2006/570/EC: Commission Decision of 14 December 2004 on a German aid scheme for Bavarian machinery rings (notified under document number C(2004) 4771)
Date: 2004-12-14
Institutions: European Commission
Subjects: Bavaria, Germany, State aid, aid to agriculture, control of State aid, mutual assistance among farmers

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 14 December 2004

on a German aid scheme for Bavarian machinery rings

(notified under document number C(2004) 4771)

(Only the German text is authentic)

(2006/570/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(3)

Having regard to the Treaty
Community, and in particular Article 88(2)(1) thereof,

establishing the European

Having regard to the Agreement on the European Economic
Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments in
accordance with the Articles cited above (1) and having regard
to those comments,

Whereas:

(1)

(2)

I. PROCEDURE

By letter of 31 January 2001 Germany notified the
in favour of Bavarian
Commission of
a measure
machinery rings. Additional
information was provided
by letter of 11 May 2001, registered on 16 May 2001,
and by letter of 9 October 2001, registered on 11
October 2001.

By letter of 9 October 2001 Germany informed the
Commission that the measure dated back to 1970 and
had not been notified before. The aid was therefore
placed on the list of non-notified aid schemes.

(4)

(5)

(6)

By letter of 7 February 2003, the Commission informed
Germany that it had decided to initiate the procedure laid
down in Article 88(2) of the EC Treaty in respect of this
measure.
investi-
In its decision to initiate the formal
gation procedure the Commission stated that it had no
objections to raise on one part of the measure (social
assistance), since it fell within the scope of section 14 of
the Community Guidelines for State aid in the agriculture
sector (2) (hereinafter the Guidelines) and was therefore
compatible with the common market in accordance with
Article 87(3)(c) of the EC Treaty.

The Commission decision to initiate the procedure was
published in the Official Journal of the European Union (3).
The Commission called on interested parties to submit
their comments on this aid scheme.

The Commission received comments from interested
parties in letters of 29 April 2003 (registered on 2
May 2003), 5 May 2003 (registered on 6 May 2003)
and 26 May 2003 (registered on 28 May 2003), and
in an e-mail of 12 February 2003 (registered on 14
February 2003).

Germany sent its comments to the Commission by letter
dated 4 April 2003, registered on 8 April 2003. In a
letter of 29 August 2003 registered on 3
further
September 2003, Germany submitted its comments on
the comments from interested parties.

(1) OJ C 82, 5.4.2003, p. 12.

(2) OJ C 28, 1.2.2000, p. 2.
(3) See footnote 1.

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(7)

(8)

(9)

On 19 May 2004, the file was split, and the Commission
adopted a final decision (4) authorising pro futuro the
notified aid Germany intended to grant over the period
2001 to 2005.

registered on 16
By letter of 14 September 2004,
September 2004, Germany sent additional
information
on the non-notified part of the measure, as requested
by the Commission by letter of 24 May 2004.

This Decision relates only to aid unlawfully granted by
Germany to Bavarian machinery rings in the period
preceding 2001 (excluding aid for social assistance).

II. DESCRIPTION OF THE AID

II.1. Objective and legal basis

(10)

The aim of
the measure is to facilitate cooperation
between agricultural and forestry holdings in Bavaria by
subsidising machinery and relief service organisations
called ‘machinery rings’. The legal basis for the measure
is the Gesetz zur Förderung der bayerischen Landwirtschaft
(LwFöG) of 8 August 1974 (Bavarian Agricultural
Promotion Act).

cases highly skilled, personnel often not available
on the holding.

(c) Coordinating the provision of tourist accommodation

on agricultural and forestry undertakings.

(d) Sharing

between

holdings:

of machinery

the
machinery rings organise and coordinate machinery
exchanges between holdings. This
farmers
having to purchase their own specialist equipment
which in many cases would be uneconomical, parti-
cularly for small-scale farms.

saves

(13) Machinery rings act merely as intermediaries. The actual
services — provision of machinery and labour — are
rendered by the farmers, who receive marketprice remu-
neration from the undertakings
farmers)
In return for the
availing themselves of
service offered by the machinery ring,
farmers pay a
membership fee and fees per service rendered by the
machinery ring.

the services.

(i.e. other

(14) Not all the activities of the machinery rings are subsidised
by the State. In particular, the coordination of tourist
accommodation provision is excluded from support,
and is subject to a separate accounting requirement.

II.2. Recipients

(15)

(11)

The recipients are the Bavarian machinery rings and the
Kuratorium Bayerischer Maschinen- und Betriebshilferinge e.V.
(KBM).

The Bavarian machinery rings

(12) Machinery rings are

farmers’
self-help organisations
operating at local or regional level. Under Article 9 of
the LwFöG,
they may only engage in the following
activities:

(a) Social

assistance

(already
see recital 3:

Commission,
organise relief
illness, accident and other such emergencies.

farm personnel

by

the
approved
the machinery rings
in the event of

(with

limited

exceptions)

The Act LwFöG limits the activities of the machinery
rings to the ‘core tasks’ (5) referred to in recital 12,
are
which
subsidised.
the machinery rings set up legally inde-
if
However,
pendent subsidiaries,
they may also engage in other
activities (Article 10(c) of the LwFöG) in so far as these
do not jeopardise fulfilment of the aforementioned ‘core
tasks’. These ‘non-core tasks’,
for which a separate
the
exists
accounting
LwFöG), include:

(Article 12 of

requirement

(a) maintenance of green spaces;

(b) collection, processing and re-use of organic waste;

(c) provision of transport services in the agricultural and

forestry sectors;

(d) forestry work;

(b) Farming and forestry relief services: the machinery
rings organise
farm and forestry
exchanges of
labour in particular to cope with seasonal demand
in some
and to meet

the needs for specialised,

(4) C(2004) 1629 final.

(e) provision to local authorities of services such as snow
clearing, cleaning services and similar activities.

(5) For the purposes of this Decision, ‘core tasks’ means those activities

which are eligible for aid under German law.

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KBM

(16)

The KBM is the umbrella organisation of machinery rings
in Bavaria. Between 1994 and 2000, KBM had a
membership of 83 to 90 machinery rings, representing
around 100 000 agricultural and forestry holdings. KBM
received payments for performing the following tasks:

(a) acting as

the central contact with the Bavarian

Ministry of Agriculture and Forestry;

(b) managing the public

funds made

available

to

machinery rings;

(c) recruiting full-time managers and other staff for the

machinery rings;

(d) advising and supporting the machinery rings in all
matters relating to the pooling of equipment and
labour;

(19)

(e) providing a wide range of services to machinery rings

throughout Bavaria;

(f) general and specialist supervision of machinery ring

managers;

(g) organising

and
machinery ring personnel.

training

further

training

for

(20)

II.3. Budget

(17)

the EC Treaty (6),

The German authorities said that aid was paid to KBM
and the machinery rings from 1974. Under Article 15(1)
of Council Regulation (EC) No 659/1999 of 22 March
1999 laying down detailed rules for the application of
Article 93 of
the
Commission to recover aid are subject to a limitation
period of 10 years. The Commission investigation
started in 2001, which means that, in line with Article
15(2) of that Regulation, this 10-year period goes back
to 1991. Therefore, aid paid before this period will not
be investigated further.

the powers of

(18)

The budgetary data provided by Germany and set out in
the table below relate to payments to KBM and the
machinery rings during the period 1992 to 2000 only.

(6) OJ L 83, 27.3.1999, p. 1. Regulation as amended by the 2003 Act

of Accession.

19.8.2006

(in EUR)

Year

Aid paid out to KBM

of which: aid to machinery
rings

1992

1993

1994

1995

1996

1997

1998

1999

2000

5 268 000,00

5 882 000,00

6 120 163,82

6 005 123,14

6 005 123,14

5 112 918,81

5 252 757,14

5 007 205,07

4 387 906,92

5 774 370,02

5 661 987,48

5 636 740,37

4 777 826,08

4 912 490,12

4 734 342,77

4 035 399,63

II.4. Nature and scope of the aid

The measure was financed by the Land of Bavaria. The
aid was paid in the form of direct grants to the umbrella
organisation of machinery rings, the KBM, which partly
distributed the funds to its affiliate machinery rings in the
form of financial transfers and services. Aid to machinery
rings was calculated as the percentage of
the overall
expenditure accounted for by the expenditure required
to carry out their statutory core tasks.

II.5. Reasons for initiating the formal investigation
procedure

It was not clear, after initial examination, whether public
payments to KBM remunerated it for its services to the
machinery rings without going beyond the market price
for such services, or whether such payments exceeded the
market price and thus subsidised KBM’s operating costs.
It was unclear whether such possible aid fell within the
scope of Commission Regulation (EC) No 69/2001 of 12
January 2001 on the application of Articles 87 and 88 of
the EC Treaty to de minimis aid (7). Nor did the
Commission have any information to indicate that such
aid was linked to investment or other eligible expen-
diture, or fell within the scope of Commission Regulation
(EC) No 70/2001 of 12 January 2001 on the application
of Articles 87 and 88 of the EC Treaty to State aid to
small and medium-sized enterprises (8). The aid was
therefore possibly classifiable as operating aid incom-
patible with the common market (9).

(7) OJ L 10, 13.1.2001, p. 30.
(8) OJ L 10, 13.1.2001, p. 33. Regulation as last amended by Regu-

lation (EC) No 364/2004 (OJ L 63, 28.2.2004, p. 22).

(9) As the Court of

Instance of

the
Justice and the Court of First
European Communities have ruled, operating aid, i.e. aid intended
to relieve an undertaking of the expenses which it would itself
normally have had to bear in its day-to-day management or its
usual activities,
in principle distorts competition (judgment of the
Court of First Instance in Case T-459/93 Siemens SA v Commission
[1995] ECR II-1675, paragraphs 48 and 77 and the case law cited
therein).

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(21) A similar objection applied to payments in favour of
machinery rings.
it was unclear whether
In particular,
the public funds channelled to the machinery rings by
KBM were used exclusively to reduce the costs to farmers
of the services offered, meaning that it was only the
farmers who were subsidised, or whether the machinery
rings themselves as enterprises were among the final
beneficiaries of the funds and thus received State aid
themselves.

ficient separation between the rings’ core tasks and their
other economic activities, it was not possible to make a
clear distinction between those
tasks which were
supported through public funds and those which were
not. The complainants felt that the aid could be used to
cross-subsidise other economic activities, and therefore
distorted competition also outside the agriculture sector.

III.2. Comments of

interested parties during the

formal investigation procedure

(22)

Furthermore, initial examination of the measure indicated
that the aid benefited, at least partially, farms and forestry
holdings. The Commission had serious doubts as to
whether the aid for farm relief services and machine
pooling could be authorised on the basis of section 14
of the Guidelines or whether such aid was not in fact
operating aid to agricultural producers.

(23)

It also needed to be established whether the machinery
rings’ various areas of activity could be clearly separated
from one another and whether State aid payments to the
machinery rings led to distortions of competition in
other economic sectors (i.e. in areas of activity outside
the official core tasks of the machinery rings).

(26)

(27)

III. COMMENTS FROM INTERESTED PARTIES

III.1. Objections to the measure

(24)

The Commission services have received a number of
complaints. The complainants allege that the machinery
rings were not only involved in the core tasks described
in recital 12, but also provided other communal services
such as snow clearing, road building/repairs, waste-water
treatment plant construction, etc., plus garden/landscape
maintenance and building golf courses and other sports
facilities,
in competition with other commercial under-
takings.

(25)

The complainants argued that, because of the close rela-
tionship in staffing and geographical terms between the
machinery rings and their subsidiaries, and the insuf-

The Commission received comments from four interested
parties during the formal
investigation procedure. The
the
interested parties do not raise objections against
subsidised core tasks of the machinery rings, i.e. social
assistance,
and
machine pooling.

farming and forestry relief

services

Their comments concern the ‘non-core tasks’ carried out
by machinery rings through their subsidiaries, such as
clearing snow in winter and gardening and landscaping
In some cases
for outside companies.
under contract
these subsidiaries cannot be distinguished from the
machinery rings since they use the same name and
employ the same staff. The information submitted by
the interested parties also suggests that the machinery
rings offer certain services (e.g. sale of equipment) on
the market. One interested party submitted detailed infor-
mation demonstrating that one machinery ring had sold
plant protection products at a price below the market
price, perhaps even below the manufacturer’s selling
the interested
price.
parties, although it was
subsidiaries
that submitted tenders in response to open invitations
to tender, provision of the services was sub-contracted
to the machinery rings. The interested
inter alia,
out,
parties therefore feel
it is impossible to make a
clear distinction between the core tasks of machinery
rings and their other commercial activities.

in the view of

the commercial

In other cases,

that

(28)

terms, of

in staffing and geogra-
Because of the unified nature,
the machinery rings — or KBM —
phical
and their subsidiaries, the interested parties argue that
it is not possible to prevent the cross-subsidisation of
the commercial activities referred to in recital 25. One
interested party also considers that machinery rings abuse
their dominant position within the meaning of Article 82
of
the EC Treaty, make agreements and engage in
practices that distort competition within the meaning
of Article 81 of the Treaty.

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(29)

(30)

(31)

(32)

(33)

It should be noted that the evidence provided by the
interested parties to substantiate their claims does not
refer specifically to the period preceding 2001, which
is the object of this decision. The Commission is of the
opinion that such evidence is nonetheless relevant for the
purposes of assessing whether there was scope for cross-
subsidisation and distortion of competition outside the
agriculture sector also in the period preceding 2001.

IV. COMMENTS FROM GERMANY

In its letter of 4 April 2003, Germany holds that neither
KBM nor the machinery rings are enterprises within the
meaning of State aid legislation. Germany argues that
KBM has not offered goods or services on a specific
market and the State-subsidised areas of activity (core
tasks) of machinery rings should not be classified as
economic activities, since they are not intended to turn
a profit.

that,

In the additional information submitted by letter of 14
since the
September 2004, Germany contends
statute of the machinery rings bars them from carrying
out economic activities, it is sufficiently proven that the
aid could only benefit farmers, and no further evidence is
necessary in this respect. Germany submitted figures
showing that social assistance alone accounts for a very
large proportion of
the financial contribution to be
passed on to farmers by the machinery rings. Germany
concludes that the entire amount paid by the Land of
Bavaria to KBM and the machinery rings can be
deemed to have been passed on to farmers as sole final
beneficiaries.

In its letter of 4 April 2003, Germany maintains that aid
granted to farmers through the machinery rings falls
within the definition of ‘soft aids’ of section 14 of the
Guidelines, and complies with the requirements of that
section. Therefore, it can be considered compatible with
the common market.

In its letter of 4 April 2003, Germany quotes the
judgment of the European Court of Justice of 24 July
in Case C-280/00 (Altmark Trans GmbH and Regierungs-
präsidium Magdeburg) (10), which rules that State compen-
satory measures, provided they are merely compensation
for the services provided in order to discharge public
service obligations, do not, under certain conditions,
fall under the heading of State aid. Germany considers
that,
those conditions can be
considered to be fulfilled.

in the case in hand,

(10) [2003] ECR I-7747.

(34) Germany makes the following Statements in respect of
the interested parties’ objections concerning the impact
of the measure on certain non-agricultural activities of
the machinery rings and the allegation of cross-subsidi-
sation affecting other sectors of the economy.

(35)

In its letter of 14 September 2004, Germany points out
thirteen independent
that, between 1994 and 2000,
subsidiaries were set up to carry out
the activities
outlined in recital 15.

(36)

KBM, the machinery rings and each of their subsidiaries
have always been under an obligation to keep separate
accounts, as laid down in Article 12, fifth sentence, of
the LwFöG. The Bavarian authorities have duly checked
for compliance with this obligation.

(37) On the other hand, since KBM and the machinery rings
could carry out only the core tasks laid down in their
statutes, whilst the commercial subsidiaries could only
carry out the five ‘non-core tasks’ enumerated in the
Act, Germany did not deem it necessary to have
records of working time.

(38) Germany claims

that

a comprehensive package of
measures and a supervision mechanism were in place
to ensure that
the aid was used exclusively for the
three core tasks of the machinery rings, ruling out any
danger of cross-subsidisation of non-agricultural sectors,
as follows:

(a) Separate accounting and budgeting requirement for

KBM, machinery rings and their subsidiaries;

(b) Clear delimitation of areas of activity (core tasks for
the machinery rings, non-core tasks for the subsi-
diaries);

(c) Limitation of non-core tasks to five clearly identified

areas in the LwFöG;

(d) Payable aid was calculated based on ‘necessary cost’
first sentence of the LwFöG). For the
(Article 12,
purposes of establishing such ‘necessary cost’,
the
Bavarian authorities checked each item of expenditure
and ascertained whether
related to the
machinery rings’ core tasks.

it was

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(e) Explicit exclusion from support of non-core tasks

(45) However, KBM also carries out activities of an economic

(Article 12, third sentence of the LwFöG);

nature, as it

(f) 10 % reduction in support

having commercial
sentence of the LwFöG).

subsidiaries

for machinery rings
sixth

(Article 12,

V. ASSESSMENT OF THE AID

V.1. Existence of aid

(39) Under Article 87(1) of the EC Treaty, any aid granted by
a Member State or through State resources in any form
whatsoever is prohibited if
it distorts or threatens to
distort competition by favouring certain undertakings
or the production of certain goods in so far as it
affects trade between Member States.

(40)

These conditions are fulfilled, as shown below.

(41)

The measure is financed through State resources.

V.1.1. Aid to KBM

(42)

activities do not

KBM's
to the production,
processing and marketing of products listed in Annex I
to the EC Treaty.

relate

(43) Germany has provided a list of activities carried out by
KBM (see recital 16). Some of these activities are not of
In particular, KBM’s activities as
an economic nature.
central contact for the Bavarian Ministry of Agriculture
and Forestry, its administrative and technical supervision
of machinery ring managers and its management of the
public funds made available to the machinery rings are
not services rendered on a given market. Therefore, they
are not classifiable as economic activities, and KBM
considered an undertaking within the
cannot be
meaning of Article 87(1) of the EC Treaty in respect of
those activities.

(44)

Payments covering KBM’s administrative costs do not
have all the features specified in Article 87(1) of the
EC Treaty, and therefore do not constitute State aid
within the meaning of that Article.

(a) offers certain consultancy services

for machinery

rings;

(b) offers training and further

training of machinery

rings staff;

(c) develops computer programmes which are then sold

to farmers.

(46)

Since the goods and services in question are provided on
a specific market and constitute economic activities, KBM
must be considered an undertaking within the meaning
of Article 87(1) (11) of the EC Treaty.

(47) As regards KBM’s consultancy and training activities,
these services
should benefit mainly the machinery
rings and their subsidiaries, as these receive the services
free of charge or against a contribution to costs which is
below the market price. However, Germany has not
provided any information as to whether the amounts
paid yearly to KBM correspond to the costs actually
incurred by KBM in the exercise of these activities, and
therefore can be taken to be payments at market price
for a service provided, on behalf of the Land of Bavaria,
by KBM to machinery rings, or whether they may in fact
exceed the market price. Furthermore, the provision of
public funds to KBM is not explicitly linked to the
condition that all elements of aid contained therein
should be integrally passed on to the machinery rings
or their subsidiaries. It is therefore not possible, on the
basis of the available information, to completely rule out
the possibility that the measure in question includes an
aid component to KBM.

(48)

Besides, it cannot be established whether such aid is so
small that, under Regulation (EC) No 69/2001, it does
not constitute State aid because not all the conditions of
Article 87(1) of the EC Treaty are fulfilled.

(11) The Court of Justice of the European Communities has consistently
in the context of competition law, the concept of an
held that,
undertaking covers any entity engaged in an economic activity,
regardless of the legal status of the entity or the way in which it
is financed (see, inter alia, the judgment in joined Cases C-180/98 to
C-184/98 Pavlov and others v Stichting Pensionsfonds Meidische Specia-
listen [2000] ECR I-6451, paragraph 74). It has also been consis-
tently held that any activity consisting in offering goods and
services on a given market is an economic activity (judgements in
Case C-118/85 Commission v Italy [1987] ECR 2599, paragraph 7
and in Case C-35/96 Commission v Italy [1998] ECR I-3851,
paragraph 36, as well as the previously cited Pavlov judgment,
paragraph 75).

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(49)

It must be assumed that the measure benefiting KBM’s
economic activities is liable to have an impact on trade
between Member States. According to the case law of the
Justice in the case Altmark Trans
European Court of
GmbH and Regierungspräsidium Magdeburg (12),
there is
no threshold and no percentage under which it may be
considered that
trade between Member States is not
affected. Neither the relatively small amount of the aid,
nor the relatively small size of the beneficiary under-
taking enable to rule out, in principle, the possibility of
an impact on trade between Member States.

transfers received by the machinery rings through KBM
was indeed transferred to farmers.

(54) However, Germany has not provided conclusive evidence
to rule out the existence of a component of State aid
remaining with the machinery rings, as the machinery
rings were not under a legal obligation to pass on the
full amount of aid received to farmers in the form of
services at reduced price.

(50)

Therefore, financial contributions granted to KBM must
be classified as State aid within the meaning of Article
87(1) of the EC Treaty in favour of KBM.

(55)

The machinery rings and their subsidiaries also received
economic benefits stemming from the services put at
training and
their disposal by KBM for consultancy,
since such
further
services were provided either free of charge or below
the market price.

training of machinery ring staff,

V.1.2. Aid to machinery rings

(51) Machinery rings carry out economic activities in that they
provision
of
provide
(e.g.
services
machinery, exchange of
in return for
payment on an actual or potential market. Therefore,
machinery rings
should be considered undertakings
within the meaning of Article 87(1) of the EC Treaty.

coordinating
labour, etc.)

(56) Germany has not provided the Commission with infor-
mation enabling it to quantify the amount of aid granted
to machinery rings in this form.

(57)

It is therefore impossible to assess whether aid possibly
received by machinery rings in the form of payments and
services from KBM is so small that it can be classified as
de minimis aid under Regulation (EC) No 69/2001.

(52) Machinery rings do not own the machinery and do not
provide the staff themselves. Their core activity is entirely
confined to an intermediary role, comparable with that
of an estate agent or employment agency, which bring
together supply and demand. They are not active in the
production, processing and marketing of products listed
in Annex I to the EC Treaty.

(58) On the basis of

it must
therefore be assumed that the measure favours certain
undertakings (the machinery rings) in Bavaria.

the available information,

(53)

farmers

The machinery rings’ core tasks typically give rise to
operational and personnel costs, such as staff salaries,
rent for premises and other office expenditure. In the
absence of State aid,
these costs are financed from
membership contributions and ad hoc payments made
by
and/or
the provision of
machinery. State aid granted to the machinery rings
leads,
in principle, to a reduction in membership fees
and ad hoc payments. Aid to machinery rings can be
expected to be at
least partially passed on to the
farmers who are members of the rings, and available
the financial
evidence shows that a large amount of

labour

for

(59)

(60)

the measure benefiting
It must also be assumed that
machinery rings is liable to distort competition and
affect trade between Member States, since some of the
machinery rings’ services could also be offered across
borders. According to the case law of
the Court of
Justice, there is no threshold and no percentage under
which it may be considered that trade between Member
States is not affected. Neither the relatively small amount
of the aid, nor the relatively small size of the beneficiary
in principle, the possi-
undertaking enable to rule out,
bility of an impact on trade between Member States (13).

the measure

Therefore,
aid within the
meaning of Article 87(1) of the EC Treaty in favour of
machinery rings.

constitutes

(12) See footnote 10.

(13) See footnote 10.

(63)

(64)

(65)

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V.I.3. Aid to the machinery rings’ subsidiaries

(61)

complaints made

The examination of issues of commercial or fiscal law in
Member States
in that
and of
connection by economic operators falls,
in principle,
within the sphere of competence of the Member States.
However, in this case the aid granted by Germany could
distort
therefore
competition. The Commission has
examined the measure from that angle.

(62)

The comments from interested parties point to the possi-
bility that aid to the machinery rings and KBM may have
the ‘non-core tasks’
resulted in cross-subsidisation of
carried out by the machinery rings’ subsidiaries.

Indeed, unless it can be proven beyond reasonable doubt
that a clear factual and legal separation existed between
the parent machinery ring and its
the activities of
the
subsidiary,
public funds granted to the parent machinery ring
flowed to the subsidiaries.

it cannot be ruled out

that some of

rings and their subsidiaries habitually shared the same
In particular, machinery ring staff was mostly
staff.
employed by the subsidiaries. The chairman of
the
KBM board of directors was and is also the chairman
the supervisory board of meinhof.de AG, and the
of
manager of MR Bayern GmbH was also the manager of
meinhof.de AG.

(69) Germany appears to have been aware of such contiguity
between the machinery rings and their subsidiaries. In
1997, a letter of the Bavarian Ministry of Agriculture
and Forestry set out the principles to be followed in
checking the machinery rings’ accounts.
In particular,
the
laid down that work carried out by
machinery rings’ staff on behalf of the commercial subsi-
diaries should be invoiced at market prices, and that such
compensation for services rendered by machinery rings
should be deducted from the ‘necessary cost’ which
formed the basis for State aid to the machinery rings.

letter

It is therefore necessary to examine the factual and legal
situation in the period between 1994 and 2000 with
to the obligations and precautions introduced
respect
the
by Germany to avoid the cross-subsidisation of
machinery rings’ subsidiaries.

(70) However,

in the absence of detailed work records
showing the number of hours worked by staff on
behalf of the machinery rings and on behalf of their
subsidiaries, and considering that premises could be
shared, it would have been impossible to check exactly
how much work was carried out by the machinery rings’
staff for the benefit of the subsidiaries.

In its observations, Germany claims that the machinery
rings and their subsidiaries were completely independent
in terms of accounting/budgeting, premises, staff and
operations. However, the available evidence points in a
different direction.

(66) Article 12, first sentence, of the LwFöG lays down that
machinery rings and their subsidiaries must keep separate
accounting and balance sheets. This requirement appears
to have been fulfilled and verified by Bavaria.

(67) However,

there

seems

to have been close

logistic
contiguity between the machinery rings and their subsi-
diaries. Premises appear to have been shared in many
cases. For example, KBM and its subsidiaries MR Bayern
GmbH and meinhof.de AG subsidiaries had the same
postal address and telephone number, and shared the
same offices.

(68)

The LwFöG imposes no obligation concerning the
the machinery
separation of staff, and indeed KBM,

(71)

(72)

The fact that State aid was automatically reduced by
10 % if a machinery ring also exercised non-core tasks
through a commercial subsidiary also suggests that the
separation of activities could not have been complete,
since the existence of a truly separate commercial
subsidiary would have had no impact on the ‘necessary
cost’ borne by machinery rings to carry out their core
tasks.

Besides, in 2001 Germany adopted a system of detailed
work records whereby, for six months and in turn, each
machinery ring would record the number of hours
worked by staff on behalf of the machinery ring itself
(core tasks) and on behalf of their commercial subsi-
diaries (non-core tasks). This system was introduced to
establish roughly what proportion of working time was
spent by the machinery rings’ staff on ‘non-core tasks’.
The introduction of such a mechanism also appears to
indirectly substantiate the Commission’s doubt that prior
to 2001, staff and operations were not fully separate.

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(73) Advertising in the press and on websites was also shared,
and the available evidence shows that the commercial
subsidiaries made free use of the machinery rings’ logo.
For example, the subsidiary meinhof.de AG used the logo
‘MR’ (i.e. the logo of the machinery rings) on its order
forms, member
information sheets and website. The
advertisements published in the local press do not
enable readers to distinguish between machinery rings
and their subsidiaries. It is also not clear how advertising
costs were split between machinery rings and subsi-
diaries.

(77)

(78)

(74)

Therefore, the Commission considers that Germany did
not have a system capable of effectively precluding cross-
subsidisation between the machinery rings and their
subsidiaries. Therefore, it cannot be ruled out that part
of the State aid received by the machinery rings or KBM
flowed to the subsidiaries, for example in the form of
staff or services put at the subsidiary’s disposal free of
charge or below the market price.

V.I.5. Aid to farmers

The measure also benefited agricultural holdings. They
could benefit
from a network of machinery rings
throughout Bavaria which organised the provision of
machinery and labour against payment of a membership
contribution and fees which did not correspond to the
full cost of such services.

The German authorities have reported intensities of aid
to machinery rings of about 50 % of the ‘necessary cost’
throughout
the period considered. Given the overall
amounts of aid involved (around EUR 5 million/year)
farmers who, as members of a
and the number of
machinery ring, were entitled to use their
services
the entire amount of aid
(around 100 000), even if
the amounts received, on
was passed on to farmers,
average, by
exceed
EUR 50/year.

farmers would not

individual

(75) On the basis of

the available information,

is not
possible to ascertain whether such possible aid to the
benefit of the subsidiaries is so small that, under Regu-
lation (EC) No 69/2001, it cannot be classified as State
aid.

it

V.1.4. Services of general economic interest

case (14),

(76) As regards the reservation put forward by Germany in its
comments that,
in view of the ruling of the European
Court of Justice in the Altmark Trans GmbH und Regie-
in
the measure
rungspräsidium Magdeburg
question could not be classified as State aid,
the
Commission would like to underline that, prima facie,
not all the conditions set out in the Altmark ruling are
fulfilled. Firstly, organising loans of machinery and labour
is — as described — a normal
between farmers
commercial activity and not a service in the general
economic interest with well-defined public service obli-
gations. Secondly, the parameters on the basis of which
compensation
established
calculated were
beforehand. Thirdly, Germany has not demonstrated
that the level of compensation does not exceed what is
necessary to cover all or part of the costs incurred, taking
into account the relevant receipts and a reasonable profit
for discharging the public service obligations.

not

is

(14) See footnote 10.

(79) Article 3 of Commission Regulation (EC) No 1860/2004
of 6 October 2004 on the application of Articles 87 and
88 of the EC Treaty to de minimis aid in the agriculture
sectors (15), which is based on the
and fisheries
Commission’s experience in this field,
lays down that
very small amounts of aid granted in the agriculture
sector do not fulfil all the criteria of Article 87(1) of
the Treaty, provided certain conditions are complied
with. In particular, the Commission has established that
aid which does not exceed EUR 3 000 per beneficiary
three years, provided the total amount of aid
over
granted to agricultural undertakings over three years is
not more than 0,3 % of the annual value of agricultural
production (EUR 133 470 000 for Germany in 2001)
does not distort or threaten to distort competition, and
is therefore outside the scope of Article 87(1) of the EC
Treaty.

(80) Article 5(2) of Regulation (EC) No 1860/2004 lays down
that that Regulation also applies to aid granted before its
entry into force, provided that all
its conditions are
In the case in hand, the Commission
complied with.
considers that such conditions are met, given the very
small amounts of individual aid involved and the total
sum disbursed by Germany (only approximately EUR 5
million per year), that the aid was not linked to exports
or the use of domestic over imported products, nor
linked to the price or quantity of products placed on
the market. The economic analysis required under the
Regulation has
the
Commission, notably in the context of the decision on
State aid N 145/04 (16).

already been carried out by

(15) OJ L 325, 28.10.2004, p. 4.
(16) C(2004) 2669 of 14 July 2004 — France — aid to milk producers
who suffered losses as a result of the bankruptcy of Parmalat.

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(81)

It must be noted that, in its decision authorising such aid
to farmers pro futuro (17), the Commission assessed the
same measure in the light of section 14 of the Guidelines
taking into
and found it compatible on that basis,
case.
that
circumstances of
account
the
However,
in the case under consideration here, appli-
cation of the principles laid down in Regulation (EC)
No 1860/2004 makes it unnecessary to carry out an
assessment on the basis of section 14 of the Guidelines.

specific

V.2.1. Compatibility of aid to KBM

(85) As described in recitals 42 to 50, it is unclear whether
aid to KBM falls within the scope of Regulation (EC) No
69/2001. According to the available information, the aid
granted is not linked to investment and does not fall
within the scope of Regulation (EC) No 70/2001. Nor
have any other eligible activities been brought to the
Commission’s attention.

(82)

Therefore, aid granted to farmers in the form of services
lower cost does not
provided by machinery rings at
constitute State aid within the meaning of Article 87(1)
of the EC Treaty.

(86)

Therefore, according to the consistent judgments in case
law, financial contributions paid out to KBM are to be
incompatible with the
classified as operating aid,
common market (18),
in so far as they have not been
passed on to the machinery rings, and in so far as they
exceed the maximum limits laid down in Regulation (EC)
No 69/2001.

V.I.6. Conclusion

(83)

The Commission therefore concludes that this measure
constitutes aid within the meaning of Article 87(1) of the
EC Treaty, benefiting KBM,
individual machinery rings
and their subsidiaries. The measure does not constitute
aid in favour of farmers.

(84)

V.2. Application of Article 87(3) of the EC Treaty

The question therefore arises as to whether one of the
exceptions or exemptions from the basic prohibition of
State aid under Article 87(2) and (3) of the EC Treaty can
apply. This particular measure is neither aid having a
social character within the meaning of Article 87(2)(a)
of the EC Treaty nor aid to make good the damage
caused by natural disasters or exceptional occurrences
the EC
within the meaning of Article 87(2)(b) of
Treaty, nor aid relating to the division of Germany
within the meaning of Article 87(2)(c) of
the EC
Treaty. Nor are the special factors referred to in Article
87(3)(a), (b), (d) or (e) of the EC Treaty applicable. Nor
has Germany cited any of these provisions. The only
possibly applicable exceptional circumstances are those
set out in Article 87(3)(c) of the EC Treaty.

(17) See footnote 4.

V.2.2. Compatibility of aid to the machinery rings and their

subsidiaries

(87) As described in recitals 42 to 60, machinery rings and
their subsidiaries received benefits in the form of services
provided by KBM for consultancy, training and further
training of their staff. Such measures are to be considered
training and further training aid in accordance with
Commission Regulation (EC) No 68/2001 of 12
January 2001 on the application of Articles 87 and 88
regards
of
consultancy, Regulation (EC) No 70/2001 may be
applicable. However,
the information which Germany
has provided the Commission with is not sufficient to
enable it to assess whether the requirements of these
Regulations have been met.

the EC Treaty to training aid (19). As

(88) As concerns the financial contributions directly trans-
ferred by KBM to the machinery rings, the same consid-
erations set out
in recitals 85 and 86 apply mutatis
mutandis. It cannot be ruled out that a component of
aid was retained by the machinery rings, and possibly
passed on to their subsidiaries, as a result of an insuf-
ficient separation of their respective activities.

(18) See footnote 11.
(19) OJ L 10, 13.1.2001, p. 20. Regulation as amended by Regulation

(EC) No 363/2004 (OJ L 63, 28.2.2004, p. 20).

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(89) On the other hand,

aid was

the German authorities have
provided figures showing that a large proportion of
this
indeed passed on to farmers. The
Commission is of the opinion that it can be assumed
that payments made by Bavaria through KBM to the
machinery rings were passed on to farmers to the
extent that they correspond to the average costs of the
service as demonstrated by the German authorities.

(90)

(91)

Therefore, any sums exceeding the amount demonstrably
passed on to farmers on the basis of a calculation of the
average costs of the relevant service, and exceeding the
ceiling of EUR 100 000 per beneficiary over any period
of three years laid down in Regulation (EC) No 69/2001
constitute operating aid incompatible with the common
market.

V.3. Selection of KBM

The Bavarian Agricultural Promotion Act provides that
only one such organisation can be approved and
supported in Bavaria. KBM was already approved in
1972. Germany stated in its comments that the organi-
sation is a self-help organisation of Bavarian farmers
which occupies a special position since there are no
comparable organisations with which it could be in
competition.

(92) At first sight, the selection of KBM does not appear to
contravene Community rules on the coordination of
procedures for the award of public service contracts.
to carry
the Commission reserves the right
However,
out a further analysis of the measure from the angle of
Community procurement law.

VI. CONCLUSIONS

(93)

The Commission finds that Germany has unlawfully
in breach of
implemented the aid measure at
Article 88(3) of
the Treaty. For the reasons set out
above the Commission considers that:

issue,

(94) Aid granted to farmers for

the
provision of machinery and labour does not constitute
State aid within the meaning of Article 87(1) of the EC
Treaty.

the coordination of

(96) Aid granted to the machinery rings and/or their subsi-
diaries is incompatible with the common market, in so
far as it has not been passed on to farmers. The amount
passed on to farmers will have to be demonstrated by the
German authorities. The calculation should be based on
the average cost of services provided by machinery rings
without
their commercial subsidiaries, since otherwise
those costs may incorporate amounts which may have
flowed to the subsidiaries.

(97) Germany must be required, under Article 14(1) of Regu-
lation (EC) No 659/1999, to recover such incompatible
aid in so far as it does not fall within the scope of
Regulation (EC) No 69/2001,

HAS ADOPTED THIS DECISION:

Article 1

The financial contributions granted by Germany to Bavarian
farmers through the Bavarian machinery rings in the form of
subsidised services involving the coordination of provision of
machinery and labour do not constitute aid within the meaning
of Article 87(1) of the Treaty.

Article 2

The State aid which Germany has granted to the Kuratorium
bayerischer Maschinen- und Betriebshilferinge e.V.,
in so far as it
has not been passed on to the machinery rings, and in so far as
it exceeds the ceiling of EUR 100 000 per beneficiary over any
period of three years laid down in Regulation (EC) No 69/2001,
is incompatible with the common market.

Article 3

as demonstrated by the German authorities

The State aid which Germany has granted to machinery rings
and their subsidiaries, in so far as it has not been passed on to
in
farmers
accordance with Article 4, and in so far as it exceeds the
ceiling of EUR 100 000 per beneficiary over any period of
three years laid down in Regulation (EC) No 69/2001, is incom-
patible with the common market.

(95) Aid granted to KBM, in so far as it has not been passed
is incompatible with the
on to the machinery rings,
common market. Germany must therefore be required,
in accordance with Article 14(1) of Regulation (EC) No
659/1999, to recover such incompatible aid in so far as
it does not fall within the scope of Regulation (EC) No
69/2001.

Article 4

For the purposes of establishing the incompatible aid referred to
in Articles 2 and 3, the German authorities shall submit a
calculation of the average cost of services provided to farmers
by machinery rings having no commercial subsidiary.

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Article 5

Article 6

Germany shall take all necessary measures to recover from the
beneficiaries the aid unlawfully paid to them referred to in
Articles 2 and 3.

Recovery shall be effected without delay and in accordance with
the procedures of national
law provided that they allow the
immediate and effective execution of this Decision. The aid to
be recovered shall include interest from the date on which it
was at the disposal of the beneficiaries up to the date of its
recovery. Interest shall be calculated as laid down in Chapter V
of Commission Regulation (EC) No 794/2004 (20).

This Decision is addressed to the Federal Republic of Germany.

Done at Brussels, 14 December 2004.

For the Commission

Mariann FISCHER BOEL
Member of the Commission

(20) OJ L 140, 30.4.2004, p. 1.