CELEX: 62006CJ0177
Language: en
Date: 2007-09-20 00:00:00
Title: Judgment of the Court (Second Chamber) of 20 September 2007. # Commission of the European Communities v Kingdom of Spain. # State Aid - Aid scheme - Incompatibility with the common market - Commission decision - Implementation - Abolition of the aid scheme - Cancellation of outstanding aid - Recovery of aid made available - Failure to fulfil obligations - Defences - Illegality of the decision - Absolute impossibility of giving effect to a decision. # Case C-177/06.

Case C-177/06
      Commission of the European Communities
      v
      Kingdom of Spain
      (State Aid – Aid scheme – Incompatibility with the common market – Commission decision – Implementation – Abolition of the aid scheme – Cancellation of outstanding aid – Recovery of aid made available – Failure to fulfil obligations – Defences – Illegality of the decision – Absolute impossibility of giving effect to a decision)
      Judgment of the Court (Second Chamber), 20 September 2007 
      Summary of the Judgment
      1.     Actions for failure to fulfil obligations – Non-compliance with a Commission decision concerning State aid – Defences 
      (Arts 88(2) second subpara., EC, 226 EC, 227 EC, 230 EC and 232 EC)
      2.     Actions for failure to fulfil obligations – Non-compliance with a Commission decision concerning State aid – Defences 
      (Art. 88(2) EC)
      3.     Actions for failure to fulfil obligations – Non-compliance with a Commission decision concerning State aid – Non-implementation
            of the decision 
      (Art. 88(2) EC)
      1.     The system of remedies set up by the Treaty distinguishes between the remedies provided for in Articles 226 EC and 227 EC,
         which permit a declaration that a Member State has failed to fulfil its obligations, and those contained in Articles 230 EC
         and 232 EC, which permit judicial review of the lawfulness of measures adopted by the Community institutions, or the failure
         to adopt such measures. Those remedies have different objectives and are subject to different rules. In the absence of a provision
         of the Treaty expressly permitting it to do so, a Member State cannot, therefore, properly plead the unlawfulness of a decision
         addressed to it as a defence in an action for a declaration that it has failed to fulfil its obligations arising out of its
         failure to implement that decision. The position could be different only if the measure in question contained such particularly
         serious and manifest defects that it could be deemed non-existent. That also applies in an action for failure to fulfil obligations
         based on the second subparagraph of Article 88(2) EC.
      
      In an action for failure to fulfil obligations brought under the second subparagraph of Article 88(2) EC, and except for the
         case of the non-existence of the act, a Member State is not entitled to raise the defence of the unlawfulness of a negative
         decision of the Commission when a direct action against that decision is pending before the Community Courts.
      
      (see paras 30-32, 37)
      2.     The only defence available to a Member State in opposing an application by the Commission under Article 88(2) EC for a declaration
         that it has failed to fulfil its Treaty obligations is to plead that it was absolutely impossible for it properly to implement
         the decision.
      
      (see para. 46)
      3.     In an action for failure to fulfil obligations brought by the Commission under Article 88(2) EC, the Court does not need to
         examine the form of order sought against a Member State for failing to notify the Commission of the measures implementing
         a decision declaring a system of aid incompatible with the common market and requiring it to be withdrawn, with suspension
         of aid not yet paid and recovery of aid already paid, where that Member State did not in fact implement the decision within
         the prescribed period.
      
      (see paras 53-54)
JUDGMENT OF THE COURT (Second Chamber)
      20 September 2007 (*)
      
      (State Aid – Aid scheme – Incompatibility with the common market – Commission decision – Implementation – Abolition of the aid scheme – Cancellation of outstanding aid – Recovery of aid made available – Failure to fulfil obligations – Defences – Illegality of the decision – Absolute impossibility of giving effect to a decision)
      In Case C‑177/06,
      ACTION under Article 88(2) EC for failure to fulfil obligations, brought on 4 April 2006,
      Commission of the European Communities, represented by F. Castillo de la Torre and C. Urraca Caviedes, acting as Agents, with an address for service in Luxembourg,
      
      applicant,
      v
      Kingdom of Spain, represented by N. Díaz Abad, acting as Agent, with an address for service in Luxembourg,
      
      defendant,
      THE COURT (Second Chamber),
      composed of K. Schiemann, acting for the President of the Second Chamber, L. Bay Larsen (Rapporteur), J.-C. Bonichot, T. von
         Danwitz and C. Toader, Judges,
      
      Advocate General: E. Sharpston,
      Registrar: M. Ferreira, Principal Administrator,
      having regard to the written procedure and further to the hearing on 26 April 2007,
      having decided, after hearing the Advocate General, to proceed to judgment without an Opinion,
      gives the following
      Judgment
      1       By its application, the Commission of the European Communities asks the Court to declare that, by having failed to take the
         necessary measures within the prescribed period to comply with Articles 2 and 3 of:
      
      –       Commission Decision 2003/28/EC of 20 December 2001 on a State aid scheme implemented by Spain in 1993 for certain newly established
         firms in Álava (Spain) (OJ 2003 L 17, p. 20); 
      
      –       Commission Decision 2003/86/EC of 20 December 2001 on a State aid scheme implemented by Spain in 1993 for certain newly established
         firms in Vizcaya (Spain) (OJ 2003 L 40, p. 11);
      
      –       Commission Decision 2003/192/EC of 20 December 2001 on a State aid scheme implemented by Spain in 1993 for certain newly established
         firms in Guipúzcoa (Spain) (OJ 2003 L 77) (together, ‘the contested decisions’),
      
      or, in any case, by having failed to communicate those measures in accordance with Article 4 of those decisions, the Kingdom
         of Spain has failed to fulfil its obligations under those provisions.
      
      I –  The background to the dispute
      2       In 1993, the Basque provinces of Álava, Vizcaya and Guipúzcoa adopted tax measures aimed at encouraging business start-ups.
         
      
      3       Article 14 of each of the provincial laws No 18/1993 of 5 July 1993 in the province of Álava, No 5/1993 of 24 June 1993 in
         the province of Vizcaya and No 11/1993 of 26 June 1993 in the province of Guipúzcoa, all three of which were entitled ‘Urgent
         tax measures in support of investment and to stimulate economic activity’ (Medidas Fiscales Urgentes de Apoyo a la Inversión
         e impulso de la Actividad Económica), granted a 10-year exemption from corporate tax to those undertakings created between
         the date of entry into force of the provincial law and 31 December 1994, on condition that, inter alia: 
      
      –       they were formed with a minimum paid-up capital of ESP 20 million; 
      –       they invested a minimum amount of ESP 80 million between the date of creation of the company and 31 December 1995, and 
      –       they created at least 10 jobs within six months of the start of their business.
      4       By letter of 28 November 2000, the Commission initiated the formal investigation procedure provided for in Article 88(2) EC
         against the Kingdom of Spain, with regard to each of the three tax schemes (‘the disputed tax measures’). 
      
      5       By applications lodged on 9 February 2001, the Diputación Foral de Álava (Case T‑30/01), the Diputación Foral de Guipúzcoa
         (Case T‑31/01) and the Diputación Foral de Vizcaya (Case T‑32/01) brought three actions for annulment before the Court of
         First Instance of the European Communities, each against the decision to initiate the procedure involving them.
      
      6       At the end of the formal investigation procedures, the Commission adopted the contested decisions. 
      7       Article 1 of each of those decisions held the tax scheme in question to be State aid and declared it incompatible with the
         common market.
      
      8       Articles 2 to 4 of each of those decisions are worded as follows:
       ‘Article 2
      Spain shall abolish the aid scheme referred to in Article 1, if it is still in force.
       Article 3
      1.      Spain shall take all necessary measures to recover from the recipients the aid referred to in Article 1, which has been unlawfully
         made available to them. Spain shall cancel all payment of outstanding aid.
      
      2.      Recovery shall be effected without delay in accordance with the procedures of national law, provided these allow the immediate
         and effective [execution (Decision 2003/28)]/[implementation (Decisions 2005/86 and 2003/192)] of this Decision …
      
       Article 4
      Spain shall inform the Commission, within two months of the date of notification of this Decision, of the measures taken to
         comply with it.’
      
      9       The three decisions were notified to Spain by letters of 28 December 2001.
      10     The period of two months referred to in Article 4 of each of the decisions expired without, according to the Commission, it
         having been informed of the adoption of implementing measures.
      
      11     By applications lodged on 26 March 2002, the Diputación Foral d’Álava (Case T‑86/02), la Diputación Foral de Vizcaya (Case
         T‑87/02) and la Diputación Foral de Guipúzcoa (Case T‑88/02) brought three actions for annulment before the Court of First
         Instance, each of which was brought against the negative decision concerning it.
      
      12     Cases T-30/01 to T-32/01 and T-86/02 to T-88/02 have been joined by the Court of First Instance and are currently pending
         before that Court.
      
      13     Following various exchanges and reminders subsequent to 1 March 2002, since it took the view that the Kingdom of Spain had
         still not sent it information on the implementation of the contested decisions, the Commission decided to bring the present
         action for failure to fulfil obligations. 
      
      II –  Procedure before the Court
      14     On 27 February 2007, the Court rejected a request of the Kingdom of Spain on the basis of Article 82a of the Rules of Procedure
         seeking to stay the proceedings until judgments were given in the six cases pending before the Court of First Instance.
      
      III –  The action
      A –  Arguments of the parties
      1.     Arguments of the Commission
      15     The Commission relies on Articles 249 EC and 88(2) EC.
      16     According to it, upon the expiry of the two-month period prescribed in Article 4 of each of the contested decisions, the Kingdom
         of Spain, contrary to Articles 2 and 3 of those decisions, had not abolished the State aid regimes in so far as they were
         in place, had not cancelled the outstanding aid and had not sought recovery of aid already made available.
      
      17     The Commission claims that, despite many reminders, even on the date on which the present action was brought, the decisions
         had not been implemented.
      
      18     It claims that the only defence available to a Member State in opposing an application by the Commission under Article 88(2)
         EC for a declaration that it has failed to fulfil its Treaty obligations is to plead that it was absolutely impossible for
         it properly to implement the decision ordering recovery. This condition is not fulfilled in the present case. 
      
      19     In any case, the Kingdom of Spain is not able to plead illegality of the contested decisions, since it has not brought an
         action for annulment against them.
      
      2.     Arguments of the Spanish Government
      20     The Spanish Government puts forward, as its principal argument, a plea based on the illegality of the contested decisions.
         Alternatively, it disputes whether a failure to fulfil obligations can be attributed to it in the present case.
      
      a)     Illegality of the contested decisions
      21     Under reference to Case C-99/02 Commission v Italy [2004] ECR I-3353, paragraph 16 and the case law cited, analysed a contrario, the Spanish Government considers that it is
         entitled to plead the illegality of the negative decisions of the Commission, although it has not brought actions for annulment.
         Those decisions are not definitive, in so far as they are the subject of pending actions for annulment, brought before the
         Court of First Instance by the relevant provincial authorities.
      
      22     The plea put forward is sub-divided into six parts, respectively alleging a misuse of power, an application of guidelines
         which were not in force at the date of the adoption of the disputed tax measures, an infringement of Article 14(1) of Council
         Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article [88] of the EC Treaty
         (OJ 1999 L 83, p. 1), an infringement of the right to a fair hearing with respect to the preliminary investigation procedure,
         an infringement of the right to a fair hearing with respect to the formal investigation procedure and a breach of the duty
         to provide adequate reasons.
      
      b)     Absence of a failure to fulfil obligations
      23     The Spanish government denies that it failed to fulfil the obligations to abolish the aid schemes in so far as they were still
         in force, the obligations to cancel outstanding aid and those to recover the aid already made available.
      
      i)     Obligations to abolish aid schemes in so far as they were still in force and to cancel outstanding aid
      24     The Spanish Government notes that the disputed tax measures involved exemptions from corporation tax for a period of 10 years
         starting from, and including, the tax year in which the new company was formed.
      
      25     Those measures, although not formally repealed, were in force for a limited period, since, being applicable to companies created
         between the entry into force of provincial laws Nos 18/1993, 5/1993 and 11/1993, in 1993, and 31 December 1994, they could
         only give rise to exemptions until the tax declaration submitted, at the latest, in July 2005.
      
      26     In those circumstances, the tax schemes at issue have ceased to have effect.
      ii)  Obligations to recover aid already made available
      27     The Spanish Government considers that the Commission was wrong to object that, in order to recover the aid already made available,
         it intended to make use of the procedure under national law for declaring voidable measures to have a detrimental effect.
         According to the Commission, that procedure had the effect of complicating the recovery of the aid to a very high degree.
      
      28     However, the procedure chosen was, in fact, the procedure for review of void measures, which was the appropriate procedure
         for the proper implementation of the contested decisions.
      
      29     Consequently, since the Commission erred in objecting that the Kingdom of Spain had chosen a recovery procedure which did
         not enable the contested decisions to be implemented in any way, it cannot be said that that Member State failed to fulfil
         its obligations.
      
      B –  Findings of the Court
      1.     The plea based on the unlawfulness of the contested decisions
      30     The system of remedies set up by the EC Treaty distinguishes between the remedies provided for in Articles 226 EC and 227
         EC, which permit a declaration that a Member State has failed to fulfil its obligations, and those contained in Articles 230
         EC and 232 EC, which permit judicial review of the lawfulness of measures adopted by the Community institutions, or the failure
         to adopt such measures. Those remedies have different objectives and are subject to different rules. In the absence of a provision
         of the Treaty expressly permitting it to do so, a Member State cannot, therefore, properly plead the unlawfulness of a decision
         addressed to it as a defence in an action for a declaration that it has failed to fulfil its obligations arising out of its
         failure to implement that decision (see, inter alia, Case C-261/99 Commission v France [2001] ECR I-2537, paragraph 18, and Case C-404/00 Commission v Spain [2003] ECR I-6695, paragraph 40). 
      
      31     The position could be different only if the measure in question contained such particularly serious and manifest defects that
         it could be deemed non-existent (Commission v France, paragraph 19, and Commission v Spain, paragraph 41). 
      
      32     That also applies in an action for failure to fulfil obligations based on the second subparagraph of Article 88(2) EC (Commission v France, paragraph 20, and Commission v Spain, paragraph 42).
      
      33     In this regard, it must be stated that the Kingdom of Spain has not claimed in its pleadings that the contested decisions
         contained a defect of a kind which might lead to those decisions being deemed non-existent.
      
      34     In any case, the Spanish Government cannot, by referring to the judgment in Commission v Italy, validly rely on the actions for annulment brought by the relevant provinces, pending before the Court of First Instance.
      
      35     The fact that, in that and other judgments, the Court took the view that, in the circumstances of the case before it, an action
         for annulment had not been brought within the prescribed period or that an action of that kind was dismissed, does not of
         itself mean that, in the converse case, the unlawfulness of a Community measure may be pleaded as a defence in an action for
         failure to fulfil obligations on the ground alone that an action for annulment brought against that measure is pending.
      
      36     It must be borne in mind that the contested decisions are presumed to be lawful and that, despite the existence of the action
         for annulment, they remain binding in all respects on the Kingdom of Spain (Commission v France, paragraph 26). 
      
      37     It follows that, in an action for failure to fulfil obligations brought under the second subparagraph of Article 88(2) EC,
         and except for the case of the non-existence of the act, a Member State is not entitled to raise the defence of the unlawfulness
         of a negative decision of the Commission when a direct action against that decision is pending before the Community Courts
         (see, regarding cases in which actions for annulment were pending, Case C-404/97 Commission v Portugal [2000] ECR I‑4897 and Case C-207/05 Commission v Italy [2006] ECR I‑70).
      
      38     It follows from the above that the plea examined must be rejected as inadmissible.
      2.     The existence of the failure to fulfil obligations
      a)     The pleas relating to the obligations to abolish aid schemes in so far as they were still in force and to cancel outstanding
         aid
      
      39     Article 2 of each of the contested decisions requires the Kingdom of Spain to abolish the relevant aid schemes in so far as
         they are still in force. The second sentence of Article 3(1) of each of those decisions requires the cancellation of outstanding
         aid.
      
      40     As the Spanish Government points out, the aid schemes were applicable only to companies formed by 31 December 1994 at the
         latest.
      
      41     However, they would be producing their effects over the course of 10 tax years, that is to say, for a period of several years
         after the contested decisions.
      
      42     In order to give effect to Article 2 and the second sentence of Article 3(1) of each of the contested decisions, the Kingdom
         of Spain was obliged to repeal the aid schemes and cancel the tax exemptions not already in place.
      
      43     The Spanish Government does not deny that the tax schemes have not been repealed and that the tax exemptions not already in
         place at the date of the contested decisions have not been cancelled.
      
      44     It follows that the Commission’s pleas relating to Article 2 and the second sentence of Article 3(1) of each of the contested
         decisions are well founded.
      
      b)     The pleas relating to the obligation to recover aid already made available
      45     Where negative decisions are taken in cases of unlawful aid, the recovery of that aid, ordered by the Commission, is to take
         place in the conditions provided for in Article 14(3) of Regulation No 659/1999, which states:
      
      ‘…recovery shall be effected without delay and in accordance with the procedures under the national law of the Member State
         concerned, provided that they allow the immediate and effective execution of the Commission’s decision. To this effect and
         in the event of a procedure before national courts, the Member States concerned shall take all necessary steps which are available
         in their respective legal systems, including provisional measures, without prejudice to Community law.’
      
      46     According to settled case-law, the only defence available to a Member State in opposing an application by the Commission under
         Article 88(2) EC for a declaration that it has failed to fulfil its Treaty obligations is to plead that it was absolutely
         impossible for it properly to implement the decision (see, inter alia, Commission v France, paragraph 23, Commission v Spain, paragraph 45, and Case C-415/03 Commission v Greece [2005] ECR I-3875, paragraph 35).
      
      47     In the present case, the obligation to recover is laid down in the first sentence of Article 3(1) and in Article 3(2) of each
         of the contested decisions. 
      
      48     The Kingdom of Spain does not plead that it was absolutely impossible for it to implement those provisions.
      49     It limits itself to contending that the procedure chosen for the recovery of the aid already made available is an appropriate
         procedure to implement the decisions properly.
      
      50     However, it has produced no supporting evidence, in particular, of the identity of the beneficiaries of that aid, of the amounts
         of aid granted and of the procedures that are in fact under way for the purposes of the recovery of that aid.
      
      51     Therefore, it has not proved the actual putting into place, within the period prescribed in Article 4 of each of the contested
         decisions, of measures allowing for, the immediate and effective implementation, within the meaning of Article 14(3) of Regulation
         No 659/1999, of the contested decisions as regards that aid already made available.
      
      52     Accordingly, the Commission’s pleas relating to the first sentence of Article 3(1) and of Article 3(2) of each of the contested
         decisions are well founded.
      
      53     It follows from the above that the action is well founded to the extent that the Commission claims that the Kingdom of Spain
         has not adopted all the necessary measures to abolish the relevant aid schemes, to cancel outstanding aid, and to recover
         aid already made available.
      
      54     The Court does not need to examine the form of order sought against the Kingdom of Spain for failing to notify the Commission
         of the measures implementing the decision, since the Kingdom of Spain did not in fact implement the decision within the prescribed
         period (see Case C-348/93 Commission v Italy [1995] ECR I-673, paragraph 31, and Case C‑207/05 Commission v Italy, paragraph 53).
      
      55     It must therefore be held that in failing to take the necessary measures within the prescribed period to comply with the provisions
         of Articles 2 and 3 of each of the contested decisions, the Kingdom of Spain has failed to fulfil its obligations under those
         provisions.
      
      IV –  Costs
      56     Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been
         applied for in the successful party’s pleadings. Since the Kingdom of Spain has been unsuccessful, it must be ordered to pay
         the costs, in accordance with the form of order sought by the Commission. 
      
      On those grounds, the Court (Second Chamber) hereby rules:
      1.      In failing to take the necessary measures within the prescribed period, to comply with Articles 2 and 3 of each of: 
      –       Commission Decision 2003/28/EC of 20 December 2001 on a State aid scheme implemented by Spain in 1993 for certain newly established
            firms in Álava (Spain); 
      –       Commission Decision 2003/86/EC of 20 December 2001 on a State aid scheme implemented by Spain in 1993 for certain newly established
            firms in Vizcaya (Spain);
      –       Commission Decision 2003/192/EC of 2 December 2001 on a State aid scheme implemented by Spain in 1993 for certain newly established
            firms in Guipúzcoa (Spain),
      the Kingdom of Spain has failed to fulfil its obligations under those provisions;
      2.      The Kingdom of Spain is ordered to pay the costs.
      [Signatures]
      * Language of the case: Spanish.