Judgment;Summary — ECLI:EU:C:2022:785
Date: 2022-10-13
Language of the case: Latvian
Court formation: Fourth Chamber
Subject matter: State aids;Competition
Procedure: Reference for a preliminary ruling;Reference for a preliminary ruling - inadmissible
Origin: Latvia

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Translation C-164/21 – 1 
Case C-164/21 
Request for a preliminary ruling 
Date lodged: 
12 March 2021  
Referring court: 
Administratīvā rajona tiesa (District Administrative Court, Latvia) 
Date of the decision to refer: 
12 March 2021 
Applicant: 
SIA BALTIJAS STARPTAUTISKĀ AKADĒMIJA 
Defendant: 
Latvijas Zinātnes padome (Latvian Science Council) 
  
ADMINISTRATĪVĀ RAJONA TIESA  
RĪGAS TIESU NAMS (District Administrative Court, Riga Section) 
DECISION 
Riga, 12 March 2021 
The District Administrative Court […] 
[…] [composition of the court] 
on the basis of written submissions, has examined the administrative proceedings 
commenced by means of the action lodged by SIA BALTIJAS 
STARPTAUTISKĀ AKADĒMIJA seeking to have the decision of the Latvian 
Science Council of 14 April 2020 declared unlawful […]. 
EN 
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Subject matter and relevant facts of the main proceedings 
[1] The applicant, SIA BALTIJAS STARPTAUTISKĀ AKADĒMIJA, is a 
commercial company registered in the Republic of Latvia whose business consists 
in providing academic and non-academic higher education services. The applicant 
is an accredited higher education institution ― that is, one that is recognised by 
the State ― which operates in accordance with the Komerclikums (Commercial 
Code) in so far as the latter is not contrary to the Augstskolu likums (Law on 
Higher Education Institutions). 
Under the regulatory provisions governing the applicant’s activities, namely the 
statutes of Baltijas Starptautiskā akadēmija [approved by the Ministru kabineta 
2014. gada 18. jūnija rīkojums Nr. 297 (Order No 297 of the Council of Ministers 
of 18 June 2014)] and the Methodology for the Keeping and Organisation of 
Accounts (approved by resolution No 141 of the general meeting of SIA 
BALTIJAS STARPTAUTISKĀ AKADĒMIJA of 19 December 2019, ‘the 
Methodology’), one of the applicant’s defined areas of activity is scientific 
activities. The applicant is registered in the Register of Scientific Institutions. 
[2] The Latvian Science Council is an authority of the direct administration 
under the supervision of the izglītības un zinātnes ministrs (Minister for Education 
and Science) whose purpose is to implement State science and technology 
development policy and, through delegation by regulatory enactments, to ensure 
expertise and the implementation and supervision of scientific research 
programmes and projects financed from the State budget, as well as from 
European Union structural funds and other foreign financial instruments. 
[3] By decision […] of 23 January 2020, the Latvian Science Council approved 
the ‘Regulation governing the general call for fundamental and applied research 
projects for 2020’ (‘the Call Regulation’), which was drawn up in accordance with 
the Ministru kabineta 2017. gada 12. decembra noteikumi Nr. 725 ‘Fundamentālo 
un lietišķo pētījumu projektu izvērtēšanas un finansējuma administrēšanas kārtība’ 
(Decree No 725 of the Council of Ministers of 12 December 2017 on the 
procedures for evaluating fundamental and applied research projects and 
administering the financing thereof (‘Council of Ministers Decree No 725’). 
Under the eligibility criteria listed in paragraph 12(5) of Council of Ministers 
Decree No 725, to be eligible for funding for fundamental and applied research 
intended to generate new knowledge and technological discoveries in all branches 
of science, the project must be undertaken by a scientific institution that meets the 
requirements laid down in the decree. 
Paragraph 2(7) of Council of Ministers Decree No 725 defines the institution 
submitting the project proposal as a scientific institution registered in the Register 
of Scientific Institutions which, irrespective of its legal status (organised under 
public or private law) or way of funding under the legal provisions governing its 
activities (statutes, internal regulations or constituent instrument), pursues mainly 
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activities that are non-economic in nature and satisfies the definition of research 
organisation in Article 2(83) of Commission Regulation (EU) No 651/2014 of 
17 June 2014 declaring certain categories of aid compatible with the internal 
market in application of Articles 107 and 108 of the Treaty. 
The applicant, SIA BALTIJAS STARPTAUTISKĀ AKADĒMIJA submitted a 
project proposal […] in response to the call. 
[4] By decision […] of 14 April 2020, the Latvian Science Council rejected the 
applicant’s project proposal on the grounds that it did not satisfy one of the 
administrative eligibility criteria, since the applicant could not be considered to be 
a scientific institution within the meaning of Council of Ministers Decree No 725. 
The Latvian Science Council stated that the documents submitted by the applicant 
did not contain any information on whether the applicant’s primary goal is to 
conduct independent research. According to the project proposal, in 2019, the 
proportion of turnover accounted for by non-economic activities as compared with 
economic activities was 95% as against 5%. However, 84% of turnover comprises 
fees for academic activities which, given the nature of the activities pursued by the 
applicant (a limited liability company whose primary goal is to make a profit), 
constitute economic activities. The applicant’s principal activities are therefore 
commercial. Moreover, the documents supplied by the applicant do not contain 
any information to show that undertakings that can exert a decisive influence upon 
the applicant, in the quality of, for example, shareholders or members, may not 
enjoy preferential access to the applicant’s research capability or to the results 
generated by its research. The applicant cannot therefore guarantee that the project 
will be undertaken and the share of the funding used in accordance with Article 6 
of Council of Ministers Decree No 725, which establishes that the institution 
submitting the project proposal must undertake a project that is non-economic in 
nature and must ensure a clear separation between those principal activities that 
are non-economic in nature (and the associated cash flows) and those activities 
that are deemed to be economic. 
[5] Since it did not agree with the contested decision, the applicant lodged an 
action with the [district administrative] court. Its action is founded on the 
following grounds. 
[5.1] It can be seen from paragraphs 1(1), 1(2) and 2(1) of the Methodology 
submitted by the applicant that the conduct of independent research constitutes its 
principal activity. This is also demonstrated by the fact that TK (a lecturer 
working for the applicant) and other members of the research staff are listed in the 
Nacionālā enciklopēdija (National Encyclopaedia) as leading researchers. In 
addition, the applicant publishes the journal Administratīvā un Kriminālā Justīcija 
(Administrative and criminal justice), which featured in the list of peer-reviewed 
scientific publications recognised by the Council in Council Decision No 1-2-1 of 
23 January 2007. 
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[5.2] Neither Regulation No 651/2014 nor the Call Regulation stipulates that the 
applicant may not carry on economic activities and make a profit from them; nor 
do they establish what proportion of activities should be economic and what 
proportion non-economic. 
[5.3] The applicant makes a clear separation between those principal activities 
that are non-economic in nature (and the associated cash flows) and those 
activities that are deemed to be economic, that is activities undertaken on behalf of 
a business, the leasing of research infrastructure, and consultancy services. 
Conversely, where the scientific institution also undertakes other economic 
activities that are not the same as its principal non-economic activities, it separates 
its principal activities and the associated cash flows from its other activities and 
their associated cash flows. 
[5.4] The applicant establishes separate accounting for each project and opens a 
current bank account for the project that is separate from its other activities and 
revenues. 
[5.5] The applicant is involved in several ERASMUS+ projects (for which it has 
received grants), scientific projects and ERDF projects in which it has been 
deemed to satisfy the requirements set out above. 
[5.6] Imposing restrictions on the form of ownership of higher education 
institutions without undertaking a substantive evaluation of applications 
introduces a de facto prohibition on the conduct of research by private higher 
education institutions and institutions of higher technical and vocational 
education; however, Articles 3, 21, 22 and 23 of the Law on Higher Education 
Institutions preclude a (dual-level) system of teaching and scientific activities 
which entails restrictions on the scientific elements of the activities of higher 
education institutions.  
[5.7] The applicant’s project proposal contains a sworn declaration stating that its 
members, in their capacity as such, do not enjoy preferential access to the research 
capability of the institution submitting the project proposal or to the results 
generated by its research. 
Applicable law 
EU law 
[6] Article 107(1) of the Treaty on the Functioning of the European Union 
provides that ‘save as otherwise provided in the Treaties, any aid granted by a 
Member State or through State resources in any form whatsoever which distorts or 
threatens to distort competition by favouring certain undertakings or the 
production of certain goods shall, in so far as it affects trade between Member 
States, be incompatible with the internal market’. 
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[7] Article 2(83) of Regulation No 651/2014 defines a ‘research and knowledge-
dissemination organisation’ as ‘an entity (such as universities or research 
institutes, technology transfer agencies, innovation intermediaries, research-
oriented physical or virtual collaborative entities), irrespective of its legal status 
(organised under public or private law) or way of financing, whose primary goal is 
to independently conduct fundamental research, industrial research or 
experimental development or to widely disseminate the results of such activities 
by way of teaching, publication or knowledge transfer. Where such entity also 
pursues economic activities the financing, the costs and the revenues of those 
economic activities must be accounted for separately. Undertakings that can exert 
a decisive influence upon such an entity, in the quality of, for example, 
shareholders or members, [may not] enjoy preferential access to the results 
generated by it’. 
Recital 49 of Regulation No 651/2014 states that ‘research infrastructures may 
perform both economic and non-economic activities. In order to avoid granting 
State aid to economic activities through public funding of non-economic 
activities, the costs and financing of economic and non-economic activities should 
be clearly separated. Where an infrastructure is used for both economic and non-
economic activities, the funding through State resources of the costs linked to the 
non-economic activities of the infrastructure does not constitute State aid. Public 
funding falls under State aid rules only in so far as it covers costs linked to the 
economic activities. Only the latter should be taken into account with a view to 
ensuring compliance with the notification thresholds and maximum aid intensities. 
If the infrastructure is used almost exclusively for a non-economic activity, its 
funding may fall outside State aid rules in its entirety, provided that the economic 
use remains purely ancillary, that is to say, an activity which is directly related to 
and necessary for the operation of the infrastructure or intrinsically linked to its 
main non-economic use, and is limited in scope. This should be considered to be 
the case when the economic activities consume the same inputs (such as material, 
equipment, labour and fixed capital) as the non-economic activities and the 
capacity allocated each year to such economic activity does not exceed 20% of the 
research infrastructure’s overall annual capacity.’ 
[8] The European Commission has launched initiatives to modernise State aid; 
these include its Notice on the notion of State aid as referred to in Article 107(1) 
of the Treaty on the Functioning of the European Union (Official Journal of the 
European Union, 19 July 2016, C 262, p. 1) (‘the Commission Notice). According 
to paragraphs 28 to 30 of the Commission Notice, education funded or co-funded 
by the State (more than 50%) may be deemed a non-economic activity. Such 
public education services must be distinguished from services financed 
predominantly by parents or pupils or commercial revenues. For example, higher 
education financed entirely by students clearly falls within the latter category. In 
certain Member States public entities can also offer educational services which, 
due to their nature, financing structure and the existence of competing private 
entities, are to be regarded as economic. 
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Latvian law 
Directly applicable provisions 
[9] Paragraph 2(7) of Council of Ministers Decree No 725 defines ‘the 
institution submitting the project proposal’ as ‘a scientific institution registered in 
the Register of Scientific Institutions which, irrespective of its legal status 
(organised under public or private law) or way of funding under the legal 
provisions governing its activities (statutes, internal regulations or constituent 
instrument) pursues activities that are mainly non-economic in nature and satisfies 
the definition of research organisation in Article 2(83) of Commission Regulation 
(EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible 
with the internal market in application of Articles 107 and 108 of the Treaty’. 
According to the regulatory impact assessment for Council of Ministers Decree 
No 725, paragraph 2(7) of the decree corresponds to Article 2(83) of Regulation 
No 651/2014 and does not establish stricter requirements. 
Paragraph 6 of Council of Ministers Decree No 725 establishes that ‘the 
institution submitting the project proposal must undertake a project that is non-
economic in nature. That institution must ensure a clear separation between those 
principal activities that are non-economic in nature (and the associated cash flows) 
and those activities that are deemed to be economic. Economic activities shall 
mean activities undertaken on behalf of a business, the leasing of research 
infrastructure, and consultancy services. Where the scientific institution also 
undertakes other economic activities that are not the same as its principal non-
economic activities, it must separate its principal activities and the associated cash 
flows from its other activities and their associated cash flows.’ 
Relevant legal framework 
[10] Article 1(2) of the Commercial Code establishes that commercial activity is 
an open economic activity which is performed by an economic operator on its 
own account for profit. By virtue of Article 134(1) and (2) of the Commercial 
Code, a limited liability company is a commercial company. 
[11] Article 3(1) of the Law on Higher Education Institutions provides that 
higher education institutions are higher education and science institutions which 
provide academic and vocational study programmes and which are engaged in 
science, research and artistic creation. In higher education institutions at least 40% 
of persons selected for academic positions must have a doctorate. In academies at 
least 50% of persons selected for academic positions must have a doctorate. 
Article 7(3) of the Law on Higher Education Institutions provides that higher 
education institutions and institutions of higher technical and vocational education 
founded by private persons are commercial companies or foundations which 
operate in accordance with the Commercial Code or the Biedrību un 
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nodibinājumu likums (Law on Associations and Foundations) in so far as these do 
not conflict with the Law on Higher Education Institutions. 
Article 10(1) of the Law on Higher Education Institutions provides that higher 
education institutions must operate in accordance with the Latvijas Republikas 
Satversme (Constitution of the Republic of Latvia), the Izglītības likums (Law on 
Education), the Zinātniskās darbības likums (Law on Scientific Activities), the 
Law on Higher Education Institutions itself, other legislative provisions and the 
statutes of the higher education institution in question. 
Under Article 22 of the Law on Higher Education Institutions, higher education 
institutions are authorised to found scientific institutes. Higher education 
institutions may also create scientific institutes as structural units within those 
institutions. 
Article 77(1) of the Law on Higher Education Institutions provides that higher 
education institutions are to be financed by their founders. A founder of a higher 
education institution must provide the financial resources needed to ensure the 
continuing operation of the institution and also to carry out tasks determined by 
the founder, and must also ensure oversight of the use of the funds. Public higher 
education institutions are to be funded out of the general State budget and from 
other revenues earned by the institutions from activities undertaken in pursuit of 
the objectives established in their statutes. Higher education institutions must 
manage those revenues in accordance with the legislation governing non-profit 
organisations. Higher education institutions may receive and use donations and 
gifts from banks, other credit institutions, organisations and individuals. They may 
receive and use loans from banks and other credit institutions. The structure of a 
higher education institution’s financial resources is to be determined by its 
governing council. The vice-chancellor must present an annual report on the 
implementation of the budget to the governing council, the Minister for Education 
and Science and the minister for the relevant sector or the higher education 
institution’s founder, and must publish the report on the institution’s website. 
Article 77(2) of the Law on Higher Education Institutions establishes that 
financial resources designated by natural and legal persons to fund specific 
programmes and measures are to be transferred by the higher education institution 
directly to the structural unit or natural or legal person carrying out the 
programmes or measures in question. 
[12] The dispute to be resolved in these administrative-law proceedings concerns 
whether the applicant fails to satisfy the definition of research organisation in 
Article 2(83) of Regulation No 651/2014. 
Under a literal interpretation of Article 2(83) of Regulation No 651/2014, a 
research and knowledge-dissemination organisation is an entity whose primary 
goal or principal activity is to independently conduct fundamental research or 
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experimental development or to widely disseminate the results of such activities 
by way of teaching, publication or knowledge transfer. 
That is how the Latvian Science Council has applied the provision. Specifically, 
the Latvian Science Council has examined whether the applicant’s principal 
activity is research and knowledge transfer, whether the applicant’s principal non-
economic activity is the primary goal of the institution that submitted the project 
proposal, and whether the applicant separates financing of economic from non-
economic activities, having regard to recital 49 of Regulation No 651/2014, which 
establishes that the objective of clearly separating the costs and financing of 
economic and non-economic activities is to avoid granting State aid to economic 
activities through public funding of non-economic activities. 
In the present case, the Latvian Science Council concluded that the applicant’s 
principal activity includes an economic activity ― the provision of educational 
services for consideration ― and that 84% of the turnover of the institution that 
submitted the project proposal comprises fees received for academic activities and 
that, given the nature of the activities pursued by that institution (a limited liability 
company whose main aim is to make a profit), these constitute economic 
activities. In view of the foregoing, the Latvian Science Council concluded that 
the principal activity of the institution that submitted the project proposal is a 
commercial one. In this regard, the Latvian Science Council noted that the 
determining characteristic is not whether the institution that submitted the project 
proposal is organised under public or private law, but the proportion of its 
economic activities as compared with its non-economic activities. In the opinion 
of the Latvian Science Council, it is justified to use the proportion of revenues in 
order to determine whether the institution that submitted the project proposal 
satisfies the requirement in Regulation No 651/2014 concerning the research 
organisation’s primary goal. Moreover, in the view of the Latvian Science 
Council, it is essential that the revenues from the principal non-economic 
activities should be re-invested in the principal non-economic activities of the 
institution that submitted the project proposal, to avoid cross-subsidising the 
applicant’s economic activities. 
Consequently, the question that arises in this case is whether, for the purposes of 
paragraph 2(7) of Council of Ministers Decree No 725 in conjunction with 
Article 2(83) of Regulation No 651/2014, it is possible for the majority of own 
funding obtained by a scientific institution ― an entity that provides educational 
services ― to be revenues from economic activities. 
Operative part 
Pursuant to Article 267 of the Treaty on the Functioning of the European Union, 
[…] the District Administrative Court 
has decided 
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to refer the following questions to the Court of Justice of the European Union for 
a preliminary ruling: 
(1) Can a (private law) organisation which has various principal activities, 
including research, but most of whose revenue comes from providing 
educational services for consideration, be classed as an entity within the 
meaning of Article 2(83) of Regulation No 651/2014? 
(2) Is it justified to apply a requirement regarding the proportion of financing 
(revenues and costs) obtained from economic and non-economic activities in 
order to determine whether the entity satisfies the requirement in 
Article 2(83) of Regulation No 651/2014 that the primary goal of the entity’s 
activities must be to independently conduct fundamental research, industrial 
research or experimental development or to widely disseminate the results of 
such activities by way of teaching, publication or knowledge transfer? If the 
answer is that it is justified, what would be an appropriate proportion of 
financing from economic and non-economic activities to use in determining 
the primary goal of the entity’s activities? 
(3) Is it justified, pursuant to Article 2(83) of Regulation No 651/2014, to apply 
a requirement that the revenues obtained from the principal activity should 
be re-invested in the principal activities of the entity in question, and must 
other aspects be assessed in order to determine properly the primary goal of 
the activities of the institution submitting the project proposal? Would the 
use made of the revenues obtained (whether they are reinvested in the 
principal activities or, for example, in the case of a private founder, paid out 
as dividends to the shareholders) alter that assessment, even in a situation in 
which most of the revenues come from fees for educational services? 
(4) Is the legal status of the members of the institution submitting the project 
proposal ― that is to say, whether it is a company formed under commercial 
law in order to carry on an economic activity (an activity for consideration) 
with the objective of making a profit [Article 1 of the Komerclikums 
(Commercial Code)] or whether its members or shareholders are natural or 
legal persons whose objective is to make a profit (including through the 
provision of educational services for consideration) or were founded for 
non-profit purposes (in the case of an association or foundation, for 
example) ― decisive in determining whether the institution satisfies the 
definition in Article 2(83) of Regulation No 651/2014? 
(5) Are the proportion of domestic students and students from EU Member 
States as compared with the proportion of foreign students (from third 
States) and the fact that the goal of the principal activity pursued by the 
institution submitting the project proposal is to provide students with higher 
education and qualifications that are competitive in the international labour 
market in accordance with current international requirements (paragraph 5 
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of the applicant’s statutes) decisive in assessing whether the activities of the 
institution submitting the project proposal are economic in nature? 
To stay proceedings until the Court of Justice of the European Union issues a 
decision. 
There is no right of appeal against this decision. 
[…] 
[signatures and formalities]