Case T-2/11

Portuguese Republic

v

European Commission

‛EAGGF — Guarantee Section — EAGF and EAFRD — Expenditure excluded from financing — Expenditure incurred in connection with the POSEI measure (financial years 2005, 2006 and 2007)’

Summary — Judgment of the General Court (Eighth Chamber), 7 June 2013

Agriculture — EAGGF — Clearance of accounts — Grant of aids and premiums — Obligation of Member States to organise an effective system of administrative controls and on-the-spot checks — National authorities refusing to pay certain expenses on account of a finding of irregularities following such a check — No remedy guaranteeing that EAGGF finances only applications which comply with EU legislation

Agriculture — EAGGF — Clearance of accounts — Period capable of being the subject-matter of a financial correction — Period prior to the date of the written communication of the results of the checks — Lawfulness — Conditions — Opportunity of Member State concerned to remedy the irregularities found — Commission not entitled to take account of periods concerning closed marketing years not covered by the verification mission and not capable of rectification

See the text of the decision. (see para. 54)

In the context of the clearance of accounts procedure of the EAGGF, the first written communication by the Commission to the Member States at the conclusion of the controls which it has carried out must, in accordance with Article 11(1), first sentence, of Regulation No 885/2006, laying down detailed rules for the application of Regulation No 1290/2005 as regards the accreditation of paying agencies and other bodies and the clearance of the accounts of the EAGF and of the EAFRD, contain the results of the Commission’s verifications concerning expenditure which was not effected in compliance with Community rules by the Member State concerned and indicate the corrective measures needed to ensure future compliance with those rules. That communication must be capable of giving the Member State a full understanding of the Commission’s reservations, so that it can fulfil the function as a warning accorded to it by Article 8(1), first sentence, of Regulation No 1663/95, laying down detailed rules for the application of Regulation No 729/70 regarding the procedure for the clearance of the accounts of the EAGGF Guarantee Section, and by Article 7(4) of Regulation No 1258/1999 on the financing of the common agricultural policy. It follows that, in the first communication referred to in Article 8(1) of Regulation No 1663/95, the Commission must state, with sufficient precision, the purpose of the investigation carried out by its services and the deficiencies found during that investigation, which may be invoked subsequently as evidence of the serious and reasonable doubt it entertains about the checks carried out by the national authorities or about the figures submitted by them, and which may, accordingly, justify the financial corrections applied in the final decision excluding from Community financing certain expenditure incurred by the Member State concerned under the EAGGF. Only such a communication is capable of ensuring a full understanding of the Commission’s reservations and may constitute the reference point for the calculation of the 24-month period under the fifth subparagraph of Article 7(4) of Regulation No 1258/1999 and Article 31 of Regulation No 1290/2005. According to Article 8(1) of Regulation No 1663/95 and Article 11 of Regulation No 885/2006, read in conjunction with the fifth subparagraph of Article 7(4) of Regulation No 1258/1999, the Commission may not exclude expenditure effected more than 24 months prior to the Commission’s written communication of the results of those checks to the Member State concerned. A failure to observe the condition laid down in Article 8(1) of Regulation No 1663/95 and Article 11 of Regulation No 885/2006 deprives of its substance the procedural guarantee accorded to Member States by the fifth subparagraph of Article 7(4) of Regulation No 1258/1999, which limits the period in respect of which expenditure can be refused financing by the EAGGF. (see paras 57-62, 79)

In the context of the clearance of accounts procedure of the EAGGF, the results of the Commission’s verifications, which constitute the basis of any financial correction, must be communicated to the Member State as soon as possible in order that it may remedy the defects found without delay and, consequently, avoid fresh corrections in the future. Moreover, it is apparent both from Article 8 of Regulation No 1663/95 laying down detailed rules for the application of Regulation No 729/70 regarding the procedure for the clearance of the accounts of the EAGGF Guarantee Section and from Article 11 of Regulation No 885/2006 that, if the Member State concerned does not remedy the irregularities found by the Commission, the Commission may exclude the expenses affected by the non-compliance with Community rules until the Member State has effectively implemented corrective measures imposed by the Commission. In that regard, where the results are not communicated on time and where irregularities justifying the application of a financial correction persist after the date of the written communication, the Commission is entitled and even obliged to take account of that situation when it determines the period to which the financial correction in question is to relate. However, the Commission’s obligation to make a financial correction for an earlier period cannot extend to a period which was not covered by the inspection visit and which was prior to the date of the first communication of the results of the checks, since a Member State which is not informed of the irregularities found until after the end of the marketing years concerned is unable to adopt any corrective measures in time. Any other interpretation would mean authorising the Commission to make a financial correction for a period prior to the date of the first communication of the verifications without the Member State having been informed beforehand and having been able to correct those irregularities. (see paras 63, 79, 80, 82-85)

See the text of the decision. (see paras 99-102, 131-133)

See the text of the decision. (see paras 108, 109, 112, 149)

If an irregularity is found by a national authority when carrying out an on-the-spot check by sample of applications for assistance carried out pursuant to Article 58 of Regulation No 43/2003 laying down detailed rules for applying Council Regulations No 1452/2001, No 1453/2001 and No 1454/2001 as regards aid for the local production of crop products in the outermost regions of the European Union, refusal to make payments only in respect of applications which have already been found to be irregular cannot be regarded as having remedied the finding of a deficiency so as to ensure that the EAGGF finances only applications which comply with EU legislation. The national authority should have taken into consideration the rate of errors found as regards the control sample and applied it to the whole of the given statistical universe, thus making it possible to assess the loss suffered by the EAGGF. (see paras 128, 129)

See the text of the decision. (see paras 138-140)

In the context of the clearance of accounts procedure of the EAGGF, where, instead of disallowing all the expenditure affected by the infringement, the Commission has endeavoured to establish rules under which irregularities are treated differently, depending on the extent of the shortcomings in the checks and the degree of risk to the EAGGF, it is for the Member State to show that those criteria are arbitrary and unfair. (see para. 147)