Opinion of the Advocate-General



Opinion of the Advocate-General

1. This reference for a preliminary ruling raises the question of the limits attaching to the implementation of the principle of retroactively applying a less severe penalty, as laid down in the second sentence of Article 2(2) of Council Regulation (EC, Euratom) No 2988/95 of 18 December 1995 on the protection of the European Communities’ financial interests (2) and subsequently confirmed by the Court’s case‑law, (3) following the reform of the common agricultural policy in 2003.

2. More specifically, this reference for a preliminary ruling raises the question of whether a farmer may rely upon this principle in order to secure the application of a scheme of penalties which was adopted after the irregularities had been identified, if that scheme is part of an amended legislative framework – the result, in this instance, of the 2003 reform of the common agricultural policy. This new legislative framework now provides for a system of support which is linked no longer to production, but to the producer in the form of a single payment subject to compliance with the standards and requirements laid down by Community law in areas such as the environment, public health, and animal and plant health.

3. The Court is therefore being asked to interpret several articles of Commission Regulation (EC) No 796/2004 of 21 April 2004 laying down detailed rules for the implementation of cross-compliance, modulation and the integrated administration and control system provided for in Council Regulation (EC) No 1782/2003 establishing common rules for direct support schemes under the common agricultural policy and establishing certain support schemes for farmers, (4) as well as to interpret the second sentence of Article 2(2) of Regulation No 2988/95.

4. That request has been made in connection with a dispute between Mr Jager, a farmer, and the Amt für Landwirtschaft Bützow (Agriculture Agency, Bützow, the ‘Amt’), concerning the rejection of an application for suckler cow premia for 2001. The application was rejected on the ground there had been irregularities in identifying and registering unclaimed bovine animals.

5. I shall explain below why, in my view, the second sentence of Article 2(2) of Regulation No 2988/95 must be interpreted as meaning that the scheme of penalties laid down in Articles 66 and 67 of Regulation No 796/2004 does not apply retroactively to an aid application which is caught by the temporal scope of Commission Regulation (EEC) No 3887/92 of 23 December 1992 laying down detailed rules for applying the integrated administration and control system for certain Community aid schemes. (5)

I – Legislative framework

A – Community law

1. Identification and registration of bovine animals

6. Regulation (EC) No 1760/2000 of the European Parliament and of the Council of 17 July 2000 establishing a system for the identification and registration of bovine animals and regarding the labelling of beef and beef products and repealing Council Regulation (EC) No 820/97, (6) contains, in particular in Articles 4 and 7 thereof, provisions concerning the identification and registration of bovine animals. Under Article 24(2) of Regulation No 1760/2000, references to Regulation No 820/97 are to be construed as references to Regulation No 1760/2000 itself.

2. Changes to the aid schemes applicable to bovine animals

7. According to Article 6(1) of Council Regulation (EC) No 1254/1999 of 17 May 1999 on the common organisation of the market in beef and veal, (7) a producer keeping suckler cows on his holding may qualify, on application, for a premium for maintaining suckler cows (suckler cow premium).

8. According to Article 21 of that regulation, in order to qualify for the premium an animal must be identified and registered in accordance with Regulation No 820/97.

9. As of 1 January 2005, the provisions of Regulation No 1254/1999 were repealed and replaced by Council Regulation (EC) No 1782/2003 of 29 September 2003 establishing common rules for direct support schemes under the common agricultural policy and establishing certain support schemes for farmers and amending Regulations (EEC) No 2019/93, (EC) No 1452/2001, (EC) No 1453/2001, (EC) No 1454/2001, (EC) No 1868/94, (EC) No 1251/1999, (EC) No 1254/1999, (EC) No 1673/2000, (EEC) No 2358/71 and (EC) No 2529/2001. (8)

10. Recitals (24) and (25) in the preamble to Regulation No 1782/2003 describe the main features of the reform of the common agricultural policy which that regulation introduces. Those recitals are worded as follows:

‘Enhancing the competitiveness of Community agriculture and promoting food quality and environment standards necessarily entail a drop in institutional prices for agricultural products and an increase in the costs of production for agricultural holdings in the Community. To achieve those aims and promote more market-oriented and sustainable agriculture, it is necessary to complete the shift from production support to producer support by introducing a system of decoupled income support for each farm. While decoupling will leave the actual amounts paid to farmers unchanged, it will significantly increase the effectiveness of the income aid. It is, therefore, appropriate to make the single farm payment conditional upon cross-compliance with environmental, food safety, animal health and welfare, as well as the maintenance of the farm in good agricultural and environmental condition.

Such a system should combine a number of existing direct payments received by a farmer from various schemes in a single payment, determined on the basis of previous entitlements, within a reference period, adjusted to take into account the full implementation of measures introduced in the framework of Agenda 2000 and of the changes to the amounts of aid made by this regulation.’

11. Title III of Regulation No 1782/2003 sets out the rules relating to the single payment system. Within that system, the direct aids to farmers are largely granted in the form of a single annual payment replacing most of the direct aids that had previously existed.

12. In order to determine which single payment system should be applied, Regulation No 1782/2003 allows the Member States to choose from a number of options, and the main options available to them are described below. (9)

13. The basic approach is historic in nature, that is to say that the single payment which the farmer is granted each year is calculated using a reference amount, itself determined, under Article 37(1) of the regulation, by taking the three-year average of the total amounts of payments which a farmer was granted under the support schemes referred to in Annex VI to the regulation, (10) calculated and adjusted pursuant to Annex VII to the regulation, in each calendar year of a reference period. Pursuant to Article 38 of Regulation No 1782/2003, that period comprises the 2000, 2001 and 2002 calendar years. The farmer is then accorded entitlement to payments. As a rule, each entitlement is calculated by dividing the reference amount by the number of hectares to which the payments during the reference years relate. (11)

14. The Member States may prefer to opt for a regional flat-rate approach. (12) If they do so, the reference amounts are calculated not in terms of the individual farmer but at a regional level. Those amounts thus correspond to the sum of the payments the farmers in the region concerned were granted during the reference period. The regional reference amounts are then divided by the number of eligible hectares declared by the farmers of the relevant region in the year the single payment scheme was introduced, in order to establish the value of a single entitlement in that region. Each farmer receives a number of (flat‑rate) entitlements equal to the number of eligible hectares declared in the year in which the single payment scheme was introduced. That approach entails some redistribution of payments between farmers.

15. Finally, in some cases, the Member States may adopt a hybrid model that combines the historic and flat-rate approaches.

16. The distinguishing feature of the single payment scheme is that it is a payment which is not linked to production. This is known as the ‘decoupling of aid’. Decoupling may be full or merely partial.

17. In the case of partial decoupling, the Member States choose to implement the single payment scheme in part only, and to retain certain direct aids that are production-linked. (13)

18. To give an example, in the case of beef and veal payments, the first subparagraph of Article 68(2)(a)(i) of Regulation No 1782/2003 permits the Member States to retain up to 100% of the component of national ceilings referred to in Article 41 of the regulation, corresponding to the suckler cow premium.

19. The schemes relating to aid that is coupled to production are covered by Title IV of the regulation, which is entitled ‘Other aid schemes’. Article 125 of Regulation No 1782/2003, which appears in Title IV, lays down the conditions governing the grant of the suckler cow premium. Furthermore, Article 138 of the regulation, which is also contained in Title IV, provides that in order to qualify for direct payments, such as the suckler cow premium, an animal must be identified and registered in accordance with Regulation (EC) No 1760/2000.

20. Alongside the single payment itself, the other essential feature of the 2003 reform is what the Community legislature has defined as the ‘cross-compliance’ of aid.

21. Title II of Regulation No 1782/2003 – which is entitled ‘General provisions’ – thus contains in Chapter 1, entitled ‘Cross-compliance’, an Article 3(1) which provides that a farmer receiving direct payments must respect the statutory management requirements referred to in Annex III to the regulation, as well as the good agricultural and environmental condition established under Article 5 thereof.

22. The statutory management requirements comprise a total of 18 regulations and directives pertaining to the environment and public health, as well as to animal and plant health.

23. Among the statutory requirements that must be respected, Annex III(A)(8) to Regulation No 1782/2003 cites Articles 4 and 7 of Regulation No 1760/2000.

24. Furthermore, pursuant to Article 5(1) of Regulation No 1782/2003, Member States are to ensure that all agricultural land, especially land which is no longer used for production purposes, is maintained in good agricultural and environmental condition. Member States must, therefore, stipulate, at national or regional level, minimum requirements for good agricultural and environmental condition, on the basis of the framework set up in Annex IV to the regulation. Those minimum requirements must, for example, be designed to protect the soil through the use of appropriate measures to prevent erosion, or, indeed, to maintain soil organic matter levels through appropriate practices.

3. Development of the rules on the reductions and exclusion which apply when irregularities are identified

25. Council Regulation (EEC) No 3508/92 of 27 November 1992 establishing an integrated administration and control system for certain Community aid schemes, (14) applies, pursuant to Article 1(1)(b)(i) thereof, to the suckler cow premium system.

26. Regulation No 3887/92 lays down detailed rules for applying the integrated administration and control system.

27. Article 10c of that regulation lays down the rules that apply in calculating reductions in aid in cases where there has been a failure to respect Community requirements regarding the identification and registration of unclaimed bovine animals. That article reads as follows:

‘1. As regards bovine animals other than those covered by Article 10b, where on-the-spot checks reveal that the number of animals present on the holding and eligible for or relevant to Community aids does not correspond to:

(a) the animals notified to the computerised database in accordance with Article 7 of Regulation (EC) No 820/97;

(b) the an imals entered in the farmer’s register in accordance with Article 7 of Regulation (EC) No 820/97;

(c) the passports of animals held on the holding in accordance with Article 6 of Regulation (EC) No 820/97,

the total amount of the aid granted to the applicant for the aid scheme concerned for the 12 months prior to the on-the-spot check revealing such findings shall, except in cases of force majeure, be reduced proportionately.

The reduction shall be calculated on the basis of the number of all animals present for the scheme concerned or entries in the computerised database in accordance with Article 5 of Regulation (EC) No 820/97 or passports or farmer’s register entries whereby the lowest figure shall be taken.

…

3. If the difference found during an on-the-spot check is greater than 20% of the number of eligible animals established, no premium shall be granted for the 12 months prior to the on-the-spot check.’

28. Regulation No 3887/92 was repealed by Commission Regulation (EC) No 2419/2001 of 11 December 2001 laying down detailed rules for applying the integrated administration and control system for certain Community aid schemes established by Council Regulation (EEC) No 3508/92. (15) However, according to the second sentence of Article 53(1) of Regulation No 2419/2001, Regulation No 3887/92 continues to apply to aid applications relating to marketing years or premium periods commencing before 1 January 2002.

29. Articles 36 to 43 of Regulation No 2419/2001, which appear in Title IV of the regulation entitled ‘Basis for the calculation of the aid, reductions and exclusions’, lay down the rules applicable where irregularities are found in respect of ‘livestock’ aid applications. Article 39 of the regulation is entitled ‘Non-compliance with the provisions concerning the identification and registration of unclaimed bovine animals’, and, in the first subparagraph of Article 39(1), it provides as follows:

‘Where cases of non-compliance with the provisions of the system for the identification and registration of bovine animals are found as a result of an on-the-spot check concerning unclaimed bovine animals, the total amount of aid to which the farmer is entitled pursuant to Article 36(3) under the bovine aid schemes for the premium period concerned, where appropriate after the application of reductions in accordance with Article 38, shall, except in cases of force majeure or exceptional circumstances within the meaning of Article 48, be reduced by an amount to be calculated on the basis of the formula set out in paragraph 2.’

30. Commission Regulation (EC) No 118/2004 of 23 January 2004 (16) amended Regulation No 2419, among other things, by adding to the end of the first subparagraph of Article 39(1) of that regulation the following sentence:

‘However, the amount of aid to be reduced shall not be more than 20% of that total amount to which the farmer is entitled.’

31. Regulation No 2419/2001 was repealed by Regulation No 796/2004 which, let us recall, contains the detailed rules for the implementation of cross-compliance, modulation and the integrated administration and control system provided for in Regulation No 1782/2003.

32. According to the second subparagraph of Article 81 of Regulation No 796/2004, that regulation is to apply to aid applications relating to marketing years or premium periods starting as of 1 January 2005, with Regulation No 2419/2001 continuing to apply to aid applications relating to marketing years or premium periods commencing prior to that date, pursuant to the second sentence of the first subparagraph of Article 80(1) of Regulation No 796/2004.

33. Title IV of Regulation No 796/2004 includes the rules applicable to the basis for the calculation of the aid, reductions and exclusions.

34. Articles 57 to 63 of the regulation, which are contained in Title IV, Chapter I, entitled ‘Findings in relation to eligibility criteria’, lay down the rules applicable to ‘livestock’ premia. In that connection, Article 59 of that regulation lays down the reductions and exclusions applicable to bovine animals in respect of which aid is claimed.

35. Articles 66 and 67 of Regulation No 796/2004, which are contained in Title IV, Chapter II, entitled ‘Findings in relation to cross compliance’, lay down the rules which apply in the event that the acts and standards required under cross-compliance obligations have not been respected.

36. Those two articles, therefore, implement Article 6(1) of Regulation No 1782/2003, which provides that where the statutory management requirements or good agricultural and environmental condition are not complied with, as a result of an action or omission directly attributable to the individual farmer, the total amount of direct payments to be granted in the calendar year in which the non-compliance occurs is to be reduced or cancelled, after application of Articles 10 and 11 of the regulation, that is to say, after application of both the modulation of the direct payments and any adjustment of the direct payments for reasons of financial discipline.

37. Article 66 and 67 of Regulation No 796/2004 read as follows:

‘Article 66

Application of reductions in the case of negligence

1. Without prejudice to Article 71, where a non-compliance determined results from the negligence of the farmer, a reduction shall be applied on the overall amount of direct payments, as defined in Article 2(d) of Regulation (EC) No 1782/2003 [(17) ], that has been, or has to be, granted to the farmer concerned following aid applications he has submitted or will still submit in the course of the calendar year of the finding. That reduction shall, as a general rule, be 3% of that overall amount.

However, the Paying Agency may, on the basis of the assessment provided by the competent control authority in the control report in accordance with Article 48(1)(c), decide either to reduce that percentage to 1% or to increase it to 5% of that overall amount or, in the cases referred to in the second subparagraph of Article 48(1)(c), not to impose any reductions at all.

2. Where more than one case of non-compliance with regard to various acts or standards of the same area of cross-compliance have been determined, those cases shall, for the purposes of the fixing of the reduction in accordance with paragraph 1, be considered as one non-compliance.

3. Where more than one non-compliance with regard to different areas of cross-compliance have been determined, the procedure for the fixing of the reduction as set out in paragraph 1 shall be applied individually to any non-compliance.

However, a non-compliance with a standard which also constitutes a requirement shall be considered to be one non-compliance.

The resulting percentages of reductions shall be added. The maximum reduction shall, however, not exceed 5% of the overall amount referred to in paragraph 1.

4. Without prejudice to cases of intentional non-compliance in accordance with Article 67, where repeated non-compliances have been determined, the percentage fixed in accordance with paragraph 1 with regard to the first non-compliance shall, in respect of the first repetition, be multiplied by the factor three. For this purpose, the Paying Agency shall, in the case where that percentage was fixed in accordance with paragraph 2, determine the percentage that would have been applied to the first non-compliance with the requirement or standard concerned.

In the case of further repetitions, the multiplication factor three shall be applied each time to the result of the reduction fixed in respect of the previous repeated non-compliance. The maximum reduction shall, however, not exceed 15% of the overall amount referred to in paragraph 1.

Once the maximum percentage of 15% has been reached, the competent authority shall inform the farmer concerned that if the same non-compliance is determined again, it shall be considered that he has acted intentionally within the meaning of Article 67. Where a further non-compliance is being determined thereafter, the percentage of reduction to be applied shall be fixed by multiplying the result of the previous multiplication, where applicable, before the limitation to 15% as provided for in the last sentence of the second subparagraph has been applied, by the factor three.

5. In the case where a repeated non-compliance is determined together with another non-compliance or another repeated non-compliance, the resulting percentage reductions shall be added together. Without prejudice to the third subparagraph of paragraph 4, the maximum reduction shall, however, not exceed 15% of the overall amount referred to in paragraph 1.

Article 67

Application of reductions and exclusions in cases of intentional non-compliance

1. Without prejudice to Article 71, where the non-compliance determined has been committed intentionally by the farmer, the reduction to be applied to the overall amount referred to in the first subparagraph of Article 66(1) shall, as a general rule, be 20% of that overall amount.

However, the Paying Agency may, on the basis of the assessment provided by the competent control authority in the control report in accordance with Article 48(1)(c), decide to reduce that percentage to no less than 15% or, where appropriate, to increase that percentage to up to 100% of that overall amount.

2. Where the intentional non-compliance relates to a particular aid scheme, the farmer shall be excluded from that aid scheme for the calendar year in question.

In cases of extreme extent, severity or permanence or where repeated intentional non-compliances have been determined, the farmer shall, moreover, be excluded from the aid scheme concerned in the following calendar year.’

4. Temporal application of the administrative penalties for which the Community instruments provide

38. Article 1 of Regulation No 2988/95 reads as follows:

‘1. For the purposes of protecting the European Communities’ financial interests, general rules are hereby adopted relating to homogenous checks and to administrative measures and penalties concerning irregularities with regard to Community law.

2. “Irregularity” shall mean any infringement of a provision of Community law resulting from an act or omission by an economic operator, which has, or would have, the effect of prejudicing the general budget of the Communities or budgets managed by them, either by reducing or losing revenue accruing from own resources collected directly on behalf of the Communities, or by an unjustified item of expenditure.’

39. Article 2(2) of that regulation then provides that:

‘No administrative penalty may be imposed unless a Community act prior to the irregularity has made provision for it. In the event of a subsequent amendment of the provisions which impose administrative penalties and are contained in Community rules, the less severe provisions shall apply retroactively.’

B – National law

40. In Germany, the Law transposing the reform of the common agricultural policy (Gesetz zur Umsetzung der Gemeinsamen Agrarpolitik) of 21 July 2004 (18) provides that, as of 1 January 2005, the suckler cow premium must be paid as part of the decoupled single payment to which Title III of Regulation No 1782/2003 refers. That Law also establishes a hybrid model, that is to say, a model which combines the historic and regional approaches.

II – The main proceedings and the question referred

41. In May 2001, Mr Jager, a farmer, applied to the Amt for suckler cow premia in respect of 71 bovine animals for 2001.

42. By a decision of 24 January 2002, the Amt rejected his application absolutely, on the ground that an on-the-spot check had revealed irregularities within the meaning of Article 10c(1) of Regulation No 3887/92, and that the discrepancy that had been found represented more than 20% of the eligible animals.

43. When his objection was unsuccessful, Mr Jager brought judicial proceedings before the Verwaltungsgericht Schwerin (Administrative Court, Schwerin) (Germany).

44. In its order for reference, that court notes that, having regard both to the abovementioned judgment in Gerken and to Article 2(2) of Regulation No 2988/95, which establishes the principle of the retroactive application of less severe penalties, Regulation No 118/2004 is, in any event, relevant in the main proceedings, having introduced, in Article 39 of Regulation No 2419/2001, an upper limit on penalties, namely by stipulating that the reduction in the aid may not be more than 20% of the total amount to which the farmer is entitled.

45. However, the Verwaltungsgericht takes the view that Regulation No 796/2004, which applies to aid applications made in respect of marketing years or reference periods commencing on 1 January 2005, is still more favourable for Mr Jager. In point of fact, the provisions of Articles 57 to 63 of that regulation, which, according to the Verwaltungsgericht, largely reproduce those of Articles 36 to 43 of Regulation No 2419/2001, no longer contain a provision similar to Article 39 of the latter regulation. Thus, the absence of a penalty is the most favourable option possible for Mr Jager.

46. However, the Verwaltungsgericht Schwerin queries whether that more favourable penalty may be applied in this case, given that, since 1 January 2005, the suckler cow premium has been granted, in Germany, in the form of a single payment, with the result that the provisions relating to ‘livestock’ premia, laid down in Articles 57 to 63 of Regulation No 796/2004, have ceased to be applicable in that Member State.

47. Consequently, the Verwaltungsgericht decided to stay proceedings and submit to the Court of Justice the following question for a preliminary ruling: ‘[i]s a provision imposing a more favourable penalty (concerning livestock aid) to be applied retroactively even if that provision in principle only applies for a period of time during which livestock aid in the Member State concerned is no longer granted as a direct payment has been introduced?’

III – Analysis

48. The Court has recently held that the principle of the retroactive application of a more lenient penalty forms part of the constitutional traditions common to the Member States and, accordingly, must be considered to be one of the general principles of Community law which the Court ensures are respected and with which national courts are required to comply. (19)

49. That principle is more specifically laid down in the second sentence of Article 2(2) of Regulation No 2988/95. (20)

50. In its abovementioned judgment in Gerken , the Court made the application of Article 2(2) subject to the following four conditions: (21)

– there must be an irregularity within the meaning of Article 1(2) of Regulation No 2988/95;

– that irregularity must give rise to the application of an administrative penalty within the meaning of Article 2(2) of Regulation No 2988/95;

– the Community rules which provided for that penalty must have been subject to a subsequent change;

– the penalty for which the new rules provide must be less severe than the original penalty.

51. By way of preliminary, and in the light of those four conditions, I would point out, like Mr Jager, the Amt, the Greek Government, the Commission and the national court, that the scheme of penalties laid down by Article 39 of Regulation No 2419/2001, as amended by Regulation No 118/2004, is, in any event, applicable in the main proceedings.

52. The Amt actually identified irregularities in terms of the provisions of Article 10c(1) of Regulation No 3887/92 concerning the identification and registration of unclaimed bovine animals. These certainly constitute ‘irregularities’ within the meaning of Article 1(2) of Regulation No 2988/95.

53. The existence of those irregularities gave rise to the application of Article 10c(3) of Regulation No 3887/92 which, let us recall, provides that if the difference found during an on-the-spot check is greater than 20% of the number of eligible animals established, no premium is to be granted for the 12 months prior to that on-the-spot check. The reduction in the amount of or, indeed, cancellation of the ‘livestock’ aid clearly constitutes an ‘administrative penalty’ within the meaning of Article 2(2) of Regulation No 2988/95. (22)

54. Article 39 of Regulation No 2419/2001 subsequently amended the Community rules on administrative penalties and, as amended by Article 1(11)(a) of Regulation No 118/2004, introduced a ceiling on the reduction to be applied in the event of a failure to respect the Community rules applicable to the identification and registration of unclaimed bovine animals, that is to say, 20% of the total amount of the aid to which the farmer is entitled, in respect of the relevant premium period, under the schemes for aid for bovine animals.

55. That article is clearly designed to amend the rules on administrative sanctions in such a way as to reduce the severity of the penalty that applies if the Community rules applicable to the identification and registration of unclaimed bovine animals have not been respected. (23)

56. Pursuant to the second sentence of Article 2(2) of Regulation No 2988/95, the 20% ceiling must, in any event, apply to the penalty which Mr Jager incurred in relation to his application for ‘livestock’ aid, even though that application is caught by the temporal scope of Regulation No 3887/92.

57. However, the parties which have submitted observations to the Court disagree as to whether Regulation No 796/2004 must also be taken into account in determining the reductions and exclusions which are applicable to Mr Jager, since that regulation could produce a still more lenient penalty for him.

58. I should first point out that, in their observations, the Greek Government and the Commission have noted an error on the part of the national court when it states that Articles 57 to 63 of Regulation No 796/2004 contain no provision corresponding to Article 39 of Regulation No 2419/2001 and concludes, on that basis, that Regulation No 796/2004 no longer provides for a penalty if the Community rules applicable to the identification and registration of unclaimed bovine animals have not been respected, which would, consequently, produce a more favourable outcome for the farmer.

59. I too consider it incorrect to take the view that a failure to respect the rules applicable to the identification and registration of unclaimed bovine animals can no longer give rise to a penalty on the basis of Regulation No 796/2004.

60. In point of fact, those requirements are now caught by the cross-compliance obligations that a farmer receiving direct payments is required to meet, pursuant to Article 3(1) of Regulation No 1782/2003. I would point out here that according to Annex III(A)(8) to that regulation, Articles 4 and 7 of Regulation No 1760/2000 are included among the ‘statutory management requirements’, which are themselves a component of the rules which have to be respected in relation to cross-compliance.

61. It follows that, in circumstances such as those of the main proceedings, in which it has been established that those rules have not been respected in relation to unclaimed animals, the scheme of penalties which is relevant in cases of failure to respect these requirements pertaining to the identification and registration of unclaimed bovine animals is the scheme laid down in Articles 66 and 67 of Regulation No 796/2004. (24)

62. Consequently, in order to provide the national court with an answer which will be of use to it and enable it to determine the case before it, (25) the question submitted should, as the Commission suggests, be rephrased to enable the Court to determine whether the second sentence of Article 2(2) of Regulation No 2988/95 must be interpreted as meaning that the scheme of penalties laid down in Articles 66 and 67 of Regulation No 796/2004 applies retroactively to an aid application which is caught by the temporal scope of Regulation No 3887/92. (26)

63. In relation to that question as now reworded, Mr Jager’s representative maintained, at the hearing, that Regulation No 796/2004 ought, as far as possible, to be taken into account, in order to determine the least severe penalty for Mr Jager, by calculating, on a comparative basis, the reduction that would result from Article 39 of Regulation No 2419/2001, as amended by Regulation No 118/2004.

64. The Amt, by contrast, takes the view that it is objectively impossible to apply the penalties for which Regulation No 796/2004 provides, since the single payment had yet to be accorded during the year when the application was made, namely 2001.

65. The Commission too considers that the penalties for which that regulation provides cannot be applied retroactively in this case.

66. In that connection, to support its contention that a more lenient penalty may be applied retroactively only where it reflects a revised assessment of the legislature in relation to the irregularity in question, the Commission cites the Opinion of Advocate General Kokott in the case which produced the abovementioned judgment in Berlusconi . (27)

67. However, the Commission points out that, in Regulation No 796/2004, the rules on penalties were completely restructured and adjusted to meet the new requirements of the single payment scheme and of cross-compliance, as contained in Regulation No 1782/2003. According to the Commission, neither the recitals in the preamble to Regulation No 796/2004 nor the general context of that regulation allow of the conclusion that the penalties referred to in Articles 66 and 67 of that regulation were adopted for the purpose of penalising certain irregularities – such as those at issue in the main proceedings – less severely in the future.

68. Furthermore, the Commission stated at the hearing that, in its view, a new assessment based on Regulation No 796/2004 is no longer feasible, particularly since it would be impossible to verify, when assessing the gravity of the infringement the farmer had committed, whether the latter had complied with all of the other rules on cross-compliance, notably environmental and animal welfare requirements.

69. The Greek Government endorses the Commission’s view when it contends that, according to Article 2(2) of Regulation No 2988/95, the principle of retroactivity which that article establishes cannot apply if the Community provisions laying down the penalties have been completely restructured by a new regulation, as is the case here in the form of Regulation No 796/2004. This actually involves, not amending or replacing earlier, similar provisions but, in essence, a new scheme based on a different philosophy and with different objectives.

70. Like the Amt, the Greek Government and the Commission, I too consider that the second sentence of Article 2(2) of Regulation No 2988/95 must be interpreted as meaning that the scheme of penalties for which Articles 66 and 67 of Regulation No 796/2004 provide does not apply retroactively to an aid application which is caught by the temporal scope of Regulation No 3887/92.

71. In my view, the condition concerning the ‘subsequent amendment of the provisions which impose administrative penalties’, which appears in the second sentence of Article 2(2) of Regulation No 2988/95, refers to the adoption of a new rule which is designed to change the nature and/or severity of the penalty, within a regulatory system the main features of which remain unchanged.

72. Consequently, if the system within which the new penalty is incorporated undergoes extensive reform and a new scheme of penalties is, therefore, established, then, in my view, that article cannot apply.

73. In those circumstances, the changes to the scheme of penalties are made because that scheme has to be adapted to the new regulatory system, the proper implementation of which it secures, but they are not meant to reflect a revised assessment on the part of the Community legislature as to whether the penalty is commensurate with the gravity of the irregularity.

74. Consequently, in my view, the link that exists between the new scheme of penalties and the reformed regulatory system of which it forms part precludes the retroactive application of this new scheme of penalties to facts pertaining to a previous regulatory system.

75. In that connection, I consider that Articles 66 and 67 of Regulation No 796/2004 constitute more than mere ‘subsequent amendment of the provisions which impose administrative penalties’, within the meaning of the second sentence of Article 2(2) of Regulation No 2988/95, and, in my view, that precludes their retroactive application to aid applications which are caught by the temporal scope of Regulation No 3887/92. (28)

76. Articles 66 and 67 of Regulation No 796/2004 in fact introduce a new scheme of penalties which is very closely linked to the new direct support arrangements that have resulted from the 2003 reform of the common agricultural policy.

77. That close link between the new scheme of penalties and the reformed regulatory system of which it forms part is reflected in a number of features specific to the new scheme which make it impossible simply to transpose it to an aid application which is caught by the temporal scope of Regulation No 3887/92, as this could alter the nature and coherence of the reformed system, as designed by the Community legislature.

78. Those specific features of the new scheme of penalties essentially relate both to the aim it pursues and to the detailed rules for determining the penalty.

79. We saw above that one of the cornerstones of the 2003 reform consists in the cross-compliance obligations linked to the aid and that, pursuant to Article 3(1) of Regulation No 1782/2003, those obligations apply to a farmer receiving direct payments, whether in the form of the single payment or under the other support schemes listed in Annex I to the regulation. (29)

80. If a farmer fails to adhere to the cross-compliance obligations, the total amount of the direct payments to which he is entitled may be reduced or cancelled in accordance with the detailed rules set out in Articles 66 and 67 of Regulation No 796/2004.

81. It is clear from recital (56) in the preamble to Regulation No 796/2004 that, with regard to cross-compliance objectives, the system of reductions and exclusions targets a particular aim, which is fully consonant with the new system, namely the aim of setting an incentive for farmers to comply with existing legislation in the different fields of cross-compliance.

82. Those different fields of cross-compliance vary in nature. They are made up of the statutory management requirements referred to in Annex III to Regulation No 1782/2003, that is to say, 18 regulations and directives concerning the environment and public health, as well as animal and plant health, and the good agricultural and environmental condition which the Member States are to define.

83. Therefore, the system of reductions and exclusions for which Articles 66 and 67 of Regulation No 796/2004 provide already differs from the system laid down in Article 10c of Regulation No 3887/92, and then by Article 39 of Regulation No 2419/2001, in terms of its aim, which extends far beyond merely penalising the failure to respect the Community rules on identifying and registering bovine animals.

84. The nature of the rules forming part of the cross-compliance obligations has an impact on both the cross-compliance control system and the detailed rules for determining the penalty.

85. For instance, Article 9 of Regulation No 796/2004, which requires the Member States to set in place a system guaranteeing an effective control on the respect of cross-compliance, provides, in particular, in the first subparagraph of Article 9(d), that the system must include control reports containing, in particular, any detected non-compliance and an assessment of its severity, extent, permanence and repetition.

86. According to Article 48(1)(b) of that regulation, a control report must contain a part reflecting, separately, the checks carried out in respect of each of the relevant acts and standards pertaining to cross-compliance. Moreover, according to the first subparagraph of Article 48(1)(c) of the regulation, the report must contain ‘an evaluation part giving an assessment of the importance of the non-compliance in respect of each act and/or standard on the basis of the criteria “severity”, “extent”, “permanence” and “repetition” in accordance with Article 7(1) of Regulation (EC) No 1782/2003, with an indication of any factors that should lead to an increase or decrease of the reduction to be applied.’

87. That control system is consistent with the new scheme of penalties which takes account – as provided for by Article 7(1) of Regulation No 1782/2003 – of the severity, extent, permanence and repetition of the non-compliance which has been determined.

88. The scheme of penalties provided for in Articles 66 and 67 of Regulation No 796/2004 will be applied on the basis of these control reports adjusted to meet cross-compliance requirements. The paying agency will thus be able to decide, in the light of the evaluations contained in those reports, to reduce or increase the percentage reduction or, indeed, to cancel the aid in full.

89. In view of this close link between the control system and the scheme of penalties pertaining to cross-compliance, I consider that it would be difficult, if not impossible, rigorously to apply Articles 66 and 67 of Regulation No 796/2004 to an aid application which was the subject of an on-the-spot check that was carried out from a more limited perspective than cross-compliance checks require, (30) and in accordance with different rules, that is to say, as far as this case is concerned, the rules which previously governed the carrying-out of on-the-spot checks relating to ‘livestock’ aid applications caught by the temporal scope of Regulation No 3887/92. (31)

90. Furthermore, it should be pointed out that, given the general scope of the cross-compliance obligations within the new regulatory system, the scheme of penalties provided for in Articles 66 and 67 of Regulation No 796/2004 does not apply to just one category of direct payments, and that distinguishes it from the earlier scheme, which was specifically targeted at sums granted under the schemes of aid for bovine animals.

91. The reductions and exclusions for which those articles provide thus apply to the total amount of the direct payments, as defined in Article 2(d) of Regulation No 1782/2003, that is to say, those payments granted directly to farmers under the income support systems listed in Annex I to that regulation.

92. The basis on which the reductions and exclusions apply is, therefore, different and much broader. The percentage reductions for which Articles 66 and 67 of Regulation No 796/2004 provide take that factor into account.

93. It is also important to point out that the total amount of the direct payments – which now forms the basis on which the reductions and exclusions provided for in those articles apply – is not arrived at by simply adding up the direct payments which existed previously.

94. At the top of the list of those support systems is, in fact, the single payment system which the Member States should have implemented, following an optional transitional period, as of 1 January 2007 at the latest. (32)

95. We have seen that, within that system, the direct aids to farmers are primarily granted by means of a single annual payment replacing most of the direct aids which existed previously and that, in determining which single payment scheme to apply, Regulation No 1782/2003 allows the Member States to choose from a number of options, namely an historic approach, a regional approach and a hybrid approach.

96. Retroactively applying the reductions and exclusions laid down in Articles 66 and 67 of Regulation No 796/2004 to an application which is caught by the temporal scope of Regulation No 3887/92 would imply determining, after the event, the payment entitlement, at that point in time, of a farmer such as Mr Jager, and I consider that, as well as being in practice a difficult and artificial exercise, it goes beyond what is provided for in the second sentence of Article 2(2) of Regulation No 2988/95.

97. There is one final factor that makes it impossible, in my view, to apply the scheme of penalties laid down by Articles 66 and 67 of Regulation No 796/2004 retroactively to aid applications which are n ot caught by the temporal scope of that regulation, that is to say, aid applications submitted for marketing years or premium periods commencing before 1 January 2005 – as to do so could alter the system which the Community legislature wished to set in place.

98. Two further features of the new regulatory system are the compulsory modulation of direct payments and financial discipline.

99. Thus, pursuant to Article 10(1) of Regulation No 1782/2003, all the amounts of direct payments to be granted in a given calendar year to a farmer in a given Member State are to be reduced for each year from 2005 until 2012 by a specific percentage. (33) Moreover, pursuant to Article 11 of that regulation, each year, the direct payments may be subject to an adjustment determined by the Council of the European Union for reasons of financial discipline.

100. The amount to which the reductions and exclusions contained in Articles 66 and 67 of Regulation No 796/2004 apply actually includes the reductions consequent on modulation and financial discipline. Article 6(1) of Regulation No 1782/2003 in fact provides that, if cross-compliance obligations are not respected, the total amount of direct payments to be granted is to be reduced or cancelled, after application of Articles 10 and 11 of that regulation.

101. In my view, it would be contrary to the system which the Community legislature has introduced to apply the reductions consequent on modulation and financial discipline retroactively to aid applications which are not caught by the temporal scope of Regulation No 796/2004. On the other hand, to apply the scheme of penalties laid down by Articles 66 and 67 of Regulation No 796/2004 to the total amount of payments to be made to a farmer, without taking into account the modulation and any adjustments made for reasons of financial discipline, would have the effect of altering the regulatory system contemplated by the Community legislature, and that, in my view, constitutes a limitation on the application of the second sentence of Article 2(2) of Regulation No 2988/95.

102. In the light of all of the above considerations, I propose that the Court’s answer to the national court should be that the second sentence of Article 2(2) of Regulation No 2988/95 must be interpreted as meaning that the scheme of penalties laid down in Articles 66 and 67 of Regulation No 796/2004 does not apply retroactively to an aid application which is caught by the temporal scope of Regulation No 3887/92.

IV – Conclusion

103. In the light of all of the above considerations, I propose that the Court should give the following answer to the question for a preliminary ruling submitted by the Verwaltungsgericht Schwerin:

The second sentence of Article 2(2) of Council Regulation (EC, Euratom) No 2988/95 of 18 December 1995 on the protection of the European Communities’ financial interests must be interpreted as meaning that the scheme of penalties laid down in Articles 66 and 67 of Commission Regulation (EC) No 796/2004 of 21 April 2004 laying down detailed rules for the implementation of cross-compliance, modulation and the integrated administration and control system provided for in Council Regulation (EC) No 1782/2003 establishing common rules for direct support schemes under the common agricultural policy and establishing certain support schemes for farmers, as amended by Commission Regulation (EC) No 239/2005 of 11 February 2005, does not apply retroactively to an aid application which is caught by the temporal scope of Commission Regulation (EEC) No 3887/92 of 23 December 1992 laying down detailed rules for applying the integrated administration and control system for certain Community aid schemes, as amended by Commission Regulation (EC) No 2801/1999 of 21 December 1999.

(1) .

(2) – OJ 1995 L 312, p. 1.

(3) – Case C-354/95 National Farmers’ Union and Others [1997] ECR I-4559, paragraph 41; Case C-295/02 Gerken [2004] ECR I-6369, paragraph 61; Joined Cases C-387/02, C-391/02 and C‑403/02 Berlusconi and Others [2005] ECR I‑3565, paragraphs 67 to 69; Case C-286/05 Haug [2006] ECR I-4121, paragraph 23; Case C-45/06 Campina [2007] ECR I-2089, paragraphs 32 and 33; Case C‑45/05 Maatschap Schonewille-Prins [2007] ECR I-3997, paragraph 55.

(4) – OJ 2004 L 141, p. 18. Regulation as amended by Commission Regulation (EC) No 239/2005 of 11 February 2005 (OJ 2005 L 42, p. 3) (‘Regulation No 796/2004’).

(5) – OJ 1992 L 391, p. 36. Regulation as amended by Commission Regulation (EC) No 2801/1999 of 21 December 1999 (OJ 1999 L 340, p. 29) (‘Regulation No 3887/92’).

(6) – OJ 2000 L 204, p. 1.

(7) – OJ 1999 L 160, p. 21.

(8) – OJ 2003 L 270, p. 1.

(9) – See the document drawn up by the Commission of the European Communities entitled ‘Single Payment Scheme – the concept’, available on the internet at http://ec.europa.eu/agriculture/capreform/infosheets/pay_en.pdf.

(10) – The suckler cow premium is one of the aid schemes mentioned in Annex VI to that regulation.

(11) – See Title III, Chapter 3, of Regulation No 1782/2003, entitled ‘Payment entitlements’.

(12) – See Title III, Chapter 5, Section 1, of Regulation No 1782/2003, entitled ‘Regional implementation’.

(13) – See Title III, Chapter 5, Section 2 of Regulation No 1782/2003, entitled ‘Partial implementation’. In those circumstances, the expression ‘recoupling of aid’ is also used.

(14) – OJ 1992 L 355, p. 1. Regulation as amended by Council Regulation (EC) No 1593/2000 of 17 July 2000 (OJ 2000 L 182, p. 4).

(15) – OJ 2001 L 327, p. 11.

(16) – OJ 2004 L 17, p. 7.

(17) – According to Article 2(d) of Regulation No 1782/2003, a direct payment means a payment granted directly to farmers under an income support scheme listed in Annex I. Both the single payment and the suckler cow premium are included in those schemes.

(18) – BGBl. 2004 I, p. 1763.

(19) – See, to that effect, the abovementioned judgments in Berlusconi and Others (paragraphs 67 to 69) and Campina (paragraph 32).

(20) – Campina , paragraph 33.

(21) – Paragraphs 49 to 52. See also point 27 of the Opinion of Advocate General Léger of 11 December 2003 in the case which gave rise to that judgment.

(22) – Gerken , parag raph 50.

(23) – That this was the intention of the Community legislature is also apparent from the second sentence of recital (6) in the preamble to Regulation No 118/2004, according to which ‘[s]ome of these provisions should be amended so as to ensure that the reductions and exclusions are at all times strictly graded according to the gravity of the irregularity’.

(24) – That analysis is borne out by the second sentence of recital (68) in the preamble to Regulation No 796/2004.

(25) – Haug , paragraph 17, and Campina , paragraph 30.

(26) – I consider that were the scheme of penalties which is material in terms of the substantive scope to be the scheme which appears in Article 59 of Regulation No 796/2004, it should be pointed out that it is not, in any event, currently applicable in Germany, since that Member State opted to decouple ‘livestock’ premia, and is not, a fortiori, retroactively applicable. As the Greek Government has indicated, that conclusion emerges clearly from recital (12) in the preamble to Regulation No 796/2004, from which we can infer that Article 59 of the regulation could apply only in so far as Germany had opted to keep certain livestock premia, such as the suckler cow premium, linked to production.

(27) – The Commission refers, in particular, to points 159 to 161 of that Opinion.

(28) – From a formal perspective, it is also interesting to note that, according to the correlation table that appears in Annex III to Regulation No 796/2004, Article 39 of Regulation No 2419/2001 has no equivalent in the former regulation.

(29) – See also, to the effect, recital (49) in the preamble to Regulation No 796/2004.

(30) – Indeed, as well as the fact that cross-compliance control potentially concerns 18 regulations and directives, it also covers good agricultural and environmental conditions, which did not, as such, exist in 2001.

(31) – See, in that connection, Article 6 et seq of Regulation No 3887/92.

(32) – See Article 71(1) of Regulation No 1782/2003.

(33) – Namely, 3% in 2005, 4% in 2006 and 5% for each year from 2007 to 2012.