is an even more stringent requirement for the Commission to set out evidence capable of establishing that the aid measure under consideration had been adopted under the actual influence or control of the public authorities.”
In other words, the Commission cannot rely on the possible multiple links between a state-owned entity and the state as articulated by the Court of Justice in its judgment in Stardust Marine.
“(75) The Court of Justice further stated that it was on the basis of the analysis of all of the evidence on which the Commission relied in Decision (EU) 2016/1208, taken in its context, that the General Court concluded that the Commission had not proven to the requisite standard that the measures taken by the FITD were imputable to Italy.”
“(76) Against this background, since the Commission does not have in its possession any further relevant evidence liable to demonstrate to the requisite legal standard that the measures under consideration had been taken by the FITD under the actual influence or control of the Italian authorities, it has to be concluded that, on the basis of the evidence available to the Commission, those measures are not imputable to Italy.
“(77) In the light of the above considerations, the Commission concludes that the evidence in its possession is not sufficient to prove that the measures taken by the FITD involve State aid within the meaning of Article 107(1) TFEU.”
Case 2: Not being able to prove that a measure confers an advantage
On 21 March 2024, the EFTA Court, in case E-10/22, annulled decision 161/22/COL of the EFTA Surveillance Authority [ESA] by which ESA had found that illegal and incompatible aid had been granted to Eviny, producer of electricity from renewable sources, who is owned by several Norwegian municipalities.2
Background
ESA had investigated alleged overcompensation for payments of (a) operation and maintenance costs of street-light infrastructure controlled by Eviny and of street-light infrastructure owned by Bergen municipality, (b) the cost of replacement of normal light bulbs with LED bulbs, and (c) capital costs in relation to street-light services in Bergen municipality.
Eviny and Bergen municipality had concluded several contracts regulating the supply of street lighting and related services along municipal roads in Bergen.
With respect to measure (b), ESA concluded that Eviny derived no advantage because it was anyway entitled to compensation for the higher operating costs of normal light bulbs. The LED bulbs reduced Eviny’s electricity consumption and its related costs but the compensation it received was also reduced proportionately. At any rate, the LED bulbs remained the property of Bergen municipality. With respect to the other two measures, ESA found that they did not conform with the market economy operator principle [MEOP], that they constituted State aid and that the aid was incompatible and had to be recovered.
What is also interesting in this case is that although normally the provision of street lighting is a public good that is provided by the state for free and financed collectively by tax payers, ESA considered, correctly, that Eviny was an undertaking because it provided services for remuneration to Bergen municipality. There was a market for the operation and maintenance of street lights.
Advantage
The EFTA Court focused on the question whether ESA had demonstrated the presence of advantage. The Court stressed in paragraphs 53-57 of its judgment that it is for ESA to prove that all conditions of Article 61(1) EEA [the equivalent to Article 107(1) TFEU] were satisfied. If there was not enough information, it was incumbent on ESA to request additional information of its own motion.
The Court, first, recalled the fundamental principle concerning the burden of proof. “(58) ESA cannot assume that an undertaking has benefited from an advantage constituting State aid solely on the basis of a negative presumption, based on a lack of information enabling the contrary to be found, if there is no other evidence capable of positively establishing the actual existence of such an advantage […] ESA is obliged to prove the existence of an advantage. It is not for the undertakings concerned to show the absence of one […] This must not be understood as a prohibition on ESA against using and applying negative presumptions in the assessment of whether the undertaking has benefited from an advantage. However, there must be other evidence capable of positively confirming the presumption and thus establishing the existence of an advantage. The amount and quality of the additional evidence required depends, inter alia, upon what could be expected of the relevant comparable private operator in the case at hand.”
Then the Court recalled what ESA must demonstrate when applying the MEOP. “(64) When applying the market economy operator principle in a specific case, ESA must show, following an overall assessment that takes into consideration all the relevant evidence in the case, that the undertaking or undertakings benefiting from the State measure at issue would manifestly not have obtained a comparable advantage from a normally prudent and diligent private operator in a situation that is as alike as possible and acting under normal market conditions. Within that overall assessment, ESA must have regard to all the options that such a comparable operator would reasonably have envisaged, all the information available and
likely to have a significant influence on its decision, and the developments that were foreseeable at the time when the decision to confer an advantage was taken”.
“(65) In particular, ESA must assess, whether, at that time, the transaction by which the advantage was conferred could be considered rational from an economic, commercial and financial perspective, taking account of its prospects for profitability over the short or longer term and of the other commercial or economic interests which it involved”.
“(67) It is the task of ESA to carry out that assessment and prove the existence of an advantage for the purposes of Article 61(1) EEA. In the present case, that advantage, assuming it to be established, can correspond only to the difference between the remuneration which the beneficiary at issue could have expected to achieve under normal market conditions and that actually paid to them”.
“(70) In reviewing whether such complex economic assessments are vitiated by a manifest error of assessment, the Court must, inter alia, establish not only whether the evidence relied on was factually accurate, reliable and consistent, but also whether that evidence contained all the relevant information which must be taken into account in order to assess a complex situation and whether it was capable of substantiating the conclusions drawn from it […] With regard to the standard of proof required to demonstrate a manifest error in the application of the market economy operator principle, it is necessary to demonstrate that there was an error sufficiently serious as to undermine ESA’s complex economic assessment. A manifest error may be established by evidence which renders implausible ESA’s assessment of the facts in its decision”.
Then in paragraphs 74-92 of the judgment the Court found that the evidence on which ESA based its decision was unreliable, containing incorrect data and not relating to the nature of transactions between Eviny and Bergen municipality. In its defence, ESA protested that it had not been furnished with all the information it had requested.
In response the Court recalled that “(93) ESA has the burden of proof when applying the market economy operator principle and that ESA must ask for all relevant information during the administrative procedure. In the case at hand, this implies that ESA cannot rely on the fragmentary nature of the information it received during the administrative procedure to justify its decision since ESA has not exercised all the powers at its disposal to obtain the necessary information. That applies all the more strongly where the contested decision is based not on a failure to produce evidence which had been requested by ESA from the EEA State concerned, but on the finding that a private operator would not have behaved in the same way as the authorities of that EEA State, a finding which presupposes that ESA had all the relevant information necessary to draw up its decision”.
Conclusions
The lesson that can be drawn from these two cases is clear. Private and public entities may transfer resources or make payments in favour of one or more undertakings. Such transfers or payments may appear similar to State aid. Just because the transfers appear similar to those made by public authorities or just because the payments appear to confer an
advantage, it cannot be presumed that they constitute State aid. It is not for the payers to prove the non-involvement of the state or the non-conferment of advantage. It is for the Commission and ESA to prove that the state is actually involved in the transfers or the payments are at a rate that is actually higher than the rate that would have been paid by a market operator.
