Provisional text

JUDGMENT OF THE GENERAL COURT (Eighth Chamber)

21 September 2022 (*)

( State aid – Madeira Free Zone – Aid scheme implemented by Portugal – Decision finding that the scheme does not comply with Decisions C(2007) 3037 final and C(2013) 4043 final, declaring it to be incompatible with the internal market, and ordering the recovery of aid paid under that scheme – Concept of State aid – Existing aid within the meaning of Article 1(b)(i) and (ii) of Regulation (EU) 2015/1589 – Recovery – Legitimate expectations – Legal certainty – Principle of sound administration – Absolute impossibility of implementation – Limitation – Article 17 of Regulation 2015/1589 )

In Case T‐95/21,

**Portuguese Republic,**represented by P. Barros da Costa, A. Soares de Freitas and L. Borrego, acting as Agents, and by M. Gorjão-Henriques and A. Saavedra, lawyers,

applicant,

v

**European Commission,**represented by I. Barcew and G. Braga da Cruz, acting as Agents,

defendant,

THE GENERAL COURT (Eighth Chamber),

composed of J. Svenningsen (Rapporteur), President, C. Mac Eochaidh and T. Pynnä, Judges,

Registrar: L. Ramette, administrator,

having regard to the written part of the procedure,

having regard to the order of 22 June 2021, *Portugal*v*Commission* (T‐95/21 R, not published, EU:T:2021:383), refusing the application for interim relief lodged by the Portuguese Republic,

further to the hearing on 17 May 2022,

gives the following

**Judgment**

1        By its action under Article 263 TFEU, the Portuguese Republic seeks the annulment of Articles 1, 4, 5 and 6 of Decision C(2020) 8550 final of the European Commission of 4 December 2020 on aid scheme SA.21259 (2018/C) (ex 2018/NN) implemented by Portugal for Zona Franca de Madeira (Madeira Free Zone) (ZFM) – Regime III (‘the contested decision’).

I.      **Background to the dispute**

2        The ZFM scheme takes the form of various tax advantages granted within the framework of the Centro Internacional de Negócios da Madeira (International Business Centre of Madeira, Portugal), the Registo Internacional de Navios da Madeira (Madeira International Shipping Register) and the Zona Franca Industrial (Industrial Free Trade Zone; ‘the IFTZ’).

3        The scheme was first authorised in 1987 (‘Regime I’) by the Commission’s decision of 27 May 1987 in Case N 204/86 (SG(87) D/6736) as being compatible regional aid. The extension of that scheme was then authorised by the Commission’s decision of 27 January 1992 in Case E 13/91 (SG(92) D/1118) and, subsequently, by the Commission’s decision of 3 February 1995 in Case E 19/94 (SG(95) D/1287).

4        The successor scheme (‘Regime II’) was authorised by the Commission’s decision of 11 December 2002 in Case N 222A/01.

5        On the basis of the Guidelines on national regional aid for 2007-2013 (OJ 2006 C 54, p. 13; ‘the 2007 Guidelines’), a third scheme (‘Regime III’) was authorised by the Commission’s decision of 27 June 2007 in Case N 421/2006 (‘the 2007 decision’), for the period from 1 January 2007 to 31 December 2013. The Commission authorised that scheme as being compatible operating aid intended to promote the regional development and the diversification of the economic structure of Madeira (Portugal) as an outermost region for the purposes of Article 299(2) EC (now Article 349 TFEU).

6        Regime III takes the form of a reduction in corporate income tax (‘CIT’) on profits resulting from activities effectively and materially performed in Madeira (3% from 2007 to 2009, 4% from 2010 to 2012 and 5% from 2013 to 2020), an exemption from municipal and local taxes, and an exemption from taxes on the transfer of immovable property for the setting up of a business in the ZFM, up to maximum aid amounts based on the taxable base ceilings applicable to the beneficiaries’ annual taxable base. Those ceilings are determined in the light of the number of jobs maintained by the beneficiary in each fiscal year. Under certain conditions, companies registered in the IFTZ of the ZFM can benefit from a further 50% reduction in CIT.

7        Access to Regime III was restricted to activities set out in a list included in the 2007 decision. In addition, all activities involving financial intermediation and insurance, auxiliary financial and insurance activities, and all ‘intra-group service’ activities (coordination, treasury and distribution centres), as ‘services provided mainly to companies’, were excluded from the scope of Regime III.

8        An amended version of Regime III was authorised by the Commission’s decision of 2 July 2013 in Case SA.34160 (2011/N) (‘the 2013 decision’), for the period from 1 January to 31 December 2013. That decision maintains the same conditions as those laid down by Regime III, subject to an increase of 36.7% in the taxable base ceilings to which the reduction in CIT is applicable.

9        Subsequently, the extension until 30 June 2014 of Regime III, as amended, was authorised by the Commission’s decision of 26 November 2013 in Case SA.37668 (2013/N). The extension of that scheme until the end of 2014 was authorised by the Commission’s decision of 8 May 2014 in Case SA.38586 (2014/N).

10      On 12 March 2015, the Commission initiated, under Article 108(1) TFEU and Article 17(1) of Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 108 [TFEU] (OJ 1999 L 83, p. 1), a monitoring exercise for Regime III, covering the years 2012 and 2013.

11      By letter of 6 July 2018, the Commission informed the Portuguese Republic of its decision to initiate the formal investigation procedure provided for in Article 108(2) TFEU in respect of Regime III (OJ 2019 C 101, p. 7; ‘the decision to initiate the formal procedure’).

12      That procedure was initiated on account of the Commission’s doubts concerning, on the one hand, the application of the tax exemptions to income deriving from activities effectively and materially performed in the Autonomous Region of Madeira (‘the ARM’) and, on the other, the link between the amount of the aid and the creation or maintenance of real jobs in Madeira.

13      At the end of that procedure, the Commission adopted the contested decision, the operative part of which is worded as follows:

‘*Article 1*

The aid scheme “Zona Franca da Madeira (ZFM) – Regime III”, to the extent that it was implemented by Portugal in breach of [the 2007 decision] and of [the 2013 decision], was unlawfully put into effect by Portugal in breach of Article 108(3) [TFEU] and is incompatible with the internal market.

*Article 2*

Individual aid granted under the scheme referred to in Article 1 does not constitute aid if, at the time it is granted, it fulfils the conditions laid down by a regulation adopted pursuant to Article 2 of Regulation (EU) 2015/1588 which is applicable at the time the aid is granted.

*Article 3*

Individual aid granted under the scheme referred to in Article 1 which, at the time it is granted, fulfils the conditions laid down by the Decisions referred to in Article 1 or laid down by a regulation adopted pursuant to Article 1 of Regulation ... 2015/1588 is compatible with the internal market up to maximum aid intensities applicable to that type of aid.

*Article 4*

1. Portugal shall recover the incompatible aid granted under the scheme referred to in Article 1 from the beneficiaries.

...

4. Portugal shall abolish the incompatible aid scheme to the extent referred to in Article 1 and cancel all outstanding payments of aid with effect from the date of notification of this Decision.

*Article 5*

1. Recovery of the aid granted under the scheme referred to in Article 1 shall be immediate and effective.

2. Portugal shall ensure that this Decision is implemented within eight months following the date of notification of this Decision.

...’

II.    **Forms of order sought**

14      The Portuguese Republic claims that the Court should:

–        annul Articles 1, 4, 5 and 6 of the contested decision;

–        order the Commission to pay the costs.

15      The Commission contends that the Court should:

–        dismiss the action as unfounded;

–        order the Portuguese Republic to pay the costs.

III. **Law**

16      In support of its action, the Portuguese Republic relies on seven pleas in law.

17      By its first plea, the Portuguese Republic argues that the contested decision infringes Article 107(1) TFEU, inasmuch as Regime III is not selective.

18      By its second plea, the Portuguese Republic submits that the contested decision infringes Article 107(1) TFEU, inasmuch as the Commission failed to demonstrate that Regime III affected competition and trade between Member States.

19      By its third plea, raised in the alternative, the Portuguese Republic claims that the contested decision infringed Article 108 TFEU, as well as Articles 21 to 23 of Council Regulation (EU) 2015/1589 of 13 July 2015 laying down detailed rules for the application of Article 108 [TFEU] (OJ 2015 L 248, p. 9), in so far as Regime III should be classified as ‘existing aid’.

20      By its fourth plea, also raised in the alternative, the Portuguese Republic relies on an error of law in so far as Regime III was implemented in accordance with (i) the 2007 decision and the 2013 decision and (ii) Articles 107 and 108 TFEU.

21      By its fifth plea, the Portuguese Republic argues that the Commission erred in fact or failed to fulfil its obligation to state reasons in so far as the requirements of the tax scheme and the monitoring of those requirements by the national authorities are suitable for the purpose of reviewing Regime III.

22      By its sixth plea, the Portuguese Republic submits that the Commission erred in fact or failed to fulfil its obligation to state reasons in so far as the Portuguese Republic carried out checks as to the condition relating to the creation or maintenance of jobs.

23      Lastly, by its seventh plea, the Portuguese Republic relies on (i) infringement of general principles of EU law, in particular, the principles of the rights of the defence, legal certainty, sound administration, the protection of legitimate expectations and proportionality, (ii) failure by the Commission to fulfil its obligation to state reasons, (iii) the impossibility for the Portuguese Republic to comply with the recovery obligation contained in the contested decision and (iv) infringement of Article 17 of Regulation 2015/1589.

A.      **The structure of the action and the pleas in law**

24      In the light of the pleas raised by the Portuguese Republic and referred to in paragraphs 16 to 23 above, as well as the observations which it submitted regarding the report for the hearing, and which were noted in the minutes of that hearing, the present action must be understood as consisting, in essence, of 11 pleas in law.

25      The first and second pleas allege infringement of Article 107(1) TFEU, inasmuch as Regime III, as implemented, was classified as ‘State aid’ within the meaning of that provision.

26      The third plea alleges infringement of Article 108 TFEU, as well as Articles 21 to 23 of Regulation 2015/1589, inasmuch as Regime III, as implemented, was classified as ‘new aid’ within the meaning of Article 1(c) of that regulation and not as ‘existing aid’ within the meaning of Article 1(b)(i) thereof.

27      The fourth, fifth and sixth pleas allege errors of law and of fact, as well as failures to state reasons, in so far as Regime III was implemented by the Portuguese Republic in accordance with (i) the 2007 decision and the 2013 decision and (ii) Articles 107 and 108 TFEU.

28      The seventh plea alleges infringement of the rights of the defence and breach of the principles of legal certainty and sound administration, as well as a failure to state reasons, inasmuch as the Commission did not take into consideration the letter that had been sent to it on 6 April 2018 by the Portuguese Republic.

29      The eighth plea alleges breach of the principles of legal certainty, protection of legitimate expectations and sound administration, inasmuch as the contested decision ordered the Portuguese Republic to recover the aid declared unlawful and incompatible.

30      The ninth plea alleges that it is impossible for the Portuguese Republic to recover the aid declared unlawful and incompatible.

31      The tenth plea alleges breach of the principle of proportionality, on the ground that the Commission adopted a restrictive approach to the conditions of ‘job creation/maintenance in the region’ and of ‘activity effectively and materially performed in [the ARM]’.

32      The eleventh plea alleges infringement of Article 17 of Regulation 2015/1589, on the ground that the recovery of some of the aid paid under Regime III is time-barred.

B.      **The first and second pleas in law, alleging infringement of Article 107(1) TFEU, inasmuch as Regime III, as implemented, was classified as ‘State aid’**

33      By its first and second pleas in law, which must be examined together, the Portuguese Republic complains that the Commission infringed Article 107(1) TFEU, inasmuch as it classified Regime III, as implemented, as ‘State aid’ within the meaning of that provision. In that regard, the Portuguese Republic submits that that scheme does not satisfy three of the conditions required for such a classification.

34      First, and contrary to the finding made in recitals 135 and 136 of the contested decision, Regime III is not selective in nature, in so far as it is a general measure forming part of the general structure of the Portuguese tax system and its purpose is to govern situations for which separate treatment is objectively justified.

35      In that regard, first of all, the Portuguese Republic argues, referring to the judgment of 9 December 1997, *Tiercé Ladbroke* v *Commission* (C‐353/95 P, EU:C:1997:596), that the nature and overall structure of the system may justify a difference in treatment from that under legislation of general application, if account is taken not only of formal elements, such as the degree of autonomy of the territorial entity concerned, but also of the existence of different material circumstances which justify a derogation from the general rules.

36      The specific features of the territory of the ARM, recognised both by the Portuguese legal and constitutional framework and by the Commission in recital 193 of the contested decision, justify tax treatment different from that of the other Portuguese territories, in order to correct and mitigate the continuing structural handicaps affecting undertakings which carry out their economic activity in that region.

37      Next, the Portuguese Republic takes the view that the fact that the measure is geographically limited to the ZFM does not make it selective. Were it otherwise, the ARM and the ZFM would be placed at a fiscal disadvantage by comparison with other regions of the European Union; this would be contrary to the general objective of the Treaties and of the policies of the European Union, which tend to favour the outermost regions. The Court should therefore avoid applying a criterion which would prevent the attainment of that objective.

38      Lastly, the Portuguese Republic argues that, in accordance with the judgments of 11 September 2008, *UGT-Rioja and Others* (C‐428/06 to C‐434/06, EU:C:2008:488, paragraph 144), and of 18 December 2008, *Government of Gibraltar and United Kingdom* v *Commission* (T‐211/04 and T‐215/04, EU:T:2008:595, paragraph 115), the reference framework for assessing whether Regime III is selective must be the territory of the ARM, and not the Portuguese territory as a whole.

39      This follows from the fact that, from a constitutional point of view, the ARM enjoys sufficient institutional, procedural and economic autonomy in relation to the Portuguese central authorities. That autonomy, which allows the ARM to adapt the national tax system to its specific regional features, without a decision on its part to reduce the tax rate being compensated for by assistance or subsidies from other regions or the central government, justifies Regime III being regarded as generally applicable within that infra-State authority.

40      By failing to determine in the contested decision whether the ARM or the ZFM enjoyed sufficient institutional, procedural and economic autonomy, the Commission not only infringed Article 107(1) TFEU but also failed to fulfil its obligation to state reasons.

41      Secondly, the Commission has not demonstrated that Regime III, as implemented, affects trade between Member States and distorts or threatens to distort competition.

42      In that regard, the Portuguese Republic argues that the Commission, contrary to its assertions in recital 215 of the contested decision, should, in accordance with the case-law, have carried out a quantitative and up-to-date analysis of the actual effects of Regime III. Moreover, the Commission should have shown that there were appreciable effects on competition and trade, given the remoteness and small economic size of the ARM, the specific features of which are recognised by Article 349 TFEU.

43      Furthermore, the Portuguese Republic submits that the Commission failed to fulfil its obligation to state reasons by merely stating that companies registered in the ZFM carried out activities that were open to international competition, even though (i) the interested parties took the contrary view during the administrative procedure, (ii) that procedure identified no interested party who had complained about the implementation of Regime III and (iii) the European Economic and Social Committee (EESC) considers that the low attractiveness of the outermost regions precludes an effect on trade between Member States.

44      The Commission contends that the first and second pleas in law must be rejected as unfounded.

45      It is therefore necessary to examine whether the Commission was right, in recital 148 of the contested decision, to classify Regime III, as implemented, as ‘State aid’ within the meaning of Article 107(1) TFEU.

46      In that regard, according to settled case-law, classification of a national measure as ‘State aid’ requires all the following conditions to be satisfied. First, there must be an intervention by the State or through State resources. Secondly, the intervention must be liable to affect trade between the Member States. Thirdly, it must confer a selective advantage on the beneficiary. Fourthly, it must distort or threaten to distort competition (see judgment of 6 October 2021, *World Duty Free Group and Spain* v *Commission*, C‐51/19 P and C‐64/19 P, EU:C:2021:793, paragraph 30 and the case-law cited).

47      In this instance, the Portuguese Republic confines itself to contesting, on the one hand, the selective nature of the advantage conferred on the beneficiaries of Regime III, as implemented, and, on the other, the fact that that scheme is liable to affect trade between the Member States and to distort or threaten to distort competition.

48      In the first place, as regards the condition relating to the selective nature of the advantage, it is established that national measures conferring a tax advantage which, although not involving a transfer of State resources, place the beneficiaries in a more favourable financial position than other taxpayers are capable of procuring a selective advantage for the beneficiaries (see judgment of 6 October 2021, *World Duty Free Group and Spain* v *Commission*, C‐51/19 P and C‐64/19 P, EU:C:2021:793, paragraph 31 and the case-law cited).

49      That condition requires a determination as to whether, under a particular legal regime, the national measure at issue is such as to favour ‘certain undertakings or the production of certain goods’ over other undertakings which, in the light of the objective pursued by that regime, are in a comparable factual and legal situation and which accordingly suffer different treatment that can, in essence, be classified as discriminatory (see judgment of 6 October 2021, *World Duty Free Group and Spain* v *Commission*, C‐51/19 P and C‐64/19 P, EU:C:2021:793, paragraph 32 and the case-law cited).

50      To that end, the Commission must, as a first step, identify the reference system, that is, the ‘normal’ tax system applicable in the Member State concerned; then, as a second step, it must demonstrate that the tax measure at issue is a derogation from that reference system, in so far as it differentiates between operators who, in the light of the objective pursued by that system, are in a comparable factual and legal situation (see judgment of 19 December 2018, *A-Brauerei*, C‐374/17, EU:C:2018:1024, paragraph 36 and the case-law cited).

51      In that connection, the reference framework need not necessarily be defined within the limits of the Member State concerned, so that a measure conferring an advantage in only one part of the national territory is not selective on that ground alone. Accordingly, it is possible that, under certain strictly defined conditions, an infra-State body enjoys a legal and factual status which makes it sufficiently autonomous in relation to the central government of a Member State, with the result that, by the measures it adopts, it is that body and not the central government which plays a fundamental role in the definition of the political and economic environment in which undertakings operate, meaning that the reference framework may be limited to the geographical area concerned (see, to that effect, judgments of 6 September 2006, *Portugal* v *Commission*, C‐88/03, EU:C:2006:511, paragraphs 57 to 68, and of 11 September 2008, *UGT-Rioja and* *Others*, C‐428/06 to C‐434/06, EU:C:2008:488, paragraphs 47 to 52 and the case-law cited).

52      Lastly, a measure which is a priori selective cannot be classified as ‘State aid’ where the Member State concerned is able to demonstrate that the differentiation between beneficiary undertakings which, in the light of the objective pursued by the legal regime concerned, are in a comparable factual and legal situation is justified, in the sense that it flows from the nature or general structure of the system of which those measures form part (see, to that effect, judgment of 6 October 2021, *World Duty Free Group and Spain* v *Commission*, C‐51/19 P and C‐64/19 P, EU:C:2021:793, paragraph 36 and the case-law cited).

53      In this instance, it is apparent from recitals 130 to 136 of the contested decision and from the Portuguese Republic’s written submissions that Regime III has its legal basis primarily in the Estatuto dos Benefícios Fiscais (Tax Incentives Statute), created by Decreto-Lei no 215/89 (Decree-Law No 215/89) of 1 July 1989 (*Diário da República*, Series I, No 149, of 1 July 1989), and in Decreto-Lei no 500/80 que autoriza a criação de uma zona franca na Região Autónoma da Madeira (Decree-Law No 500/80 authorising the creation of a free trade zone in the Autonomous Region of Madeira) of 20 October 1980 (*Diário da República*, Series I, No 243, of 20 October 1980).

54      Moreover, recitals 10 to 17 of the contested decision, which are not challenged by the Portuguese Republic, state that Regime III provides for an advantage in the form of a reduction in CIT for companies registered in the ZFM, which must carry out certain economic activities exhaustively set out in a list annexed to the 2007 decision which excludes, in particular, all activities involving financial intermediation and insurance, auxiliary financial and insurance activities, and all ‘intra-group service’ activities (coordination, treasury and distribution centres).

55      Accordingly, not all but only some companies can register in the ZFM, and only those companies registered in the ZFM – to the exclusion of those established in other parts of the ARM or the Portuguese territory – can benefit from the tax reductions provided for by Regime III.

56      Consequently, the Commission was right to consider, in recitals 134 and 135 of the contested decision, that the tax advantages provided for by Regime III were selective in nature, given that, within the meaning of the case-law referred to in paragraph 49 above, that scheme is such as to favour certain undertakings or the production of certain goods over other undertakings which, in the light of the objective pursued by the scheme, are in a comparable factual and legal situation and which accordingly suffer different treatment that can, in essence, be classified as discriminatory.

57      In that regard, the Portuguese Republic’s claim that the Commission erred in defining the reference framework used to assess the selective nature of Regime III cannot alter that conclusion.

58      Even supposing that the reference framework for examining whether that scheme is selective could be that of the territory of the ARM, the fact, noted by the Commission, that undertakings registered in the territory of the ARM but outside the ZFM cannot benefit from that scheme is sufficient to establish the selective nature of that scheme and means that the Portuguese Republic’s claim that the statement of reasons in the contested decision is inadequate in that regard is unfounded.

59      Similarly, the Portuguese Republic cannot successfully rely on the argument that Regime III is justified by the nature or overall structure of the Portuguese tax system, inasmuch as it is intended to mitigate the continuing handicaps affecting undertakings which operate in the ARM.

60      In that regard, it is settled case-law that the objective pursued by measures of State intervention is not sufficient to exclude those measures outright from classification as ‘State aid’ within the meaning of Article 107(1) TFEU, in so far as that provision does not distinguish between measures of State intervention by reference to their causes or their aims but defines them in relation to their effects (judgment of 2 July 1974, *Italy* v *Commission*, 173/73, EU:C:1974:71, paragraph 27; see also judgment of 25 January 2022, *Commission* v *European Food and* *Others* *,* C‐638/19 P, EU:C:2022:50, paragraph 122 and the case-law cited).

61      Moreover, the mere fact that a regional tax system is conceived in such a way as to ensure the correction of disadvantages related to insularity does not allow the conclusion to be drawn that every tax advantage granted in that context is justified by the nature and overall structure of the national tax system. Accordingly, the fact of acting on the basis of a regional development or social cohesion policy is not sufficient in itself to justify a measure adopted within the framework of that policy (see, to that effect, judgment of 6 September 2006, *Portugal* v *Commission*, C‐88/03, EU:C:2006:511, paragraph 82).

62      Both in the administrative procedure which led to the contested decision and before the Court in the present action, the Portuguese Republic has confined itself to assertions of a general nature concerning the handicaps suffered by the ARM and the need to take into account its status as an outermost region recognised by Article 349 TFEU.

63      Therefore, the Portuguese Republic has not shown how Regime III, in particular inasmuch as it did not benefit companies established in the ARM but not registered in the ZFM, was justified by the nature or overall structure of the Portuguese tax system.

64      Furthermore, even if the Portuguese Republic’s line of argument is intended to invite the Court, solely on equitable grounds, to disregard the conditions laid down by Article 107(1) TFEU, it is sufficient to point out that, like the Commission, the Court, in the context of the review provided for in Article 263 TFEU, cannot depart from the rules of the Treaty (see, by analogy, judgment of 5 October 2000, *Germany* v *Commission*, C‐288/96, EU:C:2000:537, paragraph 62).

65      Consequently, the Commission was right to find, in recital 136 of the contested decision, that Regime III, as implemented, conferred a selective advantage on its beneficiaries.

66      In the second place, as regards the conditions relating to the existence of effects on trade between Member States and on competition, it should be recalled that it is necessary, not to establish that the aid in question has a real effect on trade between Member States and that competition is actually being distorted, as the Portuguese Republic claims, but only to examine whether that aid is liable to affect such trade and distort competition (judgment of 27 June 2017, *Congregación de Escuelas Pías Provincia Betania*, C‐74/16, EU:C:2017:496, paragraph 78), which the Commission must at least refer to in the reasons for its decision (see, to that effect, judgment of 6 September 2006, *Portugal* v *Commission*, C‐88/03, EU:C:2006:511, paragraph 88).

67      In that regard, when aid granted by a Member State strengthens the position of certain undertakings as compared with that of other undertakings competing in trade between Member States, such trade must be regarded as affected by the aid (judgment of 27 June 2017, *Congregación de Escuelas Pías Provincia Betania*, C‐74/16, EU:C:2017:496, paragraph 79).

68      With regard to the condition concerning distortion of competition, it must be emphasised that, in principle, aid intended to release an undertaking from costs which it would normally have had to bear in its day-to-day management or normal activities, including operating aid such as that paid under Regime III, distorts the conditions of competition (see, to that effect, judgments of 9 June 2011, *Comitato ‘Venezia vuole vivere’ and Others* v *Commission*, C‐71/09 P, C‐73/09 P and C‐76/09 P, EU:C:2011:368, paragraph 136, and of 27 June 2017, *Congregación de Escuelas Pías Provincia Betania*, C‐74/16, EU:C:2017:496, paragraph 80).

69      By recalling, essentially, the case-law referred to above and by finding, in recital 139 of the contested decision, that the companies registered in the ZFM carried out activities that were open to international competition, the Commission fulfilled its obligation to state reasons. Moreover, it is clear from the statement of reasons given in the contested decision that the Commission established to the requisite legal standard that, in the case at hand, Regime III, as implemented, was liable to affect trade between Member States and to distort competition.

70      The matters raised by the Portuguese Republic and recalled in paragraph 43 above cannot call that conclusion into question; nor can they impose on the Commission a stricter obligation to state reasons.

71      The conclusion reached by the Commission must be read in the light of, inter alia, paragraph 15 of the decision to initiate the formal procedure, the clarifications provided by the Portuguese Republic itself in its written submissions and at the hearing, according to which Regime III was created with a view to attracting foreign investment and developing international services, and the fact that Regime III encompasses the International Business Centre of Madeira and the Madeira International Shipping Register.

72      In the light of the foregoing, the first and second pleas in law must be rejected as unfounded.

C.      **The third plea in law, alleging infringement of Article 108 TFEU, as well as Articles 21 to 23 of Regulation 2015/1589, inasmuch as Regime III, as implemented, was classified as ‘new aid’ within the meaning of Article 1(c) of that regulation and not as ‘existing aid’ within the meaning of Article 1(b)(i) thereof**

73      By its third plea in law, raised in the alternative, the Portuguese Republic complains that the Commission infringed Article 108(1) TFEU, as well as Articles 21 to 23 of Regulation 2015/1589, by classifying Regime III, as implemented, as ‘new aid’ within the meaning of Article 1(c) of that regulation and by initiating, on that basis, the formal investigation procedure provided for in Article 108(2) TFEU.

74      According to the Portuguese Republic, the Commission should, on the contrary, have classified Regime III, as implemented, as ‘existing aid’ within the meaning of Article 1(b)(i) of Regulation 2015/1589, that is to say, aid which was put into effect before, and is still applicable after, its accession. Accordingly, the Commission should, where appropriate, have initiated the procedure for keeping existing aid schemes under constant review, provided for in Article 108(1) TFEU.

75      In that regard, the Portuguese Republic argues that (i) the ZFM was created before it joined the European Economic Community (EEC) on 1 January 1986, (ii) the ZFM scheme has not been substantially altered since that date, and (iii) the alterations made have restricted the scope of the scheme and are consistent with the successive versions of the Commission’s Guidelines on national regional aid. As regards, in particular, the requirement to create or maintain jobs, the Portuguese Republic states that that requirement was introduced under pressure from the Commission and against the wishes of its authorities.

76      The Portuguese Republic adds that the negotiations relating to its accession resulted in a recommendation being made to the EU institutions to pay particular attention to the economic and social development policy of the ARM. Moreover, the Act concerning the conditions of accession of the Kingdom of Spain and the Portuguese Republic and the adjustments to the Treaties (OJ 1985 L 302, p. 23) contains an express reservation concerning the ZFM and has not made provision for any specific amendment to Decree-Law No 500/80.

77      The Commission takes the view that the third plea in law must be rejected as unfounded.

78      As a preliminary point, it should be borne in mind that in the context of the State aid control system, introduced by Articles 107 and 108 TFEU, the procedure differs according to whether the aid is existing or new. Whereas ‘existing aid’ may, in accordance with Article 108(1) TFEU, be lawfully implemented so long as the Commission has made no finding of incompatibility and is subject to the procedure for keeping aid under constant review provided for in that provision, Article 108(3) TFEU provides that plans to grant ‘new aid’ or alter ‘existing aid’ must be notified, in due time, to the Commission and may not be put into effect until the procedure has resulted in a final positive decision under the formal investigation procedure provided for in Article 108(2) TFEU (see, to that effect, judgment of 27 June 2017, *Congregación de Escuelas Pías Provincia Betania*, C‐74/16, EU:C:2017:496, paragraph 86 and the case-law cited).

79      It is apparent from Article 1(c) of Regulation 2015/1589 that it is necessary to regard as ‘new aid’ ‘all aid, that is to say, aid schemes and individual aid, which is not existing aid, including alterations to existing aid’.

80      Article 4(1) of Commission Regulation (EC) No 794/2004 of 21 April 2004 implementing Council Regulation 2015/1589 laying down detailed rules for the application of Article 108 [TFEU] (OJ 2004 L 140, p. 1) defines as an alteration to existing aid, for the purposes of Article 1(c) of Regulation 2015/1589, any change, other than modifications of a purely formal or administrative nature which cannot affect the evaluation of the compatibility of the aid measure with the internal market.

81      In order to assess whether alterations to existing aid are substantial, it is necessary to examine whether those alterations have affected the constituent elements of the scheme in question, such as the class of beneficiaries, the objective of the financial support, or the source and amount of that support (see, to that effect, judgments of 13 December 2018, *Rittinger and Others* *,* C‐492/17, EU:C:2018:1019, paragraphs 60 to 63, and of 14 April 2021, *Verband Deutscher Alten- und Behindertenhilfe and CarePool Hannover* v *Commission*, T‐69/18, EU:T:2021:189, paragraph 191 and the case-law cited).

82      In the present case, the Commission noted, in recital 144 of the contested decision, that, in the context of Regime II, alterations had been made to the original ZFM scheme concerning the requirement to create or maintain jobs, the exclusion of certain activities from the scope of the scheme, a gradual reduction of the aid, and the addition of a further reduction for undertakings established in the IFTZ. The Commission also stated that Regime III had provided for an increase in the taxable base ceilings to which the tax reduction applied.

83      Such alterations are, contrary to the Portuguese Republic’s assertions, substantial in nature, inasmuch as they concern the constituent elements of the original ZFM scheme and, in particular, the class of beneficiaries and the amounts concerned (see, to that effect, judgment of 26 November 2015, *Comunidad Autónoma del País Vasco and Itelazpi* v *Commission*, T‐462/13, EU:T:2015:902, paragraphs 149 and 150).

84      Such a conclusion cannot be called into question by the Portuguese Republic’s claim that those alterations merely restricted the scope of the original ZFM scheme (see, to that effect, judgment of 14 November 2019, *Dilly’s Wellnesshotel*, C‐585/17, EU:C:2019:969, paragraph 59). Quite apart from the fact that that assertion is contradicted by the successive alterations to the original ZFM scheme, which have resulted in, inter alia, the addition of tax reductions and increases in the taxable base ceilings, the assessment of whether an alteration is substantial is separate from the question whether that alteration results in an extension or restriction of the scope of the aid in question. For the purposes of that assessment, it is important only to ascertain whether the alteration may affect the actual substance of the original scheme (see, to that effect, judgment of 14 April 2021, *Verband Deutscher Alten- und Behindertenhilfe and CarePool Hannover* v *Commission*, T‐69/18, EU:T:2021:189, paragraph 190 and the case-law cited). This is the case with the various alterations made to the original ZFM scheme by Regime II and Regime III.

85      Similarly, the Portuguese Republic cannot successfully rely on the fact that those alterations are consistent with the successive versions of the Commission’s Guidelines on national regional aid or that they should be assessed taking due account of a recommendation made to the EU institutions to pay particular attention to the economic and social development policy of the ARM. Indeed, such matters have no bearing on the legal classification of the aid in question as ‘new aid’ or as ‘existing aid’.

86      The Portuguese Republic’s claim that it added the requirement to create or maintain jobs under pressure from the Commission is also irrelevant. In that regard, it is apparent from the Commission’s decision of 11 December 2002 in Case N222a/2002 (‘the 2002 decision’) that that requirement was included by the Portuguese Republic itself in the draft of Regime II notified to the Commission on 12 March 2002.

87      Accordingly, and without it being necessary to determine whether the ZFM scheme was actually implemented before the Portuguese Republic’s accession to the EEC or whether it benefited from an express reservation contained in the Act concerning the conditions of accession of the Kingdom of Spain and the Portuguese Republic and the adjustments to the Treaties, it should be noted that, in any event, the alterations made to that scheme after 1 January 1986 by Regime II and Regime III preclude classification as ‘existing aid’ within the meaning of Article 1(b)(i) of Regulation 2015/1589, as the Commission found in recital 145 of the contested decision.

88      Consequently, the Portuguese Republic cannot complain that the Commission infringed Article 108(1) TFEU and Articles 21 to 23 of Regulation 2015/1589 by classifying Regime III, as implemented, as ‘new aid’ rather than ‘existing aid’ and by not initiating, as appropriate, the procedure for keeping existing aid schemes under constant review.

89      In the light of the foregoing, the third plea in law must be rejected as unfounded.

D.      **The fourth, fifth and sixth pleas in law, alleging errors of law and of fact, as well as failures to state reasons, inasmuch as Regime III was implemented by the Portuguese Republic in accordance with (i) the 2007 decision and the 2013 decision and (ii) Articles 107 and 108 TFEU**

1.      *The subject matter of the fourth , fifth and sixth pleas in law*

90      By its fourth, fifth, and sixth pleas in law, the Portuguese Republic submits that the Commission committed errors of law and of fact and failed to fulfil its obligation to state reasons, in so far as Regime III was implemented by the Portuguese Republic in accordance with (i) the 2007 decision and the 2013 decision and (ii) Articles 107 and 108 TFEU.

91      According to the Portuguese Republic, that conclusion of the Commission is vitiated by errors in three respects.

92      First, the Portuguese Republic complains that the Commission erred in law, inasmuch as that institution interpreted the 2007 decision and the 2013 decision as authorising payment of the aid provided for by Regime III only in respect of the profits of companies registered in the ZFM resulting from ‘activities effectively and materially performed in Madeira’ and not for all their activities, even those carried on outside that region (fourth plea in law).

93      Secondly, the Portuguese Republic complains that the Commission erred in fact and failed to fulfil its obligation to state reasons, inasmuch as that institution found that the Portuguese authorities had not conducted adequate and effective tax controls in order to check whether the beneficiaries satisfied the conditions for payment of the aid provided for by Regime III (fifth plea in law).

94      Thirdly, the Portuguese Republic complains that the Commission erred in fact and failed to fulfil its obligation to state reasons, inasmuch as that institution found that, in implementing Regime III, the Portuguese authorities had incorrectly interpreted the condition of ‘job creation/maintenance’ and had carried out insufficient checks in that regard (sixth plea in law).

95      As regards the claim of infringement of Article 107 TFEU, the Portuguese Republic stated, in response to a question from the Court at the hearing inviting it to indicate the paragraphs of its written submissions supporting that claim, that that provision was referred to in paragraph 121 of the application, which reproduces Article 1 of the operative part of the contested decision but does not contain any such reference, and in the heading of its fourth plea in law, without identifying other parts of its written submissions that are such as to support that claim.

96      It should also be noted that the Portuguese Republic does not adduce any evidence to contest the finding of incompatibility of Regime III, as implemented, made by the Commission on the basis of Article 107(3) TFEU in recital 206 of the contested decision.

97      Accordingly, the Portuguese Republic’s claim of an infringement of Article 107 TFEU, if it is based on an infringement of Article 107(3) TFEU, does not meet the requirements laid down in Article 76(d) of the Rules of Procedure of the General Court and must therefore be rejected as inadmissible.

98      Consequently, the fourth, fifth and sixth pleas in law must be understood as seeking, in essence, to challenge the finding, made in recital 180 of the contested decision, that ‘the ZFM scheme as implemented by Portugal is in breach of [the 2007 decision and the 2013 decision], which have authorised Regime III, and is therefore unlawful’, for the purposes of Article 108(3) TFEU.

99      In that regard, it should be noted that Article 1(c) of Regulation 2015/1589 provides that ‘new aid’ means ‘all aid, that is to say, aid schemes and individual aid, which is not existing aid, including alterations to existing aid’.

100    Accordingly, where an applicant takes the view that the Commission wrongly found that the detailed rules for the payment of individual aid under a previously authorised aid scheme did not comply with that previous authorisation, that applicant’s line of argument must be understood as criticising the Commission’s refusal to recognise that aid as ‘existing aid’ within the meaning of Article 1(b)(ii) of Regulation 2015/1589, that is to say, as an aid scheme or individual aid authorised by the Commission or by the Council of the European Union.

101    Therefore, while taking due account of the observations made by the Portuguese Republic regarding the report for the hearing, the line of argument put forward by that party in its fourth, fifth and sixth pleas in law must be understood as seeking to challenge the fact that, in recitals 150 to 180 and 228 of the contested decision, the Commission did not treat Regime III, as implemented, in the same way as ‘existing aid’ within the meaning of Article 1(b)(ii) of Regulation 2015/1589, the compatibility of which should have been assessed in the context of the constant review of existing aid schemes provided for in Article 108(1) TFEU, but classified it, in recital 180 of the contested decision, as ‘unlawful aid’ and, therefore, as ‘new aid’ within the meaning of Article 1(c) of Regulation 2015/1589, paid in breach of Article 108(3) TFEU.

2.      *The merits of the fourth , fifth and sixth pleas in law*

102    As has been noted in paragraph 91 above, it is claimed that the Commission’s conclusion that the Portuguese Republic implemented Regime III in a manner different from those notified by it and authorised by the 2007 decision and the 2013 decision is vitiated by errors in three respects.

(a)    *Arguments of the parties*

103    First, according to the Portuguese Republic, the Commission erred in law in interpreting the condition, laid down in the 2007 decision and the 2013 decision, that the reductions in CIT provided for by Regime III can apply only to profits resulting from activities ‘effectively and materially performed in Madeira’.

104    In that regard, the Portuguese Republic contests the Commission’s assessment that activities carried on outside that region by companies registered in the ZFM are not eligible for the reduction in CIT.

105    First of all, while accepting that, under the 2007 decision and the 2013 decision, the tax advantages provided for by Regime III are aimed at ‘activities effectively and materially performed in Madeira’ and that, during the negotiation of that scheme, the Portuguese Republic did indeed give an assurance that the reductions in CIT would apply solely to those activities, the Portuguese Republic argues that it never concealed from the Commission that taxable persons with their head office or effective management in the ARM were taxed there on the whole of their income. It adds that, in the view of the Portuguese authorities, the ZFM scheme was always intended to ‘attract’ foreign investment and to develop international services, and not to compensate directly for additional costs linked to the situation of the ARM or to create jobs. It is not possible to separate the interpretation of the 2007 decision and the 2013 decision from the positions adopted by the Portuguese authorities during the administrative procedures leading to those decisions, in the course of which those authorities proposed that the ZFM scheme be extended beyond a relationship of strict proportionality in relation to the additional costs borne by undertakings operating in the ARM.

106    Accordingly, the interpretation of the 2007 decision and the 2013 decision should be guided by the economic substance of the ZFM scheme, which is essentially reflected in the contribution of that scheme to the gross domestic product (GDP) of the ARM and, more modestly, to the creation or maintenance of jobs or to the collection of tax revenue – a fact of which the Commission has always been aware. The Portuguese Republic also states that the tax advantages of the ZFM are significantly lower than the additional costs resulting from its situation as an outermost region.

107    Therefore, according to the Portuguese Republic, the requirement that the activities benefiting from Regime III be ‘effectively and materially performed in Madeira’ cannot imply that the jobs and economic activity in question must necessarily be carried out within the limits of that region.

108    Next, the Portuguese Republic takes the view that the interpretation of the concept of activities ‘effectively and materially performed in Madeira’ should be consistent with the ‘rules’ of the Organisation for Economic Cooperation and Development (OECD) and in particular with its Action Plan on Base Erosion and Profit Shifting. None of those rules requires the existence of a definitive legal or factual connection between the actual economic activity carried out in the special economic zone concerned and the profits in respect of which a tax advantage is granted.

109    Accordingly, the Portuguese Republic could consider that an activity is ‘effectively and materially performed in Madeira’ if it is actually carried out there or if the undertaking carrying out the activity has either a head office, management and adequate resources of its own there or an effective and real decision-making centre there, without it being possible to require that all employees carry out their duties there on a permanent basis or that the activity be limited to its territory.

110    Lastly, the Portuguese Republic argues that the requirement that companies registered in the ZFM qualify for the tax reductions only in respect of the activity which they carry out in the ARM leads the Commission to impose additional conditions without a sufficient basis, in particular in its guidelines on regional aid and its communications relating to the outermost regions. That requirement also increases the negative effects stemming from Regime II and Regime III and could even result in the elimination of the ZFM, whereas the implementation of Article 349 TFEU should strengthen the support provided to that region.

111    Moreover, that requirement runs counter to the case-law and the Commission’s previous decision-making practice, which allow the spill-over effect of aid – that is to say, the fact that aid relating to activities carried on outside a region may significantly benefit that region – to be taken into account. It was in that connection that, in the 2007 decision, the Commission stated that Regime III applied without distinction to undertakings resident and not resident in Portugal. That requirement also runs counter to the principles of free movement by limiting the possibility for a worker hired by an undertaking with a licence in the ZFM to pursue his or her professional activity in another Member State or a third country, on the one hand, and the possibility for the company concerned to provide services outside the ARM, on the other.

112    Secondly, the Portuguese Republic argues that the contested decision is vitiated by an error of fact and a failure to state reasons, inasmuch as the Commission found that the Portuguese authorities had not conducted adequate and effective tax controls in order to check whether the beneficiaries satisfied the conditions for payment of the aid provided for by Regime III.

113    In that regard, the Portuguese Republic complains that the Commission found, in recital 178 of the contested decision, that the controls performed by the Portuguese authorities were ineffective ‘with regard to an accurate calculation of the number of jobs held by each [Regime III] beneficiary and [with regard to] an assessment of the link between the jobs created and the activities effectively and materially performed in Madeira’.

114    In support of that argument, the Portuguese Republic submits that the Portuguese tax system provides that the benefit of Regime III is to be accompanied by the keeping of separate accounts for income generated in the ZFM, ancillary tax obligations, and effective mechanisms for monitoring and controlling the conditions set out in the 2007 decision and the 2013 decision.

115    The Portuguese Republic adds that, with regard to undertakings registered in the ZFM, the tax authority of the ARM carries out numerous rigorous and systematic controls, in particular by cross-checking information obtained by virtue of ancillary tax obligations and by making significant corrections.

116    Thirdly, the Portuguese Republic argues that the contested decision is vitiated by an error of fact and a failure to state reasons inasmuch as the Commission found that, in implementing Regime III, the Portuguese authorities had incorrectly interpreted the condition of ‘job creation/maintenance’ and had carried out insufficient checks in that regard.

117    The Portuguese Republic complains that the Commission found, in essence, in recital 178 of the contested decision, that, for the purpose of calculating the exact number of jobs created or maintained for each beneficiary of Regime III, the Portuguese authorities should have used the method for defining jobs in ‘full time equivalents’ (FTEs) and ‘annual labour units’ (ALUs).

118    In that regard, the Portuguese Republic argues that, in the absence of a uniform concept at EU level, it is for each Member State, in accordance with its legislation, to determine the scope to be given to the concept of ‘job’. Accordingly, the Portuguese authorities could take into account contracts of indefinite duration, intermittent work, temporary work, teleworking and part-time work. In that connection, the Portuguese Republic adds that numerous appropriate and strict controls leading to significant tax corrections were carried out to verify that the declarations made by the beneficiaries of Regime III were consistent with the concept of ‘job’ within the meaning of Portuguese law.

119    Lastly, the Portuguese Republic emphasises that, even if it were necessary to adopt the Commission’s approach, the Portuguese authorities have, in any event, carried out controls in which the number of workers was calculated according to the ALU method.

120    The Commission takes the view that the fourth, fifth and sixth pleas in law must be rejected as unfounded.

(b)    *Findings of the Court*

121    It should be recalled that, according to Article 108(1) TFEU, ‘existing aid’ may be lawfully implemented so long as the Commission has made no finding of incompatibility and is subject to the procedure for keeping aid under constant review provided for in that provision. By contrast, Article 108(3) TFEU provides that plans to grant ‘new aid’ or to alter ‘existing aid’ must be notified, in good time, to the Commission and may not be put into effect until the procedure has resulted in a final decision adopted in accordance with the procedure provided for in Article 108(2) TFEU (see, to that effect, judgment of 27 June 2017, *Congregación de Escuelas Pías Provincia Betania*, C‐74/16, EU:C:2017:496, paragraph 86 and the case-law cited).

122    It follows from that case-law, read in conjunction with Article 4(1) of Regulation No 794/2004, that an authorised, and therefore existing, aid scheme is no longer covered by the decision which authorised it and, accordingly, constitutes ‘new aid’, where that aid scheme, admittedly authorised by the Commission, is implemented by the Member State concerned in a manner which differs substantially from that provided for in the planned aid scheme notified by that Member State and, therefore, from that taken into consideration by the Commission for the purpose of finding that scheme to be compatible with the internal market.

123    Accordingly, an existing aid scheme within the meaning of Article 1(b)(ii) of Regulation 2015/1589, such as that authorised by the 2007 decision and the 2013 decision, which has been substantially altered and has been implemented in breach of the payment conditions previously authorised by the Commission can no longer be regarded as authorised and, as a result, loses the classification of existing aid scheme in its entirety (see, by analogy, concerning a failure to satisfy a condition expressly laid down by a Commission decision in order to ensure the compatibility of the aid concerned with the internal market, judgment of 25 October 2017, *Commission* v *Italy*, C‐467/15 P, EU:C:2017:799, paragraphs 47 and 54).

124    In the light of the foregoing, it is necessary to determine whether, in recitals 180, 211 and 228 of the contested decision, as well as Article 1 thereof, the Commission was entitled to conclude that the Portuguese Republic had implemented Regime III in breach of the 2007 decision and the 2013 decision and, consequently, to find that that scheme, as implemented, was substantially different from that authorised by those decisions and, on that basis, constituted new aid implemented by that Member State in breach of Article 108(3) TFEU.

125    To that end, it is necessary to ascertain in turn whether the Commission was entitled to find that (i) only activities ‘effectively and materially performed in Madeira’ gave rise to entitlement to the aid authorised by the 2007 decision and the 2013 decision (recitals 151 to 167 of the contested decision), (ii) the calculation method used by the Portuguese authorities to determine the jobs created or maintained by each beneficiary of Regime III did not actually allow the correct implementation of that scheme to be monitored (recitals 168 to 178 of the contested decision), and (iii) the tax controls conducted by the Portuguese authorities did not actually allow the correct implementation of that scheme to be monitored (recitals 165, 176 and 178 of the contested decision).

(1)    *The condition relating to the origin of the profits to which the reduction in CIT applies*

126    It should be noted at the outset that, in its written submissions, the Portuguese Republic has expressly acknowledged that ‘the 2007 decision and the 2013 decision [provided] that the tax advantages corresponding to a reduction in [CIT] [applied] “to advantages resulting from activities effectively and materially performed in Madeira”’.

127    Accordingly, the Portuguese Republic relies solely on the fact that, despite the wording of Regime III, on the one hand, and the 2007 decision and the 2013 decision, on the other, it could, without infringing those decisions, apply Regime III to companies which were, admittedly, registered in the ZFM but whose activity was carried on outside the ARM.

128    In that regard, it is settled case-law that the meaning and scope of terms for which EU law provides no definition must be determined by reference to their usual meaning, while also taking into account the context in which they occur and the purposes of the rules of which they are part (see judgment of 27 January 2022, *Zinātnes parks*, C‐347/20, EU:C:2022:59, paragraph 42 and the case-law cited).

129    Contrary to the Portuguese Republic’s assertions, the expression ‘activities effectively and materially performed in Madeira’, in its usual sense, cannot be interpreted as referring to activities carried on outside the ARM, even by companies registered in the ZFM.

130    Such a conclusion is supported by the context of the contested decision and by the objectives pursued by the EU rules concerning State aid and, in particular, those applicable to regional aid.

131    First of all, it is clear from the decisions authorising Regime II and Regime III that, during the administrative procedures leading up to those decisions, the Commission and the Portuguese authorities always agreed on the interpretation to be given to the expression ‘activities effectively and materially performed in Madeira’.

132    Indeed, it is apparent from the 2002 decision that, during the administrative procedure leading up to that decision, the Portuguese authorities stated that ‘the tax advantages [would be] limited to activities effectively and materially carried out in Madeira, which [would permit] the exclusion of activities which are carried on outside Madeira’.

133    Similarly, as is apparent from recital 226 of the contested decision, which is not challenged by the Portuguese Republic, the Commission ‘had requested the introduction of an express provision in the draft law notified by [the Portuguese Republic] on 28 June 2006 establishing that the tax reductions would be restricted to profits resulting from activities carried out in Madeira. [The Portuguese Republic] declined to do so since it considered that such provision was not necessary as this fact derived from the ZFM legal basis’.

134    Next, the wording of the 2007 decision and the 2013 decision, even supposing that it could be regarded as ambiguous, must be interpreted in accordance with (i) the legal bases for those decisions, namely Article 87(3)(a) EC (now Article 107(3)(a) TFEU) and Article 107(3)(a) TFEU, respectively, and (ii) the 2007 Guidelines.

135    All derogations from the general principle, laid down in Article 107(1) TFEU, that State aid is incompatible with the internal market must be construed narrowly (see judgment of 29 April 2004, *Germany* v *Commission*, C‐277/00, EU:C:2004:238, paragraph 20 and the case-law cited).

136    Moreover, as the Commission rightly noted in recital 153 of the contested decision, the 2007 Guidelines, and in particular paragraphs 6 and 76 thereof, state that operating aid may be granted, exceptionally, in regions eligible under the derogation in Article 87(3)(a) EC, such as the ARM, whose status as an outermost region is recognised by the Commission, provided that (i) it is justified in terms of its contribution to regional development and its nature and (ii) its level is proportional to the handicaps it seeks to alleviate.

137    This implies that only activities affected by the handicaps and therefore the additional costs specific to those regions should be eligible for such operating aid.

138    Accordingly, activities performed outside those regions and therefore not affected by those additional costs, even though they are carried out by companies established in those regions, may be excluded from the benefit of that aid.

139    Lastly, as the Commission rightly stated in recital 157 of the contested decision, the assessment of the compatibility of Regime III in the 2007 decision was carried out on the basis of the additional costs borne by undertakings carrying on their activity in the ARM, and not outside it.

140    It is apparent from paragraphs 44 to 53 of the 2007 decision that the Commission relied on a study provided by the Portuguese authorities which quantified the ‘additional costs incurred by the private sector in the [ARM]’. Moreover, the additional costs taken into consideration, namely transport, storage, human resources, financing or marketing costs, are those incurred for activities effectively and materially carried out in the ARM, and not activities carried on outside it by companies registered in that region. Lastly, that finding is supported by the fact that, in paragraph 48 of the 2007 decision, the Commission determined the additional costs in question solely as a percentage of the gross value added of the private sector or solely as a percentage of the GDP of the ARM.

141    Consequently, in addition to having no basis in either the wording or the context of the 2007 decision or the 2013 decision, the broad interpretation of the expression ‘activities effectively and materially performed in Madeira’ advocated by the Portuguese Republic is contrary not only to the objectives pursued by Article 87(3)(a) EC and Article 107(3)(a) TFEU, which served as the respective legal bases for the 2007 decision and the 2013 decision, but also to the 2007 Guidelines.

142    That conclusion cannot be altered by the fact that the interpretation used by the Commission might, as the Portuguese Republic maintains, be contrary to a commentary of the OECD’s Committee on Fiscal Affairs, a report of the OECD’s Base Erosion and Profit Shifting (BEPS) Group and the guidelines of an OECD forum, as well as the Commission’s previous decision-making practice.

143    Although the Commission may take into consideration texts adopted within the framework of the OECD, it can in no way be bound by them, in particular as regards the application of the rules of the FEU Treaty and, specifically, the rules relating to State aid (see, to that effect, judgment of 12 May 2021, *Luxembourg and Amazon* v *Commission*, T‐816/17 and T‐318/18, under appeal, EU:T:2021:252, paragraph 154, and Opinion of Advocate General Kokott in *État luxembourgeoi*s*(Information on a group of taxpayers)*, C‐437/19, EU:C:2021:450, point 67).

144    Similarly, the question whether a Commission decision is lawful must be assessed solely in the context of Article 107 TFEU and not in the light of an alleged earlier decision-making practice of the Commission (see, to that effect, order of 10 October 2017, *Greenpeace Energy* v *Commission*, C‐640/16 P, not published, EU:C:2017:752, paragraph 27, and judgment of 26 March 2020, *Larko* v *Commission*, C‐244/18 P, EU:C:2020:238, paragraph 114).

145    The fact that the Portuguese authorities never concealed from the Commission that companies with their head office or effective management in the ZFM were taxed there on all their income is also irrelevant.

146    The fact that those companies are taxed on all their income by the tax authorities of the ARM in no way means that the operating aid granted by that region to those companies must necessarily benefit all their activities and cannot be reserved for an identified part of those activities.

147    Moreover, in the context of the review of the compatibility of State aid provided for in Article 108 TFEU and in accordance with Article 4(3) TEU, it is for the notifying Member State and the Commission to work together in good faith in order to enable the Commission to overcome any difficulties it may encounter on examining, in the course of the procedure under Article 108(3) TFEU, a notified plan to grant aid (see judgment of 15 March 2001, *Prayon-Rupel* v *Commission*, T‐73/98, EU:T:2001:94, paragraph 99 and the case-law cited).

148    This means, in particular, that the Member State concerned must provide the Commission with all information required to allow it to carry out its duties and, in particular, to assess the compatibility of the aid with the internal market, as was apparent from recitals 6 and 16 of Regulation No 659/1999 (now recitals 6 and 16 of Regulation 2015/1589).

149    However, the Portuguese Republic has not demonstrated that, during the administrative procedure leading to the 2002 decision, the 2007 decision or the 2013 decision, it expressly and unequivocally informed the Commission that, despite the wording of the conditions governing Regime II or Regime III, those schemes were intended to apply to all companies registered in the ZFM and to all their activities, including those carried on outside the ARM.

150    On the contrary, it is apparent from paragraphs 132 and 133 above that, on several occasions, the Portuguese authorities indicated to the Commission that the reductions in CIT were limited to ‘activities effectively and materially performed in Madeira’, which excluded activities carried on outside that region.

151    Accordingly, the Commission was able to conclude in recital 167 of the contested decision, without erring in law or adding additional conditions to the 2007 decision or the 2013 decision, that Regime III, as implemented, with regard to the condition concerning the origin of the profits to which the reduction in CIT was applied, was contrary to those decisions.

152    That conclusion cannot be called into question by the Portuguese Republic’s line of argument that, in interpreting the expression ‘activities effectively and materially performed in Madeira’ as not referring to activities carried on outside that region by companies registered in the ZFM, the Commission took insufficient account of the negative effects of Regime II and Regime III on the ARM and of the spill-over effect of Regime III, as implemented, or acted in breach of the principles of free movement.

153    First, as regards the claim that insufficient account was taken of the negative effects of Regime II and Regime III on the ARM and of the spill-over effect of Regime III, as implemented, it should be pointed out that the Portuguese Republic is not seeking by that claim to call into question the assessment made by the Commission as to the incompatibility of Regime III, as implemented, with the 2007 decision and the 2013 decision and, consequently, to call into question the legal classification of that scheme as ‘new aid’ within the meaning of Article 1(c) of Regulation 2015/1589, granted in breach of Article 108(3) TFEU.

154    On the contrary, the Portuguese Republic is calling into question the assessment of the compatibility of Regime III carried out at the time of the 2007 decision and the 2013 decision, both of which have become final and cannot therefore be challenged in the present action.

155    Furthermore, a Member State cannot, in proceedings brought in respect of new aid paid in breach of an earlier decision authorising an aid scheme, rely on the unlawfulness of the decision declaring that scheme compatible with the internal market. The procedure for keeping existing aid under constant review provided for in Article 108(1) TFEU is specifically intended to enable the Commission and the Member States to examine whether it is appropriate to reassess the compatibility of existing aid. Moreover, Member States always have the option of notifying a new aid project to the Commission, in accordance with Article 108(3) TFEU, even for reasons of legal certainty, which the Portuguese Republic has not done.

156    Secondly, the claim of breach of the principle of freedom of establishment, the principle of the free movement of persons, the principle of freedom to provide services and the principle of the free movement of capital also seeks to call into question the legality of the 2007 decision and the 2013 decision and is, moreover, supported only by the assertion that the contested decision prohibits or limits the possibility for a worker hired by a company registered in the ZFM to pursue his or her professional activity in another Member State or a third country and the possibility for the companies concerned to provide services outside the ARM.

157    Such a claim, which merely paraphrases the provisions of the FEU Treaty and is not supported by any additional argument, must be rejected as inadmissible under Article 76(d) of the Rules of Procedure.

158    In the light of the foregoing, the Commission in no way erred in law in interpreting the condition, laid down in the 2007 decision and the 2013 decision, that the reductions in CIT provided for by Regime III could apply only to profits resulting from activities ‘effectively and materially performed in Madeira’.

(2)    *The condition relating to the creation or maintenance of jobs in the ARM*

159    In recital 178 of the contested decision, the Commission found that the Portuguese Republic’s application of Regime III with regard to the condition concerning the creation or maintenance of jobs in the ARM was in breach of the 2007 decision and the 2013 decision.

160    In support of that conclusion, the Commission stated, in essence, in recitals 168 to 174 of the contested decision, that that condition was a condition for access to Regime III and that, as a parameter for calculating the amount of the aid, it had to be based on objective and verifiable methods such as the ALU and FTE methods, as used in the 2007 Guidelines and in successive block exemption regulations.

161    In recitals 175 to 176 of the contested decision, the Commission next noted that, according to the Portuguese authorities, any employment declared by the beneficiaries constituted a ‘job’ for the purpose of applying Regime III, whatever the legal nature of that employment and irrespective of the number of hours, days and months of active labour per year, although those authorities were unable to check the time actually spent by the jobholder at work or to convert that time into FTEs.

162    That statement of reasons shows clearly and unequivocally the reasoning of the Commission, thereby enabling the persons concerned to ascertain the reasons for the conclusion reached by that institution and enabling the Court to exercise its power of review.

163    As regards the merits of that conclusion, the Portuguese Republic essentially complains that the Commission wrongly required it to use the FTE and ALU methods, to the exclusion of the concept of ‘job’ within the meaning of Portuguese law, in order to ascertain whether the condition concerning the creation or maintenance of jobs in the ARM had been satisfied.

164    However, that line of argument is based on a misreading of the contested decision.

165    While it is true that the Commission noted, in recital 173 of the contested decision, that the FTE and ALU methods were appropriate methods for calculating the number of jobs, it in no way required the Portuguese authorities to use such methods, as it confirmed at the hearing, but merely criticised the Portuguese authorities, in recital 176 of that decision, for not using a method which made it possible to check the reality and the permanence of the jobs declared by the beneficiaries of Regime III, as implemented.

166    That criticism is substantiated to the requisite legal standard by recitals 28 and 175 of the contested decision, according to which, applying the method used by the Portuguese authorities, any employment declared by the beneficiaries, whatever its legal nature and irrespective of the number of hours, days and months of active labour per year, including part-time employment and the employment of board members occupied in more than one beneficiary company of Regime III, constituted a job for the purpose of applying Regime III.

167    In the light of the foregoing, the Commission therefore did not infringe the second paragraph of Article 296 TFEU and did not commit an error of assessment in finding, in recital 179 of the contested decision, that Regime III, as implemented, infringed the condition concerning the creation and maintenance of jobs in the ARM.

(3)    *The effectiveness of the tax controls conducted in order to verify the proper application of the conditions relating to the origin of the profits to which the reduction in CIT applies and relating to the creation or maintenance of jobs in the ARM*

168    In recital 178 of the contested decision, the Commission found that the tax controls conducted by the Portuguese authorities in respect of the beneficiaries of Regime III, as implemented, and the data collected in the context of those controls did not make it possible effectively to monitor the conditions of that scheme relating to the origin of the profits to which the reduction in CIT applied and relating to the creation or maintenance of jobs in the ARM.

169    In support of that conclusion, the Commission stated, in essence, in recital 165 of the contested decision, that the tax controls conducted by the Portuguese authorities had been conducted in accordance with those authorities’ broad interpretation of the condition relating to the origin of the profits to which the reduction in CIT applied, which departed from that suggested in (i) the 2007 Guidelines and (ii) the 2007 decision and the 2013 decision.

170    In recital 176 of the contested decision, the Commission added that the Portuguese authorities, on the basis of the declarations made by the beneficiaries of Regime III, were not in a position to check the reality or the permanence of the jobs declared, owing to the absence of a common, objective calculation method applicable to all employment relationships.

171    That statement of reasons shows clearly and unequivocally the reasoning of the Commission, thereby enabling the persons concerned to ascertain the reasons for the conclusion reached by that institution and enabling the Court to exercise its power of review.

172    As regards the merits of that conclusion, it should be noted, as has been recalled in paragraphs 168 to 170 above, that the Commission considered that the controls conducted by the tax authorities were inadequate for verifying the proper application of the conditions relating to the origin of the profits to which the reduction in CIT applied and relating to the creation or maintenance of jobs in the ARM laid down by Regime III. That inadequacy stems primarily from the fact that the Portuguese authorities are interpreting or applying those conditions in breach of the 2007 decision and the 2013 decision.

173    The Court having found, in paragraphs 151 and 167 above, that the Commission’s criticisms relating to the interpretation and implementation of those two conditions were well founded, the mere fact, which is not disputed by the Commission, that the Portuguese tax authorities require the keeping of separate accounts for income generated by the ZFM, have at their disposal instruments for both *a priori* and *a posteriori* control of taxpayers, in particular beneficiaries of Regime III, or carry out numerous and systematic checks, some of which have led to significant corrections, is not sufficient to show that those tax controls ultimately enable those authorities effectively to ensure the proper application of that scheme, given that those authorities are interpreting or applying that scheme in breach of the 2007 decision and the 2013 decision.

174    This applies, in particular, to the obligation for companies established in the ZFM to keep separate accounts for income generated by the ZFM, given that, as has been noted in paragraph 151 above, the income generated by the ZFM was not calculated in accordance with the 2007 decision or the 2013 decision.

175    Similarly, the fact that the Portuguese Republic relies on the example of a tax control conducted in respect of a company registered in the ZFM and giving rise to use of the ALU method cannot suffice to call into question the conclusion reached by the Commission, as it fails to show use by the Portuguese authorities of consistent and established practices and methods enabling them to check that, as a general rule, Regime III has been implemented in accordance with the 2007 decision and the 2013 decision.

176    Consequently, the Commission did not infringe the second paragraph of Article 296 TFEU and did not make an error of assessment in finding, in recital 178 of the contested decision, that the tax controls conducted by the Portuguese authorities in respect of the beneficiaries of Regime III and the data collected in the context of those controls did not make it possible effectively to monitor compliance with the conditions of Regime III relating to the origin of the profits to which the reduction in CIT applied and relating to the creation or maintenance of jobs in the ARM.

177    In the light of all of the foregoing, the Commission was right to find that Regime III, as implemented, did not comply with several of the conditions laid down by the 2007 decision and the 2013 decision.

178    As that scheme was implemented in breach of the 2007 decision and the 2013 decision, with the result that it was substantially altered in relation to the scheme authorised by those decisions, the Commission was also right to find, in recital 180 of the contested decision, that new unlawful aid had been granted (see, to that effect, judgment of 25 October 2017, *Commission* v *Italy*, C‐467/15 P, EU:C:2017:799, paragraph 48).

179    Consequently, the fourth, fifth and sixth pleas in law must be rejected as unfounded.

E.      **The seventh plea in law, alleging infringement of the rights of the defence and breach of the principles of legal certainty and sound administration, as well as a failure to state reasons, inasmuch as the Commission did not take into consideration the letter that had been sent to it on 6 April 2018 by the Portuguese Republic**

180    By its seventh plea in law, the Portuguese Republic alleges infringement of its rights of defence and breach of the principles of legal certainty and sound administration, as well as a failure to state reasons. It claims that the Commission formally and substantively disregarded several arguments intended to challenge the necessity of initiating the formal investigation procedure which the Portuguese Republic had put forward in a letter of 6 April 2018 sent to the Commission in the context of the monitoring procedure, a letter to which, moreover, no reference is made in the contested decision. Without that irregularity in the decision to initiate the formal procedure, which deprived the Portuguese Republic of an exchange of views and arguments during that procedure, the content of the contested decision could have been different.

181    The Commission takes the view that the Portuguese Republic is barred from relying on an infringement of its rights of defence and, in any event, that the seventh plea in law must be rejected as unfounded.

182    As regards the admissibility of the claim of failure to take into consideration the letter of 6 April 2018, which the Commission contests on the ground that it was not relied on by the Portuguese Republic in the administrative procedure, it should be noted that there is no requirement under the law of the European Union that a Member State to which a decision to initiate the formal investigation procedure is addressed must challenge its various matters of fact or law during the administrative procedure, if it is not to be barred from doing so later at the stage of judicial proceedings (see, to that effect and by analogy, judgment of 1 July 2010, *Knauf Gips* v *Commission*, C‐407/08 P, EU:C:2010:389, paragraphs 89 to 92).

183    However, it should be noted that the letter of 6 April 2018 was sent to the Commission by the Portuguese Republic. Consequently, the Portuguese Republic cannot successfully rely on the fact that the absence of a reference to that letter in the decision to initiate the formal procedure infringed its rights of defence and was in breach of the principles of legal certainty and sound administration.

184    Indeed, as is apparent from Article 6(1) of Regulation 2015/1589, by a decision to initiate the formal investigation procedure, the Commission initiates a procedure intended to enable the Member State concerned and other interested parties to submit comments within a prescribed period.

185    The Portuguese Republic, which is the author of the letter in question, cannot claim that it was unaware of its contents and that, merely because that letter was not referred to in the decision to initiate the formal procedure, the Portuguese Republic was prevented from putting forward its arguments effectively during the formal investigation procedure.

186    Nor can the Portuguese Republic criticise the Commission for failing to state reasons for the contested decision in that regard. The matters of law and of fact which, according to the Portuguese Republic, were set out in that letter were referred to in recitals 64, 71 to 73, 81 to 88 and 220 of the contested decision as arguments put forward by the Portuguese Republic in the context of the formal investigation procedure.

187    Consequently, the seventh plea in law must be rejected as unfounded.

F.      **The eighth plea in law, alleging breach of the principles of legal certainty, protection of legitimate expectations and sound administration, inasmuch as the contested decision ordered the Portuguese Republic to recover the aid declared unlawful and incompatible by that decision**

188    By its eighth plea in law, the Portuguese Republic submits that, by ordering it to recover the aid paid in breach of the 2007 decision and the 2013 decision, the Commission acted in breach of the principles of legal certainty, protection of legitimate expectations and sound administration.

189    Those breaches allegedly stem from the fact that (i) Regime III, as implemented, does not constitute State aid or, in the alternative, that scheme constitutes existing aid, (ii) the ZFM scheme has, since 1987, been expressly and successively examined and authorised by the Commission, (iii) the conditions of Regime III were derived from Regime II, (iv) those conditions, in addition to being unclear, have been interpreted by the Commission in a manner contrary to the wording of the 2007 decision and the 2013 decision, on the one hand, and its previous decision-making practice, on the other, (v) the Commission only very belatedly objected to the implementation of Regime III, and (vi) the Commission endorsed the interpretation of the conditions of Regime II and Regime III when, in 2006, it did not call into question the lack of usefulness of inserting into the Portuguese legislation a clarification relating to the condition concerning the origin of the profits. In the same way, the fact that the duration of the formal investigation procedure was 29 months also precludes any recovery of the aid concerned.

190    The Portuguese Republic likewise argues that the case-law according to which a beneficiary of ‘individual aid’, within the meaning of Article 1(e) of Regulation 2015/1589, cannot have a legitimate expectation that that aid has been granted lawfully in the event of non-compliance with the procedure provided for in Article 108(3) TFEU is not applicable to the present case, which concerns an ‘aid scheme’, within the meaning of Article 1(d) of that regulation, called into question decades after its creation.

191    The Portuguese Republic also states that the breach of the principles of legal certainty, protection of legitimate expectations and sound administration is all the more evident given that (i) the Portuguese Republic and the 102 interested parties who took part in the formal investigation procedure argued in favour of closing the case, (ii) the Commission was aware of the economic, fiscal and social importance of the ZFM as an outermost region which must be treated more favourably, and (iii) the Portuguese authorities not only strengthened the controls concerning the ZFM, but also proposed alterations to Regime III with a view to the closure of the case.

192    Lastly, the Portuguese Republic argues that recovery of the aid is contrary to the concept of the rule of law.

193    The Commission considers that the eighth plea in law must be rejected as unfounded.

194    As regards the obligation imposed by the contested decision on the Portuguese Republic to recover the aid paid under Regime III in breach of the 2007 decision and the 2013 decision, it should be borne in mind that the withdrawal of unlawful and incompatible State aid by means of recovery is the logical consequence of a finding that that aid is incompatible. The aim of obliging the Member State concerned to withdraw aid found by the Commission to be incompatible with the internal market is to restore the previous situation, causing the beneficiary to forfeit the advantage which it has enjoyed over its competitors (see, to that effect, judgment of 29 April 2021, *Commission* v *Spain (DTT in Castilla-La Mancha)*, C‐704/19, not published, EU:C:2021:342, paragraph 48 and the case-law cited).

195    Moreover, according to Article 16(1) of Regulation 2015/1589, the Commission is always obliged to order the recovery of aid which it declares to be incompatible with the internal market, unless such recovery would be contrary to a general principle of EU law (judgment of 28 July 2011, *Mediaset* v *Commission*, C‐403/10 P, not published, EU:C:2011:533, paragraph 124).

196    As regards the principle of the protection of legitimate expectations, a Member State whose authorities have granted, as in the present case, aid in breach of the procedural rules laid down in Article 108(3) TFEU may not, in principle, plead the legitimate expectations of beneficiaries in order to justify a failure to comply with the obligation to take the steps necessary to implement a Commission decision instructing it to recover the aid. If it could do so, Articles 107 and 108 TFEU would be deprived of all practical effect, since national authorities would thus be able to rely on their own unlawful conduct in order to render decisions taken by the Commission under those provisions ineffectual (see judgment of 9 June 2011, *Diputación Foral de Vizcaya and Others* v *Commission* *,*C‐465/09 P to C‐470/09 P, not published, EU:C:2011:372, paragraph 150 and the case-law cited).

197    Moreover, where aid is implemented without being notified to the Commission beforehand, so that it is unlawful under Article 108(3) TFEU, the beneficiary of the aid cannot have at that time a legitimate expectation that the grant of that aid is lawful, a finding which – contrary to the Portuguese Republic’s assertions – applies in particular to aid paid under an aid scheme (see, to that effect, judgment of 15 December 2005, *Unicredito Italiano*, C‐148/04, EU:C:2005:774, paragraph 104 and the case-law cited).

198    In this instance, as regards the aid paid in breach of the 2007 decision and the 2013 decision, which was therefore paid in breach of Article 108(3) TFEU, the Portuguese Republic fails to show that the Commission gave it, or the beneficiaries of that aid, precise, unconditional and consistent assurances which were also in accordance with the applicable rules, such as to give rise to a legitimate expectation on their part, as required by the case-law (see, to that effect, judgment of 5 March 2019, *Eesti Pagar*, C‐349/17, EU:C:2019:172, paragraph 97 and the case-law cited).

199    Such a conclusion cannot be called into question by the fact that the Portuguese Republic may have believed that Regime III, as implemented, escaped classification as ‘State aid’ within the meaning of Article 107(1) TFEU or, in the alternative, had to be classified as ‘existing aid’ within the meaning of Article 1(b) of Regulation 2015/1589.

200    Indeed, such a belief, even if proven, cannot amount to precise, unconditional and consistent assurances given by the Commission.

201    Moreover, it was highly unlikely that that scheme would not be classified as ‘State aid’ in view of the Commission’s decisions on previous ZFM schemes. The same was true for the classification as ‘existing aid’ within the meaning of Article 1(b)(i) or (ii) of Regulation 2015/1589, given the substantial differences between Regime I and Regime III as well as the Commission’s interpretation of the condition concerning the origin of the profits to which the reduction in CIT applied, as was clear from the exchanges between the Commission and the Portuguese authorities in the course of the procedure leading to the 2002 decision and the 2007 decision, as has already been noted in paragraphs 132 and 133 above.

202    Nor can the fact, first, that the Portuguese Republic and the very many interested parties who took part in the formal investigation procedure did not defend in that procedure the same interpretation as that finally used by the Commission in the contested decision or, secondly, that the Commission did not act on the proposals made by the Portuguese authorities to alter Regime III with a view to the closure of the formal investigation procedure amount to precise, unconditional and consistent assurances given by the Commission.

203    Consequently, no breach of the principle of the protection of legitimate expectations can be established, even assuming that that principle can be relied on by the Portuguese Republic.

204    As regards the principle of legal certainty, it must be observed that arguments seeking to defeat the obligation to recover State aid on the grounds of a breach of the principle of legal certainty are upheld only in very exceptional circumstances.

205    In that regard, it is apparent from case-law that a series of factors must be examined in order to ascertain whether there has been a breach of the principle of legal certainty, including the lack of clarity of the applicable legal regime (see, to that effect, judgment of 14 October 2010, *Nuova Agricast and Cofra* v *Commission*, C‐67/09 P, EU:C:2010:607, paragraph 77) or unjustified inaction on the part of the Commission for an extended period (see, to that effect, judgments of 24 November 1987, *RSV* v *Commission*, 223/85, EU:C:1987:502, paragraphs 14 and 15, and of 22 April 2008, *Commission* v *Salzgitter*, C‐408/04 P, EU:C:2008:236, paragraphs 106 and 107).

206    As regards the latter factor, it should be borne in mind that the Commission is required to act within a reasonable time in procedures for examining State aid and that it is not allowed to persist in refraining from taking action during the preliminary examination phase. Moreover, the reasonableness of the period taken up by proceedings is to be appraised in the light of the circumstances specific to each case, such as its complexity and the conduct of the parties (judgment of 13 June 2013, *HGA and Others* v *Commission*, C‐630/11 P to C‐633/11 P, EU:C:2013:387, paragraphs 81 and 82).

207    In the present case, the time that elapsed between, on the one hand, the 2007 decision and the 2013 decision and, on the other, the commencement of the monitoring exercise for Regime III on 12 March 2015, or even the decision to initiate the formal procedure on 6 July 2018, cannot be considered unreasonable.

208    First of all, under Article 15(2) of Regulation 2015/1589, the Commission was not bound by specific time limits, such as those laid down in Chapter II of that regulation, relating to the procedure concerning notified aid (see, to that effect, order of 20 January 2021, *KC* v *Commission*, T‐580/20, not published, EU:T:2021:14, paragraph 26).

209    Next, in the case of monitoring exercises concerning authorised aid or aid schemes, as in the present case, the view cannot be taken that the Commission had to display particular diligence, since the principle of sincere cooperation, laid down in Article 4(3) TEU, requires the Member States to take all measures necessary to guarantee the application and effectiveness of EU law.

210    In the field of State aid, this means, in particular, that those States must ensure that they do not implement aid or aid schemes in breach of previous authorisation decisions, particularly where the understanding of the conditions for implementing such aid or such aid schemes is initially shared by the Commission and the Member State concerned, as has been noted in paragraphs 132 and 133 above.

211    Lastly, in the light of the description of the procedure prior to the decision to initiate the formal procedure, set out in recitals 1 and 2 of the contested decision, it is not possible to identify any unjustified inaction on the part of the Commission for an extended period in the present case.

212    Nor can the fact that the duration of the formal investigation procedure was 29 months be regarded as unreasonable, given, as is apparent from recitals 3 to 9 and 96 of the contested decision, the need for the Commission (i) to deal with the Portuguese authorities’ request concerning the confidentiality of the decision to initiate that procedure, (ii) to request missing information from those authorities several times and (iii) to address the observations of the very large number of interested parties who took part in the procedure.

213    In that connection, the procedure which led to the contested decision clearly differs from that at issue in the case which gave rise to the judgment of 24 November 1987, *RSV* v *Commission* (223/85, EU:C:1987:502), which therefore cannot be legitimately relied on by the Portuguese Republic.

214    Accordingly, no breach of the principle of the protection of legal certainty can be established.

215    The findings made in paragraph 212 above also make it possible to rule out any breach of the principle of sound administration.

216    Furthermore, inasmuch as the Portuguese Republic maintains that the obligation imposed on it by the contested decision to recover the aid concerned is contrary to the principle of the rule of law, it is sufficient to point out that that claim is inadmissible under Article 76(d) of the Rules of Procedure if it is not supported by any other arguments.

217    In the light of the foregoing, the eighth plea in law must be rejected as in part inadmissible and in part unfounded.

G.      **The ninth plea in law, alleging that it is impossible for the Portuguese Republic to recover the aid declared unlawful and incompatible by the contested decision**

218    By its ninth plea in law, the Portuguese Republic relies on the impossibility of complying with the decision ordering the recovery of the aid concerned, on the ground, essentially, that the contested decision does not enable it to determine the amounts to be recovered ‘without overmuch difficulty’.

219    According to the Portuguese Republic, the Portuguese authorities are not in a position to determine, as regards the last decade, whether the companies which benefited from Regime III actually complied with the two conditions at issue set out in the 2007 decision and the 2013 decision. That difficulty is exacerbated by the need to verify whether those companies satisfied the conditions of a *de minimis* regulation (Article 2 of the contested decision) or a block exemption regulation (Article 3 of the contested decision). In that context, the Commission should have calculated the effects of the tax on the amount of aid to be recovered or at least should have indicated the gross amount of aid to be recovered. Lastly, the Portuguese Republic adds that many of the recovery decisions would result in insolvencies.

220    The Commission contends that the ninth plea in law must be rejected as unfounded.

221    As regards the impossibility for the Portuguese Republic to comply with the contested decision, it should be noted that the Commission cannot, on pain of its being invalid, adopt an order for recovery which, from the moment of its adoption, is objectively and absolutely impossible to implement (see judgment of 6 November 2018, *Scuola Elementare Maria Montessori* v *Commission*,*Commission* v *Scuola Elementare Maria Montessori*and*Commission* v *Ferracci*, C‐622/16 P to C‐624/16 P, EU:C:2018:873, paragraph 82 and the case-law cited).

222    Accordingly, in the context of an action for the annulment of a Commission decision ordering the recovery of unlawful and incompatible State aid, the Member State concerned may rely on the principle that ‘no one is obliged to do the impossible’, which is among the general principles of EU law (see judgment of 6 November 2018, *Scuola Elementare Maria Montessori* v *Commission*,*Commission* v *Scuola Elementare Maria Montessori*and*Commission* v *Ferracci*, C‐622/16 P to C‐624/16 P, EU:C:2018:873, paragraph 79 and the case-law cited).

223    However, in that context, the condition relating to absolute impossibility is not satisfied where the defendant Member State does no more than rely on legal, political or practical difficulties, attributable to the national authorities’ own acts or omissions, which it is likely to face in implementing the decision concerned, without suggesting to the Commission alternative methods of implementing that decision which would allow those difficulties to be overcome, in particular through partial recovery of the aid (see, to that effect, judgment of 6 November 2018, *Scuola Elementare Maria Montessori* v *Commission*,*Commission* v *Scuola Elementare Maria Montessori*and*Commission* v *Ferracci*, C‐622/16 P to C‐624/16 P, EU:C:2018:873, paragraphs 91 and 92 and the case-law cited).

224    Moreover, alleged internal problems which may be encountered when implementing the Commission’s decision cannot justify a Member State’s failure to comply with its obligations under EU law. In particular, administrative and practical difficulties which arise owing to the large number of beneficiaries of the aid do not warrant regarding recovery as technically impossible (judgment of 12 May 2021, *Commission* v *Greece (Aid to agricultural producers)*, C‐11/20, not published, EU:C:2021:380, paragraph 44).

225    In this instance, the Portuguese Republic confines itself to relying on the complexity of the procedure for the recovery of the aid concerned and political, legal and practical difficulties, without establishing to the requisite legal standard that, from the moment of adoption of the contested decision, it was objectively and absolutely impossible to recover that aid.

226    In particular, the Portuguese Republic does not demonstrate that the difficulties on which it relies are real or that there are no alternative methods of recovery (see, to that effect, judgment of 6 November 2018, *Scuola Elementare Maria Montessori* v *Commission*,*Commission* v *Scuola Elementare Maria Montessori*and*Commission* v *Ferracci*, C‐622/16 P to C‐624/16 P, EU:C:2018:873, paragraph 96).

227    Moreover, the Portuguese Republic does not adduce any evidence to show that the Portuguese authorities attempted to work together with the Commission in good faith with a view to overcoming those foreseeable difficulties whilst fully observing the provisions of the FEU Treaty (see, to that effect, judgment of 29 April 2021, *Commission* v *Spain (DTT in Castilla-La Mancha)*, C‐704/19, not published, EU:C:2021:342, paragraph 63 and the case-law cited).

228    In that regard, the Portuguese Republic cannot legitimately rely on the fact that the Commission did not allow it to work out, ‘without overmuch difficulty’, the amounts to be recovered, for example by calculating the effects of the tax on the amount of aid to be recovered or, at the very least, by indicating to the Portuguese Republic the gross amount of aid to be recovered.

229    No provision of EU law requires the Commission, when ordering the recovery of unlawful aid declared incompatible with the internal market, to fix the exact amount of aid to be repaid (see judgments of 18 October 2007, *Commission* v *France*, C‐441/06, EU:C:2007:616, paragraph 29 and the case-law cited, and of 20 March 2013, *Rousse Industry* v *Commission*, T‐489/11, not published, EU:T:2013:144, paragraph 77 and the case-law cited.) Moreover, the obligation on a Member State to calculate the exact amount of aid to be recovered forms part of the more general reciprocal obligation incumbent upon the Commission and the Member States of sincere cooperation in the implementation of Treaty rules concerning State aid (see judgment of 20 March 2013, *Rousse Industry* v *Commission*, T‐489/11, not published, EU:T:2013:144, paragraph 79 and the case-law cited).

230    Accordingly, it is sufficient for the Commission’s decision to include information enabling the addressee of that decision to work out itself, without overmuch difficulty, that amount (see judgment of 18 October 2007, *Commission* v *France*, C‐441/06, EU:C:2007:616, paragraph 29 and the case-law cited).

231    In this instance, contrary to the Portuguese Republic’s assertions, it must be held that, in recital 213 of the contested decision, as well as Articles 1 to 4 thereof, the Commission provided the necessary information, which was sufficient to enable the Portuguese authorities to work out, without overmuch difficulty, the amounts to be repaid.

232    Nor can the Portuguese Republic criticise the Commission for failing, in the decision to initiate the formal procedure, to request the Portuguese Republic to set out any legitimate expectations capable of preventing recovery of the aid concerned. Even in the absence of such a request, the Portuguese authorities’ obligation to cooperate in good faith required them, on their own initiative, to bring those difficulties to the Commission’s attention, which they fail to establish that they have done.

233    Consequently, the ninth plea in law must be rejected as unfounded.

H.      **The tenth plea in law, alleging breach of the principle of proportionality, on the ground that the Commission adopted a restrictive approach to the conditions of ‘job creation [or] maintenance in the region’ and of ‘activity effectively and materially performed in [the ARM]’**

234    By its tenth plea in law, the Portuguese Republic argues that the Commission acted in breach of the principle of proportionality by adopting a restrictive and retroactive approach to the concepts of ‘activity effectively and materially carried out in Madeira’ and ‘creation [or] maintenance of jobs’, in the light of the devastating impact of that approach on the ARM and the absence of any previous decision-making practice to that effect. That breach is allegedly coupled with a failure by the Commission to fulfil its duty of sincere cooperation under Article 4(3) TEU, as well as breach of the principle of sound administration.

235    The Commission takes the view that the tenth plea in law must be rejected as unfounded.

236    As regards the alleged breach of the principle of proportionality, on the ground that the Commission supposedly adopted a restrictive approach when interpreting the two conditions of ‘activity effectively and materially carried out in Madeira’ and ‘creation [or] maintenance of jobs’, that line of argument is, in essence, identical to that contained in the fourth, fifth and sixth pleas in law, which has already been rejected in paragraph 179 above and must therefore be rejected on the same grounds.

237    Even if, by the present plea, the Portuguese Republic complains that the contested decision was in breach of the principle of proportionality because it required the recovery of the aid paid under Regime III, as implemented, it is sufficient to recall that the withdrawal of unlawful and incompatible aid by means of recovery is the logical consequence of a finding that it is unlawful. Accordingly, the recovery of such aid for the purpose of restoring the previous situation cannot in principle be regarded as disproportionate to the objectives of the provisions of the FEU Treaty concerning State aid (see judgment of 21 December 2016, *Commission* v *Aer Lingus and Ryanair Designated Activity*, C‐164/15 P and C‐165/15 P, EU:C:2016:990, paragraph 116 and the case-law cited).

238    None of the evidence relied on by the Portuguese Republic is capable of establishing that it is appropriate, in the present case, to depart from that principle that unlawful aid declared incompatible should be recovered.

239    On the contrary, as has rightly been noted by the Commission, the recovery obligation does not concern all the individual aid paid under Regime III, but only the aid which was paid in breach of the 2007 decision and the 2013 decision, provided that the beneficiaries of that aid do not satisfy the conditions laid down in a *de minimis* regulation or a block exemption regulation, as is apparent from Articles 1 to 3 of the contested decision.

240    Moreover, it is settled case-law that the fact that the recovery of unlawful and incompatible aid may result in the insolvency of companies which have unlawfully benefited from that aid can have no bearing on the obligatory nature of its recovery (see, to that effect, judgment of 12 February 2015, *Commission* v *France*, C‐37/14, not published, EU:C:2015:90, paragraph 84 and the case-law cited).

241    Furthermore, inasmuch as the Portuguese Republic relies, by the same arguments, on a failure by the Commission to fulfil its duty of sincere cooperation under Article 4(3) TEU, as well as breach of the principle of sound administration, those claims must be rejected on the same grounds.

242    Consequently, the tenth plea in law must be rejected as unfounded.

I.      **The eleventh plea in law, alleging infringement of Article 17 of Regulation 2015/1589, on the ground that the recovery of some of the aid paid under Regime III is time-barred**

243    By its eleventh plea in law, the Portuguese Republic argues that, in view of the date of the decision to initiate the formal procedure, which was notified to it on 9 July 2018, recovery of the aid paid until 9 July 2008 is time-barred in accordance with Article 17 of Regulation 2015/1589.

244    The Commission takes the view that the eleventh plea in law must be rejected as unfounded.

245    As regards the limitation period for the recovery of some of the aid paid under Regime III, it should be borne in mind that, under Article 17(1) and (2) of Regulation 2015/1589, in the context of an aid scheme, the limitation period of 10 years starts to run on the day the unlawful aid is actually granted to the beneficiary, and not on the day when the aid scheme was adopted (see order of 7 December 2017, *Ireland* v *Commission*, C‐369/16 P, not published, EU:C:2017:955, paragraph 41 and the case-law cited).

246    According to that provision, any action taken by the Commission with regard to unlawful aid interrupts that limitation period. This applies, inter alia, where the Commission sends letters to the Member States in which it informs them that a measure is likely to be classified as State aid (see, to that effect, judgment of 26 April 2018, *ANGED*, C‐233/16, EU:C:2018:280, paragraphs 83 and 84) or requests that they notify a measure (see, to that effect, order of 7 December 2017, *Ireland* v *Commission*, C‐369/16 P, not published, EU:C:2017:955, paragraph 42) or requests that they provide it with information (see, to that effect, judgment of 10 April 2003, *Département du Loiret* v *Commission*, T‐369/00, EU:T:2003:114, paragraphs 81 and 82).

247    In this instance, it is apparent from recitals 1 and 3 of the contested decision that, on 12 March 2015, the Commission sent the Portuguese Republic a request for information to determine whether Regime III, as implemented, complied with the 2007 decision and the 2013 decision, before informing that Member State, on 6 July 2018, of its decision to initiate the formal investigation procedure.

248    Accordingly, given that the individual aid which the Commission ordered the Portuguese Republic to recover is the aid paid under Regime III, which was initially notified on 28 June 2006 and then authorised on 27 June 2007 before being implemented by that Member State, the limitation period of 10 years laid down in Article 17(2) of Regulation 2015/1589 could not start to run before those dates and was interrupted on 12 March 2015, that is to say, less than 10 years after those dates.

249    Consequently, the Portuguese Republic is wrong to argue that recovery of the aid in question, paid until 9 July 2008, is time-barred.

250    In any event, the mere fact that the recovery of some individual aid paid under an aid scheme, found by a Commission decision to be unlawful and incompatible with the internal market, is time-barred cannot lead to the annulment of that decision. As regards aid schemes, it is for the national authorities which are under an obligation immediately and effectively to recover that aid to determine, in the light of the particular circumstances of each beneficiary of an aid scheme, whether each of the beneficiaries must actually repay that aid (see, by analogy, judgment of 13 February 2014, *Mediaset* *,*C‐69/13, EU:C:2014:71, paragraph 22).

251    Accordingly, the eleventh plea in law must be rejected as unfounded.

252    Consequently, the present action must be dismissed in its entirety, without there being any need to grant, beyond what has already been granted, the applications for measures of organisation of procedure submitted by the Portuguese Republic.

IV.    **Costs**

253    Under Article 134(1) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party’s pleadings.

254    Since the Portuguese Republic has been unsuccessful, it must be ordered to pay the costs, including those relating to the proceedings for interim relief, in accordance with the form of order sought by the Commission.

On those grounds,

THE GENERAL COURT (Eighth Chamber)

hereby:

1.      **Dismisses the action;**

2.      **Orders the Portuguese Republic to pay the costs, including those relating to the proceedings for interim relief.**

| Svenningsen | Mac Eochaidh | Pynnä |
| ----------- | ------------ | ----- |

Delivered in open court in Luxembourg on 21 September 2022.

[Signatures]

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*      Language of the case: Portuguese.