EUrrest State Aid

EURREST – November 2013

Local and regional authorities should be aware of the fact that for some activities, landscape and nature conservancy organizations (NCOs) are considered as undertakings. As a consequence, the European prohibition of State aid may also apply to aid granted to such organisations. This is the main conclusion to be drawn from the Court’s judgment in Germany v Commission.

1. Germany v Commission, General Court, 12 September 2013

Case T-347/09

2. Policy file(s) and topic

Nature management, State aid
SGEI and State aid, services of general economic interest

3. Summary of facts, legal question and course of the proceedings

In order to mitigate the maintenance costs of natural heritage, the German government decided to transfer a number of nature sites to NCOs, free of charge. For the purpose of these transfers, it was laid down in contract that these organisations would take care of the maintenance of these sites.
Furthermore, the German government established a special programme for the funding of projects in support of the conservation of landscapes and natural heritage. Once more, the beneficiaries of this programme comprised a number of NCOs.

Course of the proceedings
In 2007, Germany notified the measures described above to the European Commission. At the time of the notification, Germany assumed that the Commission would not consider these measures as a type of State aid.

Legal question
The question was whether both measures could be considered as State aid within the meaning of Article 107(1) TFEU (the European prohibition of State aid). In particular, the Commission examined whether the relevant NCOs should be considered as undertakings or not.

The Commission’s opinion
Contrary to Germany’s expectations, the Commission considered that, even though some of the activities of these NCOs were of a clearly non-economic nature, some other activities did indeed have an economic element. According to the Court’s settled case law, an economic activity can be deemed as “any activity consisting of offering goods and services on a given market”.

The Commission concluded that, among other things, selling timber, leasing land for hunting and fishing purposes, as well as attracting tourists constituted economic activities. The circumstance that these activities are, in all likelihood, limited in scale and of a non-profit nature, does not alter the fact that they are economic in nature.

However, the Commission also considered that nature and landscape management in general may constitute a service of general economic interest (SGEI). Therefore, this activity is compatible with the internal market. After all, NCOs perform activities (conservation of nature and landscape for the benefit of future generations) in the interest of the entire society.

Despite the fact that the German measure did not meet all requirements of the Altmark judgment, in which the Court judged that compensation for SGEI may under certain circumstances be considered as not being State aid, the Commission judged that the measure still fell within the scope of the SGEI decision and the SGEI framework.

Appeal by Germany
Germany –supported by France, the Netherlands and Finland – lodged an appeal against this judgment by the Commission at the Court. According to Germany, the Commission has wrongfully considered these NCOs, which do not pursue any economic purpose and perform activities in the general interest, as undertakings. Moreover, Germany argued that the underlying measures did not yield any profit to these NCOs.

4. Summary of the judgment

NCOs as undertakings?
The appeal filed by Germany was dismissed by the Court. The Court explained that nature conservation in general can indeed be a fully social activity and need not necessarily constitute an economic activity. However, according to the Court, the Commission has rightfully judged in this case that the respective NCOs, apart from activities of a fully social nature, also perform activities that must be considered as economic. Therefore, the Court concluded that with respect to these economic activities – i.e. selling timber, leasing land for hunting and fishing purposes, as well as attracting tourists – the NCOs should be considered as undertakings performing an economic activity.
On the basis of the afore-mentioned economic activities, the NCOs offer their goods and/or services directly on the market. In this respect, the NCOs pursue a separate interest that should be considered separately from their fully social purpose in the general interest, which consists in the protection of the environment. The fact that NCOs in general offer goods and services on a non-profit basis is not relevant in this respect. The fact of the matter is that the NCOs, by performing the respective activities, compete with undertakings which, contrary to the NCOs, do have a profit motive.

Do the German measures offer a selective advantage for the NCOs?
In addition, the Commission has rightly judged that the fact that land, which can be economically exploited, was transferred “free of charge”, yields an advantage to the NCOs. Such transfers benefit the NCOs vis-à-vis other undertakings active in the sector: the latter would have to make considerable investments in the purchase of land to be able to perform the same economic activities. The Court concludes that the necessity to consider aspects of nature conservation, however legitimate, should not result in any selective measures, such as the measures in question, which fall outside of the scope of the European State aid rules.

In conclusion, the Court considered that the Commission has rightly judged that Germany cannot make an appeal to the Altmark judgment in order to designate the aid as compensation for the performance of a service of general economic interest, in instead of as State aid.

5. Local and regional relevance of the judgment

The Court’s judgment results in the fact that NCOs should be considered as undertakings with respect to certain activities. This implies that local and regional authorities should abide by the European State aid rules if they intend to support NCOs financially.

SGEI decision and framework
In case a local or regional authority concludes that a NCO performs certain economic activities, it may apply either the SGEI decision or the SGEI framework. Aid granted under the SGEI decision is in accordance with the internal market and exempted from notification to the Commission. However, aid granted under the SGEI framework must be notified to the Commission.

SGEI de minimis Regulation
In addition, a local or regional authority may possibly also apply the SGEI de minimis Regulation. This regulation provides that aid for the provision of an SGEI does not constitute State aid and does not have be notified to the Commission if the total amount of aid granted to one undertaking, does not exceed the amount of €500,000.00 over a period of three years.

Provincie Groningen and Others and Stichting Het Groninger Landschap and Others v Commission
The question whether NCOs should be considered as undertakings with respect to certain activities, also played a role in this Dutch case (Joined Cases T-15/12 and T-16/12). Also in this case, the Commission answered this question positively. Subsequently, an appeal was lodged at the Court by the twelve Dutch provinces and thirteen Dutch NCOs. As opposed to the case highlighted in this EUrrest, the Court reached the conclusion that the appeal lodged was inadmissible and, as a result, there has not been any substantive treatment of the dispute. Therefore, the German case dealt with in this EUrrest can be fairly interesting, as it has now appeared that the Court, just like the Commission, considers that NCOs should indeed be considered as undertakings with respect to certain activities.

6. More information:

Nature conservation, State aid, Europa decentraal
Commission decision, NN 8/2009 – Nature Conservation Areas
Judgment by the Court, T-347/09
EUrrest July 2013, Provincie Groningen and Others and Stichting Het Groninger Landschap and Others v Commission, Europa decentraal