The EFTA Surveillance Authority Decision No 155/07/COL of 3 May 2007 on State aid granted in connection with Article 3 of the Norwegian Act on compensation for value added tax (VAT) (Norway)
Date: 2007-05-03
Institutions: EFTA Surveillance Authority
Subjects: Norway, State aid, VAT, control of State aid, provision of services, restriction on competition, tax law, teaching

18.9.2008

EN

Official Journal of the European Union

L 249/35

THE EFTA SURVEILLANCE AUTHORITY DECISION

No 155/07/COL

of 3 May 2007

on State aid granted in connection with Article 3 of the Norwegian Act on compensation for value
added tax (VAT) (Norway)

THE EFTA SURVEILLANCE AUTHORITY (1),

Whereas:

HAVING REGARD to the Agreement on the European Economic
Area (2),
in particular to Articles 61 to 63 and Protocol 26
thereof,

I. FACTS

1. Procedure

HAVING REGARD to the Agreement between the EFTA States on
the establishment of a Surveillance Authority and a Court of
Justice (3), in particular to Article 24 thereof,

HAVING REGARD to Article 1(2) of Part I and Articles 4(4), 6,
7(5), 10 and 14 of Part II of Protocol 3 to the Surveillance and
Court Agreement,

HAVING REGARD to the Authority’s Guidelines (4) on the appli­
cation and interpretation of Articles 61 and 62 of the EEA
Agreement,

HAVING REGARD to the Authority’s Decision of 14 July 2004
on the implementing provisions referred to under Article 27 of
Part II of Protocol 3 to the Surveillance and Court Agreement,

HAVING REGARD to the Authority’s Decision No 225/06/COL
of 19 July 2006 to open the formal
investigation procedure
with regard to Article 3 of the Norwegian Act on compensation
for value added tax (VAT) (5),

HAVING CALLED on Norway and interested parties to submit
their comments to this Decision and having regard to the
Norwegian authorities’ comments,

(1) Hereinafter referred to as the Authority.
(2) Hereinafter referred to as the EEA Agreement.
(3) Hereinafter referred to as the Surveillance and Court Agreement.
(4) Guidelines on the application and interpretation of Articles 61 and
62 of
the EEA Agreement and Article 1 of Protocol 3 to the
Surveillance and Court Agreement, adopted and issued by the
EFTA Surveillance Authority on 19 January 1994, published in OJ
1994 L 231, EEA Supplements 3.9.1994 No 32. The Guidelines
were last amended on 7 February 2007. Hereinafter referred to as
the State Aid Guidelines.

(5) Published on the OJ C 305, 14.12.2006 and the EEA Supplement

No 62, 14.12.2006, p. 1.

By letter dated 16 October 2003, the Authority received a
complaint in which it was alleged that a particular kind of
schools, which provide specialised services to the off-shore
sector in competition with the complainant, receive State aid
through the application of input tax compensation provided for
in Article 3 of the Value Added Tax Compensation Act (6).
Municipal schools that provide certain educational services
exempted from the application of VAT in competition with
other undertakings receive a compensation for the input VAT
paid on goods and services purchased in relation to the services
they provide on a commercial basis, to which private compe­
titors are not entitled. The letter was received and registered by
the Authority on 20 October 2003 (Doc. No 03-7325 A).

After various exchanges of correspondence (7), by letter dated
19 July 2006 (Event No 363440), the Authority informed the
Norwegian authorities that it had decided to open the formal
investigation procedure foreseen under Article 4 in Part II of
Protocol 3 to the Surveillance and Court agreement with regard
to Article 3 of the Norwegian Act on compensation for value
added tax (VAT) with Decision No 225/06/COL.

to this
The Norwegian authorities
Decision by letter dated 18 September 2006 (Event No
388922).

submitted comments

The Authority’s Decision No 225/06/COL was published in the
Official Journal of the EU C 305 of 14 December 2006 and the
EEA Supplement No 62 of the same date. No further comments
from third parties were received after the publication.

2. Legal framework on VAT and VAT Compensation in
Norway

The VAT Compensation Act entered into force on 1 January
2004 with the objective to mitigate distortion of competition
resulting from the VAT Act.

(6) Act No 108 of 12 December 2003 on VAT compensation to local
and regional authorities (Lov om kompensasjon av merverdiavgift
for kommuner, fylkeskommuner mv). Hereinafter referred to as the
‘VAT Compensation Act’.

(7) For further details see the Authority’s Decision No 225/06/COL,

published on the OJ C 305, 14.12.2006.

L 249/36

EN

Official Journal of the European Union

18.9.2008

VAT is a consumption tax entailing the application of a tax
exactly proportionate to the price of supplies of goods and
services,
transactions
taking place in the production or distribution process before
the stage at which the tax is eventually charged to an ultimate
customer.

independently from the number of

exempted, will have an incentive to procure ‘in-house’ (5) instead
of acquiring services or goods in the market. In order to create
a system without any particular incentive to produce goods or
services with own resources compared to external acquisition,
the Norwegian authorities adopted the VAT Compensation Act.

As a main rule, a person engaged in trade or business and liable
to VAT registration (hereinafter ‘taxable person’), shall calculate
and pay tax on sales of goods and services covered by the VAT
Act (1) and may deduct input tax on goods and services for use
in an enterprise from the output tax charged on sales (2). Thus,
the VAT system taxes all supplies by all taxable persons equally.
This neutrality is one of the main features of the VAT system.

However, Articles 5, 5a and 5b in Chapter I of the VAT Act
exempt certain transactions from the scope of application of the
VAT Act: sales by certain institutions, organisations etc. (3), the
supply and letting of real estate or rights to real property, the
supply of certain services, amongst others, the supply of health
and health related services, social services, educational services,
financial services, services related to the exercise of public
to attend
authority,
theatre, opera, ballet, cinema and circus performances, exhi­
lottery services, services
bitions in galleries and museums,
connected with the serving of
in school and
student canteens, etc. (4).

in the form of entitlement

foodstuffs

services

Article 2 of
covered by the Act exhaustively:

the VAT Compensation Act

lists the entities

(a)

local and regional authorities carrying out local or regional
activities in which the local council or county council or
another council under the Local Government Act (6) or
other special local governmental legislation is the supreme
body;

(b)

intermunicipal companies established according to the Local
Government Act or other special local governmental legis­
lation;

(c) private or non-profit undertakings in as far as they carry out
health, educational or social services which are statutory
obligations of local or regional authorities;

It follows from the above that any taxable person carrying out
the supply of goods and services which are exempt from the
VAT Act pays input tax on its purchases of goods and services
but cannot deduct the input tax from its tax liability because for
such purchases the taxable person is the ultimate customer.

(d) day care institutions as mentioned in Article 6 of the Day

Care Act (7);

(e)

Joint Parish Council (Kirkelig fellesråd).

The consequence of the exemption is that the suppliers of the
exempted goods and services have to pay input tax on the
services and goods
they purchase as any final consumer
(without having the possibility to charge output tax to the
ultimate consumer). This
the VAT
exemptions has, however, created a distortion at another level.
just as any integrated company which is tax
Public entities,

logical consequence of

(1) Article 10(1)

in Chapter III of the VAT Act. See in this respect

Chapter IV in connection with Chapter I of the VAT Act.

(2) Article 21 in Chapter VI of the VAT Act.
(3) Reference is made to Article 5 of the VAT Act according to which
sales by certain entities like museums, theatres, non profit asso­
ciations, etc, exempted from the application of VAT. Article 5(2)
of the VAT Act states that the Ministry of Finance may issue regu­
lations delimiting and supplementing the provisions in the first
subsection and may stipulate that businesses referred to in the
first subsection, 1 f) shall nevertheless calculate and pay output
tax if the exemption brings about a significant distortion of compe­
tition in relation to other,
supply
equivalent goods and services.
(4) See Article 5b of the VAT Act.

registered businesses

that

the VAT Compensation Act,

It follows from Article 3 read in conjunction with Article 4(2)
of
the Norwegian State
compensates input tax paid by taxable persons covered by the
VAT Compensation Act when buying goods and services from
other taxable persons when they do not have the right
to
deduct input tax since they are tax exempted according to the
VAT Act (8).

that

(5) ‘In-house’ procurement is not considered as a transaction liable for

VAT purposes.

(6) Act No 107 of 25 September 1992 on Local Government (Lov om

kommuner og fylkeskommuner).

(7) Act No 64 of 17 June 2005 on Day Care Institutions (Lov om

barnehager).

(8) For a more detailed explanation on the functioning of the VAT
to Section I.2 ‘Legal
system in Norway,
framework on VAT and VAT compensation in Norway’ of
Decision No 225/06/COL, p. 2.

is made

reference

18.9.2008

EN

Official Journal of the European Union

L 249/37

3. The doubts the Authority expressed in the Decision to
open the formal investigation procedure

In Decision No 225/06/COL to open the formal investigation
procedure with regard to Article 3 of the VAT Compensation
the Authority’s preliminary consideration was that
the
Act,
input tax compensation as provided for in Article 3 of the
VAT Compensation Act constituted State aid within the
meaning of Article 61(1) of the EEA Agreement.

affecting trade between the Contracting Parties to the EEA
Agreement. The Authority had to assess the scheme as such
and not
its application to each individual sector covered.
Based on jurisprudence, the Authority’s preliminary conclusion
was that, as a general nationwide scheme, the VAT Compen­
sation Act was
affecting trade between the
Contracting Parties.

capable of

The Authority considered that the compensation granted under
the VAT Compensation Act was granted by the State through
state resources from the State Budget. In the Authority’s view it
was not relevant for this assessment whether or not the State’s
cost of the compensation at the central level is counterbalanced
by reduced transfers to the local and regional authorities as
such.

the input

the Authority expressed doubts that

Finally,
tax
compensation could be considered compatible with the State
aid rules of the EEA Agreement following the application of
any of the exceptions foreseen under Articles 61(2) and (3) of
the said agreement. Moreover, although aid could potentially, in
some situations, be considered compatible under the derogation
foreseen in Article 59(2) of the EEA Agreement, the Authority
was of the preliminary view that this provision did not justify
the compatibility of the VAT Compensation Act as a scheme.

The Authority further considered that, to the extent that the
Norwegian authorities compensate input tax on purchases of
goods and services to undertakings not subject to VAT but
falling within the scope of Article 2 of the VAT Compensation
Act, they grant those undertakings an economic advantage.

4. Comments by the Norwegian authorities

By letter dated 18 September 2006 (Event No 388922), the
Norwegian authorities submitted comments to the Authority’s
Decision to open the formal
investigation procedure. The
comments were divided into three sections:

to

inherent

explanations

the objectives

it pursued other objectives, external
the

In the assessment of selectivity, the Authority raised doubts as
to whether
the VAT compensation, which in its view
constituted a materially selective measure, could be justified
by the nature and logic of the VAT system,
i.e., whether it
in the VAT system itself, or
met
to the VAT
whether
system. According
the
by
Norwegian authorities, the objective pursued with the intro­
duction of the VAT Compensation Act was to facilitate and
encourage the choice by the taxable persons covered by the
VAT Compensation Act between self supply and outsourcing
of goods and services subject to VAT. The Authority had doubts
as to whether this purpose could be said to be in the nature and
logic of the VAT system itself which is a tax on consumption.
In the Authority’s preliminary view, the VAT compensation was
not a part of the VAT system, established in 1970, as such but
introduced later, to rectify some of the
a separate measure,
distortions created by the VAT system.

given

The Authority pointed out that while mitigating distortions for
municipal acquisitions, the VAT compensation had created a
distortion of competition between undertakings carrying out
the same economic activities in sectors exempted from the
application of VAT.

The Authority recalled that, in principle, the beneficiaries under
the VAT compensation scheme can receive compensation for
input VAT under the conditions of the scheme, regardless of
whether aid to operators in these sectors would have an effect
on trade. Some of the sectors covered by the VAT Compen­
sation Act are partly or fully open for EEA-wide competition.
Aid granted to undertakings in these sectors is thus capable of

4.1. The framework of the VAT Compensation scheme

The Norwegian authorities explained that VAT is a general tax
that applies, in principle, to all commercial activities involving
the production and distribution of goods and the provisions of
services. VAT incurred on expenses is recoverable only to the
extent that the tax payer provides services which are subject to
VAT. Under the current VAT rules, most of the activities in the
municipal sector are not subject to VAT:

‘Municipal activity is generally outside the VAT system. Basic
municipal activities such as health services, educational services
and social services are not subject to VAT. Economic activities
in which municipalities engage as a “public authority” are
outside the scope of VAT. Thus, VAT incurred by the munici­
palities related to exempt or non-taxable activities is an un-
It may be referred to as a “hidden VAT
recoverable cost.
cost”. It may also be seen as an anomaly of the VAT system.
Since the VAT system is supposed to be governed by a principle
the municipalities may
of neutrality,
the VAT treatment of
distort competition. Due to the fact
the municipalities
that
may not claim back the VAT paid on inputs provided by the
private sector, it may also introduce a bias for public authorities
towards self-supply of services liable for VAT versus contracting
out to the private sector.’

By compensating the municipalities for input tax on all goods
and services, the Norwegian authorities argued that the purpose
of the general VAT compensation scheme is to create a level
playing field between self supply and outsourcing:

L 249/38

EN

Official Journal of the European Union

18.9.2008

‘The VAT will no longer distort
the municipal authorities'
incentives when choosing between “in-house” production of
services and purchase of services liable for VAT from private
service providers. […] Neutrality can therefore be deemed as the
objective assigned to the VAT compensation scheme.’

the investigation that

The Norwegian authorities stressed the view already expressed
the VAT
in the preliminary phase of
compensation scheme does not constitute an aid measure for
the undertakings falling within the scope of Article 2 of the
VAT Compensation Act. The reason for this statement is that
when the general VAT compensation scheme was introduced in
2004, the municipal appropriations in the annual fiscal budget
were reduced accordingly by the expected amount of input tax
compensated. The VAT compensation scheme has therefore no
revenue effects for the Government. Thus the system may be
described as a self-funding system through allocation of a reba­
te/compensation cost to municipalities.

4.2. State aid within the meaning of Article 61(1) of

the EEA

Agreement

In the letter dated 18 September 2006, the Norwegian au-
thorities expressed their disagreement with the assessment of
the Authority that
the VAT Compensation Act constitutes
State aid for the following reasons:

Economic advantage

The Norwegian authorities believe that it is not correct to deem
the VAT compensation as an ‘advantage’, which relieves under­
takings of charges that are normally borne from their budgets.
Because the municipalities fund the VAT compensation scheme
themselves through a reduction of the general grants, no factual
economic relief
is granted. The VAT compensation scheme
neither implies any reduction in the amount of tax nor any
in the opinion of the
kind of tax deferment. Consequently,
Norwegian authorities,
is wrong to compare the VAT
compensation scheme to measures which imply a genuine
reduction in the recipient's tax burden.

it

State Aid Guidelines where various aspects of differential
measures are looked into. They considered that VAT compen­
sation is justified by the nature or general scheme of the tax
system in question and referred to Chapter 17B.3.4 of the State
Aid Guidelines ‘Application of State aid rules to measures
relating to direct business
is a fundamental
principle that the VAT system should be neutral and non-discri­
the Norwegian authorities,
minatory.
neutrality may therefore be seen as inherent
in the VAT
system itself. Neutrality, which is inherent to the VAT system,
is also the objective assigned to the VAT compensation scheme.
Therefore, the Norwegian authorities believed that it is fair to
consider the VAT compensation scheme to be in line with the
nature and logic of the VAT system itself.

In the opinion of

taxation’.

It

they noted that

in case the VAT compensation
Moreover,
scheme should be phased out, the distortion of competition
‘The fact
resulting from the VAT system would be revived:
that the municipalities cannot recover VAT on inputs would
distort
incentives when choosing
between “in-house” production of services and purchase of
services liable for VAT from private service providers.’

the municipal authorities'

suitable (1). One of

the possible measures

The Norwegian authorities pointed out that, in order to mitigate
distortion of competition resulting from the VAT system, the
so-called Rattsø Committee assessed several possible measures
before it decided that the VAT compensation scheme would be
the
the most
Committee assessed was to extend the municipalities’ right to
deduct input VAT. Another possible measure would be to make
to VAT in general. The Rattsø
the municipalities
Committee did not choose to extend the municipalities’ right
input VAT because this measure would imply a
to deduct
disruption to VAT as a general tax.
It was also taken into
consideration that
this measure could create pressure from
other groups. Nor did the Rattsø Committee choose to make
to VAT in general. Among other
the municipalities subject
that because many
factors,
the Committee pointed out
municipal services are performed free of charge,
there is a
lack of calculation basis for the VAT:

subject

Selectivity

The scope of the VAT Compensation Act is positively defined in
that only legal persons falling within Article 2 of the Act can be
compensated for input tax on purchases.

A selective tax measure can nevertheless be justified due to the
nature or general scheme of the tax system in question. The
Norwegian authorities considered that by stating that the VAT
compensation is not a part of the VAT system, the Authority
dismissed their argument that the VAT compensation can be
deemed to be in line with the nature and logic of the VAT
system itself. The Norwegian authorities objected to this
approach referring to Chapter 17B.3.1 et seq. of the Authority's

‘Extension of the municipalities rights to deduction and making
the municipalities subject to VAT in general would both be
solutions within the VAT system. The motive of
these
measures, to mitigate the distortion of competition resulting
from the VAT system, would, however, be exactly the same
as to that of the VAT compensation scheme. Moreover, there
is in an economic sense no difference between the compen­
sation scheme and extending the municipalities
to
deduct input tax. Thus, the Ministry believes that in itself the
framing of the VAT compensation scheme can be of no conse­
quence.’

right

(1) Norges Offentlige Utredinger (NOU) 2003: 3, Merverdiavgiften og
kommunene, Konkurransevridninger mellom kommuner og private
(hereinafter referred to as the ‘Rattsø report’).

18.9.2008

EN

Official Journal of the European Union

L 249/39

Effect on trade

The Norwegian authorities criticised the Authority's assessment
of the ‘effect on trade’ criteria.

to local governments have been established to eliminate
distortions
authorities
in the decision making of public
between public provision and contracting out of public
services. Various VAT refund systems of a broadly similar
nature are also established in France, Luxembourg, Austria
and Portugal.

‘Through the VAT compensation scheme the municipalities are
primarily granted refund of input tax on goods and services
purchased for their mandatory activities. By law the municipa­
lities are imposed to perform certain services. This is specially
the case on the education, health and social area. For instance,
in the health sector the municipalities, among other things, are
instructed to provide for general practitioner services, nursing
In the
services, midwife services and nursing home services.
social sector the municipalities are instructed to provide for
practical and economic support
to the receivers, e.g. social
housing.’

‘Pursuant to Article 2 and 3 of the VAT Compensation Act,
VAT compensation may also be granted to municipalities which
carry out non-mandatory activities. Besides the special training
performed by the topical county municipal schools, the Ministry
does, however, not know of any areas outside the scope of the
VAT system where it is questioned whether the recipients of
VAT compensation perform their services in competition with
other undertakings within the EEA.’

very

The Norwegian authorities consequently believed that in sectors
which are exempted from the scope of application of the VAT
established in neighbouring
Act,
few undertakings
European countries would provide services
in competition
with Norwegian undertakings covered by the VAT Compen­
sation Act. Moreover, circumstances such as physical distance
to the service provider, language difficulties and other forms of
cultural attachment are decisive when a service provider is
chosen.

The Norwegian authorities considered that in order to perform
a true assessment of the VAT compensation scheme in relation
to the criteria set out in Article 61(1) of the EEA Agreement, it
should be relevant that the competition between Norwegian
undertakings and other undertakings in the EEA on sectors
exempted from the application of VAT is quite marginal.

Thus, the Norwegian authorities believed that VAT compen­
sation granted to undertakings in sectors exempted from the
application of VAT cannot be deemed as capable of affecting
trade between the Contracting Parties to the EEA Agreement.

Further, the Norwegian authorities quoted former Commissioner
Mr Bolkestein.
In a letter of 1 February 2000 to Michel
Hansenne (Belgium), who had asked the European Parliament
whether the VAT compensation scheme in the United Kingdom
was in compliance with the sixth VAT Directive, Mr Bolkestein
stated that a VAT compensation scheme ‘does not conflict with
the sixth VAT Directive’ since ‘it entails a purely financial
operation between different public bodies and is governed by
the respective national policy for the financing of public au-
thorities’.

Mr Bolkestein also commented on ‘a possible scheme whereby
the Irish Government would give a subsidy to Irish charities of
an amount equivalent to the non-deductive VAT that they had
incurred’. He stated that ‘the granting of government subsidies is
in itself not contrary to the European Union VAT law’.

admitted that none of

these
The Norwegian authorities
in
quotations directly addressed the State aid rules. However,
their opinion,
it appears from these quotations that the VAT
compensation schemes are not deemed to be in conflict with
the sixth VAT Directive. In their view, this reflects the fact that
VAT compensation schemes are in line with the nature and
logic of the VAT system itself.

II. APPRECIATION

1. The presence of State aid

1.1. Introduction

Article 61(1) of the EEA Agreement reads as follows:

‘Save as otherwise provided in this Agreement, any aid granted
by EC Member States, EFTA States or through State resources in
any form whatsoever which distorts or threatens to distort
competition
the
production of certain goods shall, in so far as it affects trade
between Contracting Parties, be incompatible with the func­
tioning of this Agreement.’

undertakings

favouring

certain

by

or

4.3. General comments

The Norwegian authorities referred to several EU Member States
which have introduced refund schemes for the VAT costs on
non-taxable or tax-exempt activities for local governments. In
Sweden, Denmark, Finland,
the Netherlands and the United
Kingdom different schemes which provide for refunds of VAT

The Authority would like to make a preliminary remark
regarding the scope of the current assessment. This Decision
does not address the decision of the Norwegian authorities to
exempt certain transactions from the scope of the application of
the VAT Act. It only concerns the compensation for input tax
paid by certain persons falling within the scope of the VAT
Compensation Act.

L 249/40

EN

Official Journal of the European Union

18.9.2008

Further, the Authority would also like to stress three remarks it
already made in Decision No 225/06/COL:

Firstly, as a general rule, the tax system of an EFTA State is not
covered by the EEA Agreement. It is for each EFTA State to
design and apply a tax system according to its own choices of
policy. However, application of a tax measure, such as the input
tax compensation provided for
the VAT
Compensation Act, may have consequences that would bring
it within the scope of Article 61(1) of the EEA Agreement.
According to the case-law (1), Article 61(1) does not distinguish
between measures of State intervention by reference to their
causes or aims but defines them in relation to their effects.

in Article 3 of

that

the rules on competition,

the question as to whether the measure at

Secondly,
issue
constitutes State aid arises only in so far as it concerns an
economic activity,
is, an activity consisting of offering
goods and services on a given market (2). A measure constitutes
State aid only if it benefits undertakings. For the purposes of
application of
the concept of an
undertaking encompasses entities ‘engaged in an economic
activity, regardless of the legal status of the entity and the
way in which it is financed’ (3). Although some of the entities
which receive input tax refunds do not fulfil the condition of
being an undertaking, the fact that some beneficiaries of the
VAT Compensation Act are undertakings constitutes sufficient
grounds to assess the scheme as such for State aid purposes (4).

Thirdly, aid may be granted to public undertakings as well as to
private undertakings (5). A public undertaking,
in order to be
regarded as a recipient of State aid does not necessarily need to
have a legal identity separate from the State. That an entity is
governed by public law and is a non-profit making institution
does not necessarily mean that it is not an ‘undertaking’ within
the meaning of the State aid rules (6).

Fourthly, regarding the general comments from the Norwegian
authorities about the existence of similar schemes within the
European Union, the Authority would like to note that these
systems may be different from the VAT Compensation Act and

(1) Case E-6/98 Norway v EFTA Surveillance Authority [1999] EFTA Court
Report, p. 76, paragraph 34; Joined Cases E-5/04, E-6/04 and E-
7/04 Fesil and Finnfjord, PIL and others and Norway v EFTA Surveillance
Authority [2005] Report of the EFTA Court, p. 121, paragraph 76;
Case 173/73 Italy v Commission [1974] ECR 709, paragraph 13; and
ECR I-4551,
Case C-241/94 France
v Commission
paragraph 20.

[1996]

(2) Joined Cases C-180/98 to C-184/98 Pavlov and others [2000] ECR

I-6451, paragraph 75.

(3) Case C-41/90 Höfner and Elser [1991] ECR I-1979, paragraph 21.
(4) Case E-2/05 EFTA Surveillance Authority v Iceland [2005] Report of

the EFTA Court, p. 202, paragraph 24.
(5) Case C-387/92 Banco Exterior de España

[1994] ECR I-877,

paragraph 11.

(6) Case C-244/94 Fédération Française des Sociétés d'Assurance et a. [1995]
ECR I-4013, paragraph 21; and Case 78/76 Steinike & Weinlig
[1977] ECR 595, paragraph 1.

that it has informed the European Commission about the obser­
vations of the Norwegian authorities. Moreover, according to
case law ‘any breach by a Member State of an obligation under
the Treaty in connection with the prohibition laid down in
Article 92 cannot be justified by the fact that other Member
States are also failing to fulfil this obligation’ (7)

In the following, the Authority will assess whether the VAT
Compensation Act as a scheme (8) fulfils the criteria foreseen
under Article 61(1) of the EEA Agreement to be considered
State aid.

1.2. State resources

In order
to constitute State aid within the meaning of
Article 61(1) of the EEA Agreement, the aid must be granted
by the State through state resources.

The compensation is granted by the State directly and is
therefore granted by the State through state resources.

The Norwegian authorities have argued that the VAT compen­
sation scheme does not constitute an aid measure because it is a
self-funding system. In their opinion, municipalities fund the
VAT Compensation scheme themselves through a reduction
of the general transfers from the State budget to the munici­
palities. With the introduction of
the VAT compensation
scheme in 2004, the municipal appropriations in the annual
fiscal budget were reduced in accordance with the expected
amount of input tax compensated.

is important

The Authority considers that for State aid purposes it is not
relevant whether the amount of money received by the munici­
palities has been diminished or not. What
is
whether undertakings within the meaning of the competition
rules have received financial support by the State through state
resources. When a municipality acts as an undertaking it should
be viewed for State aid purposes separately from the munici­
pality as a public authority. Whether the State’s cost of the
compensation at
counterbalanced by
reduced transfers to the local and regional authorities as such
does not alter this conclusion. The refund for input tax paid is
financed from the state budget and therefore constitutes state
resources.

central

level

the

is

Moreover, in the Authority’s understanding, each municipality
does not get a reduction in the state transfer exactly corre­
sponding to the exact VAT compensation it receives.

(7) Case 78/76 Steinike & Weinlig, cited above paragraph 24, Case T-
214/95 Het Vlaamse Gewest v Commission [1998] ECR II-717,
paragraph 54.

(8) The Authority assessed in Section II.2.1 of Decision No 225/06/COL
the VAT Compensation Act constitutes an aid scheme.

that
Reference is made to that assessment.

18.9.2008

EN

Official Journal of the European Union

L 249/41

1.3. Economic advantage

A financial measure granted by the State or through state
resources to an undertaking which would relieve it from costs
which would normally have to be borne by its own budget
constitutes an economic advantage (1).

The Norwegian authorities have argued that the VAT compen­
sation scheme does not constitute an advantage because the
scheme neither entails a reduction in the amount of tax nor
any tax deferment. The VAT compensation scheme does not
imply any reduction in the recipient’s tax burden.

sation Act for undertakings refunded for their input tax implies
a relief from the obligation that follows from the general VAT
system applicable to all buyers of goods and services.

it

The Court’s jurisprudence has established that a specific tax
measure can nevertheless be justified by the internal
logic of
is consistent with it (2). Any measure
the tax system if
intended partially or wholly to exempt firms in a particular
sector from the charges arising from the normal application
of the general system constitutes State aid if there is no justi­
fication for this exemption on the basis of the nature and logic
of the general system (3).

The Authority does not share this approach. In its opinion the
Norwegian authorities do not make the necessary differentiation
between the various spheres of the State, i.e., in this case the
State as tax authority, the municipalities as state bodies and
municipal undertakings as
for State aid
purposes.

separate entities

The Authority will assess whether the input tax refund provided
for in Article 3 of the VAT Compensation Act falls within the
logic of the VAT system. For this assessment, the Authority
must consider whether the input tax refund meets the objectives
inherent in the VAT system itself, or whether it pursues other
objectives not enshrined in the VAT system.

To determine whether an economic advantage has been granted,
the Authority has to assess whether a measure relieves its bene­
ficiaries of charges that they normally bear in the course of their
business. The payment of input tax is an operating cost related
to purchases in the normal course of an undertakings’ economic
activity, which is normally borne by the undertaking itself. To
the extent that the Norwegian authorities compensate input tax
on purchases of goods and services to undertakings falling
within the scope of Article 2 of the VAT Compensation Act,
they grant those undertakings an economic advantage. They are
granted an advantage because the operating costs which those
undertakings will have to put up with are reduced in accordance
with the amount of input tax compensated.

The VAT Compensation Act therefore entails the granting of an
economic advantage to the beneficiaries of the scheme.

1.4. Selectivity

to constitute State

Further,
aid within the meaning of
Article 61(1) of the EEA Agreement, the aid measure must be
selective
the
in that
favours
production of certain goods’.

‘certain undertakings or

it

In Decision No 225/06/COL, the Authority considered that the
VAT Compensation Act constituted a materially selective
measure. The scope of the VAT Compensation Act is positively
defined in that only taxable persons falling within Article 2 of
the VAT Compensation Act can be compensated for input tax
on purchases. The advantage granted under the VAT Compen­

(1) Joined Cases E-5/04, E-6/04 and E-7/04 Fesil and Finnfjord, PIL and
others and Norway v EFTA Surveillance Authority, cited above, para­
graphs 76 and 78-79; Case C-301/87 France v Commission [1990]
ECR I-307, paragraph 41.

The primary objective of the VAT system is to tax certain
supplies of goods or services. The VAT is an indirect tax on
the consumption of goods and services. As a rule, VAT is
calculated at all stages of the supply chain and on the import
of goods and services from abroad. The ultimate consumer pays
VAT as part of the purchase price, without the right to deduct
the tax.

Although, in principle, all sales of goods and services are liable
to VAT, some transactions may be exempt (and as a conse­
quence without a credit for input tax) which means that such
supplies are not taxable.

Articles 5, 5a and 5b in Chapter I of the Norwegian VAT Act
exempt transactions such as supply and letting of real estate,
supply of health and health-related services, social services,
financial services, etc. The providers of
educational services,
these goods and services are treated as final consumers for
VAT purposes since they have to pay input tax without being
able to request output tax. The consequence of the logic of the
system is that exempted supplies of goods and services and final
tax without having the possibility to
consumers pay input
deduct it.

(2) Case E-6/98 Norway v EFTA Surveillance Authority, cited above,
paragraph 38;
Joined Cases E-5/04, E-6/04 and E-7/04 Fesil and
Finnfjord, PIL and others and Norway v EFTA Surveillance Authority,
cited above, paragraphs 84-85; Joined Cases T-127/99, T-129/99
and T-148/99 Territorio Histórico de Alava et a v Commission [2002]
ECR II-1275, paragraph 163, Case C-143/99 Adria-Wien Pipeline
[2001] ECR I-8365, paragraph 42; Case T-308/00 Salzgitter v
Commission [2004] ECR II-1933 paragraph 42, Case C-172/03
Wolfgang Heiser [2005] ECR I-1627, paragraph 43.

(3) Case E-6/98 Norway v EFTA Surveillance Authority [1999] EFTA Court
Report, p. 76, paragraph 38; Joined Cases E-5/04, E-6/04 and E-
7/04 Fesil and Finnfjord, PIL and others and Norway v EFTA Surveillance
Authority, cited above, paragraphs 76-89; Case 173/73 Italy v
Commission [1974] ECR 709, paragraph 16.

L 249/42

EN

Official Journal of the European Union

18.9.2008

the VAT system had created,
This logical consequence of
however, a distortion at another level, which the Norwegian
authorities have tried to offset with the introduction of the
VAT Compensation Act. Thus, it follows that the logic of the
VAT Compensation Act is to counterbalance the natural logical
consequence of
the VAT system when exempting certain
supplies. Hence, the logic of the VAT Compensation Act is
not to tax end users, as it is in the general VAT system, but
to alleviate a certain group of
to avoid
distortion of competition between ‘in-house’ and outsourcing
for transactions subject to VAT.

final consumers

The Norwegian authorities have explained that, according to
Article 1 of the VAT Compensation Act, the objective of the
input
tax compensation was to create a level playing field
between self-supply and outsourcing of goods and services
subject to VAT.

The Authority considers that to compensate for paid input tax
for other reasons than the ones set in the VAT system, is not
justified by the objective of taxation of a given activity, which
primarily inspires the VAT system. The objective pursued by the
Norwegian authorities in creating a level playing field between
self supply and outsourcing by public entities of goods and
services subject to VAT should be seen as commendable as
such but can hardly be said to be in the nature and logic of
In this sense, the Authority refers in
the VAT system itself.
particular to the Heiser (1)
jurisprudence according to which
the mere fact that a measure has a laudable purpose does not
suffice to exclude it
from classification as aid within the
meaning of Article 61(1) of the EEA Agreement. Article 61(1)
of the EEA Agreement does not distinguish between measures
of State intervention by reference to their causes or aims but
defines them in relation to their effects (2).

The Authority does not ignore that the aim pursued by the
the VAT
Norwegian authorities with the introduction of
Compensation Act was to create neutrality in the procurement
of goods and services subject to VAT for the public adminis­
tration. This neutrality cannot be confused with the neutrality
inherent in the VAT system.

Since the purpose of creating a level playing field between ‘in-
house’ supply and outsourcing of supplies of goods and services
for public authorities is not in line with the logic of the VAT
system, this aim could only be taken into consideration in the
assessment of compatibility of the measure in question.

For the above-mentioned reasons, the Authority concludes that
the VAT compensation cannot be justified by the nature and
It therefore constitutes a selective
logic of the VAT system.
measure.

(1) Case C-172/03 Wolfgang Heiser, cited above.
(2) Case C-159/01 Netherlands

v Commission [2004] ECR I-4461,

paragraph 51.

1.5. Distortion of competition

A measure must distort or threaten to distort competition for it
to fall within the scope of Article 61(1) of the EEA Agreement.

Only public and private entities falling within the scope of
Article 2 of the VAT Compensation Act benefit from input
tax compensation. However, when these
entities provide
services exempted from the application of VAT in competition
with undertakings falling outside the scope of Article 2 of the
VAT Compensation Act, the latter will have to put up with
higher purchase costs even though they carry out similar
tax compensation has been
services. Although the input
aimed at mitigating distortions for municipal acquisitions,
it
has created a distortion of competition between public authori­
ties carrying out economic activities and private undertakings
carrying out the same economic activities in sectors exempted
from the application of VAT. Accordingly, due to the inter­
vention of the State, the products offered by private operators
would, all other factors being similar, be more expensive. Thus
competition is distorted. In areas where both public and private
operators are compensated,
threaten to
distort competition between national and other EEA operators
operating in the same market.

the aid would still

regarding

compensation

Thus,
undertakings
producing goods or offering services exempted from the appli­
cation of VAT, the Authority considers that there is a distortion
of competition between undertakings.

granted

to

1.6. Effect on trade

A State aid measure falls within the scope of Article 61(1) of
the EEA Agreement only in so far as it affects trade between the
Contracting Parties to the EEA Agreement.

In their comments to the Authority’s Decision No 225/06/COL,
the Norwegian authorities have contested the Authority’s
assessment of the effect on trade criterion which was, in their
opinion, not based on a fair conception of the situation. In their
view, through the VAT compensation scheme municipalities are
primarily granted refunds of input tax on goods and services
purchased for their mandatory activities. Regarding the non-
mandatory activities which municipalities may carry out, the
Norwegian authorities failed to see any areas exempted from
the application of VAT where the recipients of VAT compen­
sation perform their services in competition with other under­
from the particular kind of
takings within the EEA, apart
schools addressed by the complainant. The Norwegian authori­
ties believe that there are very few undertakings established in
neighbouring
compete with
Norwegian undertakings covered by the VAT Compensation
Act.

countries which

European

18.9.2008

EN

Official Journal of the European Union

L 249/43

The Authority reiterates its position expressed in Decision No
225/06/COL regarding the assessment of the effect on trade.
The Authority is required to examine whether an aid scheme is
liable to affect trade within the EEA and not to determine its
actual effect (1).
In principle, all beneficiaries under the VAT
compensation scheme can receive compensation for
input
VAT under
regardless of
whether aid to a concrete operator would have an effect on
trade. Case law of the ECJ has established that ‘in the case of an
aid scheme, the Commission may confine itself to examining
the general characteristics of the scheme in question without
being required to examine each particular case in which it
applies.’ (2). The EFTA Court has also endorsed this interpre­
tation (3).

the conditions of

the scheme,

the services
depend on the local or
supplied or on the scale of the field of activity concerned (7).

regional character of

There is no threshold or percentage below which it may be
considered that trade between the Contracting Parties is not
affected (8). Rather on the contrary, according to the juris­
prudence (9), whenever
the
position of an undertaking compared with other undertakings
competing in intra-EEA trade, the latter must be regarded as
affected by that aid.

financial aid strengthens

state

that,

in general

The criterion of the effect on trade has been traditionally inter­
preted to the effect
terms, a measure is
considered to be State aid if it is capable of affecting trade
between the EEA States (4). Even if the Norwegian authorities
are correct in their estimation that only a few undertakings
within the EEA compete with the beneficiaries of the VAT
the aid measure may nevertheless affect
Compensation Act,
the
trade since neither
number of
the
assessment of the criterion effect on trade within the meaning
of Article 61(1) of the EEA Agreement (5).

the number of beneficiaries nor
for

competitors

significant

elements

are

foresees that

the same Act

Articles 5 and 5a in Chapter I of the VAT Act exempt certain
transactions from the scope of application of the VAT Act.
Furthermore, Article 5b of
the
supply of certain services, amongst others
the supply of
health and health related services, social services, educational
services, financial services, services related to the exercise of
public authority, services in the form of entitlement to attend
theatre, opera, ballet, cinema and circus performances, exhi­
lottery services, services
bitions in galleries and museums,
connected with the serving of
in school and
student canteens, etc., are not covered by the Act. All theses
services are hence exempted from the application of VAT but
in principle, covered by the VAT Compensation Act (10).
are,
Some of these sectors, such as, for example, financial services,
services connected with the serving of foodstuffs in schools and
students canteens,
some educational
services provided for remuneration, some cinema services, are
partly or fully open for EEA-wide competition. Aid granted to
undertakings in sectors which are open to competition is thus
capable of affecting trade between the Contracting Parties to the
EEA Agreement.

some dental

foodstuffs

services,

The granting of state support to an undertaking may lead to the
internal supply being maintained or increased, with the conse­
quence being that the opportunities for other undertakings to
concerned are
penetrate
reduced (6). Therefore,
the aid does not

the character of

the EEA States

the market of

(1) Case C-298/00 P Italy v Commission [2004] ECR I-4087, paragraph
49, and Case C-372/97 Italy v Commission [2004] ECR I-3679,
paragraph 44.

(2) Case T-171/02 Regione autonoma della Sardegna v Commission [2005]
ECR II-2123, paragraph 102; Case 248/84 Germany v Commission
[1987] ECR 4013, paragraph 18; Case C-75/97 Belgium v
Commission [1999] ECR I-3671, paragraph 48; and Case C-278/00
Greece v Commission [2004] ECR I-3997, paragraph 24.

(3) Case E-6/98 Norway v EFTA Surveillance Authority, cited above,
paragraph 57 and Case E-2/05 EFTA Surveillance Authority v Iceland
[2005] Report of the EFTA Court, p. 202, paragraph 24.

(4) Joined Cases T-298/97-T-312/97 e.a. Alzetta a.o. v Commission

[2000] ECR II-2319, paragraphs 76-78.

(5) Case C-71/04 Administración del Estado v Xunta de Galicia [2005] ECR
I-7419, paragraph 41; Case C-280/00 Altmark Trans [2003] ECR I-
7747, paragraph 81;
Joined Cases C-34/01 to C-38/01 Enirisorse
[2003] ECR I-14243, paragraph 28; Case C-142/87 Belgium v
Commission (‘Tubemeuse’) [1990] ECR I-959, paragraph 43; Joined
Cases C-278/92 to C-280/92 Spain v Commission [1994] ECR
I-4103, paragraph 42.

(6) Case E-6/98 Norway v EFTA Surveillance Authority, cited above,
paragraph 59; Case C-303/88 Italy v Commission [1991] ECR I-
1433, paragraph 27; Joined Cases C-278/92 to C-280/92 Spain v
Commission [1994] ECR I-4103, paragraph 40, Case C-280/00
Altmark Trans, cited above, paragraph 78.

For these reasons, and taking into account the Court’s juris­
prudence, the Authority considers that the VAT Compensation
Act is a general nationwide compensation scheme which is
capable of affecting trade between the Contracting Parties to
the EEA Agreement.

1.7. Conclusion

For the above-mentioned reasons, the Authority concludes that
the VAT Compensation Act constitutes a State aid scheme
within the meaning of Article 61(1) of the EEA Agreement.

(7) Case C-280/00 Altmark Trans, cited above, paragraph 77; Case
C-172/03 Wolfgang Heiser
[2005] ECR I-1627, paragraph 33;
Case C-71/04 Administración del Estado v Xunta de Galicia [2005]
ECR I-7419, paragraph 40.

(8) Case C-280/00 Altmark Trans [2003] ECR I-7747, paragraph 81,
Case C-172/03 Wolfgang Heiser [2005] ECR I-1627, paragraph 32.
(9) Case E-6/98 Norway v EFTA Surveillance Authority, cited above,
paragraph 59; Case 730/79 Philip Morris v Commission [1980]
ECR 2671, paragraph 11.

(10) Article 4 of the VAT Compensation Act introduces some limitation

of the possibility to be compensated.

L 249/44

EN

Official Journal of the European Union

18.9.2008

2. Procedural requirements

to Article 1(3) of Part

I of Protocol 3 to the
Pursuant
‘the EFTA Surveillance
Surveillance and Court Agreement,
Authority shall be informed, in sufficient time to enable it to
submit its comments, of any plans to grant or alter aid (…). The
State concerned shall not put its proposed measures into effect
until the procedure has resulted in a final decision’.

The Norwegian authorities did not notify the VAT Compen­
sation Act to the Authority before it was put into effect. The
Authority therefore concludes that the Norwegian authorities
have not respected their obligations pursuant to Article 1(3)
of Part I of Protocol 3 to the Surveillance and Court Agreement.

3. Compatibility of the aid

The Authority
mentioned in Article 61(2) of
applied to the case at hand.

considers

that none of

the derogations
the EEA Agreement can be

As far as the application of Article 61(3) of the EEA Agreement
is concerned, the input tax compensation cannot be considered
within the framework of Article 61(3)(a) of the EEA Agreement
since none of the Norwegian regions qualify for this provision,
which requires an abnormally low standard of living or serious
underemployment. This
seem to
promote the execution of an important project of common
European interest or
remedy a serious disturbance in the
economy of a State, as is requested for compatibility on the
basis of Article 61(3)(b) of the EEA Agreement.

compensation does not

Concerning Article 61(3)(c) of the EEA Agreement, aid could be
deemed compatible with the EEA Agreement if it facilitates the
development of certain economic activities or of certain
economic areas without adversely affecting trading conditions
to an extent contrary to the common interest. The aid scheme
at hand does not seem to facilitate the development of certain
economic activities or areas but, as the Norwegian authorities
have stated,
it pursues the objective of establishing a level
playing field for goods and services subject to VAT between
‘in-house’ provisions and outsourcing of services within muni­
cipalities.

The Authority considers that a reduction in the running costs of
an undertaking, such as the input tax, constitutes operating aid.
This type of aid is,
the
Authority considers that the VAT Compensation Act constitutes
an aid scheme which, as it stands today, cannot be considered
compatible with the State aid rules of the EEA Agreement.

in principle, prohibited. Therefore,

This notwithstanding, the Authority recalls that, as mentioned
above, the question as to whether the measure constitutes State
aid only arises in so far as it concerns an economic activity, that
is, an activity consisting of offering goods and services on a
given market. This implies for the case at hand that in as far as
the beneficiaries of the scheme carry out public administration
tasks or statutory obligations which do not constitute an
economic activity,
including the
assessment of the compatibility of the measure is not applicable
to them.

the State aid assessment

Furthermore, according to Article 59(2) of the EEA Agreement,
the State aid rules are not applicable to undertakings entrusted
with the operation of services of general economic interest in so
far as
the
performance of the particular tasks assigned to them and in
so far that trade is not affected contrary to the interests of
the Contracting Parties to the Agreement.

such rules would obstruct

the application of

In general, the States have a wide margin of discretion in the
definition of services that could be classified as being services of
general economic interest. In this regard, the Authority’s task is
to ensure that there is no manifest error as regards the defi­
nition of services of general economic interest. The Authority
cannot, in the present context, carry out a detailed assessment
of whether all suppliers in the sectors exempted from the appli­
cation of VAT which benefit from the refund of input tax, i.e.
which are covered by the aid scheme, comply with the
conditions laid down in Article 59(2) of the EEA Agreement.
The Authority can only limit itself to indicating that, in the case
of the fulfilment of these conditions, the refund of input VAT
granted to a given undertaking or to a specific group of under­
takings might be considered to constitute compatible State aid
within the meaning of Article 59(2) of the EEA Agreement. The
VAT Compensation Act is not limited in such a way.

On 28 November 2005, the European Commission adopted a
Decision on the application of Article 86(2) of the EC Treaty to
State aid in the form of public service compensation granted to
certain undertakings entrusted with the operation of services of
general economic interest (1). This Decision was incorporated
into the EEA Agreement in July 2006 (2).

According to this Decision (3), hospitals and undertakings in
charge of
social housing which are entrusted with tasks
involving services of general economic interest have specific
characteristics that need to be taken into consideration. The
intensity of distortion of competition in those sectors at the
current stage of development of the internal market is not
necessarily proportionate to the level of turnover and compen­
sation. Therefore, hospitals providing medical care,
including
where applicable, emergency services and ancillary services
directly related to the main activities, notably in the field of
research,
social housing
providing housing for disadvantaged citizens or socially less
advantaged groups which, due to solvability constraints, are
unable to obtain housing at market conditions, are exempted
from notification.

and undertakings

in charge of

(1) Published on the OJ L 312, 29.11.2005, p. 67.
(2) Commission Decision 2005/842/EC of 28 November 2005 on the
application of Article 86(2) of the EC Treaty to State aid in the form
of public service compensation granted to certain undertakings
entrusted with the operation of
services of general economic
interest, was incorporated into Annex XV to the EEA Agreement
as point 1h by Decision No 91/2006 (OJ L 289, 19.10.2006, p. 31
and EEA Supplement No 52, 19.10.2006, p. 24), e.i.f. 8.7.2006.

(3) Point 15.

18.9.2008

EN

Official Journal of the European Union

L 249/45

However, any refund of input tax granted to an undertaking for
the part of the economic activities it carries out which are not
part of this public service obligation is not covered by this
exception. As assessed above, this refund scheme constitutes
State aid and cannot be considered compatible with the rules
of the EEA Agreement. In this context, reference can be made
to some of the sectors of activity concerned, i.e., to the sectors
which are exempted from the application of VAT and regarding
which it is clear from the existing case practice either from the
from the Authority or from existing
European Commission,
jurisprudence that the activity constitutes an economic activity
which is carried out in competition with others. This is in
particular the case of dentists (1) or ambulance services (2).

purpose of restoring the previously existing situation, cannot in
principle be regarded as disproportionate to the objectives of
the EEA Agreement in regard to State aid. By repaying the aid,
the recipient forfeits the advantage which it had enjoyed over its
competitors on the market, and the situation prior to payment
of the aid is restored (3). It also follows from that function of
repayment of aid that, as a general rule save in exceptional
circumstances, the Authority will not exceed the bounds of its
discretion, recognised by the case-law of the Court of Justice, if
it asks the EFTA State concerned to recover the sums granted
by way of unlawful aid since it is only restoring the previous
situation (4).

Moreover, some of the recipients of aid under the VAT compen­
sation scheme can benefit from other exemptions such as de
the provisions of block
minimis
exemption regulations such as the block exemption regulation
on SMEs, etc.

the application of

aid,

Moreover, in view of the mandatory nature of the supervision
of State aid by the Authority under Protocol 3 of
the
Surveillance and Court Agreement, undertakings to which aid
has been granted cannot,
in principle, entertain a legitimate
expectation that the aid is lawful unless it has been granted
in compliance with the procedure laid down in the provisions
of that Protocol (5).

However, the scheme as it stands now is not construed to
address only public service obligations or any of the above-
mentioned exemptions. The VAT Compensation Act is broad
It does not contain the
in its application and conception.
required criteria which would ensure fulfilment of
these
such cannot be
exemptions. Therefore,
the
considered compatible with the State aid rules of
the EEA
Agreement.

scheme

as

The statements made by Commissioner Bolkestein mentioned
by the Norwegian authorities referred to the compliance of the
concerned schemes with the VAT rules as such. Moreover, at
the statements, Mr Bolkestein included the
least
the State aid rules are observed’.
disclaimer
Thus, the Authority considers that no legitimate expectations
can be justified in these statements.

‘provided that

in one of

4. Conclusion

that

The Authority finds
the Norwegian authorities have
unlawfully implemented the VAT Compensation Act in breach
of Article 1(3) of Part I to Protocol 3 to the Surveillance and
Court Agreement. The refund of input tax foreseen under this
Act as it stands today is not compatible with the functioning of
the EEA Agreement for the reasons set out above.

Furthermore, the Norwegian authorities have not referred to any
similar State aid scheme which has been approved by either the
European Commission or the Authority on the basis of which
the existence of
legitimate expectations regarding the VAT
Compensation Act could be substantiated.

II of Protocol 3 to the
According to Article 14 in Part
Surveillance and Court Agreement,
in cases of unlawful aid,
should it be found incompatible, the Authority orders, as a
rule,
the EFTA State concerned to reclaim aid from the
recipient.

For these reasons, the Authority considers that there are no
exceptional circumstances apparent in this case, which would
have led to legitimate expectations on the side of the aid bene­
ficiaries.

The Authority is of
the opinion that no general principles
preclude recovery in the present case. According to settled
case-law, abolishing unlawful aid by means of recovery is the
logical consequence of a finding that it is unlawful. Conse­
quently, the recovery of State aid unlawfully granted, for the

(1) Case C-172/03 Wolfgang Heiser, cited above.
(2) Case C-475/99, Firma Ambulanz Glöckner v Landkreis Südwestpfalz

[2001] ECR I-8089.

The recovery should include compound interests, in line with
Article 14(2) in Part II of Protocol 3 to the Surveillance and
the Authority’s
Court Agreement and Article 9 and 11 of
Decision No 195/04/COL of 14 July 2004 (6).

(3) Case C-350/93 Commission v Italy [1995] ECR I-699, paragraph 22.
(4) Case C-75/97 Belgium v Commission [1999] ECR I-3671, paragraph
66, and Case C-310/99 Italy v Commission [2002] ECR I-2289,
paragraph 99.

(5) Case C-169/95 Spain v Commission [1997] ECR I-135, paragraph 51.
(6) Published on the OJ L 139, 25.5.2006, p. 37 and the EEA

Supplement No 26 of 25.5.2006, p. 1.

L 249/46

EN

Official Journal of the European Union

18.9.2008

The Norwegian authorities are therefore requested to take the
necessary measures to recover any incompatible aid granted on
the basis of Article 3 of the VAT Compensation Act and inform
the Authority thereof within two months.

The Norwegian authorities shall amend the VAT Compensation
Act with immediate effect in order to exclude the granting of
State aid. Within two months, they shall inform the Authority
of the necessary legislative amendments undertaken,

HAS ADOPTED THIS DECISION:

Article 1

immediate and effective execution of the decision. The aid to
be recovered shall include interest and compound interest from
the date on which it was at the disposal of the beneficiary until
the date of its recovery. Interest shall be calculated on the basis
of Article 9 and 11 in the EFTA Surveillance Authority Decision
No 195/04/COL.

Article 5

The Norwegian authorities shall inform the EFTA Surveillance
Authority, within two months of notification of this Decision,
of the measures taken to comply with it.

The State aid granted in connection with the VAT Compen­
sation Act implemented by the Norwegian authorities is not
compatible with the functioning of the EEA Agreement.

Article 6

This Decision is addressed to the Kingdom of Norway.

Article 2

Article 7

Norway shall
amend the VAT Compensation Act with
immediate effect in order to exclude the granting of State aid.

Only the English version is authentic.

Article 3

The Norwegian authorities shall take all necessary measures to
recover from any beneficiary undertaking the aid referred to in
Article 1.

Done at Brussels, 3 May 2007.

Article 4

For the EFTA Surveillance Authority

Recovery shall be affected without delay and in accordance with
law provided that they allow the
the procedures of national

Bjørn T. GRYDELAND
President

Kurt JÄGER
College Member