Commission communication on the interest rates to be applied when aid granted unlawfully is being recovered
Date: 2003-05-08
Institutions: European Commission
Subjects: State aid, control of State aid, interest, redemption

8.5.2003

EN

Official Journal of the European Union

C 110/21

Geographical area

Add the following localities in respect of the Autonomous Community of Aragon: Biota, Boquiñeni,
Luceni, Remolinos, Sádaba, Sos del Rey Católico and Uncastillo.

Add the following localities in respect of the Autonomous Community of Navarre: Améscoa Baja,
Ansoáin, Aoiz-Agoitz, Aranguren, Belascoáin, Berrioplano, Burlada, Castillo-Nuevo, Ciriza, Cizur,
Echarri, Echáuri-Etxauri, Egüés, Elorz, Ezcabarte, Ezprogui, Galar, Guesálaz, Huarte, Ibargoiti, Iza,
Izagaondoa, Juslapeña, Lana, Leache, Leoz, Lezáun, Lizoáin, Lónguida, Monreal, Noáin, Olóriz, Olza,
Orisoain, Pamplona-Iruña, Romanzado, Salinas de Oro, Tiebas-Muruarte de Reta, Unciti, Unzué,
Urraúl Bajo, Urroz, Vidaurreta, Zabalza and Zizur.

EC No: ES/00098/94.01.24.

Date of receipt of the full application: 14 November 2002.

Commission communication on the interest rates to be applied when aid granted unlawfully is
being recovered

(2003/C 110/08)

Article 14 of Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the
application of Article 93 of the EC Treaty (1) provides that when negative decisions are taken in cases of
unlawful aid, the Commission shall decide that the Member State concerned shall take all necessary
measures to recover the aid from the beneficiary. The aid to be recovered shall include interest at an
appropriate rate fixed by the Commission. Interest shall be payable from the date the unlawful aid was at
the disposal of the beneficiary until the date of its recovery.

In a letter to Member States of 22 February 1995 the Commission took the view that for the purpose of
restoring the status quo commercial rates provide a better measure of the advantage improperly conferred
on the recipient of unlawful aid. Accordingly, the Commission informed the Member States that in any
decisions it might adopt ordering the recovery of aid unlawfully granted, it would apply the reference rate
used in the calculation of the net grant equivalent of regional aid measures as the basis for the commercial
rate. Thus for several years it has been the standard practice of the Commission to include in its recovery
decisions a clause requiring interest to be calculated on the basis of the reference rate used for calculating
the net grant equivalent of regional aids.

As part of the process of loyal collaboration between the Commission and Member States during the
execution of certain recovery decisions, the question has arisen whether this interest rate should be applied
on a simple basis or on a compound basis (2). The Commission accordingly considers it necessary to clarify
urgently its position on the matter, having regard to the objectives of the recovery of unlawful aid and its
place in the system of State aid control laid down by the Treaty.

In accordance with a great number of decisions of the Community judiciary (3), recovery is the logical
consequence of the illegality of aid. The objective of recovery is to re-establish the previously existing
situation. By repaying the aid, the beneficiary forfeits the unfair advantage which it enjoyed over its
competitors on the market and the conditions of competition which existed prior to the payment of
the aid are restored.

(1) OJ L 83, 27.3.1999, p. 1.
(2) The calculation of simple interest uses the formula Interest = (Capital × Interest rate × Number of years). The calcu-
lation of compound interest, compounding on a yearly basis uses the formula Interest = (Capital (1 + Interest rate)
Number of years) – Capital.

(3) See in particular Case C-24/95 Land Rheinland-Pfalz v. Alcan [1997] ECR I-1591 and Case T-459/93 Siemens v

Commission [1995] ECR II-1675.

C 110/22

EN

Official Journal of the European Union

8.5.2003

In market practice, simple interest would normally be calculated where the beneficiary of the funds does
not have use of the interest amount before the end of the period, for example where interest is only paid
at the end of the period. Compound interest would normally be calculated if each year (or period) the
amount of interest can be considered as being paid to the beneficiary and so accruing to the initial capital
amount. In this case, the beneficiary would earn interest on the interest paid for each period.

In practice, the type of aid which has been granted and the situation of the individual beneficiary may
differ. If the aid consists in overcompensation, the benefit which the company took from it can be
assimilated to a deposit which would normally attract compound interest. If the aid was an investment
aid for a certain eligible cost, the aid may have replaced an alternative source of financing, which would
also normally bear compound interest at commercial rates. If the aid was an operating aid, it would have
direct effects on the profit and loss accounts, and hence the balance sheet, leading to the availability of
funds for deposit. Thus despite the variety of situations, it appears that the effects of an unlawful aid are to
provide funding to the beneficiary on similar conditions to a medium term non-interest bearing loan.
Accordingly, the use of compound interest appears necessary to ensure that the financial advantages
resulting from this situation are fully neutralised.

Accordingly, the Commission wishes to inform the Member States and interested parties that in any future
decisions it may adopt ordering the recovery of aid unlawfully granted, it will apply the reference rate used
for calculating the net grant equivalent of regional aids on a compound basis. In accordance with normal
market practice, compounding should take place on an annual basis. Likewise, the Commission will expect
the Member States to apply compound interest in the execution of pending recovery decisions, unless this
would be contrary to a general principle of Community law.