1 By order of 10 April 1995, received at the Court on 24 April 1995, the Østre Landsret (Eastern Regional Court) referred to the Court for a preliminary ruling under Article 177 of the EC Treaty a number of questions on the interpretation of Community law with regard to set-off of amounts paid under Community law against debts payable to a Member State and of Articles 10(1) and 15(3) of Council Regulation (EEC) No 1765/92 of 30 June 1992 establishing a support system for producers of certain arable crops (OJ 1992 L 181, p. 12, hereinafter `the Regulation').
2 Those questions were raised in proceedings brought by Mr Jensen, a farmer entitled to a compensatory payment under the Regulation, and Korn- og Foderstofkompagniet A/S (hereinafter `KFK'), the assignee of another compensatory payment due under the same regulation, against Landbrugsministeriet, EF-Direktoratet (Directorate of European Affairs of the Ministry of Agriculture, hereinafter `the Direktorat'), concerning set-off by the latter between the compensatory payments in question and outstanding debts payable to the State. The Community legislation Regulation (EEC) No 729/70
3 Article 4(1) of Regulation (EEC) No 729/70 of the Council of 21 April 1970 on the financing of the common agricultural policy (OJ, English Special Edition 1970 (I), p. 218) provides that Member States are to designate the authorities and bodies which they will empower to effect the expenditure referred to in Articles 2 and 3. Under Article 4(2), the Commission is to make available to Member States the necessary credits so that the designated authorities and bodies may, in accordance with Community rules and national legislation, make the payments referred to in Article 4(1). The Member States are to ensure that those credits are used without delay and solely for the purposes laid down. The Regulation
4 According to the second recital in the preamble to the Regulation, the best way of ensuring better market balances is to approximate the Community prices of certain arable crops to the prices of the world market and to compensate the loss of income caused by the reduction of the institutional prices by a compensatory payment for producers who sow such products. According to the 18th recital, it is necessary to determine certain conditions for applying for compensatory payments and to specify when producers are to be paid.
5 Article 2(1) of the Regulation provides that Community producers of arable crops may apply for a compensatory payment under the conditions set out in its first title. In particular, under the second subparagraph of Article 2(2), the compensatory payment is to be granted for the area which is down to arable crops or subject to set-aside in accordance with Article 7 of the Regulation and which does not exceed a regional base area.
6 Article 10(1) provides that compensatory payments for cereals and protein crops and the compensation for the set-aside obligation are to be paid between 16 October and 31 December next following the harvest.
7 Under Article 15(3), the payments referred to in the Regulation are to be paid over to the beneficiaries in their entirety. The national provisions
8 It appears from the order for reference that, under general rules of Danish law, public authorities may recover fiscal debts owed by the beneficiaries of public aid in three ways.
9 First, like any creditor, they may apply for attachment of the aid due to their debtor; if the debtor objects, a decision of the competent court is necessary. The State, like any other creditor, may obtain an attachment order in respect of entitlement to the aid itself; the aid is then paid directly to it, as it would be paid to any private creditor who resorted to attachment proceedings. In the event of the aid entitlement becoming subject to several attachment orders, the general rules concerning priority apply.
10 Second, public authorities may recover their debts by accepting an assignment by the beneficiary of aid of his entitlement to it. Where assignments are made to more than one creditor, the rules concerning priority apply.
11 Lastly, public authorities may recover their debts by effecting set-off between aid granted by a national administration and the debt owed to that administration by the person entitled to the aid.
12 For set-off of that kind between unconnected debts to be available, whether for the benefit of public or of private creditors, several conditions must be fulfilled. First, there must be reciprocity between the two debts in that the creditor in one case must be the debtor in the other. Next, the debt payable to the person seeking set-off must have fallen due. Finally, there must be two debts of sums of money or two obligations relating to fungibles of the same kind.
13 Under Justitsministeriets circulæreskrivelse No 186 (Circular No 186 of the Ministry of Justice) of 22 November 1983, which was sent to all departments of the central administration, it is not permissible to effect set-off between claims not arising under the law of property and obligations - such as tax debts, VAT liabilities and fines - and debts payable by the State which do fall within that law (in general, debts originating in contract).
14 Finally, Lov No 284 om aendring af forsekellige lovbestemmelser om inddrivelse af statskrav (Law amending certain provisions of legislation on the recovery of State debts) of 27 April 1994, which entered into force on 1 July 1994, made set-off available, up to a maximum of 20%, in respect of a number of specific trade or environmental subsidies granted by the Danish State within the areas of responsibility of the Ministries of Energy, Industry, Agriculture and the Environment. The disputes in the main proceedings Danish practice regarding set-off
15 According to the order for reference, the Direktorat has been effecting set-offs since 1978 against, in particular, debts to the State for VAT or other fiscal liabilities when paying out aid due in relation to common organisations of markets in agricultural products.
16 By letter of 28 July 1992 the Direktorat asked the Commission whether that practice could be maintained.
17 By letter of 12 November 1992 the Commission replied that, in so far as national legislation allowed such set-off, it had no objection to the paying authority's resorting to set-off against debts to the State when paying out aid in respect of the 1992/93 marketing year under Commission Regulation (EEC) No 615/92 of 10 March 1992 laying down detailed rules for a support system for producers of soya beans, rape seed, colza seed and sunflower seed (OJ 1992 L 67, p. 11), provided that the national legislation drew no distinction between the payment of such aid and that of national aid and that payment thereof was not rendered impossible by the national legislation concerning set-off.
18 However, the Commission emphasised in particular that Article 15(3) of Regulation No 1765/92 and Article 2(2) of Regulation No 615/92 required that the producer receive the full amount of the aid without reduction of any kind; therefore, in its view, the Member States could not impose, directly or indirectly, any charges for processing applications for the compensatory payments provided for by those regulations.
19 Following that letter, the Direktorat, adhering to its previous practice, effected set-off in respect of the amounts of aid paid in 1993 under both Regulation No 615/92 and Regulation No 1765/92.
20 By letter of 7 October 1994 the Commission then drew the attention of the Danish Ministry of Agriculture to the most recent opinion of its Legal Service, to the effect that the Regulation precluded national authorities from effecting set-off between Community aid and amounts due to them under national schemes or provisions. A memorandum of 27 April 1994 from the Commission's Legal Service to the Director General for Agriculture concerning the problem of set-off between national fiscal debts and Community aid emphasised in particular that the Regulation, which took precedence over national law, contained a specific provision to the effect that the various payments were to be made to producers in their entirety. Moreover, the set-off mechanism had undermined the aim of the system of direct income support, since a Member State could recover tax debts from farmers without having to follow the procedures normally prescribed for that purpose.
21 Following that letter, although disputing the Commission's position, the Danish Minister of Agriculture decided to cease effecting set-off between aid payable to farmers for 1994 under the Regulation and debts to the State relating, in particular, to VAT and other levies. Mr Jensen's application for aid
22 On 9 May 1993 Mr Jensen applied to the Direktorat for area aid for the 1993 harvest. It is undisputed that he fulfilled the conditions laid down by the Regulation.
23 Since, however, in December 1993 he owed the State an amount in respect of VAT which exceeded that of the aid, he was informed on 20 December 1993 - before the Commission changed its view concerning the Danish practice regarding set-off - that the entire amount of the aid, namely DKR 33 563, would go towards discharge of his VAT debt.
24 The Direktorat dismissed the complaint lodged by Mr Jensen against that decision on the ground that the set-off was justified and that all the relevant conditions laid down by Danish law were satisfied.
25 Mr Jensen then instituted proceedings against the Direktorat before the Østre Landsret to secure payment of the DKR 33 563 in respect of area aid under the Regulation.
26 According to the case-file, Mr Jensen, having experienced financial problems in 1993, sought to come to an arrangement with his creditors under which they would receive only a percentage of their claims. As it was regarded as income for the purposes of the arrangement, the area aid was to form part of the overall amount to be shared by the creditors, one of whom was the tax administration. Whilst the set-off allowed that administration to secure full payment of its claim, it also nearly compromised implementation of the scheme of arrangement; the arrangement was still put into effect, but payments to other creditors were significantly reduced. The assignment to KFK
27 According to the order for reference, in the spring of 1993 another farmer, Mr Stenholt, had assigned to KFK the annual amount of aid he could claim under the Regulation, namely DKR 45 574. The document recording the assignment had been notified to the Direktorat, which took note of it, subject to the State's right of set-off.
28 Since Mr Stenholt had become indebted to the State before the date of the assignment to KFK and since his debt to the State fell due before the aid could be paid, the Direktorat effected set-off to cover the State's claim against the beneficiary of the aid and informed KFK that, as a result, it would not receive any payment.
29 KFK therefore also instituted proceedings against the Direktorat before the Østre Landsret, seeking payment of the aid assigned to it by Mr Stenholt. The questions on which a ruling is sought
30 Considering that an interpretation of Community law was required from the Court of Justice, the Østre Landsret stayed proceedings and submitted the following questions for a preliminary ruling: `1. Does Community law in general preclude a Member State from setting off an amount due to the beneficiary of aid under a Community measure against outstanding debts to a Member State? 2.(a) Is it of any significance for the answer to Question 1 whether the amount of aid under Community law is paid in advance by the Member State which has a claim to be reimbursed for the aid paid out only if the rules of Community law on payment are satisfied and which must itself defray the expenditure involved in the administration of the support system? (b) Is it of any significance for the answer to Question 1 that under the Member State's rules on set-off it is a condition for effecting set-off that there be reciprocity between the debtor under the principal claim and the creditor under the counterclaim? (c) Is it of any significance for the answer to Question 1 that the Member State's practice with regard to certain trade and environmental subsidies is established in such a way as to permit set-off in an amount not exceeding 20% of the said State subsidies? (d) Is it of any significance for the answer to Question 1 what legal basis exists for the outstanding debt to the State against which set-off is to be effected? An answer is desired in particular to the question whether the Member States have greater scope to effect set-off if all or part of the sum to be set off constitutes part of the Community's own income. 3. If Questions 1 and 2(a) to 2(d) are answered to the effect that set-off is in general possible, or possible subject to certain conditions, is Article 15(3) of Council Regulation No 1765/92 to be interpreted as meaning that a Member State is precluded from requiring a national intervention agency to effect set-off in the case of a beneficiary of compensatory payments with outstanding debts to the State which could otherwise be involved in set-off? 4. Is Article 10(1) of Council Regulation No 1765/92 to be interpreted as meaning that the compensatory payments in question are to be paid over immediately the intervention agency has concluded the procedure with regard to the beneficiary's application, or is it permissible to delay the payment for an investigation as to whether the State has outstanding claims against the beneficiary in respect of which it wishes to effect a set-off, provided always that the payment is effected at the latest by 31 December of the relevant support year?' The first two questions
31 By its first two questions the national court seeks essentially to ascertain whether Community law precludes a Member State from effecting set-off between an amount due to a beneficiary of aid payable under Community legislation and an outstanding debt to that Member State. It also seeks to ascertain whether the answer to be given to that question is affected by (i) the capacity in which the Member State grants the aid provided for by the Regulation and the requirement, imposed by national law, that claims must be reciprocal between debtor and creditor, (ii) the practice generally followed by the Member State regarding set-off and (iii) the legal basis of the debt to the State against which the amount payable is set off.
32 The plaintiffs in the main proceedings maintain that it is incompatible with the general principles of Community law to effect set-off between aid paid in the context of common market organisations and debts to a Member State. The objective of those common market organisations would be distorted by such a procedure. Rather than enforced set-off of the kind in issue in the main proceedings, the Danish authorities could have used, for example, attachment proceedings.
33 Conversely, the Direktorat and the Danish Government contend that, in the absence of Community rules on the subject, the national rules on set-off may continue to be applied provided that they are not discriminatory and do not undermine the common market organisation involved.
34 It must first be observed that, under the scheme for financing the common agricultural policy, the Community grants aid in the context of a division of powers with the Member States. The sums corresponding to the aid are placed at the disposal of the Member States, which must ensure that they are properly managed (Case C-186/93 Unaprol v AIMA [1994] ECR I-3615, paragraph 27).
35 As it now stands, Community law contains no general rules on the right of national authorities to effect set-off between amounts paid under Community legislation and outstanding debts to a Member State.
36 On the other hand, the Court has held, in the case of an insolvent trader to whom funds had been wrongly paid, that set-off may in fact constitute the only practicable way open to the authorities to recover such sums (Case 250/78 DEKA v EEC [1983] ECR 421, paragraph 14).
37 However, national rules would be incompatible with the Treaty and with the rules on the common organisation of markets if they authorised practices liable to interfere with the functioning of the machinery employed by those organisations in order to achieve their ends (see, to that effect, Joined Cases 36/80 and 71/80 Irish Creamery Milk Suppliers Association v Ireland [1981] ECR 735, paragraph 15, and Case 218/85 Cerafel v Le Campion [1986] ECR 3513, paragraph 13).
38 In this case, it must be observed that the aim of the Regulation is - because of the suppression, following reform of the common agricultural policy, of income support for farmers under the price policy - to guarantee direct income support in the form of compensatory payments. For the reasons set out in paragraphs 47 to 55 of the Advocate General's Opinion, national rules of the kind at issue in the present proceedings, which are designed to ensure more effective recovery of debts payable to public authorities, do not appear, a priori, to be such as to undermine the effectiveness of Community law.
39 In any event, as the Advocate General has observed in paragraph 56 of his Opinion, if it were found that permitting set-off resulted in widespread differences in treatment as between the different national legal systems such as to compromise the equal treatment of producers in different Member States, it would be for the Community legislature to adopt the provisions needed to remedy such disparities.
40 It is nevertheless necessary to verify whether the circumstances mentioned by the national court in its second question are such as to affect the conformity with Community law of the national practice regarding set-off.
41 First, with respect to the capacity in which the Member State grants aid under the Regulation and the requirement imposed by national law that claims must be reciprocal between debtor and creditor, it must be borne in mind that set-off is not expressly regulated by Community law.
42 In those circumstances it is, in principle, for each Member State to define the conditions under which its national authorities may resort to set-off and to deal with all incidental issues.
43 Second, in view of the practice generally followed by their Member State in regard to set-off, the plaintiffs in the main proceedings maintain that the manner in which direct agricultural aid granted under Community law is set off against debts to the State is discriminatory because equivalent national aid is either excluded from set-off or is available for set-off only up to 20% of its amount, whereas in a case like that with which the main proceedings are concerned the Direktorat could effect total set-off.
44 Whilst emphasising that it is for the national court to compare the legal rules on Community agricultural aid and those governing national subsidies, the Danish Government considers that those two types of aid are not equivalent and that no discrimination can therefore arise.
45 It must be noted here, first, that, in the context of Article 177 of the Treaty, the Court has no jurisdiction to rule on the compatibility of a national provision with Community law.
46 It is therefore for the national court to decide whether the national rules applicable to set-off are discriminatory, in that they are applied differently to amounts payable under Community law and to amounts paid under national law alone.
47 However, the Court of Justice may provide the national court with certain information relating to the interpretation of Community law, for the purposes of the assessment which it is to undertake.
48 It is true that, in the specific context of the common agricultural policy, the Court has already made it clear that, in so far as Community law, including its general principles, does not include common rules on the point at issue, the national authorities, when implementing Community regulations, act in accordance with the procedural and substantive rules of their own national law (Joined Cases 205/82 to 215/82 Deutsche Milchkontor v Germany [1983] ECR 2633, paragraph 17).
49 Nevertheless, in the first place, that rule must be reconciled with the need to apply Community law uniformly so as to avoid unequal treatment of producers and traders (Deutsche Milchkontor, paragraph 17).
50 Second, the national rules on set-off must not make set-off between an amount due to the beneficiary of aid under a Community measure and an outstanding debt to the Member State subject to less favourable conditions or procedures than those applicable to set-off between claims of purely domestic origin (see, mutatis mutandis, Case 33/76 Rewe v Landwirtschaftskammer Saarland [1976] ECR 1989, paragraph 5, Case 45/76 Comet v Produktschap voor Siergewassen [1976] ECR 2043, paragraph 13, and Case 54/81 Fromme v BALM [1982] ECR 1449, paragraph 6).
51 Indeed, the principle of non-discrimination implies that the obligations imposed by national legislation on beneficiaries of Community aid must not be more stringent than those imposed on the beneficiaries of similar advantages or aid based on national law - always provided that the two groups of recipients are in comparable situations and therefore that that different treatment is not objectively justifiable (Fromme, cited above, paragraph 7).
52 Finally, with regard to the legal basis of the debt to the State involved in the set-off, Mr Jensen claims that the amount of area aid paid by the Danish State to farmers, and reimbursed to it by the Community, derives in reality from the Community's own resources. It is therefore entirely logical for the Community to prohibit a Member State from using those resources to recover its own debts rather than to attain the objectives pursued by the Community area aid.
53 However, it must be noted here that neither the legal basis of the debt to the State nor the fact that the amount set off against it may derive from the Community's own resources in any way affects the Member State's right to effect set-off between fiscal debts payable to it and compensatory payments due under Community law.
54 The answer to the first two questions must therefore be that Community law does not preclude a Member State from effecting set-off between an amount due to a beneficiary of aid payable under Community legislation and an outstanding debt to that Member State. The position would be different only if that practice were to interfere with the proper functioning of the common organisation of the agricultural markets. In that regard, the capacity in which the Member State grants aid under the Regulation, the fact that the rules of that Member State on set-off require, for set-off to be available, reciprocity of debts as between debtor and creditor, the practice generally followed by the Member State regarding set-off and the legal basis of the debt to the State involved in the set-off are of no importance, provided that the national authorities ensure that the effectiveness of Community law is not in any way undermined and that economic operators enjoy equal treatment. It is for the national court to determine whether that is the case. The third question
55 By its third question, the national court seeks essentially to ascertain whether, on a proper construction of Article 15(3) of the Regulation, Member States are precluded from requiring a national intervention agency to effect set-off with debts payable to the State in the case of a beneficiary of compensatory payments.
56 The plaintiffs in the main proceedings and the Commission submit, on the basis of the objective of the Regulation, which is to contribute directly to maintaining the income of farmers and to offset losses resulting from the progressive reduction of price guarantees and export refunds, that set-off is clearly prohibited by that provision.
57 The Danish Government and the Direktorat, for their part, consider that the wording of Article 15(3) of the Regulation indicates merely that the aid must not be subject to deduction of taxes or similar levies which would reduce its overall amount.
58 First, it must be observed here that, for the purposes of the main proceedings, it is unnecessary to determine whether Article 15(3) of the Regulation precludes the national authorities from claiming payments from beneficiaries of Community aid to cover administrative costs relating to their applications. The type of case with which the national court is concerned involves set-off between debts to the State for which such set-off would normally be available and amounts paid under Community law.
59 Next, it must be noted that it is expressly stated in the second recital in the preamble to the Regulation that the object of the compensatory payments is to compensate the loss of income caused by the reduction of the institutional prices as part of a new support system for the producers of certain arable crops as a result of reform of the common agricultural policy.
60 It is true that, under Article 15(3) of the Regulation, the payments referred to therein are to be paid over to the beneficiaries in their entirety. However, as the Advocate General points out in paragraph 39 of his Opinion, the wording of that provision contains no evidence that the Community legislature intended to limit the widely varying debt-recovery methods which exist in national law.
61 Set-off between compensatory payments made under the Regulation and outstanding debts payable to a Member State does not have the effect of reducing the amount of the aid.
62 Consequently, subject to the provisos mentioned in the answer to the first two questions, set-off is not contrary to Article 15(3) of the Regulation.
63 The answer to the third question must therefore be that, on a proper construction of Article 15(3) of the Regulation, Member States are not precluded from requiring a national intervention agency to effect set-off with debts payable to the State in the case of a beneficiary of compensatory payments. The fourth question
64 By its fourth question, the national court seeks essentially to ascertain whether, on a proper construction of Article 10(1) of the Regulation, the compensatory payments to which it refers must be paid as soon as the intervention agency has completed its examination of the application from the beneficiary or whether payment may be deferred until a check has been made as to whether debts are payable by him to the State against which set-off may be available, provided that the payment is made no later than 31 December of the year concerned.
65 Mr Jensen claims that, although the national authorities are entitled to lay down appropriate administrative procedures for processing applications for Community area aid, such procedures must conform to the fundamental principles of Community law and enable area aid to be paid in the period between 16 October and 31 December in accordance with Article 10(1) of the Regulation. Any delay in paying Community aid might result in discrimination between farmers in the same Member State and between farmers in different Member States.
66 The Direktorat, on the other hand, considers that, in the absence of Community rules concerning the right to check whether the beneficiary of the aid is in any way indebted to the State or to the Community, it is the responsibility of each Member State to lay down its own rules on the matter, observing the general principles of Community law.
67 First of all, as the Direktorat was right to observe, although the Member States remain entitled to apply their national rules on set-off, in doing so they must nevertheless observe Community law without undermining its effectiveness or the proper functioning of the common organisation of the markets.
68 Next, it is expressly stated in Article 10(1) of the Regulation that the compensatory payments to producers are to be made between 16 October and 31 December next following the harvest. Therefore, although the national authorities should make those payments as soon as possible, they are not legally required to do so before 31 December.
69 Finally, Community law does not preclude a Member State from verifying expeditiously whether it has claims against the beneficiary of aid which might be available for set-off, provided that set-off is effected in conformity with the general principles of Community law laid down in the answer to the first two questions.
70 Accordingly, the answer to the fourth question must be that, on a proper construction of Article 10(1) of the Regulation, payment of the compensatory payments to which it refers may be deferred until it has been verified whether the State has any claim against the beneficiary thereof for which set-off may be available, provided that the payment is made no later than 31 December in the year in question.