Information;Judgment — ECLI:EU:C:2023:82
Date: 2023-02-09
Language of the case: Latvian
Court formation: Sixth Chamber
Subject matter: Agriculture and Fisheries;State aids;Competition;Agricultural structures
Procedure: Reference for a preliminary ruling
Origin: Latvia

Translation C-668/21 – 1 
Case C-668/21 
Request for a preliminary ruling 
Date lodged: 
8 November 2021 
Referring court: 
Augstākā tiesa (Senāts) (Latvia) 
Date of the decision to refer: 
5 November 2021 
Applicant at first instance and appellant: 
SIA Druvnieks 
Other party in the appeal proceedings: 
Lauku atbalsta dienests (Rural environment support service, Latvia) 
 
[…] 
Administratīvo lietu departaments (Administrative Chamber) 
Latvijas Republikas Senāts (Supreme Court of the Republic of Latvia) 
DECISION 
Riga, 5 November 2021 
The court … [composition of the court] 
examined in a written procedure the appeal on a point of law brought by SIA 
Druvnieks against the judgment of the Administratīvā apgabaltiesa (Regional 
Administrative Court, Latvia) of 12 April 2018 in the administrative proceedings 
instituted by application lodged by that company seeking an order that the Lauku 
atbalsta dienests (Rural Support Service, Latvia) grant approval [to the applicant] 
for its project ‘Investīcijas materiālajos aktīvos’ (Investments in tangible assets). 
Applicable legislation 
European Union law 
EN 
REQUEST FOR A PRELIMINARY RULING OF 5.11.2021 – CASE C-668/21 
 
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1 Regulation (EU) No 1306/2013 of the European Parliament and of the Council of 
17 December 2013 on the financing, management and monitoring of the common 
agricultural policy (‘the Financial Supervision Regulation’): Articles 60, 63(2) and 
64(4)(d). 
2 Commission Regulation (EU) No 702/2014 of 25 June 2014 declaring certain 
categories of aid in the agricultural and forestry sectors and in rural areas 
compatible with the internal market in application of Articles 107 and 108 of the 
Treaty on the Functioning of the European Union (‘the Aid Regulation’): 
Article 2(14). 
Latvian law 
3 Ministru kabineta 2014. gada 30. septembra noteikumi Nr. 598 ‘Noteikumi par 
valsts un Eiropas Savienības atbalsta piešķiršanu, administrēšanu un uzraudzību 
lauku un zivsaimniecību attīstībai 2014.-2020.gada plānošanas periodā’ (Decree 
No 598 of the Council of Ministers of 30 September 2014 on measures for the 
grant, management and supervision of national and European aid for rural and 
fisheries development during the 2014-2020 programming period; ‘Decree 
relating to the grant of aid’) (available at: https://likumi.lv): 
‘9. No aid shall be granted to an applicant: … 
9.3. in respect of which, at the time of approval of the proposed project, the 
Rural Support Service has found to be present any of the characteristics of 
an undertaking in difficulty laid down in the legislation on the management 
of the financing of the European Agricultural Guarantee Fund, the European 
Agricultural Fund for Rural Development, and the European Maritime and 
Fisheries Fund, and in the legislation on the management of the financing of 
national and European Union aid for agriculture and rural and fisheries 
development during the 2014-2020 programming period.’ 
‘10. The Rural Support Service shall exclude any candidate, whether a natural or 
legal person governed by private law, from eligibility as a beneficiary of aid under 
Annex 9 to this Decree, where the following circumstances occur: … 
10.2. by a decision of the competent authority or a final judgment against 
which no appeal lies, the candidate has been found to have committed an 
infringement consisting of: […] 
10.2.3. in proceedings for the retention or recovery of improper 
expenditure incurred by the candidate in connection with investment 
measures managed by the Rural Support Service, where the aid 
applicant has not reimbursed the amount of such irregular expenditure, 
has not agreed a reimbursement schedule with the Rural Support 
Service, or has failed to comply with such a schedule;’ 
‘17. A project proposal shall be rejected if: … 
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3 
17.3. in the course of its evaluation, implementation or follow-up, the Rural 
Support Service establishes that the aid applicant has deliberately created 
conditions for the purpose of obtaining public funding which exceeds the 
maximum amount of public funds available for a beneficiary, securing an 
advantage over other candidates, or circumventing compliance with any of 
the eligibility criteria for receipt of the aid. …’ 
‘Annex 1, points 12 and 17 (Declaration of the aid applicant): 
The undersigned certifies that: … 
(12) it has not been declared insolvent or made a request for the opening of 
insolvency proceedings, is not subject to winding-up proceedings, and its 
economic activity has not been suspended or interrupted (if the aid applicant 
is subject to the Maksātnespējas likums (Law on Insolvency)); … 
(17) it has not, in connection with previous use of European Union funding, 
failed to comply with the conditions relating to the grant of aid in the 
provisions governing the implementation of the project, and therefore no 
decision has been adopted disqualifying the aid applicant from the right to 
benefit from that aid.’ 
Background to the dispute 
Facts 
4 On 21 December 2016, the applicant, SIA Druvnieks, submitted a project proposal 
to the Rural Support Service in order to be eligible for support granted under the 
European Agricultural Fund for Rural Development and measure 4, ‘Investments 
in tangible assets’, of the Latvian Rural Development Programme for the period 
2014-2020. 
The Rural Support Service rejected the project proposal submitted by the 
applicant under point 17.3 of the Decree relating to the grant of aid. That 
provision stipulates that a project proposal is to be rejected if the aid applicant has 
deliberately created conditions making it possible for it to circumvent compliance 
with the eligibility criteria for receipt of the aid. 
That decision was based on the fact that the proprietor of the applicant company 
was also the proprietor of SIA Dižcildi, which had been declared insolvent. On 
6 May 2015, after the applicant company had been formed and recorded in the 
Commercial Register, that company took over, to a significant extent, the 
agricultural business previously operated by SIA Dižcildi, in other words, it 
continued to manage the same land. The decision states that the actions of the 
applicant company’s proprietor, consisting of the formation of a new undertaking, 
were linked to the ongoing insolvency proceedings. Given that SIA Dižcildi had 
been declared insolvent, it was required to reimburse the public funds that were 
previously granted to it, and, on 19 May 2016, proceedings were commenced for 
REQUEST FOR A PRELIMINARY RULING OF 5.11.2021 – CASE C-668/21 
 
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the recovery of improper expenditure in relation to those funds […]. In the Rural 
Support Service view, the fact that the applicant company’s proprietor had formed 
a new undertaking – SIA Druvnieks, the applicant in this case –showed that 
artificial conditions had deliberately been created in order to obtain the funding. 
The applicant disagreed with that decision and it therefore decided to bring 
proceedings before the courts. 
5 The Administratīvā apgabaltiesa (Regional Administrative Court) dismissed the 
action brought by the applicant. 
That court found that, when granting the funding, the applicant’s financial 
indicators and also those of any persons linked to the applicant should be assessed. 
That, in its view, is required by Article 3 of Annex 1 to the Aid Regulation, which 
is headed ‘Types of enterprise taken into consideration in calculating staff 
numbers and financial amounts’. According to the Administratīvā apgabaltiesa 
(Regional Administrative Court), the applicant company should be treated as an 
enterprise linked to SIA Dižcildi, since the shares in each company are owned by 
the same person. In that court’s view, although, at the time when the applicant 
submitted the project proposal, SIA Dižcildi had been declared insolvent and its 
proprietor no longer acted on behalf of that company as a member of its 
management board, an insolvency practitioner having been appointed for that 
purpose, it is significant that the applicant was formed when SIA Dižcildi was 
already in debt, which could have been a barrier to the receipt of further EU 
funding. SIA Dižcildi had made commitments in respect of two further 
agricultural support projects in 2009 and 2013, in relation to which the Rural 
Support Service had commenced proceedings to recover the aid and had assumed 
the position of creditor. In fact, the applicant continued to operate the agricultural 
business of SIA Dižcildi, applying for aid in part for the same areas and using 
machinery belonging to SIA Dižcildi. 
The Administratīvā apgabaltiesa (Regional Administrative Court) also held that 
the assessment should take account of linked enterprises because, otherwise, bona 
fide traders would be subject to a difference in treatment. That would be contrary 
to the purpose of the funding, which is to promote agricultural activity, since it 
would enable a situation in which funding is received without any agricultural 
activity being carried out and in the absence of full compliance with the relevant 
obligations. 
6 The applicant lodged an appeal on a point of law against that judgment, in which 
it relies on the following grounds. 
[6.1] The Administratīvā apgabaltiesa (Regional Administrative Court) erred in 
applying point 17.3 of the Decree relating to the grant of aid. 
In the applicant’s submission, the insolvency proceedings in which SIA Dižcildi is 
involved are unrelated to the company’s agricultural business and instead relate to 
a civil dispute regarding payment for roadbuilding work. The applicant asserts that 
DRUVNIEKS 
 
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it was formed for the purpose of differentiating between the agricultural business 
and other types of economic activities. Accordingly, it rejects the allegation that it 
was created as an artifice to secure funding or to secure an advantage over other 
candidates. 
[6.2] The applicant contends that the definition of linked enterprises applies solely 
and exclusively for the purpose of distinguishing between microenterprises and 
small and medium enterprises and differentiating between the criteria applicable 
to the grant of State aid to such enterprises. Accordingly, in its submission, 
Article 3 of Annex 1 to the Aid Regulation is not applicable to the instant case. 
Law 
Reasons for the existence of uncertainties regarding the interpretation of the 
European Union legislation 
7 The purpose of these administrative proceedings is to determine whether the Rural 
Support Service acted correctly in rejecting the project proposal submitted by the 
applicant, by arguing, as the basis for its decision, that another company limited 
by shares (SIA Dižcildi), which is owned by the same person as the applicant 
company, had committed infringements and was subject to insolvency 
proceedings. 
8 The Rural Support Service’s decision is based on point 17.3 of the Decree relating 
to the grant of aid, which provides that a project proposal is to be refused if, when 
it evaluates the proposal, the Rural Support Service finds that the aid applicant 
has deliberately created conditions with a view to circumventing compliance with 
any of the eligibility criteria for receipt of the aid. 
Point 17.3 of the Decree relating to the grant of aid reflects the provisions of 
Article 60 of the Financial Supervision Regulation (headed ‘Circumvention 
clause’), pursuant to which no advantage is to be granted in favour of a natural or 
legal person in respect of whom it is established that the conditions required for 
obtaining such advantages were created artificially, contrary to the objectives of 
that legislation. It follows from this that, in the present administrative proceedings, 
it is necessary to assess the application of the ‘circumvention clause’. 
9 In order to determine the basis for the application of the ‘circumvention clause’, it 
is necessary to identify the provision relating to aid which has been circumvented 
and the type of conduct (series of actions) which objectively establishes that the 
purpose of those actions was to circumvent the eligibility conditions for the grant 
of aid. 
It states in the contested decision and in the observations submitted by the Rural 
Support Service before the [Administratīvā apgabaltiesa (Regional Administrative 
Court)] that point 10.2.3 of the Decree relating to the grant of aid and point 17 of 
Annex 1 to that Decree should be considered to have been circumvented. 
Point 10.2.3 of the Decree relating to the grant of aid provides that an aid 
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applicant may be excluded from eligibility for the aid if that person has not 
reimbursed any irregular expenditure incurred in connection with the investment 
measures managed by the Rural Support Service. Point 17 of Annex 1 to the 
Decree relating to the grant of aid provides that a person must indicate whether 
any decision has been adopted excluding that person from eligibility for aid. 
It states in the observations submitted by the Rural Support Service before the 
[Administratīvā apgabaltiesa (Regional Administrative Court)] that no decision 
was adopted disqualifying the applicant company, its proprietor or SIA Dižcildi 
from applying for aid. The Rural Support Service submits that the adoption of 
such a decision is not necessary for the purpose of applying the ‘circumvention 
clause’. 
10 The exclusion of an aid applicant from eligibility for the aid, as provided for in 
point 10.2.3 of the Decree relating to the grant of aid, is governed by 
Article 64(4)(d) of the Financial Supervision Regulation. Under that provision, the 
authorities of a Member State may adopt a decision imposing an administrative 
penalty which temporarily deprives a person of the right to participate in support 
measures. 
Article 63(2) of the Financial Supervision Regulation provides that the rules on 
penalties are to be part of sectoral agricultural legislation. The Republic of Latvia 
laid down such rules on the imposition and application of penalties in the Decree 
relating to the grant of aid. In accordance with point 10.2.3 of that Decree, the 
administrative penalty for failure by an aid applicant to reimburse any irregular 
expenditure it has incurred can be imposed only on the person who applied for the 
aid and not on the applicant company’s proprietor. Accordingly, the Decree 
relating to the grant of aid does not provide for the imposition of a penalty on the 
proprietor of the company benefitting from the aid and instead simply provides for 
the possibility of imposing such a penalty on SIA Dižcildi (perpetrator of the 
infringement). 
11 The Senāts (Supreme Court) takes the view that Article 60 of the Financial 
Supervision Regulation and the application of an administrative penalty are two 
distinct legal instruments. 
The provision which is considered to have been circumvented in the instant case is 
point 10.2.3 of the Decree relating to the grant of aid, which provides that the 
competent authority may adopt a decision imposing an administrative penalty on a 
specific group of persons in respect of a specified type of infringement. 
The correct application of Article 60 of the Financial Supervision Regulation 
requires clarification of whether it is necessary to examine if, with regard to itself 
or to another company which it owned previously, the applicant company’s 
proprietor circumvented the application of an administrative penalty, or if it is 
appropriate merely to confirm that no decision has been adopted disqualifying the 
applicant company or its proprietor from the right to apply for aid. 
DRUVNIEKS 
 
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The Rural Support Service has not mentioned any factor which would suggest that 
the applicant company’s proprietor may have taken actions aimed at 
circumventing the application or implementation of an administrative penalty. 
Furthermore, the legislation does not provide for even the theoretical possibility 
that the Rural Support Service may impose a penalty on the applicant or its 
proprietor for such an infringement. Accordingly, the Senāts (Supreme Court) 
seeks clarification of whether Article 60 of the Financial Supervision Regulation 
may be applied in such a way that, in circumstances like those in the case before 
it, the applicant company may be treated as having circumvented the provisions of 
point 10.2.3 of the Decree relating to the grant of aid and point 17 of Annex 1 
thereto (Article 64(4)(d) of the Financial Supervision Regulation), even though 
the applicant company’s proprietor was not the subject of a decision imposing on 
it an administrative penalty which resulted in its exclusion from eligibility for the 
aid. 
12 The Rural Support Service submits that the applicant’s project should be rejected 
under point 17.3 of the Decree relating to the grant of aid, in view of the fact that 
SIA Dižcildi is insolvent. That situation is provided for in point 9.3 of the Decree 
relating to the grant of aid (and also in Annex 1, point 12, of that Decree). The 
Rural Support Service contends that, if a new company (the applicant) had not 
been formed, the old company owned by the applicant company’s proprietor 
would not have been able to participate in the call for projects due to the fact that 
it was in financial difficulties. 
Point 9.3 of the Decree relating to the grant of aid refers to Article 2(14) of the 
Aid Regulation. According to that provision, an undertaking in difficulty is an 
undertaking in respect of which at least one of the circumstances listed in the 
provision occurs. In the present case, it appears that the applicant shows no 
indication of being an undertaking in difficulty. 
However, the Senāts (Supreme Court) is uncertain whether the formation of a new 
undertaking constitutes an infringement of the circumvention clause in Article 60 
of the Financial Supervision Regulation simply because, due to the previous 
undertaking’s insolvency, the existing undertaking’s proprietor is not entitled to 
use it in order to be eligible for further aid. 
In order to give a ruling on this dispute, the Senāts (Supreme Court) must find an 
answer to the question whether Article 2(14) of the Aid Regulation is applicable 
solely to the [aid] applicant or whether, in certain circumstances, its application 
may be extended by application of Article 60 of the Financial Supervision 
Regulation, it being necessary to examine also whether or not the applicant 
company’s proprietor owns or owned an undertaking in financial difficulty. 
Accordingly, the Senāts (Supreme Court) takes the view that it is necessary to 
consider whether Article 60 of the Financial Supervision Regulation can be 
applied in such a way that it is also necessary to determine whether other 
undertakings owned by the aid applicant’s proprietor satisfy the provisions of 
REQUEST FOR A PRELIMINARY RULING OF 5.11.2021 – CASE C-668/21 
 
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Article 2(14) of the Aid Regulation and, in the event the conditions are not 
fulfilled, whether the project proposal must be rejected. 
13 In observations lodged with the [Administratīvā apgabaltiesa (Regional 
Administrative Court)], the [Rural Support] Service also argued that Article 60 of 
the Financial Supervision Regulation may be applicable even though 
circumvention of a condition of the aid measure concerned has not been 
established, if the infringement was committed in connection with another aid 
measure. In its judgment, the Administratīvā apgabaltiesa (Regional 
Administrative Court) also stated that the proprietor of an undertaking could 
fraudulently use European Union funds through an undertaking and then form a 
new undertaking, thereby circumventing the obligation to pay the debt. In that 
way, the undertaking’s proprietor is able to escape the financial consequences 
arising from the obligation to reimburse the payments received. 
The Senāts (Supreme Court) agrees that there is a possibility that the proprietor of 
an undertaking could fraudulently use European Union funds in this way. 
However, exclusion from the group of eligible aid applicants is justified only if 
the allegation of fraudulent conduct by the applicant company’s proprietor in 
connection with another aid measure is properly substantiated. 
In this case, the competent authority confined itself to establishing that another, 
now insolvent, company owned by the applicant company’s proprietor had not 
reimbursed aid wrongly paid to it. The circumstances which led to the insolvency 
and the failure to reimburse the aid were not examined. The Latvian legislation 
draws a distinction, in principle, between the liability of a company with share 
capital and the liability of that company’s proprietor. In the absence of specific 
provisions, the proprietor of an undertaking and the undertaking in the strict sense 
cannot be treated as a single person. Accordingly, the transfer of liability from one 
to the other must be sufficiently clear and foreseeable. 
However, the Senāts (Supreme Court) asks whether, for the purposes of the 
application of Article 60 of the Financial Supervision Regulation, it is necessary 
to establish the circumvention of a condition expressly laid down in the aid 
measure concerned or whether it is also possible to reject a project proposal where 
another undertaking owned by the applicant company’s proprietor has committed 
an irregularity the financial consequences of which have not been properly 
rectified. 
14 The Senāts (Supreme Court) can find no answer in the case-law of the Court of 
Justice of the European Union to the uncertainties set out in paragraphs 11 to 13 
of this decision regarding the interpretation of the provisions of EU law applicable 
to the present case, and therefore it considers it necessary to refer a number of 
questions to the Court of Justice of the European Union for a preliminary ruling. 
Operative part 
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Pursuant to Article 267 of the Treaty on the Functioning of the European Union, 
[…] [reference to national procedural provisions], the Senāts (Supreme Court) 
decides 
to refer the following questions to the Court of Justice for a preliminary ruling: 
1. Is the application of Article 60 of Regulation (EU) No 1306/2013 of the 
European Parliament and of the Council of 17 December 2013 on the financing, 
management and monitoring of the common agricultural policy justified where an 
undertaking owned by the proprietor of the company applying for aid, which is 
distinct from the latter, has committed an irregularity the financial consequences 
of which have not been rectified and the company applying for aid has taken over 
that undertaking’s agricultural business? 
2. Is it possible to apply Article 60 of Regulation (EU) No 1306/2013 of the 
European Parliament and of the Council of 17 December 2013 on the financing, 
management and monitoring of the common agricultural policy in such a way that 
a person is found to have circumvented the administrative penalty provided for in 
Article 64(4)(d) of that regulation, despite the fact that, in respect of the applicant 
company or its proprietor, no decision has been adopted imposing on it an 
administrative penalty resulting in its exclusion from eligibility for the aid? 
3. Is it possible to apply Article 60 of Regulation (EU) No 1306/2013 of the 
European Parliament and of the Council of 17 December 2013 in such a way that 
the authority responsible for examination of the project proposal must verify 
whether other undertakings previously owned by the proprietor of the company 
applying for aid satisfy the provisions of Article 2(14) of Commission Regulation 
(EU) No 702/2014 of 25 June 2014 declaring certain categories of aid in the 
agricultural and forestry sectors and in rural areas compatible with the internal 
market in application of Articles 107 and 108 of the Treaty on the Functioning of 
the European Union, and, if the conditions are not fulfilled, reject the project 
proposal without an additional individual assessment of the factual circumstances? 
The proceedings are hereby stayed pending a ruling from the Court of Justice of 
the European Union. 
No appeal may be brought against this decision. 
[…] 
[signatures and formalities]