Commission Decision (EU) 2024/2474of 5 April 2024on the aid schemes SA.50787 (2021/C) (ex 2018/N) and SA.50837 (2021/C) (ex 2018/N) implemented by Czechia in favour of large enterprises active in primary agricultural production(notified under document C(2024) 2096)(Only the Czech text is authentic)

(98) Since the size of an enterprise was correctly stated in (one) aid application, SADY CZ s.r.o. submits that the Commission had been mistaken in the opening decision in stating that the Czech authorities granted aid to large undertakings, which they considered to be SMEs. According to SADY CZ s.r.o., the Czech authorities were in fact aware that the aid was granted to a large undertaking, as it was explicitly indicated in the aid application. The Czech authorities therefore could not had considered this beneficiary as an SME.

(99) According to SADY CZ s.r.o., the Czech authorities repeatedly checked that the conditions for granting the aid were complied with.

(100) SADY CZ s.r.o. stated in the submission to the opening decision that the national legal basis (Principles for granting aid, recital (16)) did not set out the size of the beneficiary as an eligibility condition.

(101) SADY CZ s.r.o. argued in the submission to the opening decision that the aid nevertheless had an incentive effect and was proportionate and that these two conditions were verified by the Czech authorities. SADY CZ s.r.o. claimed that it prepared, before applying for aid, an internal document entitled Investment intention for orchard renewal in which it assessed the profitability of the project and proved the incentive effect and proportionality of the aid (on the basis of internal rate of return, net present value, index profitability, payback period). This document was, however, not submitted to the granting authority. SADY CZ s.r.o. included this document in its submission to the Commission. SADY CZ s.r.o. insists that it cannot be sanctioned for the administrative negligence of the Czech authorities.

(102) Referring to Article 6(3) of Regulation (EU) No 702/2014, SADY CZ s.r.o. suggested that aid received on the basis of the two block-exempted schemes could be considered as an ad-hoc aid granted to large enterprises on the basis of the quoted Article.

Comments from Lužanská Zemědělská a.s.

(103) Lužanská Zemědělská a.s. received aid for restructuring of orchards in years 2016 and 2017.

(104) Lužanská Zemědělská a.s. submitted that the aid application form in 2016 did not contain a question concerning the size of an applicant, therefore it could not indicate its size of a large enterprise. In 2017, the aid application form already included this question and Lužanská Zemědělská a.s. correctly indicated it as a large undertaking. In both years, the company also submitted an excerpt from the Corporate register, which demonstrated its ownership structure.

(105) Like other third parties, which submitted their comments to the opening decision, Lužanská Zemědělská a.s. also pointed out that the national legal basis (Principles for granting aid, recital (16)) did not include the size of a beneficiary among the eligibility conditions. In addition, referring to Article 6(3) of Regulation (EU) No 702/2014, Lužanská Zemědělská a.s. claims that that Regulation explicitly allowed aid to large undertakings. Thus, according to the exact wording of the Principles for granting aid, eligible for aid was an entrepreneur active in agricultural production (without further limitation of the size of the applicant).

(106) According to Lužanská Zemědělská a.s., the Commission had been mistaken in the opening decision in stating that the Czech authorities granted aid to large enterprises, which they considered to be SMEs’. The Czech authorities were in fact aware that aid was granted to a large enterprise – because the business size of Lužanská Zemědělská a.s. was explicitly indicated in the aid application for year 2017 and in year 2016 it was clear from the submitted excerpt from the Corporate register.

(107) Lužanská Zemědělská a.s. further claims that, despite the fact that on the 2017 aid application form it had indicated its size as a large undertaking and its large enterprise status should have been known to the authorities from its accompanying documents, formally speaking, it was not a large enterprise at the moment of the aid applications in 2016 and 2017. That is because:

(a) Lužanská Zemědělská a.s. became part of Agrofert

Large enterprise.

in July 2016, therefore, in compliance with the wording of Article 4(2) of Annex I to Regulation (EU) No 702/2014, it did not lose its SME status when it applied for aid in September 2016 and then in September 2017.

(b) Lužanská Zemědělská a.s. argued in its submission to the opening decision that that Article must not be interpreted contrary to its wording, as such interpretation would be contrary to the basic requirements for legal certainty of the EU law addressees, and, to this end, refers to the judgment in case C-310/98 Met-Trans, paragraph 32

Judgment of 23 March 2000, Met-Trans, joined cases C-310/98 and C-406/98, EU:C:2000:154, paragraph 32.

.

(c) Lužanská Zemědělská a.s. further invoked legitimate expectations, as in its view, aid was proportionate and had an incentive effect. According to the company, the Czech authorities repeatedly checked that the conditions for granting the aid are complied with.

(108) Lužanská Zemědělská a.s. reiterates that it cannot be sanctioned for the failure of the Czech authorities to request a counterfactual scenario. The company asserts that it was able to submit its internal analysis before granting the aid and that it would be a very formalistic approach, which would wholly ignore the economic reality and above all the purpose for which the aid is in practice granted.

(109) The company included in its submission the financial and profitability analysis of the investment project. The Commission notes that these documents are dated on 11 March 2021, i.e. after the aid was granted and after the granting decisions were revoked by the granting authority and the recovery procedure initiated. That date coincides with the date of the submission of the comments to the opening decision and there is no indication as to when it was actually prepared.

(110) Lužanská Zemědělská a.s. also argued that in compliance with Article 6(3) of Regulation (EU) No 702/2014, such aid was available also to large enterprises as an ad-hoc aid.

1. TRANSMISSION OF THE THIRD PARTIES’ COMMENTS TO CZECHIA

(111) In compliance with Article 6(2) of Regulation (EU) 2015/1589, the Commission submitted the third parties’ comments to Czechia by letter of 25 April 2022 and invited the latter to submit its observations within one month of the date of the letter.

(112) The Czech authorities responded by letter of 23 May 2022 and then submitted further information by letter of 24 August 2022.

(113) In the first letter, dated on 23 May 2022, Czechia confirmed that the arguments submitted by the third parties were very similar to those brought forward by them in the national court proceedings, which they all initiated against the recovery decisions of the Ministry of Agriculture of Czechia.

(114) Czechia agreed with the argument of the third parties that the aid was used in accordance with its objectives, despite being granted to large enterprises that were ineligible under the block exempted schemes and at a time when no aid to large undertakings was notified. The Czech authorities also agreed that the aid had incentive effect despite the absence of the counterfactual scenario, because such investments would not have been carried out without aid, mainly because of their high costs. The Czech authorities also reiterated that despite the absence of the assessment of the counterfactual scenario, the projects’ internal rate of return was reasonable, and the aid did not lead to its increase above the usual levels.

(115) As regards the reported absence of the explicit restriction on the size of eligible beneficiaries in the national legal basis, Czechia reiterated that the intention and the meaning of the legal basis was to grant aid exclusively to SMEs. To this end, the national legal basis in years 2016 and 2017 stipulated that the aid was granted on the basis of Article 14 of Regulation (EU) No 702/2014, i.e. it followed that it was available only to SMEs. The Czech authorities pointed out that none of the beneficiaries concerned by the aid recovery disputed the fact that they were large enterprises, therefore, the Czech authorities initiated the recovery procedures.

(116) As regards the state of play of the seven national court proceedings, the Czech authorities informed that, at the time of that letter, in five cases the Municipal Court in Prague had already ruled and dismissed the claims. Two claimants (Sady CZ s.r.o. and Lužanská Zemědělská a.s.) withdrew their claims. In one remaining case (RBQ SADY s.r.o.), the Court’s decision was pending.

(117) The Czech authorities explained that in all judgements issued, the Municipal Court in Prague found that the Ministry of Agriculture rightly issued the recovery decisions. At the same time, the Court referred to § 15(3)(c) of Act No 218/2000 Coll. on budgetary rules, as in force at the time when the recovery procedures were initiated. That provision stipulated that the reimbursement of a subsidy which was already paid on the beneficiary’s account cannot be ordered, if the reason for the recovery was that the aid was granted in violation of the EU or national law. The Municipal Court in Prague thus found that although the Ministry of Agriculture was obliged to initiate procedures for the aid recovery, § 15(3)(c) of Act No 218/2000 Coll., as in force at the time when the recovery was initiated, precludes the Ministry from enforcing the effective recovery of such aid.

(118) In the letter of 24 August 2022, the Czech authorities explained that § 15(3) of Act No 218/2000 Coll. was amended as of 1 January 2022 and letter (c) was deleted.

(119) However, the Czech authorities maintained that, as found by the Municipal Court in Prague, notwithstanding the amendment, the principle of legal certainty precludes from recovering the granted aid, as the amendment of Act No 218/2000 Coll. cannot be applied retroactively.

1. LEGAL ASSESSMENT OF THE AID

7.1.

Existence of aid within the meaning of Article 107(1) TFEU

(120) According to Article 107(1) TFEU, [s]ave as otherwise provided in the Treaties, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.

(121) In its opening decision

Cf. recitals 58 to 62 of the opening decision.

, the Commission came to the preliminary conclusion that the conditions of Article 107(1) TFEU were fulfilled and, therefore the notified schemes SA.50787 and SA.50837 constituted State aid within the meaning of that Article.

(122) This preliminary conclusion was not put in question in any of the comments received from the third parties and from Czechia. Moreover, Czechia itself notified the schemes as State aid measures.

(123) The qualification of a measure as aid within the meaning of that Article therefore requires the following cumulative conditions to be met: (i) the measure must be imputable to the State and financed through State resources; (ii) it must confer an advantage on its recipient; (iii) that advantage must be selective; and (iv) the measure must distort or threaten to distort competition and affect trade between Member States.

(124) Due to the fact that the notified aid measures are governed by an act on the basis of which, without further implementing measures being required (recital (16)), individual aid awards may be made to undertakings defined within the act in a general and abstract manner (Sections 2.2.3, 2.2.4, 2.3 and 2.4), the Commission considers that they are aid schemes within the meaning of point (35)(4) of the 2014 Guidelines. The schemes may only be considered compatible with the internal market if they can benefit from one of the derogations provided for in the TFEU (see also Section 7.2).

(125) The schemes are imputable to the State as they are based on the legal acts described in recital (16) and are implemented by State authority (recital (19)). They are paid from the State budget, thus through State resources (recital (19)).

(126) The schemes confer an advantage on their beneficiaries in the form of direct grants (recital (19)). The schemes thus relieve those beneficiaries of costs, which they would have to bear under normal market conditions.

(127) The schemes are selective since aid is awarded only to certain undertakings, specifically to undertakings active in primary agricultural production.

(128) Pursuant to the case law of the Court of Justice, aid to an undertaking appears to affect trade between Member States where that undertaking operates in a market open to intra-EU trade

See in particular the judgment of 13 July 1988, French Republic v Commission of the European Communities, C-102/87, EU:C:1988:391.

. The beneficiaries of aid operate in the sector of primary agricultural production, where intra-EU trade takes place

In 2022, the EU agri-food trade totalled EUR 401,5 billion during the year (Source: Eurostat).

. This sector is thus open to competition at EU level and therefore sensitive to any measure in favour of the production in one or more Member States. Therefore, the scheme is liable to distort competition and to affect trade between Member States.

(129) The Commission therefore confirms its preliminary conclusions set out in recitals (58) to (62) of the opening decision and reiterates that the aid granted under the two schemes constitutes State aid within the meaning of Article 107(1) TFEU.

7.2.

Existence of schemes

(130) Pursuant to Article 1(d) of Regulation (EU) 2015/1589, an aid scheme is defined as any act on the basis of which, without further implementing measures being required, individual aid awards may be made to undertakings defined within the act in a general and abstract manner.

(131) In its opening decision

Cf. recital 63 of the opening decision.

, the Commission also preliminarily concluded that both aid measures SA.50787 and SA.50837 constituted schemes within the meaning of that definition and point 35(4) of the 2014 Guidelines, as their legal basis did not require further implementing measures for the granting of the aid and identified the beneficiaries in a general and abstract manner. The same legal basis and conclusion on the existence of schemes applies to the block-exempted aid schemes SA.46621 (2016/XA) and SA.46972 (2016/XA), which were applicable at the time in 2016 and 2017, when the aid to large undertakings was unlawfully granted.

(132) As regards the qualifications of the aid measures as schemes, two third parties – SADY CZ s.r.o. (recital (102)) and Lužanská Zemědělská a.s. (recital (110)) submitted that the aid granted to them constituted in fact ad hoc aid pursuant to Article 6(3) of Regulation (EU) No 702/2014.

(133) As regards that argument, the Commission recalls at first the definition of an ad hoc aid. Pursuant to Article 2(13) of Regulation (EU) No 702/2014, ad hoc aid means aid not granted on the basis of an aid scheme.

(134) However, in the present case, the Commission notes that the aid received by SADY CZ s.r.o. and Lužanská Zemědělská a.s. was granted on the basis of the national rules of the subsidy program (the legal basis mentioned in recital (16)) without further implementing measures being required. In fact, the aid to large undertakings was erroneously granted in the context of the block exempted schemes, which in reality were only open to SMEs. There was no individual ad hoc aid to large undertakings notified to the Commission before the aid was granted to these beneficiaries. The only notification that concerned large undertakings was when Czechia notified the schemes SA.50787 and SA.50837, after the grant of the aid to large undertakings had taken place. The aid to the large undertakings in 2016 and 2017 was also founded on the same national legal basis that applied to the block exempted schemes and which was also indicated later in the notification of the schemes SA.50787 and SA.50837. In other words, the aid under those notified schemes was implemented in the past, whereas no ad hoc aid or scheme was notified to the Commission before their implementation and they were also not covered by the block-exemption Regulation (EU) No 702/2014 for the reasons set out below (recitals (138) to (164)).

(135) The national legal basis provides the essential elements of the aid (eligible cost and aid intensities) and defines the beneficiaries in an abstract and general manner. On this basis, Czech authorities granted aid to the beneficiaries without any margin of discretion allowing them to influence the essential elements of the aid and the conditions under which it was granted. In light of the explanation submitted by the Czech authorities (recital (68), the Commission considers that granting of aid to large enterprises on the basis of the block-exempted schemes was the outcome of the administrative error and not the exercise of any discretionary power.

(136) The Commission therefore concludes that the aid unlawfully granted to the large undertakings before the notification of the schemes SA.50787 and SA.50837, but in accordance with their legal basis and on equal terms as the aid granted to SMEs under that legal basis, was granted in the context of two aid schemes within the meaning of Article 1(d) of Regulation (EU) 2015/1589. Consequently, the Commission does not accept the argument of SADY CZ s.r.o. and Lužanská Zemědělská a.s. that the aid which was granted to them could constitute ad hoc aid pursuant to Article 6(3) of Regulation (EU) No 702/2014 (see also recitals (142) to (164)).

(137) In any event, the Commission cannot accept as compatible ad hoc aid that does not fulfil all the compatibility conditions of Regulation (EU) No 702/2014 (see recitals (149) to (161)).

7.3.

Classification of the schemes as unlawful

(138) In its opening decision, the Commission considered that the aid was granted to large enterprises without prior notification to the Commission pursuant to Article 108(3) TFEU.

Cf. recitals 64-65 of the opening decision.

At the same time, the aid granted to large undertakings could not be found compatible under the block-exempted schemes, as Article 14 of Regulation (EU) No 702/2014 applied only to SMEs. Consequently, the Commission preliminary opinion was that such aid to large undertakings constituted new aid, which was unlawful within the meaning of Article 1(f) of Regulation (EU) 2015/1589.

(139) In their submissions to the opening decision, both Czechia and the third parties confirmed that the aid was granted to some large enterprises prior to the dates of the notifications of the aid schemes SA.50787 and SA.50837 to the Commission.

(140) The Commission recalls that two third parties – SADY CZ s.r.o. (recital (102)) and Lužanská Zemědělská a.s. (recital (110)) suggested that the aid granted to them constituted in fact ad hoc aid pursuant to Article 6(3) of Regulation EU (No) 702/2014. Accordingly, in their view, such aid would not qualify as unlawful aid, since the block exempted schemes were published in compliance with Regulation (EU) No 702/2014.

(141) For the analysis of that claim, the Commission refers to Article 3 of Regulation (EU) No 702/2014, which laid down the conditions for the exception of aid from the notification requirement of Article 108(3) TFEU. The said Article stipulated that aid schemes, individual aid granted under aid schemes and ad hoc aid were compatible with the internal market within the meaning of Article 107(2) or (3) of the Treaty and were exempted from the notification requirement of Article 108(3) of the Treaty provided that such aid fulfilled all the conditions laid down in Chapter I of that Regulation, as well as the specific conditions for the relevant category of aid laid down in Chapter III of that Regulation.

(142) The Commission assesses therefore whether the aid granted to SADY CZ s.r.o. and Lužanská Zemědělská a.s, and by analogy also to other large enterprises, could be considered an ad hoc aid on the basis of Articles 1 and 6 of Regulation (EU) No 702/2014.

7.3.1.

Scope of beneficiaries under Regulation (EU) No 702/2014

(143) Article 1 of Regulation (EU) No 702/2014 sets out the scope of that Regulation.

(144) Pursuant to paragraph 1(a)(i) of Article 1 of Regulation (EU) No 702/2014, that Regulation applied to aid in favour of micro, small and medium sized enterprises (SMEs) active in the agricultural sector, namely primary agricultural production, the processing of agricultural products and the marketing of agricultural products, except for Articles 14, 15, 16, 18 and 23 and Articles 25 to 28 which only applied to SMEs active in the primary agricultural production.

(145) The Commission recalls that Article 14 of Regulation (EU) No 702/2014 laid down the conditions of aid in favour on investments linked to primary agricultural production and thus constituted the legal foundation for both block-exempted schemes SA.46621 (2016/XA) and SA.46972 (2016/XA). As noted above (recital (134), the aid to large undertakings was erroneously granted by the Czech authorities in the context of the block exempted schemes, which in reality were only open to SMEs. The aid to the large undertakings in 2016 and 2017 was also founded on the same national legal basis that applied to the block exempted schemes and which was also indicated later in the notification of the schemes SA.50787 and SA.50837. In other words, the aid under those notified schemes was implemented in the past, whereas no ad hoc aid or scheme was notified to the Commission before their implementation and they were also not covered by the block-exemption Regulation (EU) No 702/2014 for the reasons set out below.

(146) Pursuant to paragraph 1(b) to (e) of Article 1 of Regulation (EU) No 702/2014, the following categories of aid could be granted to all enterprises, without applying the limit of the size:

(b) aid for investments for the conservation of cultural and natural heritage located on agricultural holdings;

(c) aid in favour of making good the damage caused by natural disasters in the agricultural sector;

(d) aid for research and development in the agricultural and forestry sectors;

(e) aid in favour of forestry.

(147) As regards other aid categories included in Regulation (EU) No 702/2014, Article 1, paragraph 1(a)(i) of Regulation (EU) No 702/2014 did not provide for any derogation from the restriction of limiting aid to SMEs under Articles granted 14, 15, 16, 18, 23 and Articles 25 to 28.

(148) It follows that only the aid categories listed in Article 1, paragraphs (b) to (e) of Regulation EU (No) 702/2014 were available to large enterprises, either on the basis of the block-exempted scheme or as ad hoc aid. All the other types of aid covered by the scope of that Regulation, including Article 14, were limited to SMEs. That in itself is sufficient to dismiss the claim of categorising the aid to the large enterprises as ad hoc aid under Regulation EU (No) 702/2014.

(149) Further, the Commission recalls that pursuant to Article (3) of Regulation EU (No) 702/2014, aid schemes, individual aid granted under aid schemes and ad hoc aid shall be compatible with the internal market within the meaning of Article 107(2) or (3) of the Treaty and shall be exempted from the notification requirement of Article 108(3) of the Treaty provided that such aid fulfilled all the applicable conditions laid down in that Regulation.

(150) Pursuant to Article 6(1) of Regulation (EU) No 702/2014, Regulation (EU) No 702/2014 applied only to aid which had an incentive effect.

(151) Pursuant to Article 6(2) of Regulation EU (No) 702/2014, aid was considered to have an incentive effect if the beneficiary submitted a written application for the aid to the Member State concerned before work on the project or activity has started.

(152) In the opening decision, the Commission did not question that the aid applications were correctly submitted, and the investigation confirmed that this condition was met and that no aid was granted without the aid application preceding such grant.

(153) Pursuant to Article 6(3) of Regulation EU (No) 702/2014, ad hoc aid granted to large enterprises was considered to have an incentive effect if, in addition to ensuring that the condition laid down in paragraph 2 (of that Article) was fulfilled, the Member State verified, before granting the ad hoc aid concerned, that documentation prepared by the beneficiary established that the aid would result in one or more of the situations listed in paragraphs (a) to (d) of paragraph 3 of that Article.

(154) Pursuant to recital (24) of Regulation EU (No) 702/2014, as regards any ad hoc aid covered by that Regulation granted to a beneficiary which is a large enterprise, the Member State had to ensure, in addition to the conditions on the incentive effect applicable to SMEs, that the beneficiary had analysed, in an internal document before the aid application, the viability of the aided project or activity with aid and without aid. The Member State had to verify that this internal document confirmed a material increase in the scope of the project or activity, a material increase in the total amount spent by the beneficiary on the aided project or activity or a material increase in the speed of completion of the project or activity concerned. It should have also been possible to establish the incentive effect on the basis of the fact that the investment project or the activity would not have been carried out as such in the rural area concerned in the absence of the aid.

(155) In the Commission’s opinion, the document described in recital (24) of Regulation EU (No) 702/2014 and requested pursuant to Article 6(3) of that Regulation was in its substance, in fact, equivalent to the counterfactual scenario. Moreover, like the counterfactual scenario, the Member State had the obligation to verify, before granting the ad hoc aid, that documentation prepared by the beneficiary established that the aid would result in one or more of the situations listed in paragraphs (a) to (d) of paragraph 3 of that Article.

(156) In the opening decision, the Commission expressed its doubts that beneficiaries, which were large undertakings at the time of aid granting, submitted the counterfactual scenario

Cf. recital (115) of the opening decision.

.

(157) During the investigation, the Czech authorities did not provide information which would indicate that they had verified, before granting the aid, if that documentation prepared by the beneficiary established that the aid met the conditions laid down in Article 6(3), paragraphs (a) to (d) of Regulation EU (No) 702/2014. Rather, the previous explanation of the Czech authorities that the aid was granted to some large enterprises because they were incorrectly considered as SMEs, confirms, in the Commission’s view, that the conditions specific to aid for large enterprises, were not applied in this case.

(158) SADY CZ s.r.o. and Lužanská Zemědělská a.s., the two beneficiaries that invoked the argument of ad hoc aid pursuant to Article 6(3) of Regulation EU (No) 702/2014, did not specify whether they submitted the internal documents required pursuant to Article 6(3) of that Regulation for the ex ante assessment by the national authorities. They both, however, submitted to the Commission the copies of their aid applications, which allow to conclude that such documentation was not included in the aid applications. The same applies to all other large enterprises that submitted observations on the opening decision. The Czech authorities did not specify in their submission whether they obtained or not the internal documents required pursuant to Article 6(3) of Regulation EU (No) 702/2014 for the ex ante assessment. They limited themselves to the view that the aid granted to large enterprises fulfilled the incentive effect criterion and was proportionate (recitals (71) to (74)). The Commission therefore concludes that the Member State’ authorities did not verify ex ante the compliance with Article 6(3) of Regulation EU (No) 702/2014.

(159) Pursuant to Article 6(4) of Regulation EU (No) 702/2014, by way of derogation from paragraphs 2 and 3 of that Article, measures in the form of tax advantages were deemed to have an incentive effect, provided that the conditions set out in that paragraph were fulfilled. The aid under the investigation was granted as a direct grant and not as a tax advantage. Therefore, that derogation did not apply.

(160) Neither did apply the derogation from an incentive effect set out in Article 6(5) of Regulation EU (No) 702/2014, which listed the categories of aid that were not required to have or were deemed to have an incentive effect. The aid in favour of investments was not covered by that derogation.

(161) On that ground, the Commission concludes that the conditions laid down in Article 6(3) of Regulation (EU) No 702/2014 were not fulfilled and, consequently, in compliance with Article (3) of that Regulation, Regulation EU (No) 702/2014 could not apply to that aid.

(162) Accordingly, the Commission does not accept the argument of SADY CZ s.r.o. and Lužanská Zemědělská a.s. that the aid which was granted to them (or to other large enterprises) constituted ad hoc aid pursuant to Article 6(3) of Regulation EU (No) 702/2014.

7.3.2.

Conclusion

(163) Given that such aid did not fulfil all the conditions laid down in Chapter I of Regulation (EU) No 702/2014, in compliance with Article 3 of that Regulation

See also judgment of 5 March 2019, Eesti Pagar, C-349/17, EU:C:2019:172, paragraph 59.

, it could not be exempted from the notification requirement of Article 108(3) TFEU.

(164) The Commission concludes that the Czech authorities did not fulfil their obligation set out in Article 108(3) TFEU because they granted the investment aid to some beneficiaries prior to its notification and approval by the Commission. The Commission therefore maintains that such aid must be considered as unlawful aid within the meaning of Article 1(f) of Regulation (EU) 2015/1589.

7.4.

Compatibility of the aid with the internal market

(165) Under Article 107(3), point (c), TFEU, aid may be considered compatible with the internal market, if it is found to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest.

(166) In its opening decision, the Commission carried out detailed examination of the compatibility of the two schemes SA.50787 and SA.50837 (including the aid already implemented to large enterprises) with

Cf. recitals (70) to (89) of the opening decision.

the Union State aid rules applicable at that time. In the case at hand, these were Part I (Common assessment principles’) and Part II, Section 1.1.1.1 (Aid for investment in tangible assets and intangible assets on agricultural holdings linked to primary agricultural production) of the 2014 Guidelines, which were in force at the time the aid was granted

Cf. recital (69) of the opening decision.

to large enterprises.

(167) As regards the compatibility of the schemes with the specific conditions laid down for the investment aid in Section 1.1.1.1 of the 2014 Guidelines, the Commission concluded on preliminary basis that both schemes (including the aid already implemented to large enterprises) met those conditions.

(168) As regards the assessment of the compatibility of the schemes with the common assessment principles under Article 107(3) TFEU, set out in Part I of the 2014 Guidelines, the Commission came to different preliminary conclusions as regards the aid granted prior to its notification and the aid which was to be granted only after its approval and notification of the Commission decision to Czechia.

(169) While the Commission’s preliminary opinion confirmed that the latter aid complied with the common assessment principles

Cf. recital (102) of the opening decision.

, the same conclusion was not reached as regards aid already granted to large enterprises prior to its notification. Specifically, the Commission raised doubts as to whether such aid was proportionate and presented the incentive effect

Cf. recitals (116) and (122) of the opening decision.

.

(170) The Commission recalls that doubt existed whether the large enterprises – which received aid erroneously in the context of the block-exempted schemes and which in essence implemented schemes SA.50787 and SA.50837 before their notification – submitted the counterfactual scenario and whether that aid granted complied with the net-extra cost approach set out in points (95) to (97) of the 2014 Guidelines. The Commission reasoned that in the likely absence of the counterfactual scenario, the Czech authorities could not have in fact ascertained that the aid amounts were proportionate and corresponded to the net extra costs of implementing the investment in the area concerned, by comparing it to the scenario without aid.

(171) The Commission recalls that all beneficiaries that submitted their comments to the opening decision indicated in at least one of their aid applications in 2016 and 2017 their status as a large undertaking and not as an SME at the moment of granting the aid. In any event, their large enterprise status was visible from the submitted documentation accompanying the id applications.

(172) All beneficiaries that submitted their comments to the opening decision also confirmed that the Czech authorities did not request the counterfactual scenario despite them indicating in the aid applications or accompanying documentation that there were large enterprises.

(173) All beneficiaries that submitted their comments to the opening decision (recitals (76) to (110)) claimed that the aid had an incentive effect despite the absence of the counterfactual scenario and its verification by the Czech authorities. The majority of them included such counterfactual scenario in the submission to the Commission. This opinion of the beneficiaries that submitted their comments to the opening decision was supported by the Czech authorities (recital (71)).

(174) The Commission assesses the arguments on the presence of an incentive effect in light of the relevant points of Section 3.4 of Part I of the 2014 Guidelines.

(175) Pursuant to point (70) of the 2014 Guidelines, the aid did not present the incentive for the beneficiary wherever the work on the relevant project or activity had already started prior to the aid application by the beneficiary to the national authorities.

(176) Pursuant to point (72) of the 2014 Guidelines, in addition to information set out in point (71) of those Guidelines, large enterprises had to described in the aid application the situation without the aid, referred to as the counterfactual scenario or alternative project or activity and submit documentary evidence in support of the counterfactual described in the application.

(177) Further, pursuant to point (73) of the 2014 Guidelines, when receiving the aid application, the granting authority had to carry out a credibility check of the counterfactual and confirm that the aid had the required incentive effect.

(178) The copies of the aid applications and accompanying documentation submitted to Commission confirm that the large enterprise beneficiaries that submitted their comments to the opening decision, submitted the aid applications before the aid was granted to them.

(179) However, the investigation confirmed beyond doubt that none of the aid applications by large enterprises included the counterfactual. It follows that the Czech authorities did not check and did not confirm that the aid to large enterprises had an incentive effect before granting the aid to large enterprises.

(180) It stems from points (72) and (73) of the 2014 Guidelines that both conditions had to be fulfilled before the aid was granted, i.e. the situation without the aid had to be described by the aid applicant in the aid application and had to be verified by the granting authority in advance of the aid grant. If these two conditions are not fulfilled, the presence of the incentive effect remains hypothetical and not proven.

(181) The Commission stresses that the incentive effect of the aid cannot be assumed but must be demonstrated by the aid applicant and confirmed by the granting authority before the aid is granted. Further, point (72) of the 2014 Guidelines required that the counterfactual is described in the aid application. That point or any other point of the 2014 Guidelines did not provide for any alternative demonstration of the counterfactual scenario. The Commission therefore cannot accept or assess the ex post counterfactual scenarios, which the large enterprise beneficiaries submitted with their comments on the opening decision.

(182) Accordingly, the preliminary view that the aid did not present an incentive effect is confirmed.

(183) As regards the criterion of proportionality, the Commission recalls the rules which applied to the aid at issue at the time of its granting to large enterprises:

(184) Pursuant to point (95) of the 2014 Guidelines, in case of investment aid granted to large enterprises under the notified aid schemes, Member States had to ensure that the aid amount was limited to the minimum on the basis of a net-extra cost approach.

(185) Pursuant to point (97) of the 2014 Guidelines, the Member State had to ensure that the aid amount corresponded to the net extra costs of implementing the investment in the area concerned, compared to the counterfactual scenario in the absence of aid. To this end, the method provided for in point (96) of those Guidelines had to be used together with maximum aid intensities as a cap. Further, the aid amount could not exceed the minimum necessary to render the project sufficiently profitable, for example, it could not lead to an increase of its investment return rate (IRR) beyond the normal rates of return applied by the undertaking concerned in other investment projects of a similar kind or, if these rates were not available, to an increase of its IRR beyond the cost of capital of the undertaking as a whole or beyond the rates of return commonly observed in the sector concerned.

(186) The above rules on proportionality of the aid likewise required that this criterion was checked and confirmed before the aid was granted to large enterprises.

(187) In the opening decision, the Commission expressed its doubts that the aid granted to large enterprises prior to its approval by the Commission, complied with the net-extra cost approach pursuant to points (95) to (97) of the 2014 Guidelines

Cf. recital (133) of the opening decision.

. In that regard the Commission pointed out that in the (at that stage) likely absence of the counterfactual scenario, the Czech authorities could not ensure that the aid amounts corresponded to the net extra costs of implementing the investment in the area concerned, by comparing it to the scenario without aid.

(188) The investigation confirmed that the large enterprises did not submit, together with the aid application, the counterfactual scenario. Therefore, the Czech authorities did not have the available information which would have allowed them to check and confirm that the aid complied with the net-extra cost approach pursuant to points (95) to (97) of the 2014 Guidelines. The Commission points out that neither the quoted points (95) to (97) of the 2014 Guidelines, nor any other point of those Guidelines provided for an alternative demonstration of the net-extra cost approach. Consequently, the preliminary doubt that the proportionality of aid granted to large enterprises was not ascertained, is confirmed.

(189) The Commission therefore considers that the aid granted to the large enterprises prior to the date of the notification of the aid schemes SA.50787 and SA.50837 cannot be regarded as compatible with the internal market under the derogation provided for in Article 107(3), point (c), TFEU, since that aid did not fulfil the conditions on the presence of an incentive effect and proportionality as set out in the applicable provisions of the 2014 Guidelines.

(190) One of the aid beneficiaries (i.e. Lužanská Zemědělská a.s.) claims in its comments on the opening decision that, despite the fact that on the 2017 aid application form it had indicated its size as a large undertaking and its large enterprise status should have been known to the authorities from its accompanying documents, formally speaking it was not a large enterprise at the time of the aid granting in the years 2016 and 2017 and therefore the granted aid was compatible under Regulation (EU) No 702/2014 (recital (107)). The company argues that it became part of Agrofert (a large enterprise) in July 2016, therefore, in compliance with the wording of Article 4(2) of Annex I to Regulation EU (No) 702/2014, it had not lost its SME status for the next two years, i.e. when it applied for aid in September 2016 and then in September 2017.

(191) The Commission states at the outset that Lužanská Zemědělská contradicts its own aid applications in 2016 and 2017 which either explicitly indicated its size as a large undertaking or at least its large enterprise status should have been known to the authorities from its accompanying documents. Already on that basis the ex post change in the undertaking’s position is not credible or acceptable. As Czechia submitted, the aid to large enterprises was granted by mistake (recital (68)) and in its ex post review it did not consider Lužanská Zemědělská a.s. as an SME

Cf. recital (104) of the opening decision.

.

In any event, the Commission adds that such interpretation of Article 4(2) of Annex I to Regulation EU (No) 702/2014, as proposed by Lužanská Zemědělská, is not in line with the interpretation of the SME definition by the Union Courts, which is based on the principle of effet utile. The Commission explained its interpretation of Article 4(2) and of the SME definition in the opening decision

Cf. recitals (108) to (113) of the opening decision.

(as recalled in recitals (54) to (60)). That reasoning stands and was not disputed by the Czech Republic or by any of the third parties.

(192) In the opening decision

Cf. recital (112) of the opening decision.

, the Commission concluded that it would be against the principle of effet utile to provide such a facility for enterprises that exceeded the headcount or financial thresholds because of the permanent change in structure, i.e. as a result of a change in ownership following a merger or acquisition. Such change pushes the relevant headcount or financial ceilings up on a lasting basis and, thus, these variables are no longer subject to economic performance of a company. The Commission considers that in such case the economic reality shows that a given enterprise is not a genuine SME. It follows that, even though this particular situation is not explicitly set out in Article 4(2) of the SME Definition in Annex I to Regulation (EU) No 702/2014, based also on the case law of the Union Courts and the principle of effet utile, such enterprise should not, following a permanent change in ownership, benefit from a SME status.

(193) Instead, where an enterprise exceeded the relevant SME ceilings as a result of a permanent change in structure or ownership, following a merger or acquisition, the relevant moment for the assessment is the time of the transaction (by which an enterprise permanently becomes part of a larger structure) and not the time of closure of the accounts of the applicant legal entity.

(194) In compliance with that interpretation, the Commission finds that Lužanská Zemědělská a.s. (or any other large enterprise beneficiary) cannot invoke Article 4(2) of Annex I to Regulation (EU) No 702/2014 for justifying its size as an SME at the moment of the aid applications submitted in 2016 and 2017. Instead, the Commission considers that Lužanská Zemědělská a.s.became the large enterprise at the moment when it became permanently part of Agrofert and not only after it exceeded, due to this ownership change, the headcount or financial thresholds stated in Article 2 of that Annex over two consecutive accounting periods. Therefore, the aid granted to Lužanská Zemědělská a.s. (or any other large enterprise beneficiary) is not covered by the block exemption under Regulation (EU) No 702/2014 (since Article 14 of that regulation applies only to SMEs and the aid could not be considered as ad hoc aid to large enterprises (recitals (144), (147) and (148) and the aid is both unlawful and incompatible.

1. CONCLUSION

(195) The Commission concludes that the aid granted to large enterprises in the form of direct grants constitutes State aid within the meaning of Article 107(1) TFEU. The Commission finds that Czechia had unlawfully implemented the aid schemes SA.50787 and SA.50837 by granting aid to large enterprises before the notification, in breach of Article 108(3) of the TFEU.

(196) Further, the foregoing analysis shows that such aid cannot be declared compatible with the internal market.

(197) It follows that the State aid granted by Czechia to large enterprises under the schemes SA.50787 and SA.50837 before their notification is unlawful and incompatible with the internal market.

1. RECOVERY

(198) According to Article 108(2) TFEU and the established case law of the Union Courts, the Commission is competent to decide that the Member State concerned shall alter or abolish aid when it has found that it is incompatible with the internal market

Judgment of 12 July 1973, Commission v Germany, C-70/72, EU:C:1973:87, paragraph 13.

. The Union Courts have also consistently held that the obligation on a Member State to abolish aid regarded by the Commission as being incompatible with the internal market is designed to re-establish the previously existing situation

Judgment of 21 March 1990, Belgium v Commission, C-142/87, EU:C:1990:125, paragraph 66.

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(199) In this context, the Union Courts have established that this objective is attained once the recipient has repaid the amounts granted by way of unlawful aid, thus forfeiting the advantage, which it had enjoyed over its competitors on the internal market, and the situation prior to the payment of the aid is restored

Judgment of 17 June 1999, Belgium v Commission, C-75/97, EU:C:1999:311, paragraphs 64 and 65.

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(200) In line with the case law, Article 16(1) of Regulation (EU) 2015/1589 states that where negative decisions are taken in cases of unlawful aid, the Commission shall decide that the Member State concerned shall take all necessary measures to recover the aid from the beneficiary (recovery decision). The Commission shall not require recovery of the aid if this would be contrary to a general principle of Union law.

(201) Thus, Czechia is obliged to recover unlawful and incompatible aid (recitals (195) and (196)) from all the beneficiaries which were large enterprises at the moment such aid was granted, unless it fulfilled all conditions of Commission Regulation (EU) No 1408/2013

Commission Regulation (EU) No 1408/2013 of 18 December 2013 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid in the agriculture sector (OJ L 352, 24.12.2013, p. 9).

or the application of a general principle of EU law as claimed during the formal investigation. Recovery shall cover the time from the date when the aid was put at the disposal of the beneficiary until effective recovery. The amount to be recovered shall bear interest until effective recovery.

Alleged application of the EU principle of legal certainty to the case at stake

(202) The Czech authorities have already identified seven large enterprise beneficiaries and launched the appropriate procedures seeking to recover unlawful aid granted in the years 2016–2017 under one or both block-exempted aid schemes (recital (69)). However, the Czech authorities submit that recovery procedures could not be completed by the actual recovery of the aid from the beneficiaries, for the reasons explained in recitals (117) to (119) of this decision. Relying on the national Court judgements and on the national law in force at the time of the initiation of the recovery procedures, specifically on § 15(3)(c) of Act No 218/2000 Coll. on budgetary rules, the Czech authorities invoke the principle of legal certainty.

(203) The Commission considers that § 15(3)(c) of Act No 218/2000 Coll. on budgetary rules, as in force at the time when the recovery procedures were launched, was in contradiction with the applicable EU rules on the recovery of unlawful aid, as expressed in numerous judgements of the Union Courts, illustrated below.

(204) It stems from the case law of the Union Courts that if aid has been granted pursuant to a block exemption regulation although the conditions laid down to qualify for exemption under that regulation were not satisfied, the granting of that aid was in breach of the notification requirement and must, therefore, be considered to be unlawful

Judgment of 5 March 2019, Eesti Pagar, C-349/17, EU:C:2019:172, paragraph 87.

. State aid not covered by a block exemption regulation is to remain subject to the notification requirement laid down in Article 108(3) TFEU

Judgment of 5 March 2019, Eesti Pagar, C-349/17, EU:C:2019:172, paragraph 86.

.

(205) According to the case law, Article 108(3) TFEU must be interpreted as meaning that that provision requires the national authority to recover on its own initiative aid that it has granted pursuant to a block exemption regulation when it finds, subsequently, that the conditions laid down by that regulation were not satisfied

Judgment of 5 March 2019, Eesti Pagar, C-349/17, EU:C:2019:172, paragraph 95.

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(206) Where a national authority finds that aid which it has granted pursuant to a block exemption regulation does not satisfy the conditions laid down to qualify for the exemption provided for by that regulation, it is the duty of that authority to adopt the appropriate measures to cure the unlawfulness of implementation of the aid, so that the aid does not remain freely available to the beneficiary until such time as the Commission’s decision is made, including that of recovering on its own initiative the aid that was unlawfully granted

Judgment of 5 March 2019, Eesti Pagar, C-349/17, EU:C:2019:172, paragraphs 92 and 89.

.

(207) Further, the Commission recalls the principle of primacy of the EU law established by the jurisprudence of the Union Courts

Judgment of 5 February 1963, Van Gend en Loos v Administratie der Belastingen, C-26/62, EU:C:1963:1; judgment of 15 July 1964, Costa v E.N.E.L., C-6/64, EU:C:1964:51; judgment of 9 March 1978, Amministrazione delle finanze dello Stato v Simmenthal, C-106/77, EU:C:1978:49.

, according to which EU law prevails where a conflict arises between an aspect of EU law and of national law. Under that principle, national courts are under a duty to give full effect to the provisions of EU law, including, if needed, by refusing (on their own motion) to apply any conflicting provision of national legislation.

(208) In accordance with the Court’s settled case-law, both the administrative authorities and the national courts that are called upon, within the exercise of their respective powers, are under a duty to give full effect to provision of EU law that have direct binding effect on the authorities of the Member States

Judgment of 5 March 2019, Eesti Pagar AS, C-349/17, EU:C:2019:172, paragraphs 90 and 91 and judgment of 14 September 2017, The Trustees of the BT Pension Scheme, C-628/15, EU:C:2017:687, paragraph 54.

.

(209) The Commission further points out that national courts must take into account the legal situation resulting from the ongoing procedures before the Commission, even if it is provisional

Judgment of 21 November 2013, Deutsche Lufthansa, C-284/12, EU:C:2013:755, paragraph 38.

. This means that, while the investigation procedure is ongoing, national courts must draw legal consequences from the opening decision itself and take all appropriate action to address the potential breach of the standstill obligation.

(210) The Commission also recalls the case law of the Union Courts, which refer to the duty of the national authority to which there has been submitted an aid application that may fall within the scope of a block exemption regulation to examine carefully, taking account of the information submitted to it, whether the aid applied for meets all the relevant conditions laid down by that regulation and to reject that application if one of those conditions is not satisfied

Judgment of 5 March 2019, Eesti Pagar, C-349/17, EU:C:2019:172, paragraph 93.

.

(211) The Commission considers that § 15(3)(c) of Act No 218/2000 Coll., as in force at the time of the initiation of the recovery procedures and applied in the present case by the national Court, impedes the effective implementation of the EU rules on the recovery of unlawful and incompatible aid, because it explicitly excluded the possibility of the effective recovery of the aid already paid where the reason for the recovery was that the granting decision breached the EU law

(216) In that regard the Commission recalls that a national authority granting aid pursuant to a block exemption regulation cannot be regarded as being vested with the power to adopt a final decision finding that there is no obligation to notify the aid applied for to the Commission, under Article 108(3) TFEU

Judgment of 5 March 2019, Eesti Pagar, C-349/17, EU:C:2019:172, paragraph 101.

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(217) Where a national authority grants aid while misapplying a block exemption regulation, its doing so is an infringement of both the provisions of that regulation and of Article 108(3) TFEU

Judgment of 5 March 2019, Eesti Pagar, C-349/17, EU:C:2019:172, paragraph 103.

. The same conclusion about unlawful aid in breach of Article 108(3) TFEU follows in the present case if one assesses the aid to the large enterprises as granted before the notification of the schemes SA.50787 and SA.50837.

(218) It follows that in such a situation, the granting of aid by a national authority cannot cause the beneficiary of that aid to hold a legitimate expectation that that aid is lawful

Judgment of 5 March 2019, Eesti Pagar, C-349/17, EU:C:2019:172, paragraph 106.

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(219) Besides, it is for the third parties concerned to display the required prudence and diligence and to satisfy themselves that the rules of EU law have been complied with

See e.g. judgment of 13 June 2000, EPAC v Commission, joined cases T-204/97 and T-270/97, EU:T:2000:148.

. The Court confirmed that an economic operator exercising due care should normally be able to determine whether the procedure laid down in Article 108 TFEU has been followed

Judgment of 5 March 2019, Eesti Pagar, C-349/17, EU:C:2019:172, paragraph 98.

. In the present case, the large enterprise beneficiaries failed to take into account in particular that the national legal basis referred to Article 14 of Regulation EU (No) 702/2014, which applies only to SMEs (recital (115)).

(220) Considering that reasoning, the Commission sees as unfounded the claims of the third parties that there was a violation of their legitimate expectations. At the same time, any possible assurances given by the national authorities to third parties cannot be invoked as an obstacle to recovering unlawful and incompatible aid.

(221) In light of the above arguments, the recipients may not rely on general principles of EU law such as legitimate expectations and legal certainty to prevent the recovery of the incompatible aid unlawfully granted to them. Consequently, the Commission considers that there is nothing to prevent the application of Article 16(1) of Regulation (EU) 2015/1589. No general principle of Union law counteracts the recovery of unlawful and incompatible aid identified in the framework of this decision.

(222) The Commission therefore concludes that the Czech authorities are under obligation to take all appropriate action to recover the aid already paid to large enterprises in order to restore the economic situation which the beneficiaries would be in without the grant of the unlawful and incompatible aid.

(223) The Czech authorities must recover the aid amounts specified in each decision granting the aid to a beneficiary

In the recovery decisions, the Czech authorities specified the below aid amounts to be recovered. The Commission recalls that in compliance with Article 16 of Regulation (EU) 2015/1589, these aid amounts will have to be re-calculated to include interests payable from the date on which the unlawful aid was at the disposal of the beneficiary until the date of its recovery.

Pomona Tesenice: CZK 1400000 (EUR 60000)

Usovsko EKO: CZK 1000000 (EUR 43000)

Usovsko AGRO: CZK 4700000 (EUR 200400)

SADY CZ: CZK 2100000 (EUR 80200)

RBQ SADY: CZK 11331000 (EUR 483000)

M+A+J: CZK 260000 (EUR 11000)

Luzanska zemedelska: CZK 2830000 (EUR 120600)

which was, at the time of the aid grant, a large enterprise within the meaning of the definition laid down in Annex I to Regulation (EU) No 702/2014, together with the recovery interests. The interests must be calculated from the date on which the aid in question was made available to the beneficiary and until its effective recovery, in accordance with Chapter V of Commission Regulation (EC) No 794/2004

Commission Regulation (EC) No 794/2004 of 21 April 2004 implementing Council Regulation (EC) No 659/1999 laying down detailed rules for the application of Article 93 of the EC Treaty (OJ L 140, 30.4.2004, p. 1).

as amended by Commission Regulation (EU) 2015/2282

Commission Regulation (EU) 2015/2282 of 27 November 2015 amending Regulation (EC) No 794/2004 as regards the notification forms and information sheets (OJ L 325, 10.12.2015, p. 1).

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(224) As regards the beneficiaries concerned by the recovery, while some beneficiaries have been already identified, it cannot be ruled out that other beneficiaries may also be concerned. Therefore, the Commission invites the Czech authorities to implement this decision and recover the unlawful and incompatible aid from all beneficiaries which, at the time of the aid grant, did not meet the conditions of the definition of an SME, laid down in Annex I to Regulation EU (No) 702/2014.

HAS ADOPTED THIS DECISION:

Article 1

The measures in favour of large enterprise beneficiaries active in primary agricultural production, for the restructuring of orchards and for the construction of drip irrigation in orchards, hop fields, vineyards and nurseries, unlawfully put into effect by Czechia before the notification of Decision C(2021)41 final, are in breach of Article 108(3) TFEU and constitute State aid in the form of two schemes.

Article 2

The State aid referred to in Article 1, unlawfully put into effect by Czechia in breach of Article 108(3) TFEU, is incompatible with the internal market.

Article 3

1. Czechia shall recover the incompatible aid referred to in Article 1 from the large enterprise beneficiaries.

1. The sums to be recovered shall bear interest from the date on which they were put at the disposal of the large enterprise beneficiaries until their actual recovery.

1. The interest shall be calculated on a compound basis in accordance with Chapter V of Regulation (EC) No 794/2004 as amended by Regulation (EC) No 271/2008

Commission Regulation (EC) No 271/2008 of 30 January 2008 amending Regulation (EC) No 794/2004 implementing Council Regulation (EC) No 659/1999 laying down detailed rules for the application of Article 93 of the EC Treaty (OJ L 82, 25.3.2008, p. 1).

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Article 4

1. Recovery of the aid referred to in Article 1 shall be immediate and effective