Commission v Portugal (Regional policy) [2006] EUECJ C-84/04 (05 October 2006)

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(Failure to fulfil obligations - EAGGF, Guidance Section - Rule of payment in full of Community contributions - Payment of a remuneratory fee to the national authority in procedures for granting aid)

1. The Commission has brought an action pursuant to Article 226 EC for a declaration from the Court of Justice that, by requiring the beneficiaries of aid granted by the European Agricultural Guidance and Guarantee Fund ("EAGGF"), Guidance Section, to pay to the Instituto de Financiamento e Apoio ao Desenvolvimento da Agricultura e Pescas (Financing and Supporting Institute for the Development of Agriculture and Fisheries; "IFADAP") levies fixed according to the total budget of the supported project, which reduces the EAGGF's contribution, the Portuguese Republic has failed to fulfil its Community obligations.

2. An examination of the allegations and of the defence reveals a threefold dispute concerning (a) the applicability of the rule that contributions made by the EAGGF, Guidance Section, shall be paid in full; (b) the fact that in Portugal the subsidies are not reduced as a consequence of payment of the levy; and (c) the nature of the levy.

3. It is of particular interest because, for the first time, the Court of Justice has the opportunity to give a ruling on that section, although it has frequently done so on the other one, the Guarantee Section.

4. The appropriate response to the problems raised requires a detailed account of the legislation, showing the specific features of the two branches of the EAGGF, so as to establish whether the case-law on the Guarantee Section applies to the Guidance Section. It is also necessary to take a look at the rules governing IFADAP and the national levy.

5. According to Article 3(1)(e) of the EC Treaty (now, after amendment, Article 3(1)(e) EC), fulfilment of the aims of the Community includes the adoption of "a common policy in the sphere of agriculture".

6. In order to achieve the objectives of that policy, Article 40 of the EC Treaty (now, after amendment, Article 34 EC) provided for the introduction of a common organisation of the markets, allowing for the creation of "one or more agricultural guidance and guarantee funds".

7. From its initial proposals, the Commission took the view that it was expedient to establish two funds: one for the markets, with independent subdivisions for groups of products, and another to improve the structures. (2)

8. That suggestion was not accepted by the Council which, by Regulation No 25 of 4 April 1962 on the financing of the common agricultural policy, (3) set up a single instrument, the EAGGF, with the Guarantee and Guidance Sections.

9. It should be pointed out that, despite its name, the EAGGF is not a "fund" in the strict sense of the word, since it does not have own resources which determine the volume of expenditure, nor does it have monetary independence. (4) It forms part of the Community budget, (5) and is subject to the financial regulations with some particularities.

10. Although both branches provide economic support for the agricultural policy, there are distinct differences between them when it comes to their spheres of activity.

11. This section meets the costs arising out of the application of the common organisation of the markets and the price regime. Since the 1993 agricultural policy reform, it has also defrayed all or part of the costs of other activities, such as earth removal, income subsidisation or environmental protection.

12. Depending on the nature of the measures granted, it finances refunds on exports, price interventions, and direct aid, (6) this last category far exceeding the other two in quantity. (7)

13. It also makes compulsory payments which are difficult to forecast, which means that, during each financial year, the estimates have to be adjusted to the actual needs.

14. The Guarantee Section has turned out to be the more important because it has given rise to extensive case-law.

15. This section forms part, together with the European Social Fund, the European Regional Development Fund and the Financial Instrument for Fisheries Guidance, of the Structural Funds of the Union, which have the task of supporting the initiatives of the Member States designed to achieve economic and social cohesion, (8) the development of which by the Single European Act (9) imposed new rules for those funds, implemented by Council Regulation (EEC) No 2052/88, (10) as amended by Council Regulation (EEC) No 2081/93 (11) ("Regulation No 2052/88, as amended").

16. That legislation is completed by Council Regulation (EEC) No 4253/88 (12) although, for the purposes of the present case, its provisions must be considered in the version provided by Council Regulation (EEC) No 2082/93 (13) ("Regulation No 4253/88, as amended").

17. The body of legislation set out above establishes that the Guidance Section of the EAGGF supports actions undertaken in order to attain the objectives of Article 39(1)(a) of the EC Treaty (now Article 33(1)(a) EC) and contributes to the attainment of Objectives 1, "promoting the development and structural adjustment of regions whose development is lagging behind", and 5, "promoting rural development by: (a) speeding up the adjustment of agricultural structures in the framework of the reform of the common agricultural policy, (b) facilitating the development and structural adjustment of rural areas". (14)

18. In particular, the Guidance Section has the task of strengthening and reorganising the aforementioned structures, offsetting the effects of natural handicaps, ensuring the conversion of agricultural production and fostering the development of supplementary activities for farmers, who must be ensured a fair standard of living. It must also help to develop the social fabric of rural areas, to safeguard the environment and to preserve the countryside. It also contributes to technical assistance and information operations, prepares studies or pilot schemes concerning the adjustment of agricultural structures and promotes rural development at Community level. (15)

19. The Guidance Section has far more modest funds than the Guarantee Section, (16) although the question is not whether its share of the budget is small but whether the resources it mobilises are enough for the problems it tries to resolve. (17)

20. The task of the Guidance Section is "to complement or contribute to corresponding national operations", (18) without replacing "public structural or comparable expenditure undertaken by the Member State", (19) establishing the boundaries of its cooperation "through close consultations between the Commission, the Member State concerned and the competent authorities and bodies ... designated by the Member State at national, regional, local or other level", which "shall cover the preparation and financing, as well as the ex ante appraisal, monitoring and ex post evaluation of operations" and be conducted "in full compliance with the respective institutional, legal and financial powers of each of the partners". (20) Consequently, cooperation between the various participants is a fundamental feature of the scheme. (21)

21. The Community resources are distributed through direct and indirect measures. Direct measures, the older method, involve the grant of loans for national or regional investment projects promoted by the Member States and approved in advance by the Commission. Indirect measures, which are very diverse, cover numerous situations, and are the ideal mechanism when there is a large number of applications for moderate sums, which may be authorised by the Member State itself.

22. Funds are allocated according to a multiannual programming procedure which begins with the submission by the Member States, in respect of each of the objectives determined by the Community, of development plans (22) which serve as the basis on which the Commission, in agreement with the persons designated by the national authorities, draws up the "Community support framework", fixing the objectives, the working methods and an indicative financing plan. (23) In line with this last document, the intermediary in each country sets out the proposals for operational programmes, in accordance with a series of intervention criteria, which projects must meet in order to receive Community assistance, (24) the amount of which will depend on the region and work involved. (25)

23. Once approval has been given, payment is issued by the national, regional or local body, either as an advance or a final payment, (26) with the stipulation that "[t]he payments shall be made to the final beneficiaries without any deduction or retention which could reduce the amount of financial assistance to which they are entitled". (27)

24. The Member States therefore play a vital role in several spheres. First, in taking advantage of the opportunities offered by the EAGGF, which are better the greater the administrative efficiency of the State. (28) To this effect "[t]he body responsible for implementing a measure carried out with financial assistance from the Community shall ensure that adequate publicity is given to the measure with a view to making potential beneficiaries and trade organisations aware of the opportunities afforded by the measure". (29)

25. Secondly, in the subsequent monitoring, since they are required to take the necessary measures "to verify on a regular basis that operations financed by the Community have been properly carried out", "to prevent and to take action against irregularities", and "to recover any amounts lost as a result of an irregularity or negligence". (30) That is without prejudice to "on-the-spot checks, including sample checks" (31) carried out by Commission officials or servants. In any event, the Member State concerned and the Commission shall immediately exchange "any relevant information concerning the results of the checks carried out". (32)

26. Council Regulation (EC) No 1260/1999 of 21 June 1999 laying down general provisions on the Structural Funds (33) repealed Regulations No 2052/88 and No 4253/88 with effect from 1 January 2000. (34)

- Regulations No 2052/88 and No 4253/88, in their original form, govern the programming period 1989-93;

- for the programming period 1994-99 - with which this case is concerned - it is the provisions of Regulations No 2052/88 and No 4253/88, as amended, which apply;

28. Apart from the above observations, it has become evident as the EAGGF has evolved that its two branches should be allowed to stand independently, as the Commission had suggested from the outset.

29. Council Regulation (EC) No 1290/2005 of 21 June 2005 on the financing of the common agricultural policy (35) repeals Regulation No 25, Regulation (EC) No 723/97 (36) and Regulation (EC) No 1258/1999, (37) replacing the EAGGF with the European Agricultural Guarantee Fund (EAGF), for the financing of market measures, and the European Agricultural Fund for Rural Development (EAFRD), for the financing of development programmes. (38)

30. Under Article 11 of the new regulation, which applies to both funds, "save provision to the contrary under Community legislation, payments relating to the financing provided for under this Regulation or to amounts corresponding to the public financial contribution under the rural development programmes shall be disbursed in full to the beneficiaries".

31. Decree-law No 414/93 of 23 December 1993 (39) grants IFADAP a Statute containing rules governing name, nature, regime and registered office (Chapter I), powers (Chapter II), organs (Chapter III), asset and finance management (Chapter IV) and personnel (Chapter V).

32. The statement of reasons explains that IFADAP was established in 1977 to manage credit lines in support of agriculture, forestry, cattle-farming and fisheries, in the capacity of sole intermediary of the EAGGF, Guidance Section.

33. Since IFADAP is a body governed by public law, it has legal personality, administrative and budgetary independence, and its own assets, (40) and works under the auspices of the Minister for Agriculture. (41)

34. Except in its relations with third parties, in which it has to abide by private law unless it is acting "vested with the rights and powers of an authority", it is governed by the aforementioned Statute and, alternatively, by the laws relating to public undertakings. (42)

35. Its task is to promote agriculture and fishing through direct or indirect financial support schemes. (43) It has in particular:

- to ensure the operation of Community or national systems of support and aid to agriculture and fishing, collaborating in the design and implementation of the approved plans, serving as sole intermediary with the EAGGF, Guidance Section, and other European financial institutions, especially with regard to applications for advances, refunds, regularisation and submission of accounts; (44)

- to pay the national and Community contributions intended to support programmes and projects or to reduce the interest on loans contracted for that purpose, (45) ensuring the presentation, supervision and monitoring of those programmes or projects; (46)

- to participate in the evaluation of the measures undertaken in connection with the EAGGF, Guidance Section, and other Community instruments, providing quantitative and qualitative information on the effectiveness of those measures. (47)

36. One of its sources of income is the proceeds from the sale of goods and services. (48)

37. The Portuguese Minister for Finance and Minister for Agriculture, Rural Development and Fisheries issued a joint dispatch on 28 May 1996, (49) in which, pursuant to Articles 5(2)(a) and 20(1)(b) of the Statute, IFADAP was permitted to charge a "remuneratory fee" of not more than 0.9% of the total amount of the projects submitted to it or 0.45% if analysis and decision-making activities were not involved.

38. During checks carried out in 1993, the Commission discovered that recipients of financing from the EAGGF, Guidance Section, had been contractually bound to pay IFADAP 1.5% of the amount budgeted.

39. It immediately informed the Portuguese authorities that those payments infringed Community law and urged them to suspend the payments and to return sums unlawfully received.

40. By letter of 20 January 1999, the defendant State acknowledged that the payments received in respect of the period between 3 August 1993 and 31 December 1994 were unlawful and agreed to refund them.

41. From the latter date, it began to apply a scheme under which subsidies were paid in full, by a procedure established in the aforementioned joint dispatch of 1996, but with fees payable to IFADAP by way of remuneration for its services.

42. Those fees ceased to be charged in 1999, at the same time as the national programme to support the modernisation of agriculture and forestry ended and Regulation No 1260/1999 came into force.

43. The Commission expressed its reservations as to whether the scheme operated between 1995 and 1999 was compatible and made an inspection visit to the country from 9 to 17 March 2000. From the information gathered, it inferred that, with the award contract, the party concerned received a form for authorising that his account be debited with the amount of the levy, in respect of the "service rendered by IFADAP in connection with the aforementioned contract". It was apparently made clear, during verbal communications between IFADAP and individuals, that the payment was voluntary and optional.

44. On 25 July 2001 the Commission sent a letter of formal notice, stating that the custom initiated on 1 January 1995 involved procedures entailing compulsory fees which were not remuneration for services provided to the successful applicants, similar to the fees which already existed.

45. The reply did not convince the Commission which, on 13 November 2002, issued a reasoned opinion before bringing an action before the Court of Justice pursuant to Article 226 EC for failure to fulfil obligations.

46. The application, which was lodged at the Registry of the Court of Justice on 20 February 2004, seeks a declaration that, by permitting IFADAP to introduce and maintain in force a procedure for granting financial assistance from the Community Structural Funds, which includes substantive requirements involving the payment of levies which are neither voluntary nor optional and which do not constitute remuneration for services rendered but rather for tasks for which the State is normally responsible, the Portuguese Republic has failed to fulfil its obligations under Regulation No 4253/88 and Article 10 EC. It also seeks an order for costs against the defendant.

47. The defence, which arrived on 30 April 2004, contends that the action should be dismissed as unfounded and that the Commission should be ordered to pay the costs.

48. After the reply and the rejoinder, the written stage of the proceedings concluded.

49. On 12 January 2006, the hearing was held, at the request of the defendant government; both parties appeared.

50. The Commission takes the view that Portugal infringes Community law by systematically reducing the amounts granted by the EAGGF, Guidance Section, requiring the beneficiaries to pay sums to the body responsible for managing the credit lines. That practice constitutes an infringement of the clause stipulating that payment must be made in full, which is included in all the provisions governing the conduct of the actions of the Structural Funds and is stated in Article 21(3) of Regulation No 4253/88, as amended, and also an infringement of the principle of cooperation in good faith laid down in Article 10 EC.

51. The Portuguese Republic takes the view that the fee charged by IFADAP is compatible with the European provisions, in the light of the services rendered, the fact that the amount is appropriate and in proportion and that the fee has no effect on the Community contributions. It disagrees with the applicant regarding the case-law cited, alleging that it infringed the principle of subsidiarity laid down in the second paragraph of Article 5 EC, in conjunction with the principle of cooperation laid down in Article 4 of Regulation No 2052/88, as amended.

52. The boundaries to which the application has been restricted show that it focuses on the Member State's scheme for channelling some of the aid granted under the common agricultural policy in the period 1995-99.

53. Nevertheless, a thorough examination requires a dual definition of the crux of the dispute.

54. First, the Community regulations govern the grant of subsidies from the Community, requiring cooperation between three parties: the Commission, the Member State and the authorities or bodies designated by the Member State.

55. That is to say, it is not possible to question the legal regime, powers, organisation or operation of IFADAP unless they affect the contributions from the Community.

56. Secondly, there are obvious differences between the two sections of the EAGGF, because they concern different spheres: markets or agricultural structures. However, the specific characteristics of one or other of the sections are secondary to what they have in common, which is they both take from the Community budget in order to finance the actions implemented in their respective spheres.

57. Several points must therefore be considered: whether the contribution from the EAGGF, Guidance Section must, as a general rule, be paid to the beneficiaries in its entirety; what occurred in Portugal during the period that the fee was paid to IFADAP; and, if it is found that an unlawful reduction has been made, whether there is any justification for it.

58. A study of the specific features of the aid, of the legislation and of the case-law confirms that, unless there is an express any indication to the contrary, the money from the EAGGF, Guidance Section, must be received "in full".

59. The Community measures complement those of the Member States, which have to continue implementing those for which they are necessarily responsible. In that regard, I agree with the Portuguese Government that the European money is "additional" to the contribution of the Member State itself. However, in my view, that does not preclude it being paid in full. The two circumstances are compatible because they differ in content.

60. If it were conceded that, directly or indirectly, the national authorities influenced the final amount of the cover provided by the Community, the system would be undermined because it would cease to be uniform, since any country would be able to collect a fee according to a percentage fixed at whim, which would not always be the same.

61. There would also be discrimination. First, between the Member States themselves, because those which had the highest number of subsidised projects would obtain more Community resources indirectly via a means designed to cover other matters, and inequalities would be created according to the rate used. (50) Secondly, among the beneficiaries, since the disparity in the charge would be reflected in the amount allocated, so that, in identical situations, some would receive more aid, both in the same country and between beneficiaries in different countries, which would only be acceptable if, with justification, specific authorisation is given for it.

62. The origin of the aid also presents arguments in line with the above. Article 2 of the Financial Regulation of 1977 (51) called for the appropriations to be used in accordance with the principle of sound financial management, namely in accordance with the principles of economy and efficiency. The latter necessarily requires the best relationship between resources and results, (52) which is achieved when the successful applicant is able to use the full amount granted, without reduction of any part to meet other costs, unless, once again, the legislature has expressly allowed for it.

63. The second subparagraph of Article 21(3) of Regulation No 4253/88, as amended, requires that payments be made "without any deduction or retention".

64. It does not refer to payment "in full", as Regulation No 1290/2005 does, (53) but it should not be inferred from that omission that those concepts are antonymous, since the words used express the same idea.

65. The conduct of the defendant State supports that argument, since it did not charge the fee in the programming period 2000-06, governed by Regulation No 1260/1999, the last sentence of Article 32(1) of which was similar in content to the first provision referred to above. (54)

66. Other calls for payment to be made "in full" appear in the rules governing the EAGGF, Guarantee Section, even in some which pre-date Regulation No 4253/88, as amended. (55)

67. Although the two branches of the EAGGF are completely different, they come from the same source: the Community budget. The fact that the origin of the sums is the same means that a similar system must be used when they are paid out, with rules such as the one which dictates that the sum granted must be the same as the sum received.

68. The Court of Justice has on several occasions considered the question of the payment "in full" of the contributions of the EAGGF, Guarantee Section, with reasoning which, as regards the common origin of the credits, may easily be applied to the Guidance Section, with which it has not dealt.

69. The judgment in Jensen and Korn- og Foderstofkompagniet (56) examined a case in which the Danish authorities set off Community aid against national tax debts, (57) but that set-off did not reduce the aid. (58) Furthermore, it should be pointed out that, even though the Court acknowledged that the national authorities had a wide discretion in managing the sums provided by the Community, it stressed that there was a limit, stemming from "the need to apply Community law uniformly so as to avoid unequal treatment of producers and traders". (59)

70. That point was emphasised by the judgment in Kellinghusen andKetelsen, (60) with reference to Regulations No 805/68 and No 1765/92, (61) although the problems arose because of the costs of administering the files. (62) In the present action for failure to fulfil obligations, attention should be drawn to several aspects of that judgment: first, that, in the light of the aims of the regulations, to allow Member States the freedom to reduce the amount of the payment levels in order to meet administrative expenses would lead to different compensation for the farmers in one Member State and between the farmers of different Member States, which could interfere with the uniform application of Community law; (63) secondly, that it departs from the judgment in Denkavit Futtermittel, (64) based on Regulation (EEC) No 1725/79, (65) which, unlike the regulations cited above, did not provide for payment in full or prohibit recovery of the costs of the inspections;(66) finally, the observation that rules which provide for payment in full cannot be interpreted in the light of others which do not make that provision. (67)

71. These three statements were incorporated into the judgment in Greece v Commission, (68) in which the rejection of the precedent in Denkavit Futtermittel was extended to the precedent in Bussone, (69) in which it had been acknowledged that, in the absence of any provision relating to the means of financing the costs of the inspections, the Member States might make issue of the payments conditional on payment of a consideration. (70)

72. Furthermore, the judgment in Samvirkende Danske Landboforeninger, (71) which the Portuguese Government cited, together with the last two judgments mentioned above, in support of its argument, is irrelevant, since it concerned a situation different from the one raised in this action. That is, the impact on the common agricultural policy of the temporary increase in land tax in Denmark, which was incompatible with the EC Treaty since, either by influencing price formation or by changing the structure of agricultural holdings, it impeded the functioning of the common organisation of the markets.

73. Under the second subparagraph of Article 21(3) of Regulation No 4253/88, as amended, Community aid must be paid in full to the beneficiaries, which means that deductions cannot be made at the time of payment. The prohibition of any deduction must extend to all charges which are directly and inseparably linked to the amounts disbursed. (72)

75. According to the Portuguese Government, since the contribution of the EAGGF, Guidance Section, is usually between 75 and 85% of the amount of the project, and the rest, between 15 and 25%, is contributed by the State, the fact that the fee is calculated according to the overall budget does not mean that the person concerned pays it with European credits, which he receives in full, so that there is therefore no infringement of the aforementioned provision.

76. This argument must be rejected, since the whole fee cannot be deducted from one of the sources of finance. (73)

77. If the amount of the IFADAP fees is determined according to the final cost, it affects the sums intended to cover it, in proportion, without any exclusion. For example, for a measure valued at 100 units, if the State contributes 20 and the Community 80, a rule of three shows that, of the 0.9 charged, the former contributes 0.18 and the latter 0.72, the amount by which its contribution is reduced.

78. The assertion that the individual receives all the money pledged is untrue, because that charge has to be deducted, so it is necessary to examine how this system operates.

79. According to the Commission, after the appropriate procedures, the applicant is given the contract for the grant of aid, together with a form, which it must return within 60 days, authorising its account to be debited with the amount invoiced by IFADAP in respect of services provided; however, the services are not specified nor is there any reference to the alleged voluntary nature of the payment. Those points were ascertained during the inspection visit of 9 to 13 March 2000 by officials of the institution, with IFADAP's cooperation.

80. The Portuguese Government relies on the doctrine of the burden of proof in order to disagree with the applicant's assessments, describing them as suppositions, and to reject the inferences drawn from the inspection.

81. It is settled case-law that in order to establish failure to fulfil obligations under Community law, it is necessary to prove the allegation that the obligation has not been fulfilled, placing all the relevant information before the Court of Justice. Mere presumptions will not suffice. (74)

82. However, that doctrine, shunning simplistic concepts, has acknowledged that, by a mental process in accord with the rules of human judgment, based on good sense, mutual understanding and experience, some facts may be deemed proved on fragmentary evidence.

83. In this dispute, although neither of the parties has submitted copies of the documents sent to the successful applicants and the inspection report was only included with the reply - a point I shall deal with later - there is enough evidence not to doubt the truth of the conduct described by the applicant.

84. The report details the conditions, method and actions of the inspection. It identifies the beneficiaries visited -16 - and also the projects authorised - 32 - including, as well as the registration numbers and the dates on which they were approved, the amounts of the investment, the proportions financed by the State or by the Community and the amount of the corresponding fee. (75)

85. It also contains the statements of the successful applicants concerning the services provided by IFADAP, before and after the grant of aid, or concerning the voluntary or optional nature of the charge. In that regard, those interviewed were in substantial agreement as regards their description of the conduct of the national body, which concurred with the description given in the application; therefore, it must be considered that the Commission's account of the functioning of the system is accurate.

86. The Portuguese version of events, which insists that the payment was optional, is unsupported by the facts.

87. There are good grounds for criticising the fact that the report was submitted with the reply, that, owing to its absence, its details were not known and that the Member State concerned was not informed of its content. However, those matters do not restrict the rights of the defence, since the application contains specific summaries of that document, (76) which were refuted at the proper time. (77) It should also be pointed out that IFADAP participated in the preparatory meeting held in Lisbon on 9 March 2000 and in the visits. (78)

88. As regards another of the defendant's complaints, it does not appear that the low number of interviews carried out can be criticised. Greater numbers would mean serious practical problems; furthermore, Regulation No 4253/88, as amended, uses the term "sample checks". (79)

89. The designation "fee" suggests that the charge is compulsory and the rule established by the joint dispatch of 1996 gives no cause for thinking that, once it has been fixed, payment is optional. (80)

90. Finally, there are certain contradictions between the alleged voluntariness and the remunerative aim of the services carried out by IFADAP, since, if it is accepted that they are voluntary, the cost of the assistance afforded to all the applicants would be borne only by those who paid; furthermore, if the charge were regarded as consideration - "a remuneratory fee" - its amount would have to be calculated according to the aid provided, not using two fixed percentages which only weight the amount of the project. (81)

91. The system introduced by the Portuguese Republic, under which the Community structural contributions do not reach the beneficiaries in their entirety, infringes the second subparagraph of Article 21(3) of Regulation No 4253/88, as amended. However, it is necessary to investigate whether there is any excuse for that infringement.

92. I should point out, first, that, as I have already said, the case-law maintains that exceptions to the rule of payment in full must be expressly stated in the applicable provisions. (82)

93. The Community legal framework of the present case does not envisage any exception. However, the defendant State excuses the charge by saying that it serves to compensate IFADAP for the tasks carried out, which it lists, making a distinction depending on whether the activity takes place before or after the grant of the subsidy. It also stresses the importance of those measures (83) which, as IFADAP carried them out like any other operator in the sector, are governed by private law. (84)

94. That construction is artificial and contradictory. First, IFADAP's role is not in issue. Nor is it necessary to define its role as intermediary of the EAGGF, Guidance Section, or its role as an individual, since, if the parties concerned do not receive all the money provided by the Community, it is irrelevant whether the amount deducted offsets administrative costs or remunerates technical cover.

95. Secondly, I have already argued that it is inconsistent to describe the fee as both remuneratory and voluntary, since the possibility of avoiding payment does not tally with its purpose of constituting the consideration for the assistance provided under an open competition scheme.

96. In any event, the purpose of the Structural Funds justifies the interest of the national authorities in their citizens obtaining the highest number of grants of aid, because they benefit the country. (85) This fact and the complementary nature of the Community contributions mean that Member States have to make an effort themselves, so that, usually, greater administrative efficiency will mean increased costs, which, unless there is a rule to the contrary, must not have repercussions for the person providing the other part of the aid.

97. The Commission, in support of its argument, invokes the principle of cooperation in good faith, while Portugal bases its arguments on the principle of subsidiarity.

98. Article 10 EC lays down the principle of cooperation in good faith, requiring the Member States to take "all appropriate measures, whether general or particular, to ensure fulfilment of the obligations arising out of this Treaty or resulting from action taken by the institutions ...".

99. The effect of the fee on the Community contribution infringes that rule, in that it prevents the beneficiaries from receiving the contribution without discount or reduction, as required by Regulation No 4253/88, as amended, and that infringement makes it unnecessary to mention the more general infringement of that principle.

100. The second paragraph of Article 5 EC has enshrined this principle in the written law, relating it to areas for which the Community does not have exclusive competence. (86)

101. The defendant State invokes it in connection with Article 4(1) of Regulation No 2052/88, as amended, which requires "consultations" between the Commission, the Member State concerned and the competent authorities and bodies, in view of the fact that those measures coexist with national measures. In that regard, it maintains that neither the services provided by IFADAP nor the consideration charged for them are questionable, since it uses both to facilitate access to the programmes of the EAGGF, Guidance Section, in the most correct and efficient manner.

102. Nevertheless, it is clear that Regulations No 2052/88 and No 4253/88, and their amendments, were adopted within the limits of the competences of the Community, and it was impossible to achieve the desired aim, which was to ensure the uniformity of the structural aid scheme with national measures like those at issue in this case, which generate different treatment.

103. Furthermore, the rule requiring payment in full refers to the part of one of those called upon to collaborate, which is perfectly free to make its contribution subject to a condition.

104. It should also be added, finally, that the principle of subsidiarity has no bearing on the distribution of tasks provided for in structural operations or, therefore, on the activity of the national body.

105. Under Article 69(2) of the Rules of Procedure, the unsuccessful party shall be ordered to pay the costs if they have been applied for in the successful party's pleadings. If the Commission's application is successful, and as it has asked for an order for costs against the Portuguese Republic, that State must be ordered to pay the costs.

106. In the light of the foregoing considerations, I suggest that the Court of Justice:

(1) declare that, by introducing and retaining in force a procedure for granting financial assistance from the European Agricultural Guidance and Guarantee Fund, Guidance Section, involving the payment of levies which unjustifiably reduce the Community contribution, the Portuguese Republic has failed to fulfil its obligations under the second subparagraph of Article 21(3) of Council Regulation (EEC) No 4253/88 of 19 December 1988 laying down provisions for implementing Regulation (EEC) No 2052/88 as regards coordination of the activities of the different Structural Funds between themselves and with the operations of the European Investment Bank and the other existing financial instruments, in the version provided by Council Regulation (EEC) No 2082/93 of 20 July 1993;

2 - André, C., "La section Orientation du FEOGA", Revue du Marché commun, No 170, 1973, pp. 454 and 455.

3 - OJ, English Special Edition 1959-1962, p. 26. The last amendment was made by Regulation (EEC) No 728/70 of the Council of 21 April 1970 on additional provisions for the financing of the common agricultural policy (OJ, English Special Edition 1970 (I), p. 214).

4 - "Le Fonds européen d'orientation et de garantie agricole", Le droit et les affaires, No 123, 29 January 1968, Document VI, p. 2.

6 - Fernández del Hoyo, J.J., La política agraria común (PAC) y sus reformas, Editorial Centro de Estudios Ramón Areces, SA, Madrid, 1994, pp. 22 to 31, gives a precise and clear account of the support mechanisms for which the Guarantee Section is responsible.

7 - According to data for 1998, direct aid accounted for 82% of the entries, as opposed to 12% for refunds on exports and 6% for price interventions (source: European Parliament, fact sheets, 4.1.4 EAGGF - Guarantee Section).

8 - Tió Saralegui, C., "La reforma del Fondo Europeo de Orientación y Garantía Agrícola (FEOGA)", Revista de Instituciones Europeas, Volume 16, 1989-2, pp. 383 and 384, points out that "the implementation of the single European market may increase regional imbalances within the Community. Up to now, growth in competition has tended to benefit the more competitive undertakings and the regions with better infrastructures and greater comparative advantages". This argument strengthens the position of the more modest countries, which advocate joining that objective to the attainment of greater cohesion.

9 - Articles 130a (now, after amendment, Article 158 EC) and 130b of the EC Treaty (now Article 159 EC), added by the Single European Act (OJ 1987 L 169, p. 1), by conceiving economic and social cohesion as an essential supporting policy for implementing the single market. The so-called Agenda 2000 has transferred all the structural and rural measures in force, except for the regions in Objective 1, to the Guarantee Section.

10 - Regulation of 24 June 1988 on the tasks of the Structural Funds and their effectiveness and on coordination of their activities between themselves and with the operations of the European Investment Bank and the other existing financial instruments (OJ 1988 L 185, p. 9).

12 - Regulation of 19 December 1988 laying down provisions for implementing Regulation (EEC) No 2052/88 as regards coordination of the activities of the different Structural Funds between themselves and with the operations of the European Investment Bank and the other existing financial instruments (OJ 1988 L 374 , p. 1).

14 - Article 2(1), in conjunction with Article 1, of Regulation No 2052/88, as amended.

16 - In 2001 it represented 6.7% of the funds of the Guarantee Section (source: European Parliament, fact sheets, 4.1.6 Financing the CAP: the EAGGF).

21 - Delgado De Miguel, J.F., Derecho agrario de la Unión Europea, Editorial Thebook, Oviedo, 1996, p. 142 et seq.

22 - Articles 8(4) and 11a(5) of Regulation No 2052/88, as amended, and Articles 5 to 7 of Regulation No 4253/88, as amended.

23 - Articles 8(5) and 11a(6) and (7) of Regulation No 2052/88, as amended, and Articles 8 to 13 of Regulation No 4253/88, as amended.

25 - The Community contribution is adjusted in accordance with the criteria laid down in Article 13 of Regulation No 2052/88, as amended, supplemented by Articles 17 and 18 of Regulation No 4253/88, as amended.

27 - The second subparagraph of Article 21(3) of Regulation No 4253/88, as amended.

28 - The preparation and implementation of the programmes sometimes require a not insignificant technical and bureaucratic infrastructure; Tió Saralegui, C., op. cit., p. 384.

31 - The first subparagraph of Article 23(2) of Regulation No 4253/88, as amended.

32 - The fourth subparagraph of Article 23(2) of Regulation No 4253/88, as amended. Although, at the hearing, the Commission denied that there had been that obligation before 2001.

33 - OJ 1999 L 161, p. 1. Amended by Council Regulation (EC) No 1447/2001 of 28 June 2001 (OJ 2001 L 198, p. 1), Council Regulation (EC) No 1105/2003 of 26 May 2003 (OJ 2003 L 158, p. 3), and Council Regulation (EC) No 173/2005 of 24 January 2005 (OJ 2005 L 29, p. 3).

36 - Council regulation of 22 April 1997 on the implementation of Member States" action programmes on control of EAGGF Guarantee Section expenditure (OJ 1997 L 108, p. 6).

37 - Council regulation of 17 May 1999 on the financing of the common agricultural policy (OJ 1999 L 160, p. 103).

38 - Article 2(1). The EAGF, to which Articles 12 to 21 relate, bears the costs referred to in Article 3, in a context of shared management with the Member States - those in Article 3(1) - or on a centralised basis - those in Article 3(2); the EAFRD, to which Articles 22 to 28 refer, finances the Community's contribution to the programmes in Article 4. Both funds, in their respective fields, may finance the measures listed in Article 5.

50 - The special features of each country are taken into account when the multiannual programmes and implementing instruments are prepared and approved.

51 - Financial Regulation of 21 December 1977 applicable to the general budget of the European Communities (OJ 1977 L 356, p. 1).

52 - Articles 3 and 27 of Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities (OJ 2002 L 248, p. 1), which replaces the 1977 regulation. Under Article 155(1), the aforementioned provisions govern the expenditure of the Structural Funds.

54 - "The paying authority shall ensure that final beneficiaries receive payment of their contribution from the Funds as quickly as possible and in full. No deduction, retention or further specific charge which would reduce these amounts shall be made."

55 - For example, Article 30a of Regulation (EEC) No 805/68 of the Council of 27 June 1968 on the common organisation of the market in beef and veal (OJ, English Special Edition 1968 (I), p. 187), added by Council Regulation (EEC) No 2066/92 of 30 June 1992 (OJ 1992 L 215, p. 49), states that "[t]he amounts to be paid pursuant to this Regulation shall be paid in full to the beneficiaries"; similarly, Article 15(3) of Council Regulation (EEC) No 1765/92 of 30 June 1992 establishing a support system for producers of certain arable crops (OJ 1992 L 181, p. 12) states that "the payments referred to in this Regulation are to be paid over to the beneficiaries in their entirety".

57 - Mr Jensen was told that the whole amount of the subsidy, DKK 33 563, would go to cover what he owed in VAT; likewise, Korn- og Foderstofkompagniet received nothing because of the debts which Mr Stenholt, the assignor of the aid, owed to the State.

59 - Paragraph 49 of the same judgment, which refers to the judgment in Joined Cases 205/82 to 215/82 Deutsche Milchkontor and Others [1983] ECR 2633.

65 - Commission regulation of 26 July 1979 on the rules for granting aid to skimmed milk processed into compound feeding stuffs and skimmed-milk powder intended for feed for calves (OJ 1979 L 199, p. 1).

70 - Commission Regulation (EEC) No 95/69 of 17 January 1969 implementing Regulation (EEC) No 1619/68 on marketing standards for eggs (OJ, English Special Edition 1969 (I), p. 7) and Council Regulation (EEC) No 2772/75 of 29 October 1975 on marketing standards for eggs (OJ 1975 L 282, p. 56) contained no such provision. See paragraph 28 of the judgment in Greece v Commission.

72 - This view was expressed by Advocate General Jacobs in point 13 of the Opinion he delivered in Kellinghusen and Ketelsen.

73 - As is done in paragraph 97 of the defence, with the effect that only if the fee exceeded 15% - or 25% - of the value of the project would there be a reduction in the contributions of the Structural Fund.

74 - Inter alia, Case 96/81 Commission v Netherlands [1982] ECR 1791, paragraph 6; Case C-404/00 Commission v Spain [2003] ECR I-6695, paragraph 26; and Case C-434/01 Commission v United Kingdom [2003] ECR I-13239, paragraph 21.

75 - In cases in which the project was approved before 1 January 1995, the national body refunded the payment.

76 - Points 28, 58 and 59 of the application. Points 56 and 57 expressly include the conclusions of the report.

77 - Points 61 to 73 of the defence comment on that task and criticise several aspects of the investigations.

78 - The list of the national body's representatives at the preparatory meeting and at the visits is contained in Annex I to the report.

79 - The first subparagraph of Article 23(2) of Regulation No 4253/88, as amended. A sample check consists in recording a group's opinion on a matter by taking polls of small groups, which are considered representative of the whole to which they belong.

80 - It is surprising that the defendant has not submitted the evidence of an applicant who refused to pay the levy or data from the IFADAP itself concerning unpaid invoices. As the defendant's representative appeared to infer at the hearing, it does not have to prove its "innocence", but to show that the Commission's assertions are incorrect within the meaning of Case C-54/95 Germany v Commission [1999] ECR I-35, paragraph 35; Case C-278/98 Netherlands v Commission [2001] ECR I-1501, paragraph 41; and Case C-300/02 Greece v Commission [2005] ECR I-1341, paragraph 36.

81 - The Court of Justice has consistently held, in relation to taxation matters, that remuneratory fees must be calculated on the basis of the cost of the corresponding formalities (Case C-188/95 Fantask and Others [1997] ECR I-6783; Case C-134/99 IGI [2000] ECR I-7717; and Case C-206/99 SONAE [2001] ECR I-4679, inter alia).

82 - Judgments in Kellinghusen and Ketelsen and Greece v Commission, and also, a contrario sensu, Denkavit Futtermittel and Bussone.

83 - Paragraph 25 of the defence states that, without technical advice, about 90% of the projects would not pass the initial stages.

85 - Which, in turn, benefits the Community, by facilitating achievement of the proposed objectives through this kind of aid.

86 - This idea is reiterated in point 3 of the protocol on the application of the principles of subsidiarity and proportionality, annexed to the Treaty establishing the European Community.

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You are here: BAILII >> Databases >> Court of Justice of the European Communities (including Court of First Instance Decisions) >> Commission v Portugal (Regional policy) [2006] EUECJ C-84/04 (05 October 2006) URL: http://www.bailii.org/eu/cases/EUECJ/2006/C8404.html Cite as: [2006] ECR I-9843, [2006] EUECJ C-84/4, [2006] EUECJ C-84/04

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