European Union: EU General Court Dismisses Appeals Against State Aid Decision On Excise Duty Exemptions For Alumina Production

On 22 April 2016, the General Court ("GC") handed down judgments in three related cases concerning exemptions from excise duties granted by France, Ireland and Italy to alumina producers (Joined Cases T-50/06 RENV II Ireland v Commission and T-69/06 RENV II Aughinish Alumina v Commission, Case T-56/06 RENV II France v Commission and Joined Cases T-60/06 RENV II Italy v Commission and T-62/06 RENV II Eurallumina v Commission). Ruling for the third time in these cases, the GC dismissed the actions for annulment in their entirety.

The cases relate to exemptions from excise duties on mineral oils used for the production of alumina. Under the EU rules on excise duties, harmonising EU Member States' legislation, Member States may petition the Council for exemption from the minimum uniform levy. France, Ireland and Italy did so for exemptions granted to alumina producers. The Council authorized those exemptions and extended them until 31 December 2006.

However, in 2001, the European Commission ("Commission") initiated a formal state aid investigation procedure against the three Member States. In 2005, following an investigation that lasted just over 49 months, the Commission decided that the exemptions constituted unlawful state aid. The Commission ordered the recovery of the part of the aid granted after the date of publication in the Official Journal of its decisions to initiate the formal investigation procedure. The three Member States and the beneficiaries of the excise duty exemptions in Ireland and Italy brought an action for annulment against the Commission decision.

In 2007, the GC annulled the Commission decision, but its judgment was set aside by the ECJ in 2009. In 2012, the GC annulled the Commission decision on other grounds, but in 2013 the ECJ again set aside the GC judgment. In its second judgment, the ECJ ruled that the Council's decisions authorising the Member States to introduce an exemption do not have the effect of preventing the Commission from examining whether that exemption constitutes state aid. The powers conferred on the Commission by the Treaty in the area of state aid are also not hindered by the fact that the Council adopted its authorisation decision in the area of excise duties on a proposal from the Commission itself. According to the ECJ, that fact however had to be taken into consideration in relation to the obligation to recover the incompatible aid, in light of the principles of protection of legitimate expectations and legal certainty, as was correctly done by the Commission when it declined to order the recovery of aid granted before the date of publication in the Official Journal of its decisions to initiate the formal investigation procedure.

Contrary to its first two judgments of 2007 and 2012, the GC now confirmed the Commission's decision. As the GC is bound by the ECJ's judgment on points of law, the GC applied the ECJ's analysis regarding the different powers conferred on the Council and the Commission as well as the ECJ's reasoning regarding the principles of legitimate expectations and legal certainty.

In addition, the GC examined a possible infringement of the principle of legitimate expectations in light of the Commission's delay in adopting its decision. The GC ruled that a period of 49 months between the initiation of the formal investigation procedure and the adoption of the contested decision did not constitute a reasonable period. However, the GC then ruled that this delay was not an exceptional circumstance capable of having given rise, on the part of the beneficiaries of the aid, to a legitimate expectation that the aid at issue was lawful, since (i) the exemptions were applied after the Commission's initiation of the formal investigation procedure; and (ii) the aid schemes had not been notified to the Commission. As the beneficiaries could therefore not reasonably believe that the exemptions at issue would encounter no objection, the GC rejected the plea. Other pleas raised by the applicants regarding the qualification of the exemptions as unlawful state aid were also rejected by the GC.

The judgment of the GC, applying the ECJ's analysis, is interesting as it confirms the Commission's central role in the area of state aid, which cannot be affected by the acts of EU institutions (including the Commission itself) in other areas of EU competence. Moreover it shows that an unreasonably long investigation period may not be sufficient to give rise to legitimate expectations.

OTHER DEVELOPMENTS

EUROPEAN UNION: On 13 April 2016, the European Commission published its interim report on the state aid sector inquiry into capacity mechanisms, i.e. national measures to ensure sufficient electricity supplies, which was launched in April 2015 (see, VBB on Competition Law, Volume 2015, No. 5, p. 18, available at www.vbb.com). While confirming that capacity mechanisms may be an appropriate instrument in specific situations, the Commission points to two main shortcomings. The interim report is open for public consultation. Interested parties are invited to submit their comments by 6 July 2016.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.