Case T‑112/15

Hellenic Republic

v

European Commission

(EAGGF — Guarantee Section — EAGF and EAFRD — Expenditure excluded from financing — Regulation (EC) No 1782/2003 — Regulation (EC) No 796/2004 — Area-related aid scheme — Concept of permanent pasture — Obligation to state reasons — Proportionality — Flat-rate financial correction — Deduction of earlier correction)

Summary — Judgment of the General Court (Eighth Chamber), 30 March 2017

1.      Agriculture — Common agricultural policy — Direct support schemes — Common rules — Single payment scheme — Permanent pastures — Definition — Forests and parcels covered with ligneous plants — Not included

(Council Regulation No 1782/2003; Commission Regulation No 796/2004, Art. 2, first para., point 2)

2.      Agriculture — EAGGF, EAGF and EAFRD financing — Principles — Obligation on the Commission to disallow irregular expenses — Exception — Expenditure incurred on the basis of an incorrect interpretation of EU law imputable to an EU institution

(Council Regulation No 1290/2005)

3.      Agriculture — EAGGF, EAGF and EAFRD financing — Grant of aid and premiums — Obligation on Member States to organise an effective system of controls — Scope

(Council Regulation No 1782/2003; Commission Regulation No 796/2004, Art. 2, first para., point 2)

4.      Agriculture — EAGGF, EAGF and EAFRD financing — Clearance of accounts — Elaboration of decisions — Written communication by the Commission to Member States of the results of its checks — Content — Minimum requirements

(Council Regulation No 1290/2005, Art. 31; Commission Regulation No 885/2006, Art. 11)

1.      It is apparent from both the wording of Article 2, first paragraph, point 2 of Regulation No 796/2004 laying down detailed rules for the implementation of cross-compliance, modulation and the integrated administration and control system provided for in Regulation No 1782/2003, in its version applicable in 2008, and from its objectives and context that the concept of ‘permanent pasture’ must be interpreted as meaning that forests and parcels covered with ligneous plants are not, in principle, eligible for aid.

First, the system established by Regulation No 1782/2003, establishing common rules for direct support schemes under the common agricultural policy and establishing certain support schemes for farmers, in its version applicable in 2008, reserves area-linked aid solely to agricultural areas, in other words, to any area covered by agricultural production, in order to prevent areas that are not actually subject to agricultural activity being eligible for aid. Second, as regards pasture areas, the criterion used by Regulation No 796/2004 to ensure that there is no payment of aid in respect of areas not subject to agricultural activity is the type of vegetation present in the area in question. The predominance of plants other than herbaceous plants is an indicator that agricultural activity has been abandoned on the areas in question, in this instance pasture areas. Therefore, the limitation of the definition of ‘permanent pasture’ solely to areas covered with grasses and herbaceous forage — the latter serving as natural forage — is intended to prevent the risk of areas used for non-agricultural activities and not actually used for rearing animals being eligible for area aid. Ligneous matter (trees and shrubs) can at most be tolerated to the extent that they do not compromise the development of herbaceous forage resources and, hence, the parcels genuinely being used as pasture areas.

In that regard, a Member State cannot usefully rely on an alleged internal concept of pasture areas which would accept areas covered predominantly with ligneous vegetation as forage resources, where only a marginal presence of ligneous plants is tolerated according to the EU definition. Since it is for the EU legislature, which has a wide discretion in the exercise of its authority, to evaluate the situation and, if necessary, decide on the desirability of amending the provision in force, it is not apparent from the mere subsequent amendment of the definition of ‘permanent pasture’ that Article 2, first paragraph, point 2 of Regulation No 796/2004 must be interpreted in line with the amendment made.

(see paras 29, 35, 36, 51, 60)

2.      The Commission is not required to cover, in respect of the European Agricultural Funds, expenditure incurred by a Member State on the basis of an objectively incorrect application, but which is based on an interpretation in good faith, of EU law, unless the incorrect interpretation of EU law can be imputed to an EU institution.

(see para. 56)

3.      Under the EU rules relating to the Funds, it is for the Member States to organise an effective system of inspection and supervision. Such a requirement means that the boundaries of the reference parcels and their maximum area eligible for aid must be defined precisely and accurately. That information is essential to ensure that administrative cross-checks are reliable, that on-the-spot checks can be carried out and that farmers have correct information so as to be able to submit correct claims.

That is not the case where there are deficiencies in the checking system relating to the national authorities’ admission of areas not complying with the rules in force as eligible for aid as pasture areas. Such deficiencies constitute a seriously inadequate implementation of the checking system implying a high level of errors demonstrating generalised irregularities, likely to lead to extremely high losses for the Fund. In that regard, the fact that the areas of pasture giving rise to area-related payment entitlements account for only a part of the areas of pasture claimed does not call in question the inaccuracies found in the operation of the Land Parcel Identification System and the Geographic Information System and in the key controls, according to which those areas, to which aid is granted, is not always entirely eligible for aid, since they do not satisfy the requirements of Article 2, first paragraph, point 2 of Regulation No 796/2004.

(see paras 90, 95, 103)

4.      The final and conclusive decision on the clearance of accounts must be taken at the conclusion of a specific procedure giving effect to the audi alteram partem rule, during which the Member States concerned must be provided with all the guarantees necessary for them to present their point of view. The Commission is bound, in its relations with the Member States, to respect the conditions it has imposed on itself by implementing regulations. A failure to observe those conditions may, depending on its significance, deprive of its efficacy the procedural guarantee accorded to Member States by Article 31 of Regulation No 1290/2005 on the financing of the common agricultural policy.

In that regard, in the first communication referred to in Article 11(1) of Regulation No 885/2006, by which the Commission is to communicate the result of its enquiries to the Member States, the Commission must state, with sufficient precision, the purpose of the investigation carried out by its services and the deficiencies found during that investigation, which may be invoked subsequently as evidence of the serious and reasonable doubt it entertains about the checks carried out by the national authorities or about the figures submitted by them, and which may, accordingly, justify the financial corrections applied in the final decision excluding from EU financing certain expenditure incurred by the Member State concerned under the Fund. Consequently, in order to perform its function as a warning, in particular in the light of Article 31 of Regulation No 1290/2005, the communication referred to in Article 11 of Regulation No 885/2006 must first identify in a sufficiently precise manner all irregularities which the Member State concerned is alleged to have committed which, ultimately, formed the basis for the financial correction applied. Such a communication alone can ensure that full information is provided concerning the Commission’s reservations and can constitute the reference point for calculation of the period of 24 months laid down in Article 31 of Regulation No 1290/2005.

(see paras 110, 111, 113, 115, 116)