CELEX: 62015TJ0112
EAGGF
Guarantee Section
EAGF and EAFRD
Expenditure excluded from financing
Regulation (EC) No 1782/2003
Regulation (EC) No 796/2004
Area-related aid scheme
Concept of permanent pasture
Obligation to state reasons
Proportionality
Flat-rate financial correction
Deduction of earlier correction

Background to the dispute
Between 26 and 29 September 2008 and between 23 and 27 February 2009, the Commission of the European Communities carried out enquiries AA/2008/012/GR and AA/2009/031/GR concerning the expenditure incurred by the Hellenic Republic in respect of area aid and rural development measures, under the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (EAGGF), and under the European Agricultural Fund for Rural Development (EAFRD), respectively.
By letters of 21 November 2008 and 13 May 2009, the Commission sent its observations to the Hellenic Republic. The Hellenic Republic replied to those letters on 21 January 2009 and 13 July 2009, respectively.
A bilateral meeting was held on 8 April 2010. On 2 June 2010, the Commission sent its findings to the Hellenic Republic, to which the latter replied on 2 August 2010.
By a letter of 31 May 2013, the Commission informed the Hellenic Republic that it would be maintaining its position regarding the net amount of EUR 104758550.31 that it intended to impose on the Hellenic Republic and the reasons for its corrections.
The Hellenic Republic referred the matter to the Conciliation Body by letter of 11 July 2013, in which it contested inter alia the amount of the proposed corrections.
In its opinion delivered on 31 January 2014, although the Conciliation Body found that it had not been possible to reconcile the divergent positions of the parties, it invited those parties to engage in further contacts in order to reconcile their respective positions.
On 26 March 2014, the Commission adopted its final position following the Conciliation Body’s opinion, in which it found weaknesses in the operation of the Land Parcel Identification System and the Geographic Information System (‘the LPIS-GIS’) affecting the cross-checks and the administrative checks, weaknesses in the on-the-spot checks and incorrect calculation of payments and sanctions. Moreover, the Commission drew attention to the recurrent nature of those findings. The final net amount of the correction imposed on the Hellenic Republic was EUR 86007771.11.
On 19 December 2014, the Commission adopted Implementing Decision 2014/950/EU on excluding from European Union financing certain expenditure incurred by the Member States under the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (EAGGF), under the European Agricultural Guarantee Fund (EAGF) and under the European Agricultural Fund for Rural Development (EAFRD) (
OJ 2014 L 369, p. 71
; ‘the contested decision’).
By the contested decision, the Commission applied, as regards the Hellenic Republic, flat-rate corrections for claim year 2008 in the field of area aid in respect of a total amount of EUR 61012096.85, from which it deducted the amount of EUR 2135439.32. The Commission also imposed corrections for claim year 2008 in the field of rural development in respect of a total amount of EUR 10504391.90, from which it deducted the amount of EUR 2588231.20. The resulting financial impact amounts are EUR 58876657.53 and EUR 7916160.70, respectively.
The Commission justified the imposition of the flat-rate corrections on the following grounds, which are set out in the summary report attached to the contested decision (‘the summary report’):
—
as regards the LPIS-GIS, the Commission’s services were of the opinion that it did not comply with the requirements stemming from Article 20 of Council Regulation (EC) No 1782/2003 of 29 September 2003 establishing common rules for direct support schemes under the common agricultural policy and establishing certain support schemes for farmers and amending Regulations (EEC) No 2019/93, (EC) No 1452/2001, (EC) No 1453/2001, (EC) No 1454/2001, (EC) No 1868/94, (EC) No 1251/1999, (EC) No 1254/1999, (EC) No 1673/2000, (EEC) No 2358/71 and (EC) No 2529/2001 (
OJ 2003 L 270, p. 1
), as amended; in particular:
—
errors had been established regarding the boundaries of the reference parcels and their maximum eligible area, that information being materially incorrect; this was particularly so for the areas that were used for pasture, which, as audits have shown, could not always be considered eligible for aid on the basis of Article 2, first paragraph, points 2 and 2a of Commission Regulation (EC) No 796/2004 of 21 April 2004 laying down detailed rules for the implementation of cross-compliance, modulation and the integrated administration and control system provided for in Regulation No 1782/2003 (
OJ 2004 L 141, p. 18
), as amended; consequently, the farmers were not correctly informed about the eligibility of the parcels that they intended to declare; moreover, the cross-checks to avoid undue multiple granting of the same aid in respect of the same parcel were not conclusive, unless on-the-spot checks detecting the incorrect location of the parcels and their eligibility had taken place;
—
from 2009, new LPIS-GIS information was used for declarations and cross-checks; the results of the cross-checks could not be used to evaluate the risk to the Fund in respect of 2008; in 2008, farmers were declaring their parcels on the basis of the former LPIS-GIS; if the system had operated correctly in 2008, some of those parcels would have been refused as ineligible, including a high proportion of the permanent pasture which the Greek authorities considered eligible, and in respect of which the Commission had already, in previous correspondence, indicated its ineligibility, because of its non-compliance with the relevant legal provisions;
—
the on-the-spot checks did not satisfy, for claim year 2008, the requirements of Articles 23 and 30 of Regulation No 796/2004; in particular:
—
as regards the pasture areas; the absence of measurement of the pasture areas was deemed a particular point of concern; in several cases, eligible areas were covered with ligneous plants and other parcels were partly covered with herbaceous forage, so that they did not meet the criteria of permanent pasture of Article 2, first paragraph, point 2 of Regulation No 796/2004; the land declared was often located in remote areas, without visible boundaries, and was not easily accessible; it was found that the inspectors had not measured areas in accordance with the requirements of Article 30 of Regulation No 796/2004; whereas the Hellenic Republic had on several occasions stated that the contested areas had always been used as pasture areas without the Commission contesting their eligibility, those areas had also been ineligible in the light of the rules applicable before 2006 and the Directorate General (DG) ‘Agriculture’ had also criticised their eligibility (enquiry AP/2001/06);
—
as regards the on-the-spot checks by remote sensing: the procedure applied did not comply with the requirements; consequently, aid was paid in respect of ineligible parcels under Article 44(2) of Regulation No 1782/2003 and Article 2 of Regulation No 796/2004;
—
as regards the standard on-the-spot checks: re-measurements showed some differences, without however demonstrating a systematic failure in the operation of that type of check, with the exception of pasture areas; in 2008, in view of the introduction of a new LPIS-GIS, the Hellenic Republic did not input in the LPIS-GIS the coordinates of the parcels subject to standard on-the-spot-checks; hence there was no graphical overlay making it possible to detect multiple claims;
—
the shortcomings established constituted a continued failure in the functioning of key control and ancillary controls and generated a risk for the Fund in respect of area aid; moreover, those findings were of a recurrent nature;
—
the shortcomings established had an effect on the additional ‘coupled’ area-based aid.
The Commission applied, in the light of the findings relating to the weaknesses in the LPIS-GIS and the on-the-spot checks, corrections broken down according to the following categorisation:
—
for farmers declaring only pasture areas, a 10% flat-rate correction was imposed on account of a problematic situation in the LPIS and the on-the-spot checks, disclosing a high level of error and, therefore, widespread irregularity; although, according to the Commission, in accordance with document No VI/5330/97 of 23 December 1997, entitled ‘Guidelines for the calculation of financial consequences when preparing the decision regarding the clearance of the accounts of EAGGF Guarantee’ (‘document No VI/5330/97’), a 25% correction was justified, the application of a 10% flat-rate correction appeared to be more appropriate taking into account the ‘buffer effect’;
—
for farmers who declared only pasture areas, a 2% flat-rate correction was imposed taking account of the ‘buffer effect’, the improvement in the on-the-spot checks and of the fact that, in that category of farmers, the level of irregularities identified was lower and the standard on-the-spot checks accounted for a significant share of the checks;
—
for the additional coupled area-based aid, a 5% flat-rate correction was imposed because that aid was negatively affected by the belated launch of on-the-spot checks and the absence of the ‘buffer effect’;
—
for all the area-based rural development measures, a 5% flat-rate correction was imposed.
Procedure and forms of order sought
By application lodged at the Court Registry on 2 March 2015, the Hellenic Republic brought the present action.
Acting upon a proposal of the Judge-Rapporteur, the General Court (Eighth Chamber) decided to open the oral part of the procedure.
In the context of the measures of organisation of procedure provided for in Article 89 of its Rules of Procedure, the Court requested the Commission to produce certain documents. The Commission did so within the prescribed time limit.
The parties presented oral argument and answered the questions put to them by the Court at the hearing of 15 September 2016. During that hearing, the Hellenic Republic submitted certain documents, which already appeared in the case file.
The Hellenic Republic claims that the General Court should annul the contested decision in so far as it excludes from European Union financing expenditure which was incurred in respect of area aid for claim year 2008 and which corresponds to 10% of the whole amount of expenditure incurred for pasture-related aid, 5% of the whole amount of expenditure incurred for additional coupled aid and 5% of the whole amount of the expenditure incurred in respect of rural development.
The Commission contends that the Court should:
—
dismiss the action as unfounded;
—
order the Hellenic Republic to pay the costs.
Law
The applicant raises three pleas in law supporting its claim for annulment. The first plea, relating to the 10% flat-rate financial correction in respect of area aid, alleges misinterpretation and misapplication of Article 2, first paragraph, point 2 of Regulation No 796/2004, a failure to state adequate reasons and infringement of the principle of proportionality and of the limits on the Commission’s discretion. The second plea, relating to the 5% flat-rate financial correction in respect of additional coupled aid, alleges an error of fact, a failure to state adequate reasons and an infringement of the principle of proportionality. The third plea, relating to the 5% financial correction applied in respect of the common agricultural policy’s (CAP) second pillar aid, which concerns rural development, alleges a failure to state reasons, an error of fact and an infringement of the principle of proportionality.
As a preliminary point, it should be recalled that, according to settled case-law, the European Agricultural Funds finance only interventions undertaken in accordance with EU provisions within the framework of the common organisation of agricultural markets (judgment of 27 February 2013, Poland v Commission,
T‑241/10
, not published,
EU:T:2013:96
, paragraph
).
Where the Commission refuses to charge certain expenditure to the funds on the ground that it was incurred as a result of breaches of provisions of EU law for which a Member State can be held responsible, the Commission is not required to demonstrate exhaustively that the checks carried out by the national authorities are inadequate or that the data submitted by them are incorrect, but to adduce evidence of serious and reasonable doubt on its part regarding the checks or data. The reason for this mitigation of the burden of proof on the Commission is that it is the Member State which is best placed to collect and verify the data required for the clearance of European Agricultural Funds accounts and, consequently, it is for that State to adduce the most detailed and comprehensive evidence that its inspections or figures are accurate and, if appropriate, that the Commission’s statements are incorrect (judgments of 11 January 2001, Greece v Commission,
C‑247/98
,
EU:C:2001:4
, paragraphs
to
, and of 17 May 2013, Greece v Commission,
T‑294/11
, not published,
EU:T:2013:261
, paragraph
).
Thus, it is necessary to ascertain whether the Member State concerned has demonstrated the incorrectness of the Commission’s assessment or the absence of a risk of loss or irregularity for the Fund on the basis of the application of a reliable and effective system of checks (judgment of 17 May 2013, Greece v Commission,
T‑294/11
, not published,
EU:T:2013:261
, paragraph
; see, to that effect, judgment of 24 February 2005, Greece v Commission,
C‑300/02
,
EU:C:2005:103
, paragraph
).
It is in the light of those considerations that it is necessary to examine the pleas put forward by the Hellenic Republic in support of its action in so far as it refers to the three categories of flat-rate corrections applied in the contested decision.
The plea relating to the 10% financial correction regarding area aid
As regards the 10% flat-rate correction relating to area aid, the Hellenic Republic puts forward three complaints, alleging (i) misinterpretation and misapplication of Article 2, first paragraph, point 2 of Regulation No 796/2004 setting out the definition of pasture, (ii) a failure to state reasons and (iii) infringement of the principle of proportionality.
First complaint: incorrect interpretation and application of Article 2, first paragraph, point 2 of Regulation No 796/2004
The Hellenic Republic claims, in essence, that the definition of ‘permanent pasture’, set out in Article 2, first paragraph, point 2 of Regulation No 796/2004, must be interpreted as meaning that it includes areas covered with scrub and ligneous plants, characteristic of so-called Mediterranean-type pasture areas.
As a preliminary point, it should be pointed out that, in accordance with Article 31 of Council Regulation (EC) No 1290/2005 of 21 June 2005 on the financing of the common agricultural policy (
OJ 2005 L 209, p. 1
), the Commission excludes from EU financing expenditure incurred in a way that has infringed EU rules. It follows that the Commission is required to pursue the objective of the legislature within the limits set by the regulations concerned and that farm income support is not granted in a discretionary way, but solely where it is in accordance with the conditions laid down in the relevant provisions.
In so far as the parties disagree as to the interpretation of the definition of ‘permanent pasture’ eligible for aid under the legislation in force as regards claim year 2008, it is necessary, first of all, to determine the relevant rules as regards the definition of ‘permanent pasture’ and their interpretation, and, next, to examine whether the Commission erred by imposing the flat-rate correction at issue on the basis of the findings made.
In the first place, it should be noted that, for the purposes of the determination of the entitlements to payment of aid, Article 43 of Regulation No 1782/2003, in the version in force at the material time, provided for receipt of a payment entitlement per hectare, the number of hectares including, according to paragraph 2(b) of that article, all forage area in the reference period. Such areas were defined in Article 43(3) of Regulation No 1782/2003, according to whether they included ‘the area of the holding that was available … for rearing animals’, to the exclusion, inter alia, of buildings, woods, ponds and paths.
According to Article 44(1) of Regulation No 1782/2003, in the version in force at the material time, any payment entitlement accompanied by an eligible hectare was to give right to the payment of aid. According to paragraph 2 of that article, eligible hectare was to mean ‘any agricultural area of the holding taken up by arable land and permanent pasture except … forests or [areas] used for non-agricultural activities’.
It follows that the system established by Regulation No 1782/2003, in the version in force at the material time, reserved area-linked aid solely to agricultural areas, in other words, to any area covered by agricultural production, in order to prevent areas that were not actually subject to agricultural activity being eligible for aid.
In the second place, permanent pasture was defined in Article 2, first paragraph, point 2 of Regulation No 796/2004, in the version applicable in 2008, as ‘land used to grow grasses or other herbaceous forage naturally (self-seeded) or through cultivation (sown) and that has not been included in the crop rotation of the holding for five years or longer’.
Moreover, under Article 2, first paragraph, point 2a of Regulation No 796/2004, in the version in force at the material time, ‘grasses or other herbaceous forage’ designated ‘all herbaceous plants traditionally found in natural pastures or normally included in mixtures of seeds for pastures or meadows in the Member State (whether or not used for grazing animals)’.
Furthermore, under Article 8(1) of Regulation No 796/2004, in the version in force at the material time, ‘a parcel that contains trees shall be considered an agricultural parcel for the purposes of the area-related aid schemes provided that agricultural activities referred to in Article 51 of Regulation … No 1782/2003 or, where applicable, the production envisaged can be carried out in a similar way as on parcels without trees in the same area’.
It must be stated at the outset that the definition of ‘permanent pasture’ set out in Article 2, first paragraph, point 2 of Regulation No 796/2004 expressly mentioned as ‘permanent pasture’ only land used to grow grasses or other herbaceous forage.
Accordingly, although plants other than grasses and other herbaceous forage are not expressly excluded from that definition, that definition established an implicit distinction between, on the one hand, grasses and herbaceous forage, and, on the other, in contrast to grasses and herbaceous forage, all non-herbaceous plants, namely ligneous plants. It is apparent from the wording to ‘grow grasses or other herbaceous forage’ that only grasses and herbaceous forage were supposed to be eligible for aid in the light of that definition.
Thus, as regards aid for pasture areas, the criterion used by Regulation No 796/2004 to ensure that there is no payment of aid in respect of areas not subject to agricultural activity was the type of vegetation present in the area in question. The predominance of plants other than herbaceous plants was an indicator that agricultural activity had been abandoned on the areas in question, in this instance pasture areas. Therefore, the limitation of the definition of ‘permanent pasture’ solely to areas covered with grasses and herbaceous forage — the latter serving as natural forage — was intended to prevent the risk of areas which would be used for non-agricultural activities and would not actually be used for rearing animals being eligible for area aid. Ligneous matter (trees and shrubs) could at most be tolerated to the extent that they did not compromise the development of herbaceous forage resources and, hence, the parcels genuinely being used as pasture areas.
Consequently, it is apparent from both the wording of Article 2, first paragraph, point 2 of Regulation No 796/2004 and its objectives and context that the concept of ‘permanent pasture’ must be interpreted as meaning that forests and parcels covered with ligneous plants were not, in principle, eligible for aid.
Next, it is apparent from the documents before the Court that the Joint Research Centre (JRC) of the Commission publishes a guide intended to provide Member States with guidance on how best to comply with the legal provisions in force relating to the common agricultural policy (CAP).
According to the version of the guide applied in 2008 and provided by the Commission in response to the measure of organisation of procedure:
‘The Commission services take the view that “woods” should be interpreted as areas within an agricultural parcel with tree-cover (including bushes etc.) preventing growth of vegetative under-storey suitable for grazing; in accordance with Article 8(1) of Regulation No 796/2004, areas of trees inside an agricultural parcel with a density of more than 50 trees per hectare should, as a general rule, be considered as ineligible[;] exceptions, justified beforehand by the Member States, may be envisaged for tree classes of mixed-cropping such as for orchards and for ecological/environmental reasons; … as regards bushes, rocks, etc., the conditions under which those elements can be considered as part of an agricultural parcel should be defined on the basis of the customary standards of the Member State or region concerned.’
It is apparent from the extract from that guide that a limited presence of trees, lower than 50 trees per hectare, did not preclude agricultural parcels being eligible for aid in so far as such a marginal presence did not prevent their genuine agricultural use. According to the guide, it was also possible to provide for other exceptions to the exclusion of trees and other ligneous plants, provided that the exceptions were set out and justified beforehand.
It should also be pointed out that, in the present case, as regards the flat-rate correction applied to pasture-related aid, the Commission based its decision on the following findings. In the first letter sent to the Hellenic Republic, dated 21 November 2008, the Commission observed that the on-the-spot checks carried out during the inquiries in question had shown that certain areas eligible for aid did not comply with the eligibility criteria laid down in Article 44(2) of Regulation No 1782/2003 and in Article 2 of Regulation No 796/2004. The Commission mentioned the following examples:
—
642-526-7231-031B: of the 18 hectares claimed/accepted, only 10% could be considered eligible; the parcel as drawn on the map could not be located exactly in the communal pasture;
—
665-522-0095-039B: 35 hectares claimed/accepted: part of the parcel indicated by the farmer was sandy wasteland with some grass/rushes next to the sea and had been in part turned into a cross-terrain; the Greek authorities had accepted the area as pasture because it was crossed by animals, which was not considered an acceptable criterion;
—
585-559-2915-001B: claimed/accepted for 3.1 hectares: the block size was 38.4 hectares of which 37.7 were considered eligible pasture by the commune; the parcel being a communal pasture, it could not be located; based on a photo provided at the end of the mission, at least half of the block was covered by dense shrubs/bushes or forest;
—
522-528-2317-401B: claimed/accepted for 20 hectares; the block size was 33.69 hectares of which 32.75 were considered eligible pasture by the commune; the block was fully covered by trees and in fact was a forest; the authorities claimed that animals could go inside that block; in the new LPIS-GIS, the block is interpreted as forest based on the ortho-images;
—
513-526-3201-401B: claimed/accepted for 7 hectares; the block size is 9.3 hectares of which 8.8 hectares were considered eligible pasture by the commune; the block was in fact a mountainside covered 80% by dense shrubs and trees; in the new LPIS-GIS, the block is considered 100% eligible based on the ortho-images, which was considered incorrect; next to the block there is a pasture and the farmer claiming this block has his animals on the real pasture land outside the block;
—
512-526-9460-402B: claimed/accepted for 18 hectares; the block size was 42 hectares of which 41.2 were considered eligible pasture by the commune; the block was situated on the steep slope of a mountain, covered by trees/shrubs and bushes; in the new LPIS-GIS, the block is interpreted as a forest based on the ortho-images.
It is apparent from the subsequent exchanges between the Commission and the Hellenic Republic that the shortcomings established by the Commission could not be justified by the Greek authorities. Consequently, the Commission found, in the summary report, that, for ‘farmers only declaring pasture land: the situation [could] be considered as one whereby there is a high level of error evidencing widespread irregularity’. The summary report notes, moreover, that, in several cases, the eligible parcels were covered not with herbaceous plants, but with ligneous plants, and sometimes parts of parcels were covered with herbaceous forage, which do not therefore meet the requirement of permanent pasture as laid down in Article 2, first paragraph, point 2 of Regulation No 796/2004. Furthermore, according to the summary report, it was fairly common that the areas declared were in remote (public/common) areas, which were not always delimited with clear visible boundaries and easily accessible. It was thus found that the inspectors had not performed a measurement of the areas of the agricultural parcels declared in accordance with Article 30 of Regulation No 796/2004 in that sometimes only one reference point was taken and no actual determination of the area took place.
It is apparent from the foregoing that the irregularities established by the Commission’s services could constitute evidence of the serious and reasonable doubt that the Commission harboured with respect to the aid disbursed in respect of the pasture areas, in accordance with the case-law cited in paragraph 20 above.
The Hellenic Republic does not adduce any evidence demonstrating that the Commission’s assessments were incorrect and capable of calling in question the decision to impose a flat-rate correction in respect of permanent pasture, in accordance with the case-law cited in paragraph 21 above.
The Hellenic Republic claims, in essence, that it would be neither logical nor well founded to exclude ‘Mediterranean-type’ pasture areas from the CAP and puts forward, in support of its claim, a series of arguments aimed at showing that the Commission erred in imposing the flat-rate correction at issue inasmuch as areas covered by ligneous plants used as traditional forage for animals of the Mediterranean region ought to have been eligible for aid as pasture areas.
It should be observed at the outset that, by that complaint, the Hellenic Republic does not seek to contest the legality of the definition of ‘permanent pasture’ set out in Article 2, first paragraph, point 2 of Regulation No 796/2004.
Moreover, first, the Hellenic Republic submits that the purpose of the CAP has always been to support Mediterranean-type pasture areas which extend over a substantial part of Greece, France, Italy, Spain and Portugal. Furthermore, according to the Hellenic Republic, the exclusion of Mediterranean pasture areas from the definition of ‘permanent pasture’ would be contrary to EU environmental protection provisions.
In that regard, it should be noted that the Hellenic Republic merely claims, in abstract fashion, that the purpose of the CAP has always been to offer support to Mediterranean-type permanent pasture, substantiating its comments only by an abstract reference to the judgment of 6 November 2014, Greece v Commission (
T‑632/11
, not published,
EU:T:2014:934
), with no explanation as to its relevance.
As regards the alleged purpose of the CAP to support Mediterranean-type permanent pasture, it should be pointed out, first of all, that such a purpose is neither among the objectives of the CAP set out in Article 39 TFEU and nor does it stem from the provisions of Regulation No 1782/2003, which provided merely, in recital 4 thereof, that, ‘since permanent pasture has a positive environmental effect, it is appropriate to adopt measures to encourage the maintenance of existing permanent pasture to avoid a massive conversion into arable land’.
Moreover, it must be stated that, in so far as the Hellenic Republic claims that the contested decision must be in accordance with EU environmental protection provisions, it does not specify the provisions allegedly infringed.
Second, the Hellenic Republic claims that, in the Mediterranean countries, the concept of ‘permanent pasture’ refers to areas covered with natural, ligneous or woody vegetation, intended for farm animal grazing. The Hellenic Republic also puts forward the recurring demand of southern European farmers for recognition of the eligibility of Mediterranean-type pasture areas under the CAP, regardless of the vegetation to be found in such areas.
It should be pointed out that, first of all, the Hellenic Republic cannot usefully rely on an alleged internal concept of pasture areas which would accept areas covered predominantly with ligneous vegetation as forage resources, since only a marginal presence of ligneous plants was tolerated according to the EU definition in force at the material time (see, to that effect, judgment of 5 July 2012, Greece v Commission,
T‑86/08
,
EU:T:2012:345
, paragraph
).
Next, in support of its argument based on the recurring demand for recognition of the eligibility of Mediterranean-type pasture areas under the CAP, the Hellenic Republic merely refers to a set of annexes, the oldest of which dates back to 2011, without providing any explanation or identifying the relevant passages of those annexes.
It follows from Article 44(1)(c) of the Rules of Procedure of the General Court that the essential facts and law on which an application is based must be apparent from the text of the application itself, even if only stated briefly, and that a reference in the application to such elements in an annex to the application is therefore not sufficient. Similarly, it is not for the General Court to seek and identify in the annexes the pleas and arguments on which it may consider the action to be based, since the annexes have a purely evidential and ancillary purpose (see, to that effect, judgment of 28 June 2005, Dansk Rørindustri and Others v Commission,
C‑189/02 P, C‑202/02 P, C‑205/02 P to C‑208/02 P and C‑213/02 P
,
EU:C:2005:408
, paragraphs
,
and
). It follows that the general reference to the annexes relied on by the Hellenic Republic must be rejected as inadmissible.
It should nonetheless be pointed out that work on the 2014-2020 CAP reform started in April 2010 with the launch of a public debate on the future of the CAP, its objectives and principles. Then, in October 2011, the Commission submitted a package of legislative proposals which led to the adoption, inter alia, of Regulation (EU) No 1307/2013 of the European Parliament and of the Council of 17 December 2013 establishing rules for direct payments to farmers under support schemes within the framework of the common agricultural policy and repealing Council Regulation (EC) No 637/2008 and Council Regulation (EC) No 73/2009 (
OJ L 2013 L 347, p. 608
). That regulation extended the definition of ‘permanent pasture’ to areas covered with ligneous plants. It is therefore possible to conclude on the basis of the content of the documents on which the Hellenic Republic attempts to rely, that those documents were established and published in the context of a campaign the aim of which was to influence the choice of the legislature in relation to the provision at issue regarding permanent pasture. Even on the assumption that those annexes might be relevant in the context of a challenge on legality, which has not been raised in the present case, of Regulation No 796/2004, inasmuch as that regulation excludes from the definition of permanent pasture Mediterranean-type pasture areas, those annexes are not however relevant as a basis for an extensive interpretation of the provision at issue in the present case.
Third, the Hellenic Republic claims that the areas at issue have always been used as pasture areas without their eligibility having been contested by the Commission.
In that regard, it should be pointed out that the Commission is not required to cover, in respect of the European Agricultural Funds, expenditure incurred by a Member State on the basis of an objectively incorrect application, but which is based on an interpretation in good faith, of EU law, unless the incorrect interpretation of EU law can be imputed to an EU institution (see, to that effect, judgment of 19 June 2009, Spain v Commission,
T‑369/05
, not published,
EU:T:2009:213
, paragraph
).
It must be stated that the Hellenic Republic does not provide any material supporting the conclusion that in 2008 its interpretation of the concept of pasture areas was imputable to conduct of the Commission. It merely reiterates the argument, contested by the Commission, alleging that the eligibility of areas which have traditionally been pasture areas was not disputed that it had already raised during the pre-litigation procedure, without however submitting any evidence in support of that argument. In that regard, it is apparent from the summary report that, according to the rules in force before 2006, those areas were considered ineligible and that the Commission contested their eligibility. Consequently, this argument must necessarily be rejected.
Fourth, the Hellenic Republic claims that the interpretation of the concept at issue that it puts forward is borne out, first, by the Commission’s recommendations which served as a basis for the preparation, in 2012, of a Greek action plan relating to the eligibility of pasture areas by photo-interpretation of satellite images of the agricultural parcels, and, second, by the amendment of the definition in question made in Regulation No 1307/2013.
As regards the amendment of the definition of ‘permanent pasture’ made by Regulation No 1307/2013, it should be pointed out that, by its argument, the Hellenic Republic relies on subsequent legislation in support of its interpretation of the legislation applicable in the present case.
It is common ground that the relevant provisions of the new Regulation No 1307/2013 have applied since 1 January 2015, without any retroactive application having been provided for. It must be stated that, in view of the fact that it was for the EU legislature, which has a wide discretion in the exercise of its authority, to evaluate the situation and, if necessary, decide on the desirability of amending the provision in force, it is not apparent from the mere subsequent amendment of the definition at issue that Article 2, first paragraph, point 2 of Regulation No 796/2004 must be interpreted in line with the amendment made (see, to that effect, judgment of 5 April 2006, Deutsche Bahn v Commission,
T‑351/02
,
EU:T:2006:104
, paragraph
). This complaint must therefore be rejected as unfounded.
As regards the recommendations and the 2012 Action Plan, it is apparent from an extract from those recommendations, submitted by the Hellenic Republic, that, if the number of trees per hectare of pasture was less than 50, the entire parcel was regarded purely as pasture. If, however, the number of trees per hectare of reference parcel was greater than 50, the whole parcel was to be regarded as not being a pasture area. As regards parcels with scattered shrubs on them, the following classification was drawn up:
—
where the area eligible as pasture was evaluated by photo-interpretation at a rate of 0% to 25%, it was appropriate to consider that 0% of the total area was eligible,
—
where the area eligible as pasture was evaluated by photo-interpretation at a rate of 25% to 50%, it was appropriate to consider that 37.5% of the total area was eligible,
—
where the area eligible as pasture was evaluated by photo-interpretation at a rate of 50% to 75%, it was appropriate to consider that 62.5% of the total area was eligible,
—
where the area eligible as pasture was evaluated by photo-interpretation at a rate of 75% to 100%, it was appropriate to consider that 100% of the total area was eligible.
Those recommendations were based on the version applied in 2012 of the guide published by the JRC, intended to provide Member States with guidance on how best to comply with the legal provisions in force relating to the CAP (see paragraphs 37 to 39 above). According to the extract from that guide, annexed to the recommendations referred to above, and identical to the text in force in 2008:
‘... [It] is the Commission’s view that “woods” should be interpreted as areas within an agricultural parcel with tree-cover (including bushes etc.) preventing growth of vegetative under-storey suitable for grazing[;] as regards parcels containing trees, the Commission’s services take the view that, consequently, areas of trees inside an agricultural parcel with a density of more than 50 trees per hectare should, as a general rule, be considered as ineligible[;] exceptions, justified beforehand by the Member States, may be envisaged for tree classes of mixed-cropping such as for orchards and for ecological/environmental reasons[;] as regards bushes, rocks, etc., the conditions under which those elements can be considered as part of an agricultural parcel should be defined on the basis of the customary standards of the Member State or region concerned.’
Unlike the version in force in 2008, the 2012 version specified that, in order to evaluate the eligible area within a permanent pasture agricultural parcel, the Member States could use a reduction coefficient, in one of the following forms: ‘— a pro rata system ...’.
It is apparent from the documents before the Court and information that the Commission provided at the hearing that the Action Plan based on the Commission’s recommendations to which the Hellenic Republic refers, was being drawn up in 2012, in view of the entry into force of Regulation No 1307/2013, which amended the definition of ‘permanent pasture’. It is in no way apparent from the documents before the Court that that action plan and the recommendations on which that plan is based applied before the year in which the plan was drawn up, namely 2012. It follows that, even if the Action Plan and those recommendations support an extensive interpretation of the concept of pasture areas allowing areas covered by ligneous plants beyond 50 trees per hectare to be eligible for aid, the Hellenic Republic cannot rely on the drawing up of that action plan and of those recommendations in order to challenge the imposition of the flat-rate correction at issue based on the findings made in respect of claim year 2008.
Accordingly, it must be found that the Hellenic Republic has failed to demonstrate that the Commission’s assessments were incorrect.
Lastly, it must be stated, for the sake of completeness, that in the light of the shortcomings established in the application of the rules relating to pasture areas and in the system of LPIS-GIS checks, referred to in paragraphs 40 and 41 above, the surfaces at issue would have been ineligible, that the definition applied was consistent with the wording of Article 2, first paragraph, point 2 of Regulation No 796/2004 or that the Commission applied the interpretation stemming from the 2012 Action Plan or even that adopted in Regulation No 1307/2013.
In the light of all the foregoing, the Hellenic Republic’s first complaint, alleging misinterpretation of the definition of ‘permanent pasture’ set out in Article 2, first paragraph, point 2 of Regulation No 796/2004 must be rejected.
Second complaint: failure to state reasons
The Hellenic Republic submits that by refusing to take into account the matters that it raised in support of the complaint alleging misinterpretation and misapplication of the definition of pasture areas, read in the broader context of the CAP objectives, the Commission vitiated its decision by a failure to state reasons.
It must observed, at the outset, that it does not follow from the mere fact that the Commission does not give satisfaction to the Hellenic Republic that the contested decision is vitiated by a failure to state reasons.
It must, moreover, be observed that the obligation to state reasons constitutes an essential procedural requirement which must be distinguished from the question of the merits of those reasons, which concern the substantive legality of the contested measure. According to settled case-law, the statement of reasons required by Article 296 TFEU must be appropriate to the measure at issue and disclose in a clear and unequivocal fashion the reasoning followed by the institution which adopted that measure in such a way as to enable the persons concerned to ascertain the reasons for it and to enable the competent European Union judicature to exercise its power of review (judgment of 29 April 2004, Netherlands v Commission,
C‑159/01
,
EU:C:2004:246
, paragraph
).
The decisions taken by the Commission concerning the clearance of the accounts of the Funds are taken on the basis either of summary reports or of correspondence between the Commission and the Member State (judgment of 14 March 2002, Netherlands v Commission,
C‑132/99
,
EU:C:2002:168
, paragraph
). In those circumstances, the statement of reasons for a decision refusing to charge to it part of the declared expenditure must be regarded as sufficient if the Member State to which the decision was addressed was closely involved in the process by which it came about and was aware of the reasons for which the Commission took the view that it should not charge the sum in dispute to the Funds (judgments of 20 September 2001, Belgium v Commission,
C‑263/98
,
EU:C:2001:455
, paragraph
, and of 17 May 2013, Greece v Commission,
T‑294/11
, not published,
EU:T:2013:261
, paragraph
).
In the present case, it is apparent from the material in the case file that the Hellenic Republic was involved in the process by which the contested decision came about and that the question of the ineligibility of the areas claimed on the ground of non-compliance with the definition of ‘permanent pasture’ of Article 2, first paragraph, point 2 of Regulation No 796/2004 was expressly raised in the initial correspondence, in the context of the conciliation procedure and in the final position adopted by the Commission, as is apparent from the letters exchanged by the Commission and the Hellenic Republic, from the opinion of the Conciliation Body and from the summary report.
It is thus expressly apparent from the Commission’s letters of 21 November 2008 and of 31 May 2013, and from the opinion of the Conciliation Body and the summary report annexed to the contested decision, that the Hellenic Republic was aware of the irregularities on the basis of which the corrections were imposed. The Commission’s services expressly contested the manner in which the Greek authorities determined the pasture areas eligible for aid by relying on examples of irregularities as well as established and listed shortcomings in the operation of the LPIS-GIS and in the on-the-spot checks.
Lastly, in the summary report, the Commission found as follows:
‘For farmers only declaring pasture land: the situation [could] be considered as one whereby there [was] a high level of error evidencing widespread irregularity[;] hence, in accordance with document VI/5330/97, pages 11 and 12, a 25% correction is justified[;] however, taking into account that many farmers have far more land than entitlements (“buffer effect”), [only a part of the permanent pasture declared is used for the activation of payment entitlements] the application of a 10% flat rate is considered more appropriate.’
It follows that the Hellenic Republic was closely involved in the process by which the contested decision came about, that it was aware of the reasons for which the Commission took the view that it should not charge the sum in dispute to the Fund and that the Commission expressly stated during the procedure the grounds for imputing the 10% flat-rate correction of the aid paid in 2008 to the Hellenic Republic in respect of the area aid concerning permanent pasture.
It follows from the foregoing considerations that the statement of reasons for the contested decision complies with the requirements of Article 296 TFEU. Accordingly, this complaint must be rejected.
Third complaint, alleging breach of the principle of proportionality
The Hellenic Republic claims, in essence, that the 10% correction rate imposed in the contested decision is disproportionate and should not exceed 5%.
According to the case-law, a correction imposed by the Commission under the Guidelines it has adopted in this matter is intended to ensure that no amounts are charged to the Funds which have not been used to finance an objective pursued by the EU legislation at issue and does not constitute a sanction (see judgment of 31 March 2011, Greece v Commission,
T‑214/07
, not published,
EU:T:2011:130
, paragraph
and the case-law cited). The case-law has thus acknowledged that the flat rates applied in the Guidelines make it possible both to respect EU law and the sound management of EU resources and to prevent the Commission exercising its discretion in such a way as to impose on the Member States excessive and disproportionate adjustments (judgment of 10 September 2008, Italy v Commission,
T‑181/06
, not published,
EU:T:2008:331
, paragraph
).
It must be observed that, so far as the amount of the financial correction is concerned, the Commission may even refuse to charge to the European Agricultural Funds the whole of the expenditure in question if it finds that there are no adequate control procedures (judgment of 11 June 2009, Greece v Commission,
T‑33/07
, not published,
EU:T:2009:195
, paragraph
). However the Commission must respect the principle of proportionality, which requires that measures adopted by the institutions must not exceed what is appropriate and necessary to attain the objective pursued (judgments of 17 May 1984, Denkavit Nederland,
15/83
,
EU:C:1984:183
, paragraph
, and of 19 June 1997, Air Inter v Commission,
T‑260/94
,
EU:T:1997:89
, paragraph
).
According to settled case-law, although it is for the Commission to prove that EU rules have been infringed, once it has established such an infringement it is for the Member State to demonstrate, if that be the case, that the Commission made an error as to the financial consequences to be attached to that infringement (judgments of 14 February 2008, Spain v Commission,
T‑266/04
, not published,
EU:T:2008:37
, paragraph
, and of 5 July 2012, Greece v Commission,
T‑86/08
,
EU:T:2012:345
, paragraph
).
As regards the type of correction applied, it should be noted that, in the light of the Commission’s Guidelines laid down in Document No VI/5330/97, a flat-rate correction may be considered where it is not possible to determine precisely the losses suffered by the European Union (see, to that effect, judgment of 18 September 2003, United Kingdom v Commission,
C‑346/00
,
EU:C:2003:474
, paragraph
).
According to document No VI/5330/97, where implementation of the checking system has been non-existent or seriously inadequate and there are indications of very frequent irregularities and negligence in combating irregular or fraudulent practices, an adjustment of 25% of the expenditure is justified since there is a risk of particularly high losses to the Fund.
When one or more key controls are not applied or are applied so poorly or so infrequently that they are ineffective in determining whether claims are eligible or preventing irregularities, an adjustment of 10% is justified since there is a high risk of widespread loss to the European Agricultural Funds.
As regards the shortcomings established by the Commission, it should be observed as a preliminary point that the Hellenic Republic does not contest their existence, but merely contests the scale of the correction imposed, namely 10%.
In the present case, it is common ground that the implementation of the checking system was not non-existent. It is therefore necessary, in accordance with the criteria referred to in paragraph 82 above, to verify whether the Commission was entitled to take the view that, in the light of the shortcomings established, implementation of the checking system was seriously inadequate.
It is apparent from the summary report that the Commission had found weaknesses in the LPIS-GIS which meant that the boundaries of the reference parcels and their maximum eligible area were materially incorrect. Consequently, the cross-checks to avoid undue multiple granting of the same aid in respect of the same parcel were not conclusive, unless on-the-spot checks detecting the incorrect location of the parcels and their ineligibility had taken place.
More specifically, the Commission found significant problems regarding the areas claimed as permanent pasture that the Hellenic Republic considered eligible, but that the Commission refused on several occasions on the ground of non-compliance with the relevant provisions.
The parties diverge in their assessment of how to determine ‘pasture areas eligible for aid’. Nonetheless, it is apparent from the analysis made in the context of the first complaint of this plea that, notwithstanding the scope of the definition of ‘permanent pasture’ applied in the present case, the irregularities established would have nevertheless led the Commission to impose the flat-rate correction applied.
More specifically, the Commission observed in the summary report that, following the update of the LPIS-GIS, some of the areas claimed in 2008 had been taken out of the system from 2009 onwards. If the LPIS-GIS had functioned correctly in 2008, that part of the areas would not then have been considered eligible. That lacuna concerned a high proportion of areas wrongly considered eligible as permanent pasture on the basis of an incorrect definition.
Furthermore, in 2008, the Commission found that the LPIS-GIS was not operating correctly in so far as, in view of the introduction of a new LPIS-GIS in 2009, the Hellenic Republic did not input in the LPIS-GIS the coordinates of the parcels subject to standard on-the-spot-checks. Consequently, there was no graphical overlay making it possible to detect multiple claims. Under the EU rules relating to the Funds, it is for the Member States to organise an effective system of inspection and supervision. Such a requirement means that the boundaries of the reference parcels and their maximum area eligible for aid must be defined precisely and accurately. That information is essential to ensure that administrative cross-checks are reliable, that on-the-spot checks can be carried out and that farmers have correct information so as to be able to submit correct claims (see, to that effect, judgment of 17 May 2013, Bulgaria v Commission,
T‑335/11
, not published,
EU:T:2013:262
, paragraph
).
Next, the Commission found that the on-the-spot checks were not carried out in accordance with the rules in force in 2008.
In the first place, as regards the quality of the on-the-spot checks, the Commission found that the absence of measurement of the pasture areas was a particular point of concern. Apart from the areas’ non-compliance with the definition of ‘permanent pasture’ stemming from Article 2, first paragraph, point 2 of Regulation No 796/2004, the areas declared were often located in remote areas, without visible boundaries, and were not easily accessible; it was found that the inspectors had not measured the areas in accordance with the requirements of Article 30 of Regulation No 796/2004 in that sometimes only one reference point was taken and no actual determination of the area took place.
In the second place, as regards the checks by remote sensing, the procedure applied did not comply with the requirements. The audits found that the T‑4 code (parcel covered by clouds) was assigned too often to parcels whose eligibility was doubtful. In that regard, the Commission drew attention to the technical specifications, according to which those codes should not be assigned to parcels whose eligibility was doubtful as a result of the computerised photo-interpretation.
In the third place, as regards the ordinary on-the-spot checks, the Commission stated in the summary report that, with respect to all the parcels, in 2008, the coordinates which were the subject of those checks were not recorded, making it impossible to detect multiple claims.
It is apparent from the foregoing that, as regards expenditure linked to pasture areas, the Commission found deficiencies in the checking system relating to the Greek authorities’ admission of areas not complying with the rules in force as eligible for aid as pasture areas. That finding by the Commission cannot be called in question even if an extensive interpretation of the wording of Article 2, first paragraph, point 2 of Regulation No 796/2004 is adopted. Thus, those deficiencies in the checking system, together with all the other deficiencies established and which were not contested by the Hellenic Republic, constitute a seriously inadequate implementation of the checking system implying a high level of errors demonstrating generalised irregularities, which led to extremely high losses for the Fund (see, to that effect, judgment of 27 October 2005, Greece v Commission,
C‑175/03
, not published,
EU:C:2005:643
, paragraph
). Nonetheless, the Commission took account of the lower risk of losses incurred by the Fund stemming from the ‘buffer effect’, pursuant to which only a part of the areas claimed is taken into account to activate payment entitlements.
In the light of the foregoing considerations, it must be held that the Commission was entitled, without committing any error, to apply a 10% flat-rate correction to that expenditure.
None of the Hellenic Republic’s arguments calls that conclusion into question.
In the first place, the Hellenic Republic relies on improvements allegedly made to the standard checks, although its argument is not substantiated and no details are given on the improvements concerned.
In that regard, as regards on-the-spot checks, it is apparent from the summary report that the Commission did in fact find a continued high level of on-the-spot checks (in excess of 10%) of farmers in claims years 2007 and 2008, which it took into account in the calculation of the flat-rate corrections. It must also be stated that, as regards the quality of the system of on-the-spot checks, in the summary report, the Commission found lacuna and shortcomings by the Hellenic Republic, without however finding any improvements as regards pasture areas.
Thus, in the absence of any material making it possible to verify the Hellenic Republic’s claim, the argument regarding the improvements found must be rejected.
In the second place, as regards the Commission Implementing Decision of 15 April 2011 excluding from European Union financing certain expenditure incurred by the Member States under the Guarantee Section of the EAGGF, the EAGF and under the EAFRD (
OJ 2011 L 102, p. 33
), by which the Commission imposed on the Hellenic Republic a 5% correction rate in respect of 2007 on the basis of the same findings as those set out in the contested decision, it must be observed that the Commission’s findings relating to an earlier claim year cannot suffice to invalidate the Commission’s findings relating to the claim year in question, since the latter findings are such as to justify the conclusions and the flat-rate correction imposed. Moreover, in the summary report, the Commission found that the shortcomings that it established were of a recurrent nature.
Lastly, the Court notes, as does the Commission, that the areas of permanent pasture were reduced to 1.5 million hectares, despite the application from 2012 onwards of the more extensive definition of ‘permanent pasture’, which includes woody vegetation. The Commission correctly claims that such a 50% reduction of eligible areas, instead of a foreseeable increase in such areas following the enlargement of the definition at issue, attests to the scale of the initial problem affecting claims relating to areas which did not in any event fulfil the even extensive definition of pasture areas.
Whilst the discrepancy between the areas of pasture giving rise to payment entitlements and the areas of pasture actually claimed on which the Hellenic Republic relies was duly taken into account and made possible a reduction of the flat-rate correction applied to 10% as a result of the ‘buffer effect’ being taken into consideration, it remains independent of the problem found in 2008 affecting the initial claims. The Hellenic Republic cannot usefully submit that, even if account is taken of the reduction of eligible areas to 1.5 million hectares, there is no resulting risk to the Fund. The fact that the areas of pasture giving rise to area-related payment entitlements account for only a part of the areas of pasture claimed does not call in question the inaccuracies found in the operation of the LPIS-GIS and in the key controls, according to which those areas, to which aid was granted, were not always entirely eligible for aid, since they did not satisfy the requirements of Article 2, first paragraph, point 2 of Regulation No 796/2004 (see, to that effect, judgment of 17 May 2013, Greece v Commission,
T‑294/11
, not published,
EU:T:2013:261
, paragraph
).
Accordingly, it must be found that the Hellenic Republic has not succeeded in demonstrating the incorrectness of the Commission’s assessment or the absence of a risk of loss or irregularity for the Fund, in the light of the serious and reasonable doubt that the Commission harboured with respect to the operation of the LPIS-GIS and of the checks.
It follows that the Commission was correct to take the view that the deficiencies in the LPIS-GIS and the lacunae in the key controls resulted from the implementation of a seriously inadequate checking system implying a high level of error demonstrating generalised irregularities. Taking account of the lower risk for the Fund stemming from the ‘buffer effect’, the Commission correctly applied a 10% financial correction.
In the light of the foregoing, it is necessary to reject this complaint and, therefore, the plea relating to the 10% flat-rate correction applied to the pasture areas in its entirety.
The plea relating to the 5% financial correction regarding additional area aid
In the context of the plea relating to the 5% financial correction regarding additional area aid, the Hellenic Republic puts forward complaints alleging (i) an error of fact, (ii) a failure to state adequate reasons and (iii) an infringement of the principle of proportionality.
In that regard, it should be observed that, in the context of this plea, the Hellenic Republic merely lists, when setting out the plea, those complaints, following up that list with a confused line of argument, which is in part unsubstantiated as regards the principles allegedly infringed. However, it is apparent from the Hellenic Republic’s pleadings that it pleads, in essence, infringement of procedural safeguards in the context of the pre-litigation procedure and an infringement of the principle of proportionality.
First complaint, alleging infringement of procedural safeguards in the context of the pre-litigation procedure
In the context of this complaint, the Hellenic Republic seeks a declaration that it was deprived of the procedural safeguard referred to in Article 31 of Regulation No 1290/2005 and Article 11 of Commission Regulation No 885/2006 of 21 June 2006 laying down detailed rules for the application of Council Regulation No 1290/2005 as regards the accreditation of paying agencies and other bodies and the clearance of the accounts of the EAGF and of the EAFRD (
OJ 2006 L 171, p. 90
), on account of the fact that the Commission failed to object to the belated nature of the checks in due time.
It should be borne in mind that the final and conclusive decision on the clearance of accounts must be taken at the conclusion of a specific procedure giving effect to the
audi alteram partem
rule, during which the Member States concerned must be provided with all the guarantees necessary for them to present their point of view (judgment of 14 December 2000, Germany v Commission,
C‑245/97
,
EU:C:2000:687
, paragraph
).
Moreover, according to settled case-law, the Commission is bound, in its relations with the Member States, to respect the conditions it has imposed on itself by implementing regulations. A failure to observe those conditions may, depending on its significance, deprive of its efficacy the procedural guarantee accorded to Member States by Article 31 of Regulation No 1290/2005 (see, by analogy, judgment of 17 June 2009, Portugal v Commission,
T‑50/07
, not published,
EU:T:2009:206
, paragraph
).
Furthermore, Article 31 of Regulation No 1290/2005, on the one hand, and Article 11 of Regulation No 885/2006, on the other, refer to the same stage of the accounts clearance procedure, that is to say, the sending of the first communication by the Commission to the Member State following the checks which it has carried out (see judgment of 30 April 2015, France v Commission,
T‑259/13
, not published, under appeal,
EU:T:2015:250
, paragraph
and the case-law cited).
Article 11 of Regulation No 885/2006 sets out the various stages which must be gone through during the accounts clearance procedure. In particular, the first subparagraph of Article 11(1) of that regulation specifies the content of the written communication by which the Commission is to communicate the result of its enquiries to the Member States, before arranging the bilateral discussion. Under that provision, the first communication must inform the Member State concerned of the results of the Commission’s investigations and indicate the corrective measures to be taken in order to ensure future compliance with the EU rules at issue (judgment of 24 March 2011, Greece v Commission,
T‑184/09
, not published,
EU:T:2011:120
, paragraph
).
It should be pointed out, moreover, that the communication written pursuant to Article 11(1) of Regulation No 885/2006 must inform the Member State fully about the Commission’s reservations, so that it can fulfil the function as a warning accorded to it (see, to that effect, judgment of 17 June 2009, Portugal v Commission,
T‑50/07
, not published,
EU:T:2009:206
, paragraph
).
It follows that, in the first communication referred to in Article 11(1) of Regulation No 885/2006, the Commission must state, with sufficient precision, the purpose of the investigation carried out by its services and the deficiencies found during that investigation, which may be invoked subsequently as evidence of the serious and reasonable doubt it entertains about the checks carried out by the national authorities or about the figures submitted by them, and which may, accordingly, justify the financial corrections applied in the final decision excluding from EU financing certain expenditure incurred by the Member State concerned under the Fund (judgment of 17 June 2009, Portugal v Commission,
T‑50/07
, not published,
EU:T:2009:206
, paragraph
).
Consequently, in order to perform its function as a warning, in particular in the light of Article 31 of Regulation No 1290/2005, the communication referred to in Article 11 of Regulation No 885/2006 must first identify in a sufficiently precise manner all irregularities which the Member State concerned is alleged to have committed which, ultimately, formed the basis for the financial correction applied. Such a communication alone can ensure that full information is provided concerning the Commission’s reservations and can constitute the reference point for calculation of the period of 24 months laid down in Article 31 of Regulation No 1290/2005 (judgments of 3 May 2012, Spain v Commission,
C‑24/11 P
,
EU:C:2012:266
, paragraph
, and of 30 April 2015, France v Commission,
T‑259/13
, not published, under appeal,
EU:T:2015:250
, paragraph
).
In accordance with the aforementioned case-law, it is necessary to consider whether the communication of the results satisfies the requirements of Article 11 of Regulation No 885/2006 and therefore constitutes a proper communication under that provision.
Clearly, that is the case. As the Commission claims, when communicating the results of the inquiries in the letter of 21 November 2008, and in the letter of 31 May 2013 drawn up on the basis of Article 16(1) of Regulation No 885/2006, it expressly raised the problem of delays in carrying out the on-the-spot checks, stating that the delays affected the quality of the on-the-spot checks as regards the coupled area-based aid. Subsequently, the lacunae stemming from the negative effect on the quality of the on-the-spot checks on account of their belated nature were clearly identified in the Commission’s final position (see the letter of 26 March 2014).
Consequently, it must be held that both the communication of the results and the communication sent to the Hellenic Republic in the context of the conciliation procedure identify, for the purposes of the case-law referred to above, the belated nature of the checks complained of against the Member State which contributed to providing the basis for the financial correction in the present case in relation to the additional area aid.
Thus, in view of the fact that the complaint that the belated nature of the checks affected their quality, which was liable to result in losses to the Fund and to justify the imposition of a financial correction, was communicated to the Hellenic Republic at least twice during the pre-litigation procedure, the Hellenic Republic cannot usefully claim that the Commission infringed its obligation de submit to bilateral discussion any result of the checks liable to constitute a ground for an increased correction.
It follows that the Hellenic Republic’s first complaint must be rejected.
Second complaint, alleging breach of the principle of proportionality
In the context of that complaint, the Hellenic Republic claims that, in the light of the findings relating to the areas other than pasture areas and of the improvements found in relation to the previous financial year, it is appropriate to limit the correction to at most 2%.
It should first of all be pointed out that the Hellenic Republic does not dispute the delay in carrying out the standard on-the-spot checks.
It is apparent from Annex 2 to document No VI/5330/97, cited above, that the shortcomings affecting the operation of the LPIS-GIS and the shortcomings regarding the on-the-spot checks relate to key controls (see, to that effect, judgment of 17 May 2013, Bulgaria v Commission,
T‑335/11
, not published,
EU:T:2013:262
, paragraph
).
It is also apparent from document No VI/5330/97 that, when all key controls are applied, but not in the number, frequency or depth required by the legislation, and it can reasonably be concluded that they do not provide the expected degree of assurance that claims are regular, a correction of 5% is justified since there is a significant risk of widespread loss to the Fund.
As was already pointed out in the context of the examination of the third complaint of the first plea and of the first complaint of the second plea, the Commission found in the summary report shortcomings regarding the LPIS-GIS, which contained materially incorrect information on the boundaries and maximum eligible areas of the parcels. Although those shortcomings relate particularly to pasture areas, they were nonetheless found in respect of all types of parcels.
Next, as regards on-the-spot checks, the Commission found in the summary report that they were not carried out in accordance with the rules in force in 2008, whereas that was essential in order ascertain correctly the eligibility of the area claimed and thus to ensure compliance with Articles 23 and 30 of Regulation No 796/2004. As regards the checks by remote sensing, the procedure applied did not comply with the requirements. The audits found that the T‑4 code (parcel covered by clouds) was assigned too often to parcels whose eligibility was doubtful. As regards the ordinary on-the-spot checks, the Commission stated that in 2008, with respect to all the parcels, the coordinates which were the subject of those checks were not recorded, thus making it impossible to detect multiple claims.
As regards, more specifically, the standard on-the-spot checks, the Commission observed in the summary report that, even if re-measurements showed some differences, those differences were not capable of supporting the conclusion that there was a systematic failure in the operation of those checks.
Lastly, the Commission stated that, as regards additional coupled area-based aid, the on-the-spot checks had been negatively affected by delays in carrying out such checks.
The Commission concluded that the shortcomings established constituted a continued failure in the functioning of key control and ancillary controls. More specifically, the Commission found that, for the year in question, there had been no correction of the weaknesses found regarding the LPIS-GIS in the previous claim year (2007).
It is apparent from the foregoing that, as regards the coupled area-based aid, the Commission was entitled, without committing any error, to apply to that aid a 5% flat-rate correction, in accordance with the provisions of document No VI/5330/97.
The Hellenic Republic submits that the improvements made to the standard on-the-spot checks and a constant improvement in the LPIS-GIS contradict the serious and reasonable doubt expressed by the Commission, which, according to the latter, justifies the imposition of the 5% correction rate for the additional area-based aid. In addition, according to the Hellenic Republic, the Commission ought to have applied a rate of 2% applicable to the aid granted in respect of areas other than pasture areas.
The argument alleging that the maintenance of reasonable and serious doubt notwithstanding the improvements to the LPIS-GIS was not well founded must be rejected. It is apparent from paragraph 4 of the application and from Annex 4 thereto that the improvements made to the LPIS-GIS relied on by the Hellenic Republic were not made during claim year 2008. Thus, the subsequent improvements made to the LPIS-GIS cannot call in question the findings of deficiencies during the period at issue (see, by analogy, judgment of 17 May 2013, Greece v Commission,
T‑294/11
, not published,
EU:T:2013:261
, paragraph
).
Moreover, the improvements established in the system of standard on-the-spot checks do not suffice, in themselves, to call in question the assessment of the risk to the Fund made on the basis of all the shortcomings established for the year at issue which were listed above.
Lastly, it is necessary to reject the Hellenic Republic’s argument that, for the risk weighting to the Fund, the Commission ought to have referred to the type of additional area-based aid and apply to that aid the 2% rate that it applied to the aid granted in respect of areas other than pasture areas.
Apart from the fact that the Hellenic Republic merely states, in support of its argument, that the coupled area-based aid is of an ancillary nature, it is apparent from the summary report that the reduction of the 5% correction rate to 2% imposed in respect of aid for areas other than pasture areas (arable land) results from the application of the ‘buffer effect’. As the Commission contends, the same reduction owing to the ‘buffer effect’ cannot apply to the additional area aid in respect of which the ‘buffer effect’ plays no role. For that type of aid, which is coupled to production, ‘payment entitlements’ are not used, since the latter are activated by eligible areas which may be fewer in number than the total areas claimed by a farmer. Thus, in the case of additional area aid, only the area actually cultivated which has been claimed provides the basis for the relevant aid.
In the light of the foregoing, it is necessary to reject this complaint and, therefore, the plea relating to the 5% correction regarding the additional area aid in its entirety.
The plea relating to the 5% financial correction regarding rural development aid
In the context of the plea relating to the 5% financial correction regarding rural development aid, the Hellenic Republic raises complaints alleging a failure to state reasons, an error of fact and infringement of the principle of proportionality. Furthermore, it claims that a correction was imposed twice on the same ground.
In that regard, it should be observed that, in the context of this plea, the Hellenic Republic merely lists, when setting out the plea, those complaints, following up that list with a confused line of argument, which is in part unsubstantiated as regards the principles allegedly infringed. However, regrettable though the ambiguity observed may be, it does not prevent the Commission submitting arguments in defence, or the Court ruling on the application (see, to that effect, judgment of 16 November 2011, Sachsa Verpackung v Commission,
T‑79/06
, not published,
EU:T:2011:674
, paragraph
). It is apparent from the Hellenic Republic’s pleadings that it puts forward, in essence, a complaint alleging failure to state reasons and a complaint alleging that the correction was imposed twice on the same ground in the case of Measure 214 of the rural development programme.
First complaint: additional failure to state reasons
In the first place, as has already been pointed out, the decisions taken by the Commission concerning the clearance of the accounts of the Funds are taken on the basis either of summary reports or of correspondence between the Commission and the Member State (judgment of 14 March 2002, Netherlands v Commission,
C‑132/99
,
EU:C:2002:168
, paragraph
). In those circumstances, the statement of reasons for a decision refusing to charge to it part of the declared expenditure must be regarded as sufficient if the Member State to which the decision was addressed was closely involved in the process by which it came about and was aware of the reasons for which the Commission took the view that it should not charge the sum in dispute to the Fund (judgments of 20 September 2001, Belgium v Commission,
C‑263/98
,
EU:C:2001:455
, paragraph
, and of 17 May 2013, Greece v Commission,
T‑294/11
, not published,
EU:T:2013:261
, paragraph
).
In the second place, in accordance with Article 73 of Council Regulation No 1698/2005 of 20 September 2005 on support for rural development by the EAFRD (
OJ 2005 L 277, p. 1
), to ensure, in the context of shared management, sound financial management in accordance with Article 274 EC, the Commission is to carry out the measures and controls laid down in Article 9(2) of Regulation No 1290/2005.
In accordance with Article 9(2) of Regulation No 1290/2005, the Commission is to check, inter alia, that management and control systems exist and function properly in the Member States.
Moreover, it should be pointed out, as the Commission correctly observes and the Hellenic Republic does not contest, that the rural development aid in question in the present case is aid linked to the agricultural area claimed.
It follows that the integrated administration and control system applies to direct support schemes and rural development measures which are granted on the basis of the number of hectares.
In that regard, attention should be drawn to the importance, already mentioned, of the establishment of the LPIS-GIS for the operation of the area-linked aid system. The identification of agricultural parcels is a key factor in the correct application of a system linked to land area. The lack of a reliable agricultural parcel identification system in itself implies a greater risk of loss for the EU budget (see, to that effect, judgments of 31 March 2011, Greece v Commission,
T‑214/07
, not published,
EU:T:2011:130
, paragraph
, and of 5 July 2012, Greece v Commission,
T‑86/08
,
EU:T:2012:345
, paragraph
).
In the present case, it is apparent from the documents before the Court that the Hellenic Republic was closely involved in the process by which the contested decision came about and that the Commission found shortcomings in the operation of the LPIS-GIS and of the on-the-spot checks in the initial correspondence, in the context of the conciliation procedure and in the final position, as is apparent from the letters exchanged by the Commission and the Hellenic Republic, from the opinion of the Conciliation Body and from the summary report. The shortcomings established affected all the types of area-linked aid.
It is thus clearly apparent from the Commission’s letters of 21 November 2008 and of 31 May 2013, and from its final position, that the Hellenic Republic was aware of the irregularities which justified the corrections imposed. The Commission’s services expressly criticised the Greek authorities for the dysfunction in the LPIS-GIS and in the on-the-spot checks.
Lastly, in the summary report, the Commission found that ‘for all area-based 2nd pillar measures: considering the combination of the findings, and in line with the provisions of document [No] VI/5330/97, a 5% flat-rate correction is proposed’.
It follows that the Hellenic Republic was closely involved in the process by which the contested decision came about, that it was aware of the reasons for which the Commission took the view that it should not charge the sum in dispute to the Funds and that the Commission expressly indicated during the administrative procedure the grounds for imputing the flat-rate correction at issue.
In that regard, the Hellenic Republic’s claim — which is moreover unsubstantiated — that the Commission failed to take account, in assessing the risk posed by the shortcomings established, of the increase in the on-the-spot checks required in the context of the implementation of the rural development measure in question is irrelevant. If proved, the increase in the on-the-spot checks could not compensate for the deficiencies found in the manner in which they were implemented (see, to that effect, judgment of 17 May 2013, Greece v Commission,
T‑294/11
, not published,
EU:T:2013:261
, paragraph
).
Furthermore, as was pointed out in paragraph 133 above, it should be observed that, on the assumption that, in claiming a constant improvement in the LPIS-GIS, the Hellenic Republic refers to the improvements made from 2009 onwards following the action plan for that purpose, improvements made after 2008, even if they are proved, cannot call in question the foregoing considerations. It is therefore necessary to reject the first complaint, alleging an additional failure to state reasons, as unfounded.
Second complaint, based on an alleged double correction imposed for the same reason
The Hellenic Republic claims, in essence, that the correction relating to the rural development aid must be annulled in so far as it is applied twice as regards Rural Development Measure 214.
More specifically, the Hellenic Republic claims first that, in accordance with the guidance applied by the Commission, drawn up in document No VI/5330/97, where several deficiencies are identified in the same system, the flat-rate corrections do not apply cumulatively; instead, only most serious deficiency, in terms of risks incurred by the control system as a whole, is taken into consideration.
As was made clear in the reply and at the hearing, the Hellenic Republic contests the method of calculating the correction imposed in the present case.
The Hellenic Republic claims that, notwithstanding the deduction of EUR 2318055.75, the Commission imposed a double correction for the same reason as a correction imposed previously. In particular, the Hellenic Republic submits that the deduction in question fails to take account of the entirety of the correction imposed under Commission Implementing Decision 2013/214/EU of 2 May 2013 on excluding from European Union financing certain expenditure incurred by the Member States under the Guarantee Section of the EAGGF, under the EAGF and under the EAFRD (
OJ 2013, L 123, p. 11
). The Hellenic Republic claims that it is unable to understand the method for calculating the amount of EUR 2318055.75, which was the only amount taken into account in respect of the correction imposed under Implementing Decision 2013/214, whereas the latter amounted to EUR 3328030.09.
First of all, it is apparent from the summary report, to which Implementing Decision 2013/214 refers, that the weaknesses found by the Commission in the checks concerned compliance with the undertakings imposed, as well as the completeness of the reports on checks and traceability in relation, in particular, to Rural Development Measure 214, in respect of claim year 2008. On the other hand, those deficiencies found did not concern the areas (boundaries and maximum eligible areas) of the parcels; those deficiencies were noted in the context of the inquiry which led to the contested decision in the present case, in respect, in particular, of the same Rural Development Measure 214.
Consequently, it must be stated that the two consecutive flat-rate corrections were imposed for different weaknesses and deficiencies identified in the two consecutive inquiries carried out by the Commission in respect of the same rural development measure. In that regard, the Commission stated, both in its written reply to the measure of organisation of procedure and at the hearing, that it was obliged to reduce the amount of the correction at issue in order to avoid a cumulation of corrections, but contends that the deduction of EUR 2318055.75 is, for that purpose, correct.
With respect to Implementing Decision 2013/214, it is apparent from the part of the Annex to that decision dealing with budget item 6711 that the Commission imposed, first, a 2% flat-rate correction in respect of 2009 for weaknesses in the on-the-spot checks as regards the second CAP pillar, in an amount of EUR 959020.82, and, second, a 5% flat-rate correction in respect of 2009 for weaknesses in the on-the-spot checks as regards the second CAP pillar, in an amount of EUR 2369009.27. The total amount of the correction imposed in respect of 2009 for weaknesses in the on-the-spot checks as regards rural development (second CAP pillar) amounted to EUR 3328030.09.
With respect, next, to the amounts of the corrections imposed in the contested decision, it is apparent from the part of the Annex to that decision dealing with budget item 6711 that the Commission imposed a 5% flat-rate correction for weaknesses in the LPIS and the on-the-spot checks as regards rural development (second CAP pillar). According to that same annex, the initial amount of that correction was EUR 5007867.36, from which the Commission deducted EUR 2318055.75 in respect of the earlier correction imposed under Implementing Decision 2013/214. In view of that deduction, the financial impact at issue amounts to EUR 2689811.61.
With respect to the above-cited deduction of EUR 2318055.75, it is apparent from the explanations provided by the Commission in its defence and the rejoinder that the amount of EUR 2318055.75, which corresponds to the amount of the earlier correction deducted from the correction in question in the present case, was included, in respect of claim year 2008, in the amount of the flat-rate correction of EUR 2369009.27; that amount related to both claim years, namely 2008 and 2009.
When questioned on the detailed method of calculating the amount of EUR 2318055.75 deducted from the correction at issue, the Commission explained in its reply to the measure of organisation of procedure, and then at the hearing, that the earlier correction applied in 2009 in respect of 2008 amounted to EUR 3745694.27 out of a total expenditure amount of EUR 134518285.02. According to the Commission’s explanations, that correction concerned however all rural development measures (indicated by the code ending 001). For the same period, according to the Commission, direct payments amounted to EUR 83247820.42. It follows, according to the Commission, that the ratio between the area-linked direct payments and all the expenditure under the agro-environmental measures was approximately 61%.
The Commission then contends that, given that in order to avoid a double correction it had to deduct only the amount of the earlier correction relating to the rural development aid corresponding to the percentage of that aid linked to area, it applied to the earlier correction the rate of 61% in accordance with the ratio referred to in paragraph 161 above. In so doing, it obtained the amount of EUR 2318055.75 which it deducted.
However, it must be stated that the pleadings submitted by the Commission in support of its method of calculating the deduction of EUR 2318055.75 do not substantiate that method, in any event. The amounts set out in the tables submitted by the Commission in Annex VIa to its defence are not consistent with the amounts in the tables submitted by the Commission in annex to its reply to the measure of organisation of procedure. More specifically, first, the bases on which the corrections imposed were calculated do not tally in the documents submitted by the Commission and, second, the Commission fails to explain the basis of the amount of EUR 134518285.02 and of the amount of the earlier deduction applied in 2009 in respect of claim year 2008 amounting to EUR 3745694.27; those amounts do not emerge from any other document in the case file. Similarly, the Commission fails to explain the relevance of those figures for calculating the deduction at issue and for eliminating a double correction between Implementing Decision 2013/214 and the contested decision.
Moreover, it should be pointed out that the ‘direct aid’ to which the Commission refers in its reply to the measure of organisation of procedure falls within the first CAP pillar. Both the correction at issue and the earlier correction imposed under Implementing Decision 2013/214, which was deemed to have been deducted, concerns rural development (second CAP pillar). It follows that the Commission’s reply to the measure of organisation of procedure is ambiguous and misleading, in that it indicates that the incorrect calculation of the areas has repercussions on both direct payments and rural development aid, but fails to specify how that justifies the ensuing explanations.
It should be recalled that, according to settled case law, the statement of reasons required by Article 296 TFEU must disclose in a clear and unequivocal manner the reasoning followed by the institution which adopted the measure in question in such a way as to enable the persons concerned to ascertain the reasons for the measure and to enable the court having jurisdiction to exercise its power of review (see judgment of 12 May 2016, Italy v Commission,
T‑384/14
,
EU:T:2016:298
, paragraph
and the case-law cited).
It must be stated that the contested decision does not contain the amounts of the correction imposed and of the deduction, and indicates nothing capable of clarifying how those amounts were calculated. Furthermore, as was explained in paragraph 163 above, the reasoning which led the Commission to take the view that the deduction of the amount of EUR 2318055.75 was sufficient in order to take account of the earlier correction, imposed under Implementing Decision 2013/214, is ambiguous and incomplete.
It follows that, in the light of the case-law recalled in paragraph 165 above, the contested decision is vitiated by a failure to state reasons in relation to the absence of cumulation of corrections. Consequently, the third plea of the Hellenic Republic must be upheld and the contested decision must be annulled so far as concerns the calculation of the amount of the correction of EUR 5007867.36, of the deduction of EUR 2318055.75 and of the financial impact of EUR 2689811.61 regarding the expenditure related to rural development aid (second pillar) imposed in respect of 2009 for weaknesses in the LPIS and the on-the-spot checks in respect of claim year 2008.
It follows from all the foregoing considerations that it is necessary, first, to annul for failure to state reasons the contested decision in so far as it excludes from EU financing expenditure incurred by the Hellenic Republic in the sector of Rural Development EAFRD Axis 2 (2007-2013, area-related measures), for the 2009 financial year, in respect of the weaknesses in the LPIS and the on-the-spot checks (second pillar, claim year 2008), and, second, to dismiss the action as to the remainder.
Costs
Under Article 134(3) of the Rules of Procedure, the parties are to bear their own costs where each party succeeds on some heads and fails on others. However, if it appears justified in the circumstances of the case, the General Court may order that one party, in addition to bearing his own costs, pay a proportion of the costs of the other party.
In the present case, it must be stated that the Hellenic Republic has not applied for the Commission to be ordered to pay the costs.
Consequently, given that the Hellenic Republic has failed to apply for costs and the action has been only partly successful, the Hellenic Republic must be ordered to bear its own costs and to pay those incurred by the Commission, in accordance with the form of order sought by the Commission.

On those grounds,
THE GENERAL COURT (Eighth Chamber)
hereby:

1.
Annuls Commission Implementing Decision 2014/950/EU of 19 December 2014 on excluding from European Union financing certain expenditure incurred by the Member States under the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (EAGGF), under the European Agricultural Guarantee Fund (EAGF) and under the European Agricultural Fund for Rural Development (EAFRD) as regards the amounts of correction of EUR 5007867.36, of deduction of EUR 2318055.75 and of financial impact of EUR 2689811.61, in relation to expenditure incurred by the Hellenic Republic in the sector of Rural Development EAFRD Axis 2 (2007-2013, area-related measures), for the 2009 financial year, in respect of the weaknesses in the Land Parcel Identification System (LPIS) and the on-the-spot checks (second pillar, claim year 2008);

2.
Dismisses the action as to the remainder;

3.
Orders the Hellenic Republic to bear its own costs and to pay the costs incurred by the European Commission.

Gratsias
Kancheva
Półtorak
Delivered in open court in Luxembourg on 30 March 2017.
[Signatures]
Table of contents

Background to the dispute

Procedure and forms of order sought

Law

The plea relating to the 10% financial correction regarding area aid

First complaint: incorrect interpretation and application of Article 2, first paragraph, point 2 of Regulation No 796/2004

Second complaint: failure to state reasons

Third complaint, alleging breach of the principle of proportionality

The plea relating to the 5% financial correction regarding additional area aid

First complaint, alleging infringement of procedural safeguards in the context of the pre-litigation procedure

Second complaint, alleging breach of the principle of proportionality

The plea relating to the 5% financial correction regarding rural development aid

First complaint: additional failure to state reasons

Second complaint, based on an alleged double correction imposed for the same reason

Costs
(
*1
)	Language of the case: Greek.