Case T‑48/22
Czech Republic
v
European Commission
Judgment of the General Court (Tenth Chamber) of 6 December 2023
(EAGF and EAFRD – Expenditure excluded from financing – Conformity clearance procedure – Active farmer – Permanent grassland – Control sample – Undue payments – Late submission of application – Financial discipline – Obligation to state reasons – Legitimate expectations – Proportionality)
1. Agriculture – Common agricultural policy – Direct support schemes – Common rules – Single area payment scheme – Concept of ‘active farmer’ – Natural or legal persons, or groups of natural or legal persons, who carry out an activity included in the exclusion list – Not included – Exception – Conditions – Member States allowed to limit those conditions and to identify alternative criteria – Limits
(European Parliament and Council Regulation No 1307/2013, Art. 9(2) and (7); Commission Delegated Regulation No 639/2014, Art. 13(1) and (3))
(see paragraphs 50, 51, 55, 62, 63)
2. Agriculture – Common agricultural policy – Direct support schemes – Common rules – Single area payment scheme – Concept of ‘active farmer’ – Natural or legal persons, or groups of natural or legal persons, who carry out an activity included in the exclusion list – Not included – Group of natural or legal persons – Meaning – Related companies – Included
(European Parliament and Council Regulation No 1307/2013, recital 10 and Arts 4(1)(a) and 9(2) and (7); Commission Delegated Regulation No 639/2014, Art. 13(1) and (3))
(see paragraphs 69-72, 76-78, 82-85, 89-92, 94-97, 102)
3. Agriculture – EAGF and EAFRD financing – Clearance of accounts – Disallowance of expenditure arising from irregularities in the application of EU rules – Assessment of losses suffered by the funds – Irregular expenditure not capable of being determined with sufficient precision – Assessment based on flat-rate corrections – Lawfulness – Breach of the principle of proportionality – None
(European Parliament and Council Regulation No 1306/2013, Art. 52(2))
(see paragraphs 106-108, 127, 130)
4. Agriculture – EAGF and EAFRD financing – Clearance of accounts – Disallowance of expenditure arising from irregularities in the application of EU rules – Challenge by the Member State concerned – Burden of proof – Shared by the Commission and the Member State
(European Parliament and Council Regulation No 1306/2013, Art. 52(2); Commission Delegated Regulation No 908/2014, Art. 34(6))
(see paragraphs 115-117, 159, 165, 239, 251)
5. EU law – Principles – Protection of legitimate expectations – Conditions – Specific assurances given by the authorities – Meaning – Document not establishing the Commission’s definitive position – Not included
(see paragraphs 176, 178-180, 183)
6. Agriculture – EAGF and EAFRD financing – Grant of aid and premiums – Obligation on the Member States to organise an effective system of administrative and on-the-spot checks – On-the-spot follow-up checks – Meaning – Selection of the sample of beneficiaries – Conditions
(Commission Implementing Regulation No 809/2014, Arts 30(a) and 33a)
(see paragraphs 213-219, 222)
7. Agriculture – EAGF and EAFRD financing – Clearance of accounts – Disallowance of expenditure arising from irregularities in the application of EU rules – Obligation on Member States to verify, retroactively, whether an area ineligible for aid during one year also was so during preceding years – None
(European Parliament and Council Regulation No 1306/2013, Art. 63; Commission Implementing Regulation No 908/2014, Art. 7)
(see paragraphs 264-266)
8. Agriculture – EAGF and EAFRD financing – Clearance of accounts – Disallowance of expenditure arising from irregularities in the application of EU rules – Detailed rules for submitting applications for aid and payment
(Rules of Procedure of the Court of Justice, Art. 57(7); European Parliament and Council Regulation No 1306/2013, Art. 72; Commission Delegated Regulations No 640/2014, Art. 13, and No 809/2014, Art. 14)
(see paragraphs 276, 278, 282, 284, 286)
9. Agriculture – EAGF and EAFRD financing – Clearance of accounts – Financial discipline – Financial correction imposed in the context of the conformity clearance procedure – Obligation on the Commission also to impose a correction on the appropriations subject to financial discipline – Total or partial annulment of the contested financial correction imposed for a given aid scheme leading, automatically and generally, to annulment of the flat-rate correction applied by way of financial discipline – None – Breach of the principle of proportionality – None
(European Parliament and Council Regulations No 1306/2013, Arts 25, 26 and 52, and No 1307/2013, Art. 8; Commission Implementing Regulations No 907/2014, Art. 12(2), and No 908/2014, Art. 34)
(see paragraphs 290-292, 300, 305-310)
Résumé
In 2017, the European Commission initiated an audit mission (1) in relation to the Czech Republic in order to ascertain whether its check of the aid paid to farmers under the European Agricultural Guarantee Fund (EAGF) and the European Agricultural Fund for Rural Development (EAFRD) had been done in accordance with EU legislation in respect of the years 2015 to 2017 (‘the audit mission’).
The preliminary conclusions of that audit mission found that there was non-conformity of the systems of checks put in place to monitor the granting of area-related aid paid to farmers for the years concerned. The deficiencies found related to five key checks concerning the determination of the status of active farmer, the identification of permanent grassland, the selection of the sample of aid beneficiaries to be checked by it (‘the selection of the control sample’), the recovery of undue payments and the late submission of the application.
In the final conclusions, communicated on 26 March 2021, the Commission confirmed its position that the Czech Republic had infringed five key checks and that, for all infringements found to have been committed, the Commission proposed excluding an amount of EUR 44 098 570.70 from EU financing. (2) A financial correction equal to that amount was imposed on the Czech Republic by Implementing Decision 2021/2020 (‘the contested decision’). (3)
The Czech Republic sought annulment of that decision before the General Court. It contests, inter alia, the infringements relating to the status of active farmer, the selection of the control sample and the recovery of undue payments.
The Court upholds the action in part and, in that connection, rules on the interpretation of the concepts of ‘active farmer’ and ‘group of natural or legal persons’ within the meaning of Article 9(2) of Regulation No 1307/2013. (4) It also provides clarifications on the nature of the conditions laid down in Article 34(6) of Implementing Regulation No 908/2014 and elucidation on the arrangement for the selection of the control sample, undue payments and late submission of the application.
Findings of the Court
The Court rejects, first of all, the plea put forward by the Czech Republic by which it contested the infringement in relation to the status of active farmer.
Under that plea, the Czech Republic submitted that it did not infringe Article 9(2) of Regulation No 1307/2013 due to a failure to take related companies into account in the check of the aid applicant’s status as an active farmer. Although the concepts of ‘groups of natural or legal persons’ and ‘related companies’ are not defined in either Regulation No 1307/2013 or Delegated Regulation No 639/2014, (5) the Commission nevertheless stated, in a presentation to the Member States, that Article 9(2) of Regulation No 1307/2013 must be interpreted as meaning that activities included in the exclusion list may be carried out by natural or legal persons or by groups thereof, directly or through a related company. It also stated, in a letter sent to the German Ministry of Food and Agriculture on 29 January 2016, which was then made available to the other Member States, that ‘related company’ meant any entity directly or indirectly related to the aid applicant through a relationship of control taking the form of whole or majority ownership.
In that context, the Court finds, first, that the inclusion of the related companies in the scope of Article 9(2) of Regulation No 1307/2013 is not contrary to the wording of that provision. In that regard, a group is, in essence, defined as a group of entities related to each other within a single organisation. Thus the term ‘group’ must be interpreted as being similar to the term ‘grouping’ and referring to any association of natural or legal persons related to each other within a more or less structured single organisation. It follows that a group of natural or legal persons includes related companies.
Consequently, the aid applicant, which may be a group of natural or legal persons, may carry out the activities included in the exclusion list directly or indirectly, or through a related company forming part of the same group. Similarly, if the aid applicant is not a group, but a natural or legal person forming part of a group, that applicant may carry out the activities included in the exclusion list directly or indirectly, or through a related company forming part of the same group.
In the second place, the inclusion of related companies in the scope of Article 9(2) of Regulation No 1307/2013 is not contrary to the definition of ‘farmer’ in Article 4(1)(a) of that regulation. The existence of a link between the concept of ‘active farmer’ and that of ‘farmer’ within the meaning of those two provisions is confirmed by the case-law, which has held that, in order to be eligible for the status of active farmer, a person must first satisfy the requirements referred to in Article 4(1)(a) of Regulation No 1307/2013 concerning the concept of ‘farmer’. The existence of a link between that concept and that of ‘active farmer’ does not, however, call into question the finding to the effect that, under Article 9(2) of Regulation No 1307/2013, the aid applicant may carry out the activities included in the exclusion list directly or indirectly, or through a related company forming part of the same group. The wording of Article 4(1)(a) of Regulation No 1307/2013 does not suggest that, in order to be categorised as a farmer, a natural person, a legal person, or a group of natural or legal persons must carry out their activities directly.
In the third place, the inclusion of related companies in the scope of Article 9(2) of Regulation No 1307/2013 is not contrary to the purpose of that provision, which is to avoid the risk of fraudulent use of the EU budget and limit payments under the common agricultural policy to those farmers who genuinely carry out agricultural activity. If the related companies were not taken into account, the applicants could in fact distribute their activities across a number of related legal entities in order to circumvent the limits placed by that provision on the recognition of their status as active farmer. The check carried out by the competent authorities of the Member States would then be limited to agricultural activities exercised directly by the applicant, excluding those carried out through related companies.
The Czech Republic is, moreover, incorrect in stating that the risk that the applicant for aid will deliberately split its activities into different legal entities to circumvent the application of Article 9(2) of Regulation No 1307/2013 is countered by Article 60 of Regulation No 1306/2013. (6) Indeed, given the broad scope of that provision and the evidentiary constraints relating to a potential artificial creation of the conditions laid down for obtaining the advantages provided for by the sectoral agricultural legislation, it is possible that an abusive practice consisting in circumventing the application of the rules relating to the status of active farmer does not fall within the scope of Article 60 of Regulation No 1306/2013, but still constitutes an infringement of Article 9(2) of Regulation No 1307/2013. Thus, it cannot be argued that that provision alone suffices to avoid the risk that the applicant for aid will split its activities into different legal entities in order to circumvent the check of its status as an active farmer under Article 9(2) of Regulation No 1307/2013.
In the fourth and last place, the inclusion of related companies in the scope of Article 9(2) of Regulation No 1307/2013 is not contrary to the principle of legal certainty. That principle requires that legal rules be clear, precise and predictable in their effect, so that interested parties can ascertain their position in situations and legal relationships governed by EU law. In the present case, it is clearly and specifically apparent that a group of natural or legal persons or a natural or legal person forming part of a group may carry out the activities included in the exclusion list directly or indirectly, or through a related company forming part of the same group.
Next, the Court upholds, in part, the plea disputing the infringement relating to the selection of the control sample.
In that regard, it states that, by their object and purpose, standard checks are not the same thing as follow-up on-the-spot checks. Thus, whereas standard checks concern 5% of all beneficiaries applying for the basic payment scheme or the single area payment scheme and their purpose is to fix a minimum number of beneficiaries subject to a check in order to ensure efficient verification by the Commission of compliance with the provisions governing the different aid schemes and support measures, follow-up on-the-spot checks concern only beneficiaries who were subject to a reduced administrative penalty for having made, in the preceding year, an over-declaration of the areas eligible for aid. Follow-up checks have as their object to verify whether, following the application of a reduced administrative penalty for a first area over-declaration, the aid beneficiaries have committed a new infringement giving rise to the application of a full administrative penalty. The specific nature of follow-up on-the-spot checks is, moreover, confirmed by the title of Article 33a of Implementing Regulation No 809/2014, (7) which expressly categorises them as ‘additional control[s]’, which suggests that they are to be distinguished from standard checks inasmuch as they make the aid beneficiaries subject to an additional check. The Court accordingly finds that the Commission was correct to find that the beneficiaries who were subject to a reduced administrative penalty during the preceding year had to be distinguished from those who were subject to standard checks.
The Commission did, however, infringe Article 52(2) of Regulation No 1306/2013 and the principle of proportionality, since the amount of the financial correction applied for the infringement relating to the selection of the control sample relating to standard checks was not commensurate with the gravity of the alleged non-conformity.
The Commission has not adduced any evidence showing why the damage that occurred in 2017 could have also occurred in 2015 and 2016 and could have given rise to an obligation of retroactive recovery. The Court also observes that Article 3 of Regulation No 2988/95, (8) relied on by the Commission, is irrelevant in that regard. Lastly, it observes that the Commission may not rely on Article 63 of Regulation No 1306/2013 or on Article 7 of Implementing Regulation No 809/2014 either to justify the retroactive recovery of the undue payments, since it refers, for the first time in its statement in defence, to those provisions. In any event, even if the Commission could substantiate its allegations on the basis of those two provisions, they do not prove that the doubt it expressed constitutes a genuine and reasonable doubt. Consequently, the Court annuls the contested decision in so far as it concerns the imposition of the financial correction applied for the infringement relating to the selection of the sample of beneficiaries of aid subject to a standard check, in the amount of EUR 18 833.24.
Lastly, the plea contesting the recovery of the undue payments is also upheld. Article 63 of Regulation No 1306/2013 and Article 7 of Implementing Regulation No 809/2014 do not impose an obligation on the Member States to verify, retroactively, whether an area ineligible for the benefit of aid during one year was also ineligible during the preceding years. Nor does the Member States’ alleged obligation to carry out a retroactive check of the ineligibility of an area come from Article 3 of Regulation No 2988/95 nor, moreover, from the General Court’s case-law. (9) In that context, the Court annuls the contested decision in so far as it relates to the financial correction applied to the expenditure incurred by the Czech Republic in the context of the single area payment scheme, for the alleged infringement relating to the recovery of undue payments, in the amount of EUR 17 855 884.41.