# EUR-Lex - 52003XC0508(07) - EN

Avis juridique important

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# 52003XC0508(07)

**Commission communication on the interest rates to be applied when aid granted unlawfully is being recovered **

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Official Journal C 110 , 08/05/2003 P. 0021 - 0022 *

Commission communication on the interest rates to be applied when aid granted unlawfully is being recovered

(2003/C 110/08)

Article 14 of Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the EC Treaty(1) provides that when negative decisions are taken in cases of unlawful aid, the Commission shall decide that the Member State concerned shall take all necessary measures to recover the aid from the beneficiary. The aid to be recovered shall include interest at an appropriate rate fixed by the Commission. Interest shall be payable from the date the unlawful aid was at the disposal of the beneficiary until the date of its recovery.

In a letter to Member States of 22 February 1995 the Commission took the view that for the purpose of restoring the status quo commercial rates provide a better measure of the advantage improperly conferred on the recipient of unlawful aid. Accordingly, the Commission informed the Member States that in any decisions it might adopt ordering the recovery of aid unlawfully granted, it would apply the reference rate used in the calculation of the net grant equivalent of regional aid measures as the basis for the commercial rate. Thus for several years it has been the standard practice of the Commission to include in its recovery decisions a clause requiring interest to be calculated on the basis of the reference rate used for calculating the net grant equivalent of regional aids.

As part of the process of loyal collaboration between the Commission and Member States during the execution of certain recovery decisions, the question has arisen whether this interest rate should be applied on a simple basis or on a compound basis(2). The Commission accordingly considers it necessary to clarify urgently its position on the matter, having regard to the objectives of the recovery of unlawful aid and its place in the system of State aid control laid down by the Treaty.

In accordance with a great number of decisions of the Community judiciary(3), recovery is the logical consequence of the illegality of aid. The objective of recovery is to re-establish the previously existing situation. By repaying the aid, the beneficiary forfeits the unfair advantage which it enjoyed over its competitors on the market and the conditions of competition which existed prior to the payment of the aid are restored.

In market practice, simple interest would normally be calculated where the beneficiary of the funds does not have use of the interest amount before the end of the period, for example where interest is only paid at the end of the period. Compound interest would normally be calculated if each year (or period) the amount of interest can be considered as being paid to the beneficiary and so accruing to the initial capital amount. In this case, the beneficiary would earn interest on the interest paid for each period.

In practice, the type of aid which has been granted and the situation of the individual beneficiary may differ. If the aid consists in overcompensation, the benefit which the company took from it can be assimilated to a deposit which would normally attract compound interest. If the aid was an investment aid for a certain eligible cost, the aid may have replaced an alternative source of financing, which would also normally bear compound interest at commercial rates. If the aid was an operating aid, it would have direct effects on the profit and loss accounts, and hence the balance sheet, leading to the availability of funds for deposit. Thus despite the variety of situations, it appears that the effects of an unlawful aid are to provide funding to the beneficiary on similar conditions to a medium term non-interest bearing loan. Accordingly, the use of compound interest appears necessary to ensure that the financial advantages resulting from this situation are fully neutralised.

Accordingly, the Commission wishes to inform the Member States and interested parties that in any future decisions it may adopt ordering the recovery of aid unlawfully granted, it will apply the reference rate used for calculating the net grant equivalent of regional aids on a compound basis. In accordance with normal market practice, compounding should take place on an annual basis. Likewise, the Commission will expect the Member States to apply compound interest in the execution of pending recovery decisions, unless this would be contrary to a general principle of Community law.

(1) OJ L 83, 27.3.1999, p. 1.

(2) The calculation of simple interest uses the formula Interest = (Capital × Interest rate × Number of years). The calculation of compound interest, compounding on a yearly basis uses the formula Interest = (Capital (1 + Interest rate) Number of years) - Capital.

(3) See in particular Case C-24/95 Land Rheinland-Pfalz v. Alcan [1997] ECR I-1591 and Case T-459/93 Siemens v Commission [1995] ECR II-1675.