JUDGMENT OF THE GENERAL COURT (Second Chamber)

4 September 2015 (*)

(EAGGF — Guarantee Section — EAGF and EAFRD — Expenditure excluded from financing — Single payment scheme — Key controls — Ancillary controls — Articles 51, 53, 73 and 73a of Regulation (EC) No 796/2004)

In Case T‑245/13,

United Kingdom of Great Britain and Northern Ireland, represented initially by C. Murrell, M. Holt and E. Jenkinson, and subsequently by M. Holt, acting as Agents, and by D. Wyatt QC, and V. Wakefield, Barrister,

applicant,

v

European Commission, represented by P. Rossi and K. Skelly, acting as Agents,

defendant,

ACTION for partial annulment of Commission Implementing Decision 2013/123/EU of 26 February 2013 on excluding from European Union financing certain expenditure incurred by the Member States under the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (EAGGF), under the European Agricultural Guarantee Fund (EAGF) and under the European Agricultural Fund for Rural Development (EAFRD) (OJ 2013 L 67, p. 20), as regards one entry in Annex I to the decision relating to a 5.19% extrapolated correction applied to expenditure incurred in Northern Ireland (United Kingdom) in the financial year 2010, amounting to EUR 16 513 582.57,

THE GENERAL COURT (Second Chamber),

composed of M.E. Martins Ribeiro (Rapporteur), President, S. Gervasoni and L. Madise, Judges,

Registrar: C. Kristensen, Administrator,

having regard to the written part of the procedure and further to the hearing on 3 December 2014,

gives the following

Judgment

 Legal context

 EU legislation governing the financing of the common agricultural policy

 Regulation (EC) No 1290/2005

1        The basic rules relating to the financing of the common agricultural policy are constituted, in respect of expenditure incurred by the Member States from 16 October 2006 and in respect of expenditure incurred by the Commission of the European Communities from 1 January 2007, by Council Regulation (EC) No 1290/2005 of 21 June 2005 on the financing of the common agricultural policy (OJ 2005 L 209, p. 1).

2        Pursuant to Article 3(1)(c) of Regulation No 1290/2005, the European Agricultural Guarantee Fund (EAGF) is to finance, in a context of shared management between the Member States and the European Union, direct payments to farmers under the common agricultural policy that are effected in accordance with EU law.

3        Article 31 of Regulation No 1290/2005, entitled ‘Conformity clearance’, states, in paragraphs 1 to 3:

‘1.      If the Commission finds that expenditure as indicated in Article 3(1) and Article 4 has been incurred in a way that has infringed [European Union] rules, it shall decide what amounts are to be excluded from [European Union] financing in accordance with the procedure referred to in Article 41(3).

2.      The Commission shall assess the amounts to be excluded on the basis of the gravity of the non-conformity recorded. It shall take due account of the nature and gravity of the infringement and of the financial damage caused to the [European Union].

3.      Before any decision to refuse financing is taken, the findings from the Commission’s inspection and the Member State’s replies shall be notified in writing, following which the two parties shall attempt to reach agreement on the action to be taken.

If agreement is not reached, the Member State may request opening of a procedure aimed at reconciling each party’s position within four months. A report of the outcome of the procedure shall be given to the Commission, which shall examine it before deciding on any refusal of financing.’

 Regulation (EC) No 885/2006

4        Detailed rules on the conformity clearance procedure are set out in Article 11 of Commission Regulation (EC) No 885/2006 of 21 June 2006 laying down detailed rules for the application of Regulation No 1290/2005 as regards the accreditation of paying agencies and other bodies and the clearance of the accounts of the EAGF and of the EAFRD (OJ 2006 L 171, p. 90). Furthermore, Article 16 of that regulation lays down detailed rules on the conciliation procedure.

 Regulations (EC) Nos 1782/2003 and 73/2009

5        In the context of the reform of the common agricultural policy, the Council adopted Regulation (EC) No 1782/2003 of 29 September 2003 establishing common rules for direct support schemes under the common agricultural policy and establishing certain support schemes for farmers and amending Regulations (EEC) No 2019/93, (EC) No 1452/2001, (EC) No 1453/2001, (EC) No 1454/2001, (EC) 1868/94, (EC) No 1251/1999, (EC) No 1254/1999, (EC) No 1673/2000, (EEC) No 2358/71 and (EC) No 2529/2001 (OJ 2003 L 270, p. 1). That regulation set up, inter alia, an income support scheme for farmers, decoupled from production. This scheme, referred to in the second indent of Article 1 of the regulation as the ‘single payment scheme’, combines a number of direct payments made to farmers under various support schemes in existence until then.

6        The single payment scheme forms the subject-matter of Title III of Regulation No 1782/2003, which covers, in five chapters, Articles 33 to 71m.

7        Chapter 2 of Title III of Regulation No 1782/2003 lays down the rules on the establishment of the reference amount. In accordance with Article 37(1) of the regulation, that amount is calculated as follows:

‘The reference amount shall be the three-year average of the total amounts of payments, which a farmer was granted under the support schemes referred to in Annex VI, calculated and adjusted according to Annex VII, in each calendar year of the reference period referred to in Article 38.’

8        The reference period is defined in Article 38 of Regulation No 1782/2003 as comprising the calendar years 2000, 2001 and 2002.

9        Chapter 3 of Title III of Regulation No 1782/2003 concerns payment entitlements. In this respect, Article 43 of the regulation, entitled ‘Determination of the payment entitlements’, provides, in particular:

‘1.      [… A] farmer shall receive a payment entitlement per hectare which is calculated by dividing the reference amount by the three-year average number of all hectares which in the reference period gave right to direct payments listed in Annex VI.

The total number of payment entitlements shall be equal to the abovementioned average number of hectares.

…’

10      Article 44(2) of Regulation No 1782/2003 defines ‘eligible hectare’, in its original version, as ‘any agricultural area of the holding taken up by arable land and permanent pasture except areas under permanent crops, forests or used for non agricultural activities’.

11      Section 1 of Chapter 5 of Title III of Regulation No 1782/2003 allowed Member States, inter alia, to opt for the regional application of the single payment scheme. In this respect, Article 58 of the regulation provides:

‘1.      A Member State may decide, by 1 August 2004 at the latest, to apply the single payment scheme provided for in Chapters 1 to 4 at regional level under the conditions laid down in this Section.

2.      Member States shall define the regions according to objective criteria.

Member States with less than three million eligible hectares may be considered as one single region.

3.      The Member State shall subdivide the ceiling referred to in Article 41 between the regions according to objective criteria.’

12      Article 59 of Regulation No 1782/2003 lays down the rules on the regionalisation of the single payment scheme, as follows:

‘1.      In duly justified cases and according to objective criteria the Member State may divide the total amount of the regional ceiling established under Article 58 or part of it between all the farmers whose holdings are located in the region concerned, including those who do not meet the eligibility criterion referred to in Article 33.

2.      In this case of division of the total amount of the regional ceiling, farmers shall receive entitlements, whose unit value is calculated by dividing the regional ceiling established under Article 58 by the number of eligible hectares, within the meaning of Article 44(2), established at regional level.

3.      In case of partial division of the total amount of the regional ceiling, farmers shall receive entitlements whose unit value is calculated by dividing the corresponding part of the regional ceiling established under Article 58 by the number of eligible hectares, within the meaning of Article 44(2), established at regional level.

In case the farmer is also entitled to receive entitlements calculated on the remaining part of the regional ceiling, the regional unit value of each of his entitlements, except for set-aside entitlements, shall be increased by an amount corresponding to the reference amount divided by the number [of] his entitlements established in accordance with paragraph 4.

Articles 48 and 49 shall apply mutatis mutandis.

4.      The number of entitlements per farmer shall be equal to the number of hectares he declares in accordance with Article 44(2) [for] the first year of application of the single payment scheme, except in case of force majeure or exceptional circumstances within the meaning of Article 40(4).’

13      Regulation No 1782/2003 was repealed and replaced by Council Regulation (EC) No 73/2009 of 19 January 2009 establishing common rules for direct support schemes for farmers under the common agricultural policy and establishing certain support schemes for farmers, amending Regulations No 1290/2005, (EC) No 247/2006, (EC) No 378/2007 (OJ 2009 L 30, p. 16), with effect from 1 January 2009.

14      Article 34(1) of Regulation No 73/2009, entitled ‘Activation of payment entitlements per eligible hectare’, provides:

‘Support under the single payment scheme shall be granted to farmers upon activation of a payment entitlement per eligible hectare. Activated payment entitlements shall give a right to the payment of the amounts fixed therein.’

15      Under the first paragraph of Article 36 of Regulation No 73/2009, entitled ‘Modification of payment entitlements’:

‘The payment entitlements per hectare shall not be modified, save as otherwise provided for in this Regulation.’

 Regulations (EC) Nos 796/2004 and 1122/2009

16      Recitals 29 and 55 in the preamble to Commission Regulation (EC) No 796/2004 of 21 April 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 (OJ 2004 L 141, p. 18) provide as follows:

‘(29) Compliance with the provisions on the aid schemes managed under the integrated system should be effectively monitored. …

(55)      To protect the [European Union’s] financial interests effectively adequate measures should be adopted to combat irregularities and fraud. Separate provisions should be made in cases of irregularities found with regard to eligibility criteria for the different aid schemes concerned.’

17      Article 2(22) of Regulation No 796/2004 defines ‘area determined’ as follows:

‘… the area for which all conditions laid down in the rules for granting the aid have been met; in the case of the single payment scheme, the area declared may be deemed as being determined only if it is actually being accompanied by a corresponding number of payment entitlements.’

18      Article 50(1) to (3) of Regulation No 796/2004, entitled ‘Basis of calculation in respect of areas declared’, as amended, provides:

‘1.      In the case of applications for aid under area-related aid schemes, except for starch potato, seed and tobacco as provided for in Chapters 6, 9 and 10c respectively of Title IV of Regulation … No 1782/2003, if the area of a crop group determined is found to be greater than that declared in the aid application, the area declared shall be used for calculation of the aid.

2.      With regard to an application for aid under the single payment scheme, if there is a discrepancy between the payment entitlements declared and the area declared, the calculation of the payment shall be based on the lower size.

3.      Without prejudice to reductions and exclusions in accordance with Articles 51 and 53, in the case of applications for aid under area-related aid schemes, except for starch potato, seed and tobacco as provided for in Chapters 6, 9 and 10c respectively of Title IV of Regulation … No 1782/2003, if the area declared in a single application exceeds the area determined for that crop group, the aid shall be calculated on the basis of the area determined for that crop group.

However, without prejudice to Article 29 of Regulation … No 1782/2003, if the difference between the total area determined and the total area declared for payment under aid schemes established in Titles III, IV and IVa of Regulation … No 1782/2003 is less than or equal to 0.1 hectare, the area determined shall be set equal to the area declared. For this calculation only over-declarations of areas at crop group level shall be taken into account.

The provision referred to in the second subparagraph shall not apply where that difference represents more than 20% of the total area declared for payments.’

19      Article 50(5) of Regulation No 796/2004 lays down the rules relating to the basis of calculation with regard to areas declared for the special quality premium for durum wheat in accordance with Article 72 of Regulation No 1782/2003 and for the durum wheat supplement and special aid in accordance with Article 105 of that regulation.

20      Article 51 of Regulation No 796/2004, as amended by Commission Regulation (EC) No 380/2009 of 8 May 2009 (OJ 2009 L 116, p. 9), sets out the ‘[r]eductions and exclusions in cases of over-declaration’ as follows:

‘1.      If, in respect of a crop group, the area declared for the purposes of any area-related aid schemes, except those for starch potato, seed and tobacco as provided for in Sections 2 and 5 of Chapter 1 of Title IV of Regulation … No 73/2009 and Chapter 10c of Title IV of Regulation … No 1782/2003, exceeds the area determined in accordance with Article 50(3) and (5) of this Regulation, the aid shall be calculated on the basis of the area determined reduced by twice the difference found if that difference is more than either 3% or two hectares, but no more than 20% of the area determined.

If the difference is more than 20% of the area determined, no area-linked aid shall be granted for the crop group concerned.

If the difference is more than 50%, the farmer shall be excluded once again from receiving aid up to an amount equal to the amount which corresponds to the difference between the area declared and the area determined in accordance with Article 50(3) and (5) of this Regulation. That amount shall be off-set in accordance with Article 5(b) of Commission Regulation … No 885/2006. If the amount cannot be fully off-set in accordance with that Article in the course of the three calendar years following the calendar year of the finding, the outstanding balance shall be cancelled.

2a.               If a farmer declares more area than payment entitlements and the area declared fulfils all other eligibility requirements, the reductions or exclusions provided for in paragraph 1 shall not apply.

If a farmer declares more area than payment entitlements and the area declared does not fulfil all other eligibility requirements, the difference referred to in paragraph 1 shall be the difference between the area fulfilling all other eligibility requirements and the amount of payment entitlements declared.

…’

21      Paragraph 2a of Article 51 of Regulation No 796/2004 was inserted by Commission Regulation (EC) No 659/2006 of 27 April 2006 amending Regulation No 796/2004 (OJ 2006 L 116, p. 20). Recital 12 in the preamble to Regulation No 659/2006 states the following:

‘In the case where a farmer declared more area than payment entitlements, Article 50(2) of Regulation … No 796/2004 provides that the basis for the calculation for the aid is the amount of hectares accompanied by payment entitlements. In cases where the area declared fulfils all other eligibility requirements, there is no need for the application of reductions or exclusions in accordance with Articles 51 or 53 of that Regulation. These provisions should therefore be clarified to that extent.’

22      Article 53 of Regulation No 796/2004 concerns intentional over-declaration. The first paragraph of that article provides that where differences between the area declared and the area determined in accordance with Article 50(3) and (5) of the regulation result from irregularities committed intentionally, the aid to which the farmer would have been entitled pursuant to Article 50(3) and (5) of the regulation is not to be granted for the calendar year in question under the aid scheme concerned if that difference is more than 0.5% of the area determined or more than one hectare. In addition, under the second paragraph of Article 53 of Regulation No 796/2004, if the difference is more than 20% of the area determined, the farmer is to be excluded once again from receiving aid up to an amount equal to the amount which corresponds to the difference between the area declared and the area determined in accordance with Article 50(3) and (5) of the regulation.

23      Article 73 of Regulation No 796/2004 lays down rules on the recovery of undue payments. Paragraphs 1 and 4 of that article provide as follows:

‘1.      If undue payment is made, the farmer shall repay the amount in question plus interest calculated in accordance with paragraph 3.

…

4.      The repayment obligation referred to in paragraph 1 shall not apply if the payment was made by error of the competent authority or of another authority and if the error could not reasonably have been detected by the farmer.

However, where the error relates to factual elements relevant for the calculation of the payment concerned, the first subparagraph shall only apply if the decision to recover was not communicated within 12 months of the payment.’

24      Article 73a of Regulation No 796/2004, entitled ‘Recovery of undue entitlements’, as amended, provides, inter alia:

‘1.      Where, after payment entitlements have been allocated to farmers in accorda nce with Regulation (EC) No 795/2004, it is established that certain payment entitlements have been allocated unduly, the farmer concerned shall give up the unduly allocated entitlements to the national reserve referred to in Article 42 of Regulation … No 1782/2003.

…

The entitlements allocated unduly shall be deemed not to have been allocated ab initio.

2.      Where, after payment entitlements have been allocated to farmers in accordance with Regulation … No 795/2004, it is established that the value of the payment entitlements is too high, that value shall be adjusted accordingly. … The value of the reduction shall be allocated to the national reserve referred to in Article 42 of Regulation … No 1782/2003.

The payment entitlements shall be deemed as having been allocated ab initio at the value resulting from the adjustment.

2a.            Where, for the purpose of the application of paragraphs 1 and 2 it is established that the number of the entitlements allocated to a farmer in accordance with Regulation … No 795/2004 is incorrect, and where the [undue] allocation has no impact on the total value of the entitlements the farmer received, the Member State shall recalculate the payment entitlements and where appropriate correct the type of the entitlements allocated to the farmer. However, this shall not apply if the errors could reasonably have been detected by the farmers.

…

4.      Undue amounts paid shall be recovered in accordance with Article 73.’

25      Article 73a of Regulation No 796/2004 was inserted by Commission Regulation (EC) No 239/2005 of 11 February 2005 amending and correcting Regulation No 796/2004 (OJ 2005 L 42, p. 3), recital 15 in the preamble to which is worded as follows:

‘Rules need to be established to cover the eventuality where a farmer has received unduly a number of payment entitlements or that the value of each of the payment entitlements was fixed at an incorrect level according to the different models under the Single Payment Scheme. …’

26      Paragraph 2a of Article 73 of Regulation No 796/2004 was inserted by Commission Regulation (EC) No 972/2007 of 20 August 2007 amending Regulation No 796/2004 (OJ 2007 L 216, p. 3). Regulation No 972/2007 entered into force on 21 August 2007 and applies to aid applications relating to years or premium periods starting from 1 January 2008. Recital 19 in the preamble to that regulation is worded as follows:

‘In certain cases [undue] allocations of entitlements did not affect the total value, but only the number of the entitlements of the farmer. In these cases, the Member States should correct the allocation or where appropriate the type of entitlements, without reducing the value hereof. The provision should only apply if the farmer could not have detected the error.’

27      Regulation No 796/2004 was repealed and replaced by Commission Regulation (EC) No 1122/2009 of 30 November 2009 laying down detailed rules for the implementation of Council Regulation No 73/2009 as regards cross-compliance, modulation and the integrated administration and control system, under the direct support schemes for farmers provided for in that regulation, as well as for the implementation of Council Regulation (EC) No 1234/2007 as regards cross-compliance under the support scheme provided for the wine sector (OJ 2009 L 316, p. 65), with effect from 1 January 2010.

28      As set out in recital 78 in the preamble to Regulation No 1122/2009:

‘Payment of support under the single payment scheme requires an equal number of payment entitlements and eligible hectares. For the purpose of this scheme it is therefore appropriate to provide that the calculation of the payment in the case of discrepancies between the payment entitlements declared and the area declared should be based on the lower size. To avoid calculation based on non-existing entitlements, it should be provided that the number of payment entitlements used for the calculation should not exceed the number of payment entitlements at the farmers’ disposal.’

29      Article 57 of Regulation No 1122/2009, entitled ‘Basis of calculation in respect of areas declared’, makes the following provision in paragraph 2:

‘With regard to an application for aid under the single payment scheme:

–        if there is a discrepancy between the payment entitlements declared and the area declared, the calculation of the payment shall be based on the lower size;

–        if the number of payment entitlements declared exceeds the number of payment entitlements at the farmer’s disposal, the payment entitlements declared shall be reduced to the number of payment entitlements at the farmer’s disposal.’

30      Article 58 of Regulation No 1122/2009 sets out the ‘[r]eductions and exclusions in cases of over-declaration’. It is essentially in keeping with the provisions of Article 51(1) of Regulation No 796/2004.

31      In accordance with the second paragraph of Article 87 of Regulation No 1122/2009, this regulation applies to aid applications relating to marketing years or premium periods starting as of 1 January 2010.

 Document No VI/5330/97

32      The Commission’s guidelines for the application of financial corrections were set out in Commission Document No VI/5330/97 of 23 December 1997, entitled ‘Guidelines for the calculation of financial consequences when preparing the decision regarding the clearance of the accounts of EAGGF Guarantee’ (‘Document No VI/5330/97’).

33      Annex 2 to Document No VI/5330/97, relating to the financial consequences within the framework of the clearance of the accounts of the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (EAGGF) of deficiencies in controls carried out by the Member States, states, in the section entitled ‘Introduction’:

‘When the Commission finds that a particular payment concerns a claim which fails to comply with Community rules, the financial consequences are clear: unless the irregular payment had already been detected by national control bodies and the appropriate remedial and recovery measures taken (see Annex 4), the Commission must refuse its financing by the Community budget. When consequences are drawn from the examination of expenditure comprising a large number of files, whenever possible, the refusal is calculated on the basis of an extrapolation of the results of an examination of a representative sample of files. The same extrapolation method should apply to all Member States, including confidence and materiality level, stratification of the population, sample size and evaluation of the errors within the sampling with regard to the total financial implications.

When a Member State fails to comply with the Community regulations concerning the verification of the eligibility of claims, then this very failure means that the payments infringe the Community rules applicable to the measure concerned, and the general requirement under Article 8 of Regulation [No] 729/70 requiring Member States to detect and prevent irregularities. It does not necessarily follow that all the claims paid were irregular, but it does mean that the risk of irregular payments being charged to the [EAGGF] is increased. Whilst in certain flagrant cases, the Commission might be entitled to refuse all the expenditure concerned if the controls required by a regulation are not effected, in a number of cases the amount refused would in all probability exceed the financial loss suffered by the Community. An assessment of the financial loss is therefore to be made when evaluating financial corrections.

…’

34      The section of Annex 2 to Document No VI/5330/97 entitled ‘Evaluation based on errors in individual files’ states:

‘On the basis of procedures already established under internal guidelines, the calculations of the financial correction utilise one of the following techniques:

(a)      disallowance of an individual claim for which the required control has not been undertaken;

(b)      disallowance of a sum calculated by extrapolating the results of checks carried out on a representative sample of files to all the files from which the sample was taken, limited to the administrative area for which the same deficiency may reasonably be expected to occur. The Member State is given the opportunity to present evidence that the results of the extrapolation do not correspond to those obtained from an examination of all the files from which the sample was taken.

…’

35      The section of Annex 2 to Document No VI/5330/97 entitled ‘Evaluation based on the risks of financial loss: flat-rate corrections’ states:

‘As the systems audit approach has become more widely applied, the Commission’s services have had recourse increasingly to an assessment of the risk which a system deficiency presents. When the actual level of irregular payments, and thus the amount of financial losses suffered by the Community cannot be determined, the Commission has applied, since the clearance of the 1990 financial year, flat-rate corrections of 2%, 5% or 10% of the expenditure declared, depending on the amplitude of the risk of loss. Higher rates of correction, up to 100%, may be decided in exceptional cases. The Commission’s prerogative to apply corrections of this nature has been confirmed by the Court of Justice when deciding on appeals against the annual clearance decisions (e.g. the judgment in Case C‑50/94).

…’

36      The section of Annex 2 to Document No VI/5330/97 entitled ‘Guidelines for the application of flat-rate corrections’ states:

‘Flat-rate corrections may be envisaged when the information resulting from the enquiry does not permit the auditor to evaluate the loss by an extrapolation of determined losses, by statistical means, or by reference to other verifiable data, but does enable him to conclude that the Member State has failed to carry out adequate verification of the eligibility of claims paid.

… A Member State’s failure to perfect controls becomes more serious if the Commission has already notified it of the improvements it considers essential to protect Community funds against fraud and irregularity.

…

When all key controls are applied, but not in the number, frequency or the depth required by the regulation, then a correction of 5% is justified, as it can be reasonably … concluded [that] they do not provide a sufficient level of assurance of the regularity of claims, and that the risk to the [EAGGF] was significant.

…’

 EU legislation on the protection of the European Union’s financial interests

37      Council Regulation (EC, Euratom) No 2988/95 of 18 December 1995 on the protection of the European Communities financial interests (OJ 1995 L 312, p. 1), which enacts a common set of legal rules for all areas covered by European Union policies, states, in the ninth recital in its preamble:

‘… [European Union] measures and penalties laid down in pursuance of the objectives of the common agricultural policy form an integral part of the aid systems; … they pursue their own ends which do not affect the assessment of the conduct of the economic operators concerned by the competent authorities of the Member States from the point of view of criminal law; … their effectiveness must be ensured by the immediate effect of [European Union] rules and by applying in full [European Union] measures as a whole, where the adoption of preventive measures has not made it possible to achieve that objective …’

38      Article 1 of Regulation No 2988/95 provides:

‘1.      For the purposes of protecting the [European Union’s] financial interests, general rules are hereby adopted relating to homogeneous checks and to administrative measures and penalties concerning irregularities with regard to [European Union] law.

2.      “Irregularity” shall mean any infringement of a provision of [European Union] law resulting from an act or omission by an economic operator, which has, or would have, the effect of prejudicing the general budget of the [European Union] or budgets managed by [it], either by reducing or losing revenue accruing from own resources collected directly on behalf of the [European Union], or by an unjustified item of expenditure.’

39      Under Article 2(2) of Regulation No 2988/95:

‘No administrative penalty may be imposed unless a [European Union] act prior to the irregularity has made provision for it. In the event of a subsequent amendment of the provisions which impose administrative penalties and are contained in [European Union] rules, the less severe provisions shall apply retroactively.’

40      Article 5(1)(c) and (d) of Regulation No 2988/95 provides:

‘Intentional irregularities or those caused by negligence may lead to the following administrative penalties:

…

(c)      total or partial removal of an advantage granted by [European Union] rules, even if the operator wrongly benefited from only a part of that advantage;

(d)      exclusion from, or withdrawal of, the advantage for a period subsequent to that of the irregularity;

…’

 Background to the dispute

41      Between 9 and 13 November 2009, the Commission’s services conducted an enquiry in the United Kingdom concerning the correct application of the rules on financing expenditure incurred, within the context of the single payment scheme, in Northern Ireland (United Kingdom) in 2010, relating to claim year 2009 (enquiry AA/2009/24).

42      By letter of 8 January 2010 (‘the first communication of 8 January 2010’), sent pursuant to Article 11(1) of Regulation No 885/2006, the Commission notified the United Kingdom of Great Britain and Northern Ireland authorities of the outcome of that enquiry. An annex entitled ‘Observations and requests for information’, which contained the enquiry’s findings, was attached to that letter.

43      It is apparent from the first communication of 8 January 2010, inter alia, that the Commission took the view that the United Kingdom authorities had not fully complied with the requirements of EU legislation and that corrective measures were necessary to ensure future compliance with those requirements. The Commission asked to be informed of the corrective measures already taken and those envisaged, as well as the scheduled timetable for their implementation. The Commission also stated that it could exclude from European Union funding part of the expenditure financed by the EAGF (‘the Fund’) and the European Agricultural Fund for Rural Development (EAFRD), in accordance with Article 31 of Regulation No 1290/2005. Furthermore, it pointed out that the shortcomings identified would form the basis for the calculation of the financial corrections in respect of expenditure incurred until suitable corrective measures were implemented.

44      In the observations and recommendations set out in the Annex to the first communication of 8 January 2010, the Commission, inter alia, pointed out, first, weaknesses in the Land Parcel Identification System (LPIS) and the Geographic Information System (GIS) (taken together, ‘the LPIS-GIS’), in that the information contained therein was not sufficiently accurate to ensure that the administrative and on-the-spot checks to monitor the eligibility of the areas declared were conclusive; secondly, weaknesses in the on-the-spot checks; and lastly, weaknesses in the application of penalties, in the retroactive correction of ineligible applications, in the recovery of undue payments and in the application of reductions for intentional non-compliance. It is also apparent from the Annex that, despite noting improvements compared to previous enquiries (enquiries AA/2006/07 and AA/2008/18), the Commission also considers that the weaknesses identified during those enquiries continue to exist.

45      By letter of 20 May 2010, the Commission invited the United Kingdom authorities to submit their observations on the matters in dispute for the purpose of a bilateral meeting on 1 July 2010.

46      The bilateral meeting between the Commission’s services and the United Kingdom authorities was held in Brussels (Belgium) on 1 July 2010. The minutes of that meeting were sent to the United Kingdom authorities on 4 August 2010.

47      The minutes of the bilateral meeting of 1 July 2010 show that, following that meeting, the Commission essentially maintained its conclusions as set out in the first communication of 8 January 2010. Thus, it confirmed its conclusions that there were weaknesses in relation to, among others, the information contained in the LPIS-GIS, the on-the-spot checks, the application of penalties, the retroactive correction of ineligible applications, the recovery of undue payments and the application of reductions for intentional non-compliance. The Commission also stated that those weaknesses affected key controls and ancillary controls as provided for in Document No VI/5330/97 and drew the United Kingdom authorities’ attention to the fact that they had the opportunity to demonstrate that the financial risk was lower than the flat-rate corrections which could be applied under that document. In addition, the Commission maintained that the recurrent nature of the weaknesses should be taken into account, reference being made in that regard to Commission Working Paper AGRI/60637/2006, entitled ‘Commission Notification — How the Commission intends to handle recurrent shortcomings in control systems under the EAGGF Guarantee Section accounts clearance procedure’.

48      Following the bilateral meeting of 1 July 2010, the United Kingdom authorities initiated a risk assessment survey. By letter of 25 October 2010, the United Kingdom authorities informed the Commission that they were not in a position to complete that survey on schedule.

49      By letter of 29 March 2011, the United Kingdom authorities sent the Commission a report on the assessment of risk to the single payment scheme in Northern Ireland in respect of claim year 2009 (‘the risk assessment report’), based on a sample of 394 applications filed in 2009. It is apparent from the risk assessment report, first, that in 2009, the ineligible areas activated by applicants were equivalent to 2.72% of the activated payment entitlements. Second, the financial risk — considered to be the difference between the amount paid and a revised payment including, where relevant, the applicable penalties — was equivalent to 2.05% before penalties and 5.19% after penalties, based on the sample mean. Lastly, as regards penalties, the report shows that the payments and penalties were calculated on the basis of the relevant provisions of Regulation No 796/2004, as interpreted by the Commission. However, in Annex 1 to that report, to which the report expressly refers, the United Kingdom authorities stated that based on their own interpretation of the relevant provisions, the risk to the Fund would be 0.59% before penalties and 0.86% after penalties.

50      By letter of 3 February 2012, the Commission sent the United Kingdom authorities a formal communication under Article 11(2) of Regulation No 885/2006 in which it maintained its position as regards the abovementioned weaknesses affecting expenditure incurred in 2010 relating to claim year 2009. As regards the financial consequences, the Commission accepted the United Kingdom authorities’ proposed risk assessment, taking the view that the amount of financial losses could be reasonably determined on the basis of that assessment. Therefore, on the basis of Document No VI/5330/97, the Commission accepted — in respect of the three types of weaknesses identified — a one-off correction of 5.19% applicable to expenditure incurred in Northern Ireland under the single payment scheme for claim year 2009. As regards expenditure relating to rural development, the Commission — in the absence of an assessment from the United Kingdom authorities — applied a flat-rate correction of 5% on account of weaknesses in a key control.

51      The Commission therefore proposed excluding the following amounts from European Union financing: EUR 17 687 303.16 for expenditure incurred in 2010, including EUR 16 513 582.57 in respect of expenditure relating to the single payment scheme, and EUR 1 173 720.59 in respect of expenditure relating to rural development.

52      The United Kingdom authorities did not file a request for conciliation with the Conciliation Body under Article 16 of Regulation No 885/2006.

53      On 15 October 2012, the Commission sent the United Kingdom a summary report on the results of enquiry AA/2009/24.

54      Those are the circumstances in which, on 26 February 2013, the Commission adopted Implementing Decision 2013/123/EU on excluding from European Union financing certain expenditure incurred by the Member States under the Guarantee Section of the EAGGF, under the EAGF and under the EAFRD (OJ 2013 L 67, p. 20, ‘the contested decision’), including the expenditure incurred by the United Kingdom in Northern Ireland in 2010 which is at issue in this case.

 Procedure and forms of order sought by the parties

55      By application lodged at the Court Registry on 2 May 2013, the United Kingdom brought the present action.

56      By letter lodged at the Court Registry on 19 July 2013, the United Kingdom applied for the joinder of this case with Case T‑503/12 United Kingdom v Commission, for the purposes of the oral part of the procedure and the judgment. The Commission submitted observations on that application by letter lodged with the Court Registry on 29 July 2013.

57      Following a change in the composition of the Chambers of the Court, the Judge-Rapporteur was assigned to the Second Chamber, to which the present case was accordingly allocated.

58      On a proposal from the Judge-Rapporteur, the General Court (Second Chamber) decided to open the oral part of the procedure and, by way of measures of organisation of procedure pursuant to Article 64 of its Rules of Procedure of 2 May 1991, put a question in writing to the Commission. The Commission responded within the time allowed.

59      At the hearing on 3 December 2014, the parties presented oral argument and answered the questions put to them by the Court.

60      The United Kingdom claims that the Court should:

–        annul the contested decision, as regards one entry in Annex 1 to the decision relating to a 5.19% extrapolated correction in expenditure incurred in Northern Ireland in the financial year 2010 (amounting to EUR 16 513 582.57);

–        order the Commission to pay the costs.

61      The Commission contends that the Court should:

–        dismiss the action as unfounded;

–        order the United Kingdom to pay the costs.

 Law

62      In support of its action for annulment, the United Kingdom relies on two pleas in law by which it essentially alleges, first, errors of law and fact regarding the determination of the scale of the actual loss to the Fund and, secondly, errors of law and fact affecting the Commission’s finding regarding weaknesses in the ancillary controls and, in particular, the methods for calculating undue payments and the applicable penalties in cases of over-declaration.

63      As is apparent from the pleadings of the parties and from the debates conducted at the hearing, by the two pleas raised in support of the present action, the United Kingdom essentially contests, first, the basis of calculation, namely all expenditure, to which the Commission applied the 5.19% financial correction (first plea) and, secondly, in particular the method for calculating undue payments and the applicable penalties, applied for the purpose of the risk assessment and being the subject of the findings, by the Commission, of weaknesses as regards the ancillary controls (second plea).

 Preliminary considerations

64      As a preliminary point, in the first place, it must be observed, first, that only intervention undertaken in accordance with the EU rules in the framework of the common organisation of the agricultural markets is to be financed by the Fund (see, to that effect, judgments of 9 January 2003 in Greece v Commission, C‑157/00, ECR, EU:C:2003:5, paragraph 15 and the case-law cited; 24 February 2005 in Greece v Commission, C‑300/02, ECR, EU:C:2005:103, paragraph 32 and the case-law cited; and 4 September 2009 in Austria v Commission, T‑368/05, EU:T:2009:305, paragraph 70).

65      Secondly, according to consistent case-law, it is for the Commission to prove an infringement of the rules on the common organisation of the agricultural markets. The Commission is therefore obliged to give reasons for its decision finding an absence of, or defects in, inspection procedures operated by the Member State in question. However, the Commission is not required to show exhaustively that the checks carried out by the national authorities were inadequate or that the figures they have transmitted are irregular, but to produce evidence for its serious and reasonable doubt regarding such checks or figures. The Member State, for its part, cannot rebut the Commission’s findings by mere assertions which are not substantiated by evidence of a reliable and operational supervisory system. If the Member State is not able to show that the Commission’s findings are inaccurate, those findings can give rise to serious doubts as to the existence of an adequate and effective series of supervisory measures and inspection procedures. The reason for this mitigation of the burden of proof on the Commission is that it is the Member State which is best placed to collect and verify the data required for the clearance of the accounts of the Fund; consequently, it is for that State to adduce the most detailed and comprehensive evidence that its checks have been carried out and its figures are accurate and, if it be the case, that the Commission’s assertions are incorrect (see, to that effect, judgments in Greece v Commission, cited in paragraph 64 above, EU:C:2005:103, paragraphs 33 to 36 and the case-law cited; of 6 March 2001 in Netherlands v Commission, C‑278/98, ECR, EU:C:2001:124, paragraphs 39 to 41 and the case-law cited; and in Austria v Commission, cited in paragraph 64 above, EU:T:2009:305, paragraph 71 and the case-law cited).

66      Thirdly, according to the case-law, although it is for the Commission to prove that EU rules have been infringed, once it has established such an infringement it is for the Member State to demonstrate, if that be the case, that the Commission made an error as to the financial consequences to be attached to that infringement (see, to that effect, judgments of 24 April 2008 in Belgium v Commission, C‑418/06 P, ECR, EU:C:2008:247, paragraph 135, and in Austria v Commission, cited in paragraph 64 above, EU:T:2009:305, paragraph 181).

67      The management of the financing of the Fund is principally in the hands of the national administrative authorities responsible for ensuring that the EU rules are strictly observed and is based on trust between national and European Union authorities. Only the Member State is in a position to know and determine precisely the information necessary for drawing up the accounts of the Fund, since the Commission is not close enough to obtain the information it needs from the economic operators (see, to that effect, judgments of 7 October 2004 in Spain v Commission, C‑153/01, ECR, EU:C:2004:589, paragraph 133 and the case-law cited, and in Austria v Commission, cited in paragraph 64 above, EU:T:2009:305, paragraph 182 and the case-law cited).

68      In the second place, it is important, having regard to the arguments exchanged by the parties within the context of the two pleas raised by the United Kingdom, to clarify the method of allocation of payment entitlements applied, in 2005, by the United Kingdom for the purpose of the application of the single payment scheme established by Regulation No 1782/2003.

69      In that regard, it is apparent from the documents before the Court that the United Kingdom opted for a regional application of the single payment scheme, in accordance with the provisions of Chapter 5 of Title III of Regulation No 1782/2003.

70      The payment entitlements were established, in Northern Ireland, on the basis of the ‘static hybrid’ model. In that model, each payment entitlement comprises an ‘historic’ element (‘the historic element’) and an area-related ‘flat-rate’ element (‘the flat-rate element’), with the sum of the value of those elements corresponding to the unit value of the payment entitlement. In order to establish the value of the historic element, a reference amount, established on the basis of the payments made to farmers during the reference period (2000 to 2002), is divided by the number of eligible hectares declared by the farmers, that number thereby constituting the number of payment entitlements allocated. It follows that, whereas the sum of the historic elements constitutes a fixed amount established on the basis of the payments made during the reference period, the unit value of each historic element of those payment entitlements is dependent on the number of entitlements allocated in 2005 and, thus, on the number of eligible hectares declared in that year. Moreover, the flat-rate element is of a fixed value, in this case EUR 78.33.

71      The merits of the present action, starting with the examination of the second plea raised by the United Kingdom, should be examined, primarily, in the light of those considerations and clarifications.

 Second plea in law, alleging errors of law and fact regarding weaknesses in the ancillary controls and, in particular, the methods for calculating undue payments and the applicable penalties in cases of over-declaration

72      By the second plea for annulment, alleging errors of law and fact as to the finding of weaknesses in the ancillary controls, the United Kingdom calls in question, in particular, the method for calculating undue payments and the penalties applicable in cases of over-declaration of area, which was the method followed by the Commission and used in the risk assessment report. This plea is split into five complaints covering, first, the retrospective re-evaluation of the value of the payment entitlements; secondly, the taking into account of differences in areas affecting ‘animal’ premiums when recalculating the payment entitlements; thirdly, the recovery of undue payments; fourthly, reductions and exclusions in the event of over-declarations of area; and fifthly, intentional over-declaration.

73      Given that, unlike the second and fifth complaints, the first, third and fourth complaints specifically relate to the method for calculating overpayments and penalties on the basis of which the financial risk incurred by the Fund was assessed in the present case in the risk assessment report, it is appropriate to begin by examining those three complaints before assessing the second and fifth complaints.

 The first, third and fourth complaints, relating to the method of assessing the financial risk incurred by the Fund

74      By the first, third and fourth complaints raised in support of the present plea, the United Kingdom contests both the Commission’s findings of weaknesses in certain ancillary controls and the method, recommended by the Commission and used in the risk assessment report, for calculating the undue payments to be recovered and the reductions and exclusions in the event of over-declarations.

75      Those three complaints relate to the interpretation of several provisions of Regulation No 796/2004 in a situation in which payments were made on the basis of unduly allocated payment entitlements accompanied by ineligible hectares. More specifically, the situation at issue in those complaints is the result of the fact that, during the initial allocation of payment entitlements for the purpose of the single payment scheme, errors were made as regards the eligible area. Therefore, some farmers were allocated too high a number of payment entitlements. Having regard to the method for allocating payment entitlements chosen by the United Kingdom (see paragraph 70 above), that undue allocation resulted, on the one hand, in an undervaluation of the unit value of each payment entitlement of the farmers concerned and, more specifically, of their historic element. On the other hand, it resulted in an overvaluation of the total value of the sum of those payment entitlements on account of the flat-rate element. The errors as regards the eligible areas were repeated during subsequent years until they were discovered during controls, with the result that payments were made on the basis of ineligible hectares.

76      In those circumstances, the United Kingdom claims, in essence, that, in such a situation, the unit value of payment entitlements must, at the same time as the reduction in their number, be retrospectively re-evaluated upwards pursuant to Article 73a of Regulation No 796/2004 (first complaint) prior to the application of the provisions of Article 73 of that regulation, relating to the recovery of undue payments (third complaint), and prior to the application of the provisions of Article 51 of that regulation, relating to the reductions and exclusions in cases of over-declaration (fourth complaint).

–       The first complaint, relating to the retrospective re-evaluation of the value of the payment entitlements

77      The United Kingdom submits that, contrary to the Commission’s findings during the clearance procedure, Article 73a(1) and (2) of Regulation No 796/2004 requires the adjustment of the value of the payment entitlements where the initial allocation of payment entitlements was too high, and the farmer’s knowledge is not taken into account. According to the United Kingdom, the farmer’s knowledge is relevant only in the context of paragraph 2a of that provision, which does not apply in the present case. In addition, noting that the Commission itself systematically adjusts, on the basis of Article 73a(1) and (2) of Regulation No 796/2004, the value of payment entitlements for the future, the United Kingdom observes that Article 73a of that regulation makes no distinction between retrospective re-evaluation and prospective re-evaluation and that a systematic prospective recalculation is even contrary to those provisions. In response to the Commission’s arguments, the United Kingdom argues that the reference in Article 73a(4) of Regulation No 796/2004 to Article 73 of the same regulation does not call into question its interpretation of Article 73a of the regulation.

78      The Commission disputes the merits of those arguments.

79      In the context of the present complaint, the parties disagree in essence over whether, in the event of errors as to the eligible area committed in 2005 and repeated thereafter resulting in the allocation of too high a number of payment entitlements which led to an undervaluation of their unit value and an overvaluation of their total value, Article 73a of Regulation No 796/2004 requires, prior to the application of the provisions relating to the recovery of undue payments and to the applicable penalties in cases of over-declaration at issue in the third and fourth complaints of the present plea, the retrospective re-evaluation of the unit value of payment entitlements.

80      In that regard, it must be borne in mind that Article 36 of Regulation No 73/2009 provides that the payment entitlements per hectare are not to be modified, save as otherwise provided for in that regulation (judgment of 5 June 2014 in Vonk Noordegraaf, C‑105/13, ECR, EU:C:2014:1126, paragraph 37).

81      Since, in accordance with Article 34(1) of Regulation No 73/2009, every activated payment entitlement gives a right to payment of the amount fixed therein, a change in that amount would lead to a reduction or an increase in the amount of aid paid to the farmer concerned. As is apparent from recital 29 in the preamble to Regulation No 1782/2003, one of the objectives of the single payment scheme is to enable each farmer to continue to receive a level of aid equivalent to the amounts paid to him during the reference period (judgment in Vonk Noordegraaf, cited in paragraph 80 above, EU:C:2014:1126, paragraph 38).

82      However, it is clear that no provision of Regulation No 73/2009 provides expressly for the possibility of modifying the payment entitlements of a farmer who received too high a number of payment entitlements during the initial allocation (see, to that effect, judgment in Vonk Noordegraaf, cited in paragraph 80 above, EU:C:2014:1126, paragraph 40).

83      By contrast, Article 73a of Regulation No 796/2004 lays down rules relating to the recovery of undue entitlements from which it is apparent that, in the circumstances covered by those rules, the payment entitlements may be recalculated. That provision originates, as is apparent from recital 15 in the preamble to Regulation No 239/2005, the regulation by which it was inserted into Regulation No 796/2004, in the intention to establish rules to cover the eventuality where a farmer has received unduly a certain number of payment entitlements or the value of each of the payment entitlements was fixed at an incorrect level.

84      The United Kingdom’s contention that it is appropriate, in the event of undue allocation of certain payment entitlements, to carry out their retrospective reduction and re-evaluation is based on Article 73a(1) of Regulation No 796/2004, read, where appropriate, in conjunction with paragraph 2 of that provision; it is therefore necessary to interpret Article 73a of that regulation.

85      To that end, it should be borne in mind that, in interpreting a provision of EU law, it is necessary to consider not only its wording but also the context in which it occurs and the objects of the rules of which it is part (judgment of 17 November 1983 in Merck, 292/82, ECR, EU:C:1983:335, paragraph 12).

86      First, it is appropriate to recall the relevant provisions of Article 73a of Regulation No 796/2004. In that regard, first of all, Article 73a of Regulation No 796/2004 provides, in paragraph 1, that, where certain payment entitlements have been allocated unduly, the farmer is to give them up to the national reserve and those entitlements are to be deemed not to have been allocated ab initio. Next, it is apparent from Article 73a(2) of Regulation No 796/2004 that, where the value of the payment entitlements is too high, that value is to be adjusted accordingly, the entitlements being deemed as having been allocated ab initio at the value resulting from the adjustment. Lastly, Article 73a(2a) of Regulation No 796/2004, inserted by Regulation No 972/2007, states that, where, for the purpose of the application of paragraphs 1 and 2 of that article, it is established that the entitlements allocated to a farmer were allocated unduly but that allocation has no impact on the total value of the entitlements the farmer received, the payment entitlements are to be recalculated, provided that the errors could not reasonably have been detected by the farmer (see, to that effect, judgment in Vonk Noordegraaf, cited in paragraph 80 above, EU:C:2014:1126, paragraph 41). In addition, in accordance with Article 73a(4) of Regulation No 796/2004, undue amounts paid are to be recovered in accordance with Article 73 of that regulation, which concerns the recovery of undue payments.

87      Secondly, it should be noted that, in the present case, the parties agree that the provisions of Article 73a(2a) of Regulation No 796/2004 are inapplicable: although the undue allocation led to an undervaluation of the unit value of payment entitlements, it also affected the total value of the payment entitlements because of the flat-rate element.

88      Thirdly, as regards the interpretation of Article 73a(1) of Regulation No 796/2004, it should be observed that the wording of that provision neither provides for nor expressly excludes the retrospective re-evaluation of the unit value of payment entitlements following the recovery of undue entitlements.

89      However, the parties observe that the statement in the third subparagraph of Article 73a(1) of Regulation No 796/2004, according to which the entitlements allocated unduly are to be deemed not to have been allocated ab initio, could be construed in the sense that, where an undue allocation of payment entitlements has affected the unit value of the entitlements allocated, a re-evaluation of the unit value of the remaining entitlements should be carried out.

90      However, that reading of Article 73a(1) of Regulation No 796/2004 does not withstand an analysis of the context of that provision.

91      It should be noted that such a reading of Article 73a(1) of Regulation No 796/2004 would render the insertion, by Regulation No 972/2007, of paragraph 2a of that provision at least partially meaningless. In the context of Article 73a(2a) of that regulation, for the purposes of applying paragraphs 1 and 2 of that article, the re-evaluation of the unit value of payment entitlements, in the event of undue allocation, is limited to the situation — which, as the parties agree, is different from that at issue in the present case — in which that undue allocation has had no impact on the total value of the payment entitlements and the farmer could not reasonably have detected the errors committed. If Article 73a(1) of Regulation No 796/2004 were to be interpreted as itself containing the obligation to carry out a retrospective re-evaluation of the unit value of payment entitlements — without consideration of the impact of such a re-evaluation on the total value of the payment entitlements and, as the case may be, even if the farmer could reasonably have detected the errors committed – that statement in Article 73a(2a) of Regulation No 796/2004 would serve no useful purpose and would be wholly irrelevant.

92      Moreover, that reading is borne out by the reasons which justified the insertion, by Regulation No 972/2007, of paragraph 2a to Article 73a of Regulation No 796/2004. As is apparent from recital 19 in the preamble to Regulation No 972/2007, it is only where undue allocations of entitlements have not affected the total value of the payment entitlements, but only the number of the entitlements of the farmer, that the Member States are, where the farmer could not reasonably detect the errors, to correct the allocation or where appropriate the type of entitlements, without reducing the value thereof, in accordance with that latter provision.

93      In those circumstances, it must be held that the statement in the third subparagraph of Article 73a(1) of Regulation No 796/2004, according to which ‘[t]he entitlements allocated unduly shall be deemed not to have been allocated ab initio’, cannot be interpreted as requiring the retrospective re-evaluation of the unit value of payment entitlements. By contrast, it is necessary to read that statement in conjunction with Article 73a(4) of that regulation, which states that ‘[u]ndue amounts paid shall be recovered in accordance with Article 73 [of the regulation]’. It follows that the abovementioned statement in the third subparagraph of Article 73a(1) of Regulation No 796/2004 must be interpreted as having the sole purpose of showing that aid granted on the basis of unduly allocated entitlements is itself undue, so that it must be repaid in accordance with the provisions of Article 73 of Regulation No 796/2004.

94      Moreover, the Court considers that that interpretation is not contrary to the objectives of the single payment scheme. As was noted in paragraph 81 above, according to the case-law, it is apparent from recital 29 in the preamble to Regulation No 1782/2003 that one of the objectives of the single payment scheme is to enable each farmer to continue to receive a level of aid equivalent to the amounts paid to him during the reference period (judgment in Vonk Noordegraaf, cited in paragraph 80 above, EU:C:2014:1126, paragraph 38). As is apparent from the use of the adjective ‘equivalent’, that scheme does not guarantee that the level of aid is strictly identical.

95      Fourthly, as regards the arguments of the United Kingdom relating to Article 73a(2) of Regulation No 796/2004, it should be observed that that provision provides only for a downward re-evaluation of the payment entitlements. By contrast, it is not in any way apparent from the wording of that provision that it permits an upward re-evaluation where, because of an initial allocation of too high a number of payment entitlements, the value of those entitlements was assessed at too low a level.

96      Furthermore, it must be held that, contrary to what the United Kingdom suggested at the hearing, Article 73a(2) of Regulation No 796/2004 cannot be interpreted as requiring an upward retrospective re-evaluation of the unit value of payment entitlements where, in the event of undue allocation of certain payment entitlements and undervaluation of the unit value of the entitlements allocated, the total value of the entitlements allocated to a farmer was overestimated. Besides the fact that, read in the context of Article 73a(2a) of Regulation No 796/2004, the use, in paragraph 2 of that provision, of the term ‘value’ must be understood, in the absence of any specification that it is the total value, as the unit value of the individual payment entitlements, the reading suggested by the United Kingdom must in any event be rejected for reasons analogous to those set out in paragraphs 91 and 92 above.

97      It follows that, contrary to the United Kingdom’s contentions, a combined reading of paragraphs 1 and 2 of Article 73a of Regulation No 796/2004 does not permit the inference that, in the event of the initial allocation of too high a number of payment entitlements which led to an undervaluation of the unit value of payment entitlements and affected the total value of those entitlements, it is appropriate, when the error is detected, to carry out a retrospective re-evaluation of the unit value of the payment entitlements after their number has been reduced.

98      In addition, in so far as the United Kingdom observes, in its reply, that the Commission acknowledged the erroneous nature of its analysis in that it conceded that Article 73a(2a) of Regulation No 796/2004, which just refers to the case where the farmer has knowledge of the error, was inapplicable, it is sufficient to note that there is nothing in the documents before the Court to indicate that the Commission intended to base its complaint relating to the systematic re-evaluation of the payment entitlements on Article 73a(2a) of Regulation No 796/2004.

99      Consequently, and without there being a need to examine the Commission’s arguments regarding Article 73(4) of Regulation No 796/2004 and relating to the recovery of undue payments falling within the third complaint of the present plea, the present complaint must be dismissed.

–       The third complaint, relating to the recovery of undue payments

100    The United Kingdom disputes the considerations put forward by the Commission as regards the recovery of undue payments pursuant to Article 73 of Regulation No 796/2004. It considers, in essence, that, where the initial allocation of payment entitlements was too high, the payment entitlements should be recalculated — in accordance with Article 73a of that regulation — before determining the amounts which have been unduly received and which must be recovered. It follows that, in such a case, the amounts relating to the historic element of the aid should not be repaid. The Commission’s approach, which determines the amounts that must be recovered based on the initial value of the non-existent payment entitlements, is incompatible with Articles 73 and 73a of Regulation No 796/2004 in that the Commission (i) does not retroactively adjust the value of the entitlements and (ii) requires farmers to repay sums which exceed the actual loss to the Fund and the undue payments. In this respect, the Commission’s approach is tantamount to imposing a penalty on farmers.

101    The Commission disputes the merits of those arguments.

102    In the first place, the Court notes that, under Article 34(1) of Regulation No 73/2009:

‘Support under the single payment scheme shall be granted to farmers upon activation of a payment entitlement per eligible hectare. Activated payment entitlements shall give a right to the payment of the amounts fixed therein.’

103    In the second place, it should be observed that, under Article 73(1) of Regulation No 796/2004, if undue payment is made, the farmer is to repay the amount in question plus interest calculated in accordance with paragraph 3 of that provision.

104    Under the first subparagraph of Article 73(4) of Regulation No 796/2004, the repayment obligation referred to in Article 73(1) of that regulation is not to apply if the payment was made by error of the competent authority or of another authority and if the error could not reasonably have been detected by the farmer. However, it is apparent from the second subparagraph of Article 73(4) of Regulation No 796/2004 that where the error relates to factual elements relevant for the calculation of the payment concerned, the first subparagraph of that provision is to apply only if the decision to recover was not communicated within 12 months of the payment.

105    In the third place, it is apparent from the case-law that, when the EU legislature lays down conditions governing eligibility for the grant of aid, exclusion as a result of failure to comply with one of those conditions is not a penalty, but merely the consequence of failure to fulfil the conditions laid down by law (judgments of 24 May 2007 in Maatschap Schonewille-Prins, C‑45/05, ECR, EU:C:2007:296, paragraph 47, and 24 May 2012 in Hehenberger, C‑188/11, ECR, EU:C:2012:312, paragraph 37).

106    In the present case, the United Kingdom’s arguments are based on the premiss that, in the event of undue allocation of payment entitlements which affected both the unit value and the total value of the entitlements, it is appropriate, in accordance with Article 73a of Regulation No 796/2004, to carry out the retrospective re-evaluation of the value of the payment entitlements after reduction in their number, even before applying the provisions of Article 73 of that regulation on the recovery of undue payments.

107    However, that premiss cannot be accepted.

108    In the light of the considerations set out in paragraph 97 above, such a re-evaluation cannot be based, contrary to what appears in the United Kingdom’s arguments, on the provisions of Article 73a of Regulation No 796/2004, where there are errors as to the eligible area dating from the year in which the payment entitlements were allocated and the total value of those entitlements was affected by those errors.

109    It follows that the United Kingdom’s arguments that the retrospective re-evaluation of the payment entitlements should be carried out prior to the application of Article 73 of Regulation No 796/2004 cannot succeed.

110    That conclusion is not called into question by the United Kingdom’s other arguments, namely that the application of Article 73(1) of Regulation No 796/2004 without a prior re-evaluation of the payment entitlements results in recoveries of sums which exceed the actual risk to the Fund and therefore constitutes a penalty for the farmer.

111    In that regard, it should be borne in mind that, in accordance with Article 34(1) of Regulation No 73/2009, support is to be granted for activated payment entitlements, that is to say, for payment entitlements accompanied by a corresponding number of eligible hectares. Therefore, as the Commission correctly observes, an error as to the eligible area affects, in any event, the amount of aid paid in its entirety.

112    Moreover, it is apparent from the considerations set out in paragraph 93 above that, having regard to the combined provisions of the third subparagraph of Article 73a(1) of Regulation No 796/2004 and Article 73a(4) of that regulation, aid granted on the basis of unduly allocated payment entitlements constitutes undue aid which must be recovered in accordance with Article 73 of that regulation.

113    However, first of all, the United Kingdom’s approach of carrying out, prior to the application of the provisions of Article 73 of Regulation No 796/2004, a retrospective re-evaluation of the unit value of each payment entitlement and of recalculating, on the basis of a correct number of payment entitlements thus re-evaluated, the total amount of aid which should have been paid to the farmer in the absence of the error committed in 2005 prevents, as the Commission correctly observes in response both to the first and third complaint of the present plea, the proper and effective recovery of undue aid.

114    Thus, rather than regarding aid granted on the basis of an unduly allocated payment entitlement and accompanied by an ineligible area as undue in its entirety, the United Kingdom’s approach has the effect of reducing the undue proportion to the difference between the payment granted and a payment that is revised on the basis of the payment entitlements re-evaluated upwards and the number of hectares established as eligible, corresponding to the amount of the flat-rate element of the unduly allocated payment entitlement.

115    It must be held that, in the absence of any provision providing, in the event of undue allocation of certain payment entitlements which affected the total value of the payment entitlements, for the upward retrospective re-evaluation of their unit value, such an interpretation is incompatible with the requirement that the conditions under which expenditure is to be borne are to be strictly interpreted, a requirement which the Court of Justice identified in the context 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), replaced by Council Regulation (EC) No 1258/1999 of 17 May 1999 on the financing of the common agricultural policy (OJ 1999 L 160, p. 103), which was in turn replaced by Regulation No 1290/2005 (see, to that effect, judgment of 6 November 2014 in Netherlands v Commission, C‑610/13 P, EU:C:2014:2349, paragraph 41 and the case-law cited).

116    Next, in so far as, in the reply, the United Kingdom observes that an approach under which the overpayment is to be evaluated on the basis of the initially allocated payment entitlements renders the proper recovery of undue payments impossible since, in some cases, it leads to overpayments being made which are never recovered or gives rise to over-recoveries, the Court finds, firstly, that the argument in respect of over-recoveries must be rejected in the light of the considerations set out in paragraphs 113 and 114 above.

117    Secondly, in respect of the argument alleging that the Commission’s approach could have the effect of preventing the recovery of overpayments on account of a calculation of the aid on the basis of non-existent payment entitlements, it should be noted that that argument, which was raised in the application solely in the context of the fourth complaint and set out in the light of the provisions of Article 51 of Regulation No 796/2004, is relied on in the context of determination of the overpayment for the first time in the reply and that it is not substantiated there except by reference to the explanations set out in the application under the fourth complaint. In any event, it should be noted that, as is apparent from paragraph 93 above, aid granted on the basis of an unduly allocated payment entitlement is itself undue. Although the United Kingdom claims that, in certain circumstances, the Commission’s approach has the effect of not regarding such a payment as undue since it calculates the overpayment on the basis of the payment entitlements as declared, it should however be observed that, in its written pleadings, the Commission expressly observes, in response to the first plea raised by the United Kingdom, that a farmer cannot obtain a payment on the basis of an unduly allocated payment entitlement. Moreover, it is not apparent from the documents before the Court that, in the risk assessment report, the United Kingdom was led to exclude from the calculation of overpayments certain amounts granted on the basis of unduly allocated payment entitlements.

118    Lastly, it should be noted that, in the light of the case-law cited in paragraph 105 above, recovery is not — contrary to the United Kingdom’s submissions — a penalty, but merely the consequence of failure to fulfil the conditions for eligibility.

119    In addition, it must be added that, in any event, the first subparagraph of Article 73(4) of Regulation No 796/2004 provides that the repayment obligation referred to in paragraph 1 of that provision does not apply if the payment was made by error of the competent authority or of another authority and if the error could not reasonably have been detected by the farmer. It follows that a farmer acting in good faith is protected from the recovery of the undue aid where the error which affected the eligible area or indeed the grant of the payment entitlements is attributable to the authorities and where he could not reasonably have detected it.

120    It follows that the present complaint must be rejected.

–       The fourth complaint, relating to reductions and exclusions in the event of over-declarations of area

121    The United Kingdom challenges the finding that it incorrectly applied the provisions of Article 51 of Regulation No 796/2004. First, it considers that, when errors have been made during the initial allocation of entitlements, the penalties provided for in that article can be applied only after the value of the payment entitlements has been recalculated in accordance with Article 73a of that regulation. Secondly, while acknowledging that it must be possible to impose penalties in respect of all claim years when a farmer has declared an ineligible area in order to activate a payment entitlement actually at his disposal, the United Kingdom observes that the Commission wrongly considers that, if errors were committed during the initial allocation of payment entitlements and were repeated in subsequent claim years, penalties should be imposed not only in respect of the year 2005, but also in respect of the subsequent years, even though the farmer has declared sufficient eligible hectares in order to activate the payment entitlements actually at his disposal. According to the United Kingdom, the provisions of Article 51 of Regulation No 796/2004 thus draw a distinction between over-declarations of area leading to activation of payment entitlements at the actual disposal of a farmer and over-declarations leading to an error in the initial allocation of payment entitlements. The United Kingdom takes the view that it is apparent from both the broad scheme of Article 51(1) and (2a) of Regulation No 796/2004, confirmed by the second indent of Article 57(2) of Regulation No 1122/2009, and, in the alternative, from the principle of retroactive application of the less severe penalty, in this instance the aforesaid second indent of Article 57(2) of Regulation No 1122/2009, that no penalty is due in respect of the subsequent years.

122    The Commission disputes the merits of the arguments put forward by the United Kingdom.

123    First, the Court notes that the arguments raised by the United Kingdom in support of the present complaint are based on the premiss that, prior to the application of reductions and exclusions in accordance with Article 51 of Regulation No 796/2004, it is appropriate to apply Article 73a of that regulation, as interpreted by the United Kingdom.

124    In that regard, it is sufficient to note that, as is apparent from paragraphs 97 and 108 above, that premiss is incorrect.

125    It has already been observed, in paragraphs 97 and 108 above, that Article 73a of Regulation No 796/2004 cannot be interpreted as providing, in circumstances such as those at issue in the present case, for a retroactive re-evaluation of the value of payment entitlements.

126    It also follows that, since Article 73a of Regulation No 796/2004 does not permit, in circumstances such as those of the present case, the retrospective recalculation of the payment entitlements, the United Kingdom cannot criticise the Commission for treating the area declared and the payment entitlements declared differently in so far as the Commission adjusts the former but not the latter.

127    Secondly, the United Kingdom considers that, in respect of claim year 2005, it is appropriate, in accordance with Article 51(1) of Regulation No 796/2004, to impose a penalty for over-declaration, and that penalty must be calculated on the basis of the payment entitlements, as corrected retrospectively. Moreover, in respect of subsequent claim years during which the same error was repeated, the United Kingdom takes the view that the combined application of paragraphs 1 and 2a of Article 51 of Regulation No 796/2004 has the effect of precluding any penalty in respect of those years. That finding is based on the logic of those provisions in the sense that, according to the United Kingdom, where a farmer has declared sufficient eligible area to activate the payment entitlements actually at his disposal (that is to say, where appropriate, after reduction in their number and re-evaluation of their value), it is unnecessary, in accordance with Article 51(2a) of Regulation No 796/2004, to impose upon him a penalty.

128    In order to examine the merits of those arguments, it must be determined (i) whether Article 51(1) of Regulation No 796/2004 requires, notwithstanding the wording of Article 73a of that regulation, the retrospective re-evaluation of the value of the payment entitlements and (ii) whether it is apparent from Article 51(2a) of that regulation that, as the United Kingdom submits, no penalty should be imposed in so far as the farmer declares sufficient area to activate the number of payment entitlements actually at his disposal.

129    As a preliminary point, first of all, it must be noted that the objectives of Regulation No 796/2004 and, in particular, of Article 51 thereof are, according to recitals 29 and 55 in the preamble to that regulation, respectively, to effectively monitor compliance with the provisions on the aid schemes managed under the integrated system and, in order to protect the European Union’s financial interests effectively, to adopt adequate measures to combat irregularities and fraud (see, by analogy, judgment of 28 November 2002 in Agrargenossenschaft Pretzsch, C‑417/00, ECR, EU:C:2002:715, paragraph 33).

130    Next, Article 51(1) of Regulation No 796/2004 provides that where the area declared in an aid application is greater than that determined upon a control, the penalties are to be graduated according to the gravity of the irregularity committed (see, by analogy, judgment in Agrargenossenschaft Pretzsch, cited in paragraph 129 above, EU:C:2002:715, paragraph 35). First, if the difference between the area declared and that determined in accordance with Article 50(3) and (5) of Regulation No 796/2004 is more than either 3% or two hectares, but no more than 20% of the area determined, the aid is to be calculated on the basis of the area determined reduced by twice the difference found. Secondly, if that difference is more than 20% of the area determined, no aid is to be granted. Thirdly, if that difference is more than 50%, the farmer is to be excluded once again from receiving aid up to an amount equal to the amount which corresponds to the difference between the area declared and the area determined in accordance with Article 50(3) and (5) of Regulation No 796/2004.

131    However, on the one hand, the first subparagraph of Article 51(2a) of Regulation No 796/2004 provides that those reductions and exclusions are not to apply if a farmer declares more area than payment entitlements and the area declared fulfils all other eligibility requirements. On the other hand, the second subparagraph of that provision provides that, if a farmer declares more area than payment entitlements and the area declared does not fulfil all other eligibility requirements, the difference referred to in Article 51(1) of Regulation No 796/2004 is to be the difference between the area fulfilling all other eligibility requirements and the amount of payment entitlements declared.

132    Lastly, it is apparent from the case-law that, where the competent authority discovers that an applicant for aid has made an incorrect declaration, not intentionally, which has entailed over-declaration of the area eligible for aid and that the same mistake was made in the years prior to that in which the mistake was discovered, thus leading to over-declaration of the area eligible for aid in each of those years, that authority is required, subject to observance of the limitation periods laid down in Article 3(1) of Regulation No 2988/95, to reduce the area actually determined in order to calculate the aid payable in respect of all the years concerned (see, to that effect, judgments of 19 November 2002 in Strawson and Gagg & Sons, C‑304/00, ECR, EU:C:2002:695, paragraph 64, and 25 July 2006 in Belgium v Commission, T‑221/04, EU:T:2006:223, paragraph 88).

133    The two questions raised in paragraph 128 above should be examined in the light of those considerations.

134    In the first place, as regards the question whether the reductions and exclusions provided for in Article 51(1) of Regulation No 796/2004 must be determined on the basis of a recalculated unit value of payment entitlements, it should be observed that, contrary to the United Kingdom’s contentions, it is not apparent either from the wording of that article — which, according to that Member State, is ‘expressed in the language of entitlement’ — or from reading it in the light of the definition, in Article 2(22) of that regulation, of the term ‘area determined’ that the penalty provided for in Article 51(1) of Regulation No 796/2004 must be determined on the basis of the retrospectively recalculated payment entitlements.

135    It is apparent from the wording of Article 51(1) of Regulation No 796/2004 that the reductions and exclusions for which it provides are to apply where the area declared by the farmer exceeds the area determined in accordance, inter alia, with Article 50(3) of that regulation and the difference between the two areas exceeds the margins indicated by that provision.

136    Although it is apparent from that provision that an over-declaration is penalised by the reduction, under the conditions set out therein, of the area determined on the basis of which the aid is calculated, the fact remains that, having regard to the very wording of that provision, its application is not in any way subject to a prior re-evaluation of the unit value of payment entitlements in the event of undue allocation of such entitlements.

137    Moreover, in so far as the United Kingdom refers to Article 2(22) of Regulation No 796/2004, it should be observed that, for the purpose of that provision, an area is determined only in so far as it complies with all conditions laid down in the rules for granting the aid, and, in the case of the single payment scheme, the area declared may be deemed as being determined only if it is actually accompanied by a corresponding number of payment entitlements.

138    Even on the assumption that, as the United Kingdom submits, Article 2(22) of Regulation No 796/2004 thus defines the area determined by reference to the area accompanied by a number of payment entitlements actually at the farmer’s disposal and that that definition is relevant in the context of Article 51 of that regulation, that definition is not such as to require the penalty applicable pursuant to Article 51(1) of Regulation No 796/2004 to be calculated on the basis of a recalculated value of the payment entitlements. Article 2(22) of that regulation does not contain any indication as regards the value of the payment entitlements which should, if necessary, be taken into account.

139    That reading of Article 51(1) of Regulation No 796/2004 is all the more necessary in the light of the provisions of Article 50 of that regulation and, in particular, paragraph 2 of that article. It is apparent from Article 50(2) of Regulation No 796/2004, which defines the basis for calculating the aid, that, if there is a discrepancy between the payment entitlements declared and the area declared, the calculation of the aid is to be based on the lower size. In other words, it is apparent from that provision that, in the absence of any indication to the contrary, the aid is to be calculated on the basis of the payment entitlements declared by the farmer, without it being necessary to take into account any upward re-evaluation of their unit value.

140    Moreover, that reading of the provisions of Article 51(1) of Regulation No 796/2004 is consistent with the reading, adopted in the context of the first complaint raised in support of the present plea, of Article 73a of that regulation to the effect that, as stated in paragraph 125 above, the latter article does not provide, in circumstances such as those at issue in the present case, for any retroactive re-evaluation of the value of payment entitlements.

141    Consequently, the United Kingdom’s arguments regarding Article 51(1) of Regulation No 796/2004, read in the light of Article 2(22) of that regulation, are not such as to establish that the reductions and exclusions must be determined on the basis of retrospectively re-evaluated payment entitlements.

142    In the second place, as regards the question whether, in the event of repetition of an error as to the eligible area, such as that initially committed in 2005, Article 51(2a) of Regulation No 796/2004 excludes the application of a reduction or exclusion pursuant to paragraph 1 of that provision in so far as the farmer has declared sufficient area to activate the number of payment entitlements actually at his disposal, it should be recalled that it is apparent from Article 51(2a) of that regulation that, where the farmer declares more area than payment entitlements and the area declared fulfils all other eligibility requirements, the reductions or exclusions provided for in paragraph 1 of that provision are not to apply, but that, where, in such a case, the area declared does not fulfil all other eligibility requirements, the difference referred to in paragraph 1 of Article 51 is to be the difference between the area fulfilling all other eligibility requirements and the amount of payment entitlements declared.

143    First, it is thus apparent from a combined reading of the two subparagraphs of Article 51(2a) of Regulation No 796/2004 that not only does the wording of that provision not provide for any reservation as regards the case of the repetition of an over-declaration which had initially resulted in the allocation of too high a number of payment entitlements nor establish any distinction between (i) an over-declaration made at the time of the initial allocation of entitlements and subsequently repeated and (ii) an over-declaration made after that allocation, but that provision applies — as the Commission observes — where the area declared by the farmer exceeds the number of payment entitlements declared by him irrespective of the number of entitlements he actually holds. While it is true that the first subparagraph of that provision does not define the payment entitlements referred to therein as being those which are declared, they are however expressly classified as such under the second subparagraph of that provision.

144    It is therefore only where the area declared is more than the number of payment entitlements declared and that area fulfils all other eligibility requirements that, in accordance with the first subparagraph of Article 51(2a) of Regulation No 796/2004, the reductions and exclusions established in paragraph 1 of that provision do not apply.

145    By contrast, contrary to the United Kingdom’s arguments, the comparison between the area declared and the payment entitlements declared is made, in the context of Article 51(2a) of Regulation No 796/2004, irrespective of the number of payment entitlements actually at the farmer’s disposal, if necessary after recovery of undue entitlements on the basis of Article 73a of Regulation No 796/2004.

146    Secondly, it is important to add that that literal interpretation of Article 51(2a) of Regulation No 796/2004 is also confirmed by a contextual and teleological interpretation of that provision.

147    In that regard, it should be recalled that Article 50(2) of Regulation No 796/2004 provides that, if there is a discrepancy between the payment entitlements declared and the area declared, the calculation of the aid under the single payment scheme is to be based on the lower size. That provision thus defines the basis for calculating the amount of aid.

148    Moreover, as observed in paragraph 129 above, Article 51 of Regulation No 796/2004 essentially forms part of the objective of effective protection of the European Union’s financial interests by combating irregularities and fraud. To that end, where the area declared exceeds the area determined, Article 51(1) of Regulation No 796/2004 provides for graduated penalties (see paragraph 130 above).

149    By contrast, as is apparent from recital 12 in the preamble to Regulation No 659/2006, the regulation by which paragraph 2a was inserted into Article 51 of Regulation No 796/2004, such penalties are considered to be pointless in cases where a farmer has declared more area than payment entitlements but the area declared fulfils all other eligibility requirements. As that recital explains, in such a case, Article 50(2) of Regulation No 796/2004 provides that the basis for the calculation for the aid is the amount of hectares accompanied by payment entitlements.

150    Thus, the link made, in recital 12 in the preamble to Regulation No 659/2006, between Article 50(2) of Regulation No 796/2004 — a provision based explicitly on a comparison between the area declared and the payment entitlements declared — and Article 51(2a) of Regulation No 796/2004 confirms the conclusion that the comparison which must be carried out under the latter provision must be made between, on the one hand, the area declared and, on the other, the payment entitlements declared, and not the payment entitlements actually held by the farmer, if necessary after recovery of undue entitlements on the basis of Article 73a of Regulation No 796/2004.

151    Moreover, in the light of the general scheme of Article 51 of Regulation No 796/2004, to combat irregularities and fraud, the insertion of paragraph 2a into that provision is based on the consideration that, in the event of a discrepancy between the area declared and the payment entitlements declared, there is, in principle, no risk of irregularity or fraud provided that the area declared satisfies all other eligibility requirements. In the event of such a discrepancy between the area declared and the number of entitlements declared, the amount of aid is in any event to be determined, in accordance with Article 50(2) of that regulation, on the basis of the lower size, so that, in any event, aid cannot be paid on the basis of an area not determined. It follows that, in principle, there is, in such a case, no risk of undue payment granted on the basis of an area not determined.

152    Thirdly, it should be noted that it is indeed the case that, as the United Kingdom observes, that interpretation of Article 51 of Regulation No 796/2004, and in particular paragraph 2a thereof, does not preclude a penalty from being calculated, exceptionally, on the basis of non-existent payment entitlements where the farmer has declared a number of entitlements exceeding the number of payment entitlements actually at his disposal.

153    However, it must be held that the fact noted in paragraph 152 above is not, contrary to what the United Kingdom argued at the hearing, such as to render the contested decision unlawful and it is not necessary to determine whether, as the United Kingdom submits, the reference to the area determined, in Article 51(1) of Regulation No 796/2004, must be read as a reference to the eligible area accompanied by a corresponding number of payment entitlements declared or declared payment entitlements actually at the farmer’s disposal.

154    Not only has the United Kingdom not cast doubt on the lawfulness of Article 51 of Regulation No 796/2004, but it must also be held that that fact, however regrettable it may be, is not capable of altering the interpretation, set out above, of the provisions of Article 51(2a) of Regulation No 796/2004 which is necessary in the light of a literal, contextual and teleological analysis of those provisions.

155    In that regard, it must also be added that Regulation No 1122/2009, which repealed and replaced Regulation No 796/2004 with effect from 1 January 2010, now expressly provides in the second indent of Article 57(2) thereof, entitled ‘Basis of calculation in respect of areas declared’, that, ‘if the number of payment entitlements declared exceeds the number of payment entitlements at the farmer’s disposal, the payment entitlements declared shall be reduced to the number of payment entitlements at the farmer’s disposal’.

156    As is apparent from recital 78 in the preamble to Regulation 1122/2009, that new provision is based on the following consideration:

‘Payment of support under the single payment scheme requires an equal number of payment entitlements and eligible hectares. For the purpose of this scheme it is therefore appropriate to provide that the calculation of the payment in the case of discrepancies between the payment entitlements declared and the area declared should be based on the lower size. To avoid calculation based on non-existing entitlements, it should be provided that the number of payment entitlements used for the calculation should not exceed the number of payment entitlements at the farmers’ disposal.’

157    However, contrary to the United Kingdom’s argument that its interpretation of Article 51(2a) of Regulation No 796/2004 is confirmed by Article 57(2) of Regulation No 1122/2009, it must be observed that the adoption of the latter regulation and the changes it entails cannot alter the interpretation of Article 51(2a) of Regulation No 796/2004 as set out above and justify an interpretation of the latter provision which would run counter not only to its wording, but also to the reasons which prompted its insertion into that regulation (see, to that effect and by analogy, judgment of 16 September 2013 in Netherlands v Commission, T‑343/11, EU:T:2013:468, paragraph 91).

158    Besides the fact that, in view of its title, Article 57(2) of Regulation No 1122/2009 has a different subject-matter from that of Article 51(2a) of Regulation No 796/2004, the latter concerning the reductions and exclusions in cases of over-declaration, the Court notes, without needing to interpret Article 57(2) of Regulation No 1122/2009, that the latter regulation was not applicable at the time of the controls during which the errors due to over-declarations were discovered, since that regulation applies, in accordance with the second paragraph of Article 87 thereof, only with effect from applications relating to marketing years or premium periods starting as of 1 January 2010.

159    In the third place, in so far as the United Kingdom seeks to substantiate its arguments relating to the interpretation of the provisions of Article 51 of Regulation No 796/2004 by presenting examples of calculations of penalties pursuant to those provisions, it is important to point out that such examples, set out for purely illustrative purposes, are not capable of establishing that the Commission was wrong to complain that the United Kingdom incorrectly calculated the penalties pursuant to those provisions and that the calculation method used, as regards the applicable penalties in cases of over-declaration, in the assessment of the financial risk to the Fund is incorrect.

160    Lastly, the United Kingdom relies, in the alternative, on the principle of the retroactive application of the less severe penalty. In this connection, it takes the view, in essence, that the second indent of Article 57(2) of Regulation No 1122/2009 constitutes a new rule on the application of the reductions and exclusions and that, since that rule is less severe than the rule stemming from Article 51 of Regulation No 796/2004 as interpreted by the Commission, it must apply retroactively. The United Kingdom considers that the effect of that new rule is to exclude the reductions and exclusions in cases of over-declaration where a farmer has declared an eligible area which at least equals the number of payment entitlements declared, a number which cannot exceed the number of payment entitlements at his disposal.

161    In that regard, as observed in paragraph 158 above, in accordance with the second paragraph of Article 87 of Regulation No 1122/2009, that regulation applied only with effect from applications relating to marketing years or premium periods starting as of 1 January 2010, so that Regulation No 796/2004 was, in principle, applicable to aid applications submitted in respect of the year 2009. However, it must also be borne in mind that, according to Article 2(2) of Regulation No 2988/95, in the event of a subsequent amendment of the provisions which impose administrative penalties and are contained in EU rules, the less severe provisions are to apply retroactively.

162    According to the case-law, reductions and exclusions of aid, such as those provided for in Article 51 of Regulation No 796/2004, constitute an administrative penalty within the meaning of Article 2(2) of Regulation No 2988/95 (see, to that effect, judgments of 17 July 1997 in National Farmers’ Union and Others, C‑354/95, ECR, EU:C:1997:379, paragraphs 40 and 41; in Strawson and Gagg & Sons, cited in paragraph 132 above, EU:C:2002:695, paragraph 46; and 4 May 2006 in Haug, C‑286/05, ECR, EU:C:2006:296, paragraph 21).

163    On the other hand, it is also apparent from the case-law that provisions defining a basis of calculation do not constitute an administrative penalty (see, to that effect, judgment in Haug, cited in paragraph 162 above, EU:C:2006:296, paragraph 24).

164    That is the precisely the case with respect to the second indent of Article 57(2) of Regulation No 1122/2009, which was relied upon by the United Kingdom.

165    The second indent of Article 57(2) of Regulation No 1122/2009, which states that ‘if the number of payment entitlements declared exceeds the number of payment entitlements at the farmer’s disposal, the payment entitlements declared shall be reduced to the number of payment entitlements at the farmer’s disposal’, is, as is apparent from its title and as the Commission observed at the hearing, part of the definition of the basis of calculation in respect of areas declared.

166    Moreover, the second indent of Article 57(2) of Regulation No 1122/2009 in no way alters the rules on reductions and exclusions, as set out in Article 58 of Regulation No 1122/2009. The latter article in fact reproduces the rules set out in Article 51(1) of Regulation No 796/2004, although it must be noted that the provisions of Article 51(2a) of Regulation No 796/2004, which formed an exception to the reductions and exclusions of Article 51(1) of that regulation, are not reproduced in Article 58 of Regulation No 1122/2009.

167    It follows that the United Kingdom’s arguments relating to the retroactive application of a less severe penalty cannot succeed.

168    The fourth complaint must therefore be dismissed in its entirety.

 The second complaint, relating to the taking into account of differences in areas affecting ‘animal’ premiums when recalculating the payment entitlements

169    The United Kingdom essentially claims that the Commission wrongly considered that the historic element could be affected by errors in the determination of the areas relating to the ‘animal’ premiums. According to the United Kingdom, it follows from Commission Decision 2010/399/EU of 15 July 2010 excluding from European Union financing certain expenditure incurred by the Member States under the Guarantee Section of the EAGGF, under the EAGF and under the EAFRD (OJ 2010 L 184, p. 6) that, as regards claim year 2004, the Commission applied only a flat-rate correction of 2% to the expenditure incurred in the Extensification Premium Scheme. However, the same — extremely low — risk would be incurred during the reference period, given the very similar schemes and associated conditions.

170    The Commission disputes the merits of those arguments.

171    In the present case, it is apparent from the documents before the Court that, during the clearance procedure, the Commission considered that the recalculation of the payment entitlements, as carried out by the United Kingdom, took account only of the flat-rate element, whilst no control had been carried out with a view to determining whether the differences in areas also affected the ‘animal’ premiums paid during the reference period from 2000 to 2002 and, therefore, the historic element of the payment entitlements.

172    However, even on the assumption that, as the United Kingdom contends, the risk due to the failure to verify the effect of errors in the determination of the areas relating to the ‘animal’ premiums was very low, the fact remains that the United Kingdom has not in any way called into question the very finding that it did not carry out such a verification. The United Kingdom does not dispute the existence of differences in areas capable of having affected the ‘animal’ premiums. Moreover, in reply to a question put by the Court, that Member State confirmed at the hearing that it had not carried out verifications of the possible effect of such differences on the historic element of the payment entitlements; a formal note of that confirmation was made in the minutes of the hearing.

173    It follows that, in the light of the case-law cited in paragraph 65 above, according to which it is for the Commission to present evidence of the serious and reasonable doubt it has with regard to the checks carried out by the national authorities or the figures they have transmitted but it is for the Member State concerned to show that the Commission’s findings are inaccurate, the United Kingdom has not managed to invalidate the Commission’s findings as summarised, in essence, in paragraph 171 above.

174    Furthermore, to the extent that the United Kingdom contends that the risk incurred by the lack of verifications in respect of the ‘animal’ premiums is extremely low, it should be observed that the rate of financial correction applied in the present case was justified by a set of weaknesses identified by the Commission in respect of the key and ancillary controls and emerges from a risk assessment carried out by the United Kingdom itself. However, besides the fact that the United Kingdom has failed to explain how the 5.19% rate was, if at all, affected by the taking into account of the lack of those verifications, it is sufficient to observe that, even if that created a negligible risk to the Fund, that consideration is not capable of calling into question the application, in the present case, of the 5.19% one-off correction rate.

175    Accordingly, the present complaint must be rejected.

 The fifth complaint, relating to intentional over-declaration

176    The United Kingdom contests the finding of weaknesses in the ancillary controls relating to intentional over-declaration referred to in Article 53 of Regulation No 796/2004. It essentially claims that intentional over-declaration constitutes fraud which may be subject to criminal penalties and, under the law of Northern Ireland, constitutes a crime. Therefore, although Article 53 of Regulation No 796/2004 establishes an administrative penalty and not a criminal penalty, the fact remains that the Northern Ireland Department of Agriculture and Rural Development (DARD) can only reach the conclusion that a farmer has made a fraudulent claim when that has been proven by a normal criminal law process. The United Kingdom contends that the Commission cannot criticise it on the ground that the DARD did not refer to the Central Investigation Service (CIS) cases which, in the Commission’s opinion, should have been referred, in particular as there is no such obligation to refer when there is in any event insufficient evidence. The United Kingdom adds that fraudulent claims are extremely rare, so that the proportion of expenditure at risk from intentional over-declaration in Northern Ireland is likely to be extremely low.

177    The Commission disputes the merits of the arguments put forward by the United Kingdom.

178    In the first place, it should be observed that, at the hearing, in reply to a question put by the Court, the United Kingdom withdrew, following the judgment of 27 February 2013 in Poland v Commission (T‑241/10, EU:T:2013:96), its argument that, in essence, the Commission was wrong to complain that it had made the penalty for intentional over-declaration pursuant to Article 53 of Regulation No 796/2004 conditional on the prior conduct of criminal law proceedings; a formal note of this was entered in the minutes of the hearing.

179    In the second place, in so far as the United Kingdom has not expressly withdrawn its argument that the Commission cannot criticise it on the ground that the DARD did not refer certain cases to the CIS, the Court notes, without needing to consider the question of the effectiveness of that argument, that the mere fact — which, as is apparent from paragraph 178 above, is not disputed — that the United Kingdom made the application of administrative penalties conditional on the prior conduct of criminal law proceedings is sufficient to establish the existence of weaknesses in the system of the application in the United Kingdom of the administrative penalties introduced by Article 53 of Regulation No 796/2004. Consequently, there is no need to examine whether, in addition, that system was affected by weaknesses in that some cases of over-declaration which, according to the Commission, should have been transferred to the CIS were not, however, submitted to it.

180    In any event, it should be observed that the United Kingdom has not established the incorrectness of the Commission’s finding that cases were not submitted to the CIS. The United Kingdom has merely asserted generally that the referral to a prosecuting authority is not obligatory where it is obvious that the evidence is not sufficient to conclude that there was intentional non-compliance. However, in the light of the case-law cited in paragraph 65 above, such an assertion is not sufficient to invalidate the serious and reasonable doubts expressed by the Commission.

181    In the third place, as regards the United Kingdom’s argument that the financial risk to the Fund from intentional over-declaration in Northern Ireland is, in any event, ‘likely to be extremely low’, it is appropriate to note that such an argument is insufficient to call into question the Commission’s finding of a weakness in the application of the administrative penalties laid down in Article 53 of Regulation No 796/2004 and there is no need to determine whether that argument is effective given that, according to the information provided by the United Kingdom at the hearing, the risk assessment carried out by it does not take account of intentional over-declarations.

182    In addition, even on the assumption that the United Kingdom intends, by that argument, to challenge the rate of financial correction applied by the Commission, it should be noted that, as has already been stated in paragraph 174 above, that rate was justified by a set of weaknesses identified by the Commission in respect of the key and ancillary controls and is apparent from a risk assessment carried out by the United Kingdom. It follows that, even if the weaknesses in the administrative penalty proceedings under Article 53 of Regulation No 796/2004 created a negligible risk to the Fund, that consideration is not capable of calling into question the application, in the present case, of the 5.19% one-off correction rate.

183    In any event, it must be noted that, in contrast to the case-law cited in paragraph 66 above, according to which it is for the Member State to establish that the Commission made an error as to the financial consequences to be attached to an irregularity which it found, the United Kingdom has merely made hypothetical and vague assertions which, although they are based on the Commission’s 2009 annual report on the protection of the Communities’ financial interests and the fight against fraud, are nevertheless not supported by detailed evidence to show that, in the present case, the rate of correction applied by the Commission was incorrect.

184    Having regard to the foregoing considerations, the fifth complaint of the second plea must be dismissed.

185    It follows that the second plea in law should be rejected in its entirety.

 First plea in law, alleging errors of law and fact regarding the determination of the scale of the actual loss to the Fund

186    In its first plea for annulment, the United Kingdom claims that, by applying the 5.19% flat-rate correction to all expenditure incurred in respect of claim year 2009 in Northern Ireland, the Commission committed errors of law and fact as regards the scale of the risk of loss to the Fund. According to the United Kingdom, the Commission failed to take account of the fact that, first, approximately 80% of the errors committed in respect of claim year 2009 as regards areas eligible for support were the result of over-declarations of those areas in 2005, during the initial allocation of payment entitlements, and, secondly, the unit value of payment entitlements, established in 2005 on the basis of the static hybrid model, comprises an historic element, derived from dividing the reference amount by the total number of payment entitlements, and a flat-rate element, equivalent to EUR 78.33 per payment entitlement. As regards 80% of the expenditure, the Fund’s exposure to risk is limited only to the expenditure relating to the flat-rate element, amounting to approximately 22% of all expenditure incurred. According to the United Kingdom, it follows that, applying a 5.19% one-off correction to the part of the expenditure that was at risk, the financial correction could not exceed 1.95%.

187    The Commission disputes the merits of the arguments put forward by the United Kingdom.

188    As a preliminary point, it should be noted that, as regards financial corrections, Document No VI/5330/97 provides, in Annex 2, that financial corrections are to be applied where the Commission finds that expenditure has not been effected in compliance with EU rules. That document also provides that unless the irregular payment had already been detected by national control bodies and the appropriate remedial and recovery measures taken, the Commission must refuse its financing by the European Union budget. If it is possible to determine the irregular expenditure, and therefore the amount of the financial losses suffered by the European Union, Document No VI/5330/97 provides that the sum refused is calculated on the basis of an extrapolation of the results of an examination of a representative sample of files to all the files from which a sample has been taken, but which is limited to the administrative area for which the same deficiency may reasonably be expected to occur (see, to that effect, judgment of 7 June 2013 in Portugal v Commission, T‑2/11, ECR, EU:T:2013:307, paragraph 120). By contrast, when the actual level of irregular expenditure cannot be determined, flat-rate corrections are applied (judgments of 18 September 2003 in United Kingdom v Commission, C‑346/00, ECR, EU:C:2003:474, paragraph 53, and 24 April 2008 in Belgium v Commission, C‑418/06 P, ECR, EU:C:2008:247, paragraph 136; see also judgment in Portugal v Commission, EU:T:2013:307, paragraph 121 and the case-law cited).

189    In this respect, it is important to point out, and the United Kingdom does not dispute, that whilst Document No VI/5330/97 was adopted by the Commission in the context of the EAGGF and, as its title indicates, contains guidelines for the calculation of financial consequences when preparing the decision regarding the clearance of the accounts of the EAGGF Guarantee Section, there is nothing to prevent the Commission from applying that document also when exercising the powers which Article 31(1) of Regulation No 1290/2005 confers on it for the purpose of the clearance of the accounts of the Fund (see, to that effect, judgment of 17 May 2013 in Bulgaria v Commission, T‑335/11, EU:T:2013:262, paragraph 86).

190    The merits of the present plea should be examined in the light of those considerations.

191    In the present case, it is apparent from the documents before the Court that the Commission applied a 5.19% one-off correction to all expenditure incurred under the single payment scheme for claim year 2009 in Northern Ireland. The rate of correction thus applied derives from a risk assessment carried out by the United Kingdom authorities and accepted by the Commission because, in the Commission’s view, that assessment made it possible to determine, in a reasonable manner, the amount of financial losses suffered by the European Union. For the purpose of that assessment by the United Kingdom authorities, the financial risk was defined as the difference between the amount paid and a revised payment including, where relevant, the applicable penalties, the undue payments and the applicable penalties being determined by the United Kingdom in accordance with the method recommended by the Commission. The risk assessment was based on an extrapolation made on the basis of a sample of 394 applications filed in 2009 under the single payment scheme.

192    It is thus apparent from the documents before the Court that the financial risk assessment by the United Kingdom authorities consisted in determining, on the basis of a sample and by extrapolation, the financial losses actually suffered by the European Union. As is apparent from both the risk assessment report and the United Kingdom’s written pleadings, those financial losses and, consequently, the financial risk correspond to the sum of the undue payments and penalties, determined on the basis of the method recommended by the Commission. The financial risk thus assessed was expressed in the risk assessment report as a percentage of all the payments concerned. It follows unequivocally from the risk assessment report that the financial risk corresponds to 5.19% of all expenditure incurred in Northern Ireland under the single payment scheme for claim year 2009, as the United Kingdom moreover confirmed at the hearing in reply to a question put by the Court.

193    It follows that, since the Commission was able to determine, on the basis of a risk assessment proposed by the United Kingdom authorities and accepted by it, the irregular expenditure and therefore the amount of the financial losses suffered by the European Union, it was right to decide, in accordance with the guidelines contained in Document No VI/5330/97, as noted in particular in paragraph 188 above, to refuse the sum corresponding to the amount of the losses.

194    It also follows that, since, as was stated in paragraph 192 above, the amount of the losses thus determined was expressed as a percentage of all expenditure incurred under the single payment scheme in Northern Ireland for claim year 2009, the Commission was correct to apply the 5.19% one-off correction to all of that expenditure.

195    That conclusion is not called into question by the United Kingdom’s arguments under the present plea to the effect, in essence, that the 5.19% one-off correction must be applied only to the proportion of expenditure incurred in respect of claim year 2009 in Northern Ireland which is, according to that Member State, affected by irregularities, so that the actual financial risk is 1.95%. In that regard, the United Kingdom maintains that 80% of the errors committed in 2009 were the result of errors committed during the initial allocation and calculation of payment entitlements as regards eligible areas. The United Kingdom submits that, therefore, in essence, as regards 80% of the expenditure incurred in Northern Ireland in the period concerned, it is appropriate, because of the method for calculating those payment entitlements comprising an historic element and a flat-rate element (see paragraph 70 above), to take account of the fact that only the latter element and not the payment in its entirety is affected by the risk to the Fund. According to the United Kingdom, the flat-rate element represents only approximately 22% of all payments made in Northern Ireland.

196    It must be borne in mind in that regard that, in the present case, the financial correction was determined on the basis of a risk assessment submitted, during the clearance procedure, by the United Kingdom itself.

197    First of all, it must be observed that, for the purpose of that risk assessment, the United Kingdom defined the financial risk as the difference between the amount paid and a revised payment including, where relevant, the applicable penalties, the undue payments and the applicable penalties being determined, by the United Kingdom, in accordance with the method recommended by the Commission.

198    In the present case, not only has the Court rejected the arguments raised by the United Kingdom, in the context of the second plea, to dispute that calculation method but that Member State also does not in any way dispute that the financial risk to the Fund comprises the sum of the undue payments and penalties.

199    Next, it was the United Kingdom itself which, for the purpose of the financial risk assessment proposed to the Commission, used as the basis of calculation all expenditure incurred in respect of claim year 2009 in Northern Ireland, as it confirmed at the hearing (see paragraph 192 above). Moreover, it is not apparent from the documents before the Court that, when it submitted its risk assessment during the clearance procedure, the United Kingdom expressed the slightest reservation with regard to that basis of calculation.

200    However, in arguing, in the present proceedings, that the 5.19% financial correction, determined in the risk assessment report in relation to all of that expenditure, must be applied only to the smaller proportion of payments which is, according to that Member State, actually affected by the risk, the United Kingdom is in actual fact incidentally challenging the basis of its own financial risk assessment.

201    Lastly, the United Kingdom’s argument calls into question the calculations which resulted, in the risk assessment report, in the rate of 5.19%. Thus, in so far as that rate reflects the proportion of all expenditure corresponding to the sum of the undue payments and applicable penalties (therefore to the quantified financial risk), that rate loses its significance when it is applied to another basis of calculation. The substitution, for the purpose of establishing the financial risk, of a reduced basis of calculation (the proportion of payments which, according to the United Kingdom, is actually affected by the risk) for the basis of calculation initially chosen (all payments) as being significant for the rate of financial correction applied breaks the link between the initial basis of calculation and the rate determined.

202    It follows that, in arguing that the 5.19% financial correction, determined on the basis of all expenditure incurred in 2010 in Northern Ireland, must be applied to only part of that expenditure, the United Kingdom fundamentally calls into question the basis of the assessment carried out during the clearance procedure. Moreover, in seeking to apply a financial correction corresponding to the actual risk to the Fund expressed as a percentage of all of that expenditure to only part of that expenditure, the United Kingdom calls into question the very accuracy of the risk analysis and the rate of 5.19%, even though the United Kingdom itself carried out that analysis and determined that rate on the basis of a definition of the risk which it does not dispute.

203    Furthermore, in so far as, in reply to a question put by the Court at the hearing, the United Kingdom observed that the rate of 1.95% put forward in connection with the present plea was explicable on the basis of the method for calculating undue payments and the penalties at issue in the second plea, it is sufficient to recall that its arguments regarding that method were rejected in the analysis of the second plea above.

204    Accordingly, that argument of the United Kingdom, which, in accordance with the requirements set out in paragraph 66 above, had to demonstrate that the Commission had made an error as to the financial consequences to be attached to the infringement of EU rules concerning the common organisation of the agricultural markets, cannot establish that the Commission made an error as to the financial consequences to be attached to irregularities which it found.

205    Accordingly, it must be concluded that the Commission did not err in applying the 5.19% one-off correction to all expenditure incurred under the single payment scheme in Northern Ireland for claim year 2009.

206    It follows that the first plea in law must be rejected.

207    In the light of all of the foregoing considerations, the present action must be dismissed in its entirety.

 Costs

208    Under Article 134(1) 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 United Kingdom 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 GENERAL COURT (Second Chamber)

hereby:

1.      Dismisses the action;

2.      Orders the United Kingdom of Great Britain and Northern Ireland to bear its own costs and to pay those incurred by the European Commission.

Martins Ribeiro Gervasoni Madise

Delivered in open court in Luxembourg on 4 September 2015.

[Signatures]

Table of contents

Legal context

EU legislation governing the financing of the common agricultural policy

Regulation (EC) No 1290/2005

Regulation (EC) No 885/2006

Regulations (EC) Nos 1782/2003 and 73/2009

Regulations (EC) Nos 796/2004 and 1122/2009

Document No VI/5330/97

EU legislation on the protection of the European Union’s financial interests

Background to the dispute

Procedure and forms of order sought by the parties

Law

Preliminary considerations

Second plea in law, alleging errors of law and fact regarding weaknesses in the ancillary controls and, in particular, the methods for calculating undue payments and the applicable penalties in cases of over-declaration

The first, third and fourth complaints, relating to the method of assessing the financial risk incurred by the Fund

– The first complaint, relating to the retrospective re-evaluation of the value of the payment entitlements

– The third complaint, relating to the recovery of undue payments

– The fourth complaint, relating to reductions and exclusions in the event of over-declarations of area

The second complaint, relating to the taking into account of differences in areas affecting ‘animal’ premiums when recalculating the payment entitlements

The fifth complaint, relating to intentional over-declaration

First plea in law, alleging errors of law and fact regarding the determination of the scale of the actual loss to the Fund

Costs

* Language of the case: English.