Insights

On 20 May 2021, in the case of ‘Azienda Sanitaria Provinciale di Catania vs. Assessorato della Salute della Regione Siciliane’, the Court of Justice of the European Union (CJEU) delivered its preliminary ruling whereby it clarified the distinction between ‘new aid’ and ‘existing aid’ in the context of State aid, and the notification requirements associated with both.

By way of background, State aid can be defined as any economic advantage provided by a Member State or through State resources to a trader or company, be it state-owned or private, which favours that trader or company to the detriment of its competitors. The aid must also be capable of affecting trade within the EU internal market.

The granting of State aid is generally considered anticompetitive and illegal and prohibited under EU law by virtue of Article 107 of the Treaty on the Functioning of the European Union (TFEU), in particular where it is deemed to be incompatible with the internal market.

However, this rule is not absolute and Article 107 TFEU goes on to mention several derogations to this which, if satisfied, would deem that State aid as compatible with the internal market. EU legislators have also issued legislation to define further what is State aid, what is compatible for specific sectors, but also more generally horizontally (i.e. General Block Exemption Regulations and the Regulation on de minimis aid).  These derogations allow Member State to step in and provide companies or individuals with aid when needed within an organised framework that minimises distortions on the market.

Two derogations which all of Europe must be familiar with by now, are “aid to make good the damage caused by natural disasters or exceptional occurrences” and “aid to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State”, which paved the way for the European Commission (the Commission)’s Temporary Framework for State aid Measures to Support the Economy in the Current COVID-19 Outbreak.

Under Article 108(3) TFEU, if a Member State is desirous of allocating State aid or creating a State aid system, said Member State is bound to notify the Commission of its plans in advance, and the Commission shall in turn review said system and decide whether to approve the aid; approve it but ask that it is modified, or reject the State aid in its entirety. Only once the aid is authorised by the Commission, can it then be implemented by the Member State.

In this matter, the State aid that was being disputed was granted by Azienda Sanitaria Provinciale di Catania, the Regional Health Authority of Catania (the Authority) which granted farmers with financial aid, who were made to slaughter their animals riddled with certain infectious diseases. The State aid was first granted in 1989, and subsequently in 1997 and 1999, and each respective law which governed the financial compensation being handed out to the affected farmers, had been both notified to and subsequently authorised by the Commission. In 2005, another round of financial compensation was provided by the State, however prior authorisation from the Commission before implementation was not sought.

In this case, a farmer (the Claimant) had brought an action to be granted aid under the law adopted in 2005, namely the Sicilian Regional Law No 19/2005, laying down urgent financial measures and amending the Region’s budget for the financial year 2005. Although he was initially awarded the aid that he sought out, this aid was annulled at the request of the Authority. Aggrieved by this decision, the Claimant instituted a case before the Catania Court of Appeal (which held in favour of the Claimant), and eventually, the case made its way before the Court of Cassation.

The Court of Cassation, under the power of courts or tribunals to refer questions to the CJEU through the preliminary reference procedure, sought out a clarification on the following:

• Whether these financial measures fall within the definition of State aid which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods;
• Whether the aid granted in 2005 had already been effectively authorised, given the fact that the Commission had already approved previous measures in the past.

The CJEU tackled the second question first, holding that what must be established is whether Article 108(3) TFEU should be interpreted to mean that if a measure regarding aid to farmers who were forced to slaughter sick animals has already been approved in the past is still be subject to the preliminary exemption procedure.

Here the CJEU made a distinction between the notification requirements when it comes to aid that has already been approved (existing aid), and aid that still has to go through Commission scrutiny (new aid). Article 108 TFEU stipulates that while in case of existing aid notification is not required and the aid can be implemented, the Commission must be notified of new aid.

Reference was also made to Regulation No 659/1999 where ‘new aid’ is defined as ‘’all aid, that is to say, aid schemes and individual aid, which is not existing aid, including alterations to existing aid’’. On the other hand, the CJEU also referred to Article 4(1) of Regulation No 794/2004, which provides that ‘for the purposes of Article 1(c) of Regulation [No 659/1999], an alteration to existing aid shall mean any change, other than modifications of a purely formal or administrative nature which cannot affect the evaluation of the compatibility of the aid measure with the common market’’.

Did the new aid, which was being offered under the law enacted in 2005, fall under modification of a purely formal or administrative nature, and is, therefore, to be considered as ‘existing aid’? The CJEU answered this in the negative, holding that while the objective behind the aid was similar to the aid granted and authorised in 1997 and 1999, the fact that the aid given in 2005 was different in some aspects meant that it did not fall under the definition of ‘existing aid’.

In particular, the CJEU referred to the substantial budget increase in the aid (where an increase of 20% was seen), the extension of the scheme and the widening of the beneficiaries of the scheme could not be regarded as a modification of a purely or administrative nature but was not be considered as falling within the scope of ‘new aid’ and must be subject to the notification and approval requirement of the Commission before it being implemented. This strict approach adopted by the CJEU is in line with the approach that it has chosen to take in past instances.

However, the CJEU observed that even though it was to be classified as ‘new aid’ and was therefore subject to the notification requirement, given the fact that the aid could fall within the scope of Regulation 702/2014, more commonly known as the Block Exemption Regulation for the agricultural and forestry sectors and under the de minimis Regulation 1408/2013, the “new aid” could be exempt from the obligation to notify and could be considered as compatible with the internal market.

As with all preliminary references, this was, however, a point of fact to be determined by the national court requesting the reference.

The main takeaway from this judgement is that the Member States must heed caution and ensure that they analyse a proposed aid scheme to ensure that they classify it correctly as either ‘new aid’ or ‘existing aid’ and carry out their notification requirements, as necessary.

The author would like to thank Raoul Ciappara, currently an intern at Ganado Advocates, for his support during the preparation of this law report.

This article was first published in the Malta Independent.