Case T‑265/08
Federal Republic of Germany
v
European Commission
(ERDF — Reduction of financial assistance — Operational programme falling within Objective 1 (1994-1999), concerning the Land Thüringen (Germany))
Summary — Judgment of the General Court (Third Chamber), 19 September 2012
1. Economic, social and territorial cohesion — Structural assistance — Community financing granted for national projects — Principles — Decision to suspend, reduce or cancel financial assistance originally granted owing to irregularities — Taking into account irregularities which do not have a specific financial impact — Lawfulness — Concept of irregularity — Errors made by the national authorities — Included
(Arts 10 EC and 274 EC; Council Regulation No 4253/88, Art. 24(1) and (2))
2. European Union law — Interpretation — Principles — Autonomous and uniform interpretation
3. Economic, social and territorial cohesion — Structural assistance — Community financing granted for national projects — Commission decision reducing assistance because of irregularities — Choice of the method for determining the amount of the reduction — Commission discretion — Extrapolation method seeking to establish financial corrections — Lawfulness
(Art. 274 EC; Council Regulation No 4253/88, Art. 24(1) and (2))
4. Economic, social and territorial cohesion — Structural assistance — Community financing granted for national projects — Commission decision reducing assistance because of irregularities — Burden of proof — Allocation between the Commission and the Member State
(Council Regulation No 4253/88, Art. 24(2))
5. Actions for annulment — Actionable measures — Acts intended to have legal effects — Act expressing the Commission’s intention to follow a particular line of conduct when reducing or suspending financial assistance from a structural fund — Excluded
(Council Regulation No 4253/88, Art. 24)
6. Economic, social and territorial cohesion — Structural assistance — Community financing — In-depth check of whether a recipient of Community assistance has complied with its financial obligations — Obligation on Commission to carry out another examination — None
(Council Regulation No 4253/88, Art. 24(1) and (2))
7. Economic, social and territorial cohesion — Structural assistance — Community financing — Checks by the Commission and the Court of Auditors — Institutions with different roles and functions — Obligation on the Commission to adopt its own decision on the basis of checks carried out by the national authorities and the Court of Auditors’ findings
(Arts 246 EC and 248(1) EC; Council Regulation No 4253/88, Art. 24(1))
8. European Union law — Principles — Protection of legitimate expectations — Conditions
9. European Union law — Principles — Proportionality — Cancellation of financial assistance where fundamental obligations are infringed — Lawfulness
1. Article 24(2) of Regulation No 4253/88 laying down provisions for implementing Regulation No 2052/88 as regards coordination of the activities of the different Structural Funds between themselves and with the operations of the European Investment Bank and the other existing financial instruments, authorises the Commission to reduce or suspend assistance for an intervention if the examination carried out under Article 24(1) confirms an irregularity. However, that article does not state who is responsible for an irregularity committed when the operation or measure financed by the funds is implemented. In that regard, it is the responsibility of the national authorities to ensure correct use of Community funds, and it is they which must in accordance with national provisions laid down by law, regulation or administrative action, take the measures necessary inter alia to satisfy themselves that the transactions financed by the fund are actually carried out and are executed correctly. The Commission exercises only a supplementary function.
In addition, Article 24 of Regulation No 4253/88 does not make any distinction of a quantitative or qualitative nature concerning the irregularities which may give rise to reductions in assistance. Even irregularities which do not have a specific financial impact may be seriously prejudicial to the financial interests of the European Union and to compliance with European Union law and for that reason justify the application of financial corrections by the Commission. Thus an administrative error linked to differences between the amounts laid down in the financing plan and those in the application for payment may for example constitute an irregularity justifying a reduction in assistance. Furthermore, the fact that the national authorities have a central role to play in the implementation of the structural funds supports a broad interpretation of the concept of irregularity. An error committed by those authorities must be considered to be an irregularity within the meaning of Article 24(2) of Regulation No 4253/88 in the light of the principles of sound financial management, referred to in Article 274 EC and of cooperation in good faith, referred to in Article 10 EC, which do not authorise immunity for the Member States, and taking into account the fact that Article 24 of Regulation No 4253/88 is the only provision which allows the amount of assistance to be reduced where the intervention did not take place as originally envisaged.
Consequently, an interpretation of Article 24(2) of Regulation No 4253/88 which excludes from the concept of irregularity errors committed by national authorities would undermine the effectiveness of the rule laid down by that provision. Thus, it follows from the above that infringements of European Union law attributable to national administrative authorities fall under Article 24(2) of Regulation No 4253/88. Given that the national authorities have a central role to play in the implementation of the structural funds, an infringement committed by those authorities must be considered as an irregularity within the meaning of Article 24(2) of Regulation No 4253/88.
(see paras 35, 37-40, 42-43)
2. See the text of the decision.
(see para. 58)
3. According to the wording of Article 24(2) of Regulation No 4253/88 laying down provisions for implementing Regulation No 2052/88 as regards coordination of the activities of the different Structural Funds between themselves and with the operations of the European Investment Bank and the other existing financial instruments, the Commission may reduce the assistance for the operation or measure concerned where it establishes, following the hearing of those concerned provided for under Article 24(1), an irregularity, and in particular a significant change affecting the nature or conditions of the operation or measure. Article 24(2) of Regulation No 4253/88 does not make any distinction of a quantitative or qualitative nature concerning the irregularities which may give rise to such a reduction of assistance. That provision therefore confers a power of reduction and substantial discretion on the Commission, without mentioning any limits regarding the choice of methods which the Commission may use in order to establish the amount of the reduction.
In that regard, when exercising the power to impose financial corrections, the method used by the Commission to determine the amount to be repaid must be in conformity with the objective pursued by Article 24(2) of Regulation No 4253/88. That objective is to allow a financial correction to be made where the expenditure in respect of which funding has been requested was not in conformity with the rules of European Union law. In the light of that objective, Article 24(2) of Regulation No 4253/88 must be interpreted in a manner which enables the Commission to reduce the assistance appropriately. More specifically, the amount of the correction depends on the financial loss sustained by the budget of the European Union, ascertained by the audit. That loss must be corrected in its entirety since any failure of implementation would constitute an infringement of the principle of sound financial management, to which the Commission and the Member States must adhere under Article 274 EC. Thus, the Commission must be able to reduce the assistance to an extent which reflects the dimension of the irregularity which it established after the hearing of those concerned under Article 24(1) of Regulation No 4253/88.
The reduction decision must reflect the systemic dimension of the irregularities. Furthermore, the Commission lacks the information regarding the entirety of the controls carried out by the Member State concerned. In such a case, use of the extrapolation method is the most appropriate method by which to guarantee the objectives pursued by Article 24(2) of Regulation No 4253/88. Once the systemic nature of the irregularities has been established, the reduction of the assistance does not therefore rest on a mere presumption by the Commission but on a proven fact. The Commission nevertheless remains subject to the obligation to comply with the rules of European Union law resulting inter alia from the principle of proportionality.
Thus, Article 24(2) of Regulation No 4253/88 does not prohibit the Commission from using the extrapolation method in order to establish a financial correction.
(see paras 85-86, 89-91, 95-97)
4. With regard to a decision to reduce financial assistance on the ground of irregularities, the Commission may not limit itself to presuming that the irregularities in question exist but must prove to the requisite legal standard that those irregularities were not limited to the specific cases examined by it. Thus, in order to show that the irregularities are not limited to the specific cases which it examined, it is sufficient for it to adduce evidence which gives rise to a serious and reasonable doubt as to the lawfulness of the entirety of the checks carried out by the Member State concerned. It is not obliged to demonstrate exhaustively that all the checks are inadequate. That lightening of the burden of proof can be explained by the fact that the rules in Regulation No 4253/88 laying down provisions for implementing Regulation No 2052/88 as regards coordination of the activities of the different Structural Funds between themselves and with the operations of the European Investment Bank and the other existing financial instruments do not provide for systematic checking by the Commission, which in any case it could not in practical terms carry out, since it is not close enough to the economic agents to obtain the information it needs from them. Where the Commission has adduced sufficient evidence to give rise to a serious and reasonable doubt concerning all the national checks, it is for the Member State concerned to show that the Commission’s claims are inaccurate by adducing more detailed evidence regarding the actual nature of its checks. Should the Member State fail to adduce such evidence, the Commission will establish that the irregularities were not limited to the specific cases examined by it.
(see paras 92-94)
5. See the text of the decision.
(see paras 107-110)
6. See the text of the decision.
(see paras 123-125)
7. With regard to their task of supervising the use of Community funds, it is essential to establish whether the procedural guarantees and the effects in practice of the controls carried out by the Court of Auditors and by the Commission are equivalent. With regard to the procedural guarantees, the two types of checks – carried out by the Commission and by the Court of Auditors – are comparable. In both cases, the rights of the defence must be observed, high-level audit standards are applied, the Member State must be informed before an on-the-spot inspection takes place, the officials of the national authorities may participate in the check and the Member State concerned must be asked to submit its observations on the results of the check. By contrast, the foreseeable effects of those two types of checks are not comparable, given that the Court of Auditors’ report is not binding and the financial corrections cannot be imposed directly on the basis thereof.
The Court of Auditors and the Commission have distinct roles in the Community’s budgetary procedure. According to Article 246 EC, the Court of Auditors is to carry out the audit. Under Article 248(1) EC, it is to examine all revenue and expenditure of the Community and to provide the European Parliament and the Council with a statement of assurance as to the reliability, legality and regularity of the underlying transactions. Accordingly, the Court of Auditors must in particular check how the Commission manages the resources of the Community funds. The Court of Auditors establishes what the situation is and also formulates recommendations in order to optimise management of the financial resources. The Commission has the supplementary function of recovering resources where irregularities have been found in the implementation of projects.
Accordingly, from a systemic perspective, the two institutions do not share the same role or task and the Commission may not automatically adopt the Court of Auditors’ findings. As a general rule, it follows that the control required by Article 24(1) of Regulation No 4253/88 laying down provisions for implementing Regulation No 2052/88 as regards coordination of the activities of the different Structural Funds between themselves and with the operations of the European Investment Bank and the other existing financial instruments need not necessarily be carried out by officials or agents of the Commission. The Commission is however obliged, first, to ensure that the corrections made by it on the basis of checks carried out by a third party are not automatic, but based on the analysis, in partnership with the Member State concerned, of the data and of the results of the checks and, second, to adopt its own decision on the basis of those checks and subsequent consultations.
(see paras 126-131)
8. See the text of the decision.
(see paras 142, 150)
9. The principle of proportionality requires that the European Union institutions do not exceed what is appropriate and necessary to achieve the intended purpose. In particular, in the light of that principle, the infringement of obligations observance of which is of fundamental importance to the proper functioning of a Community system may be penalised by forfeiture of a right conferred by European Union legislation, such as entitlement to financial assistance. In that regard, the Commission may even refuse to charge to the fund the whole of the expenditure in question if it finds that there are no adequate control procedures. The Commission, must, however observe the principle of proportionality. If, in its function of clearing the accounts the Commission, instead of refusing the entire expenditure, endeavours to draw up rules to differentiate according to the degree of risk posed by different levels of defective supervision, the Member State must show that those criteria are arbitrary and unfair.
(see paras 152-153)