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ADVERTORIAL

Commission Decisions on Unlawful State Aid Directly Enforceable in Slovakia

Under the EC Treaty, any aid granted by a Member State or through state resources in any form whatsoever which distorts or threatens to distort competition is incompatible with the internal market. Some specific types of aid may be considered compatible with the internal market if they are approved by a decision of the European Commission.

Under the EC Treaty, any aid granted by a Member State or through state resources in any form whatsoever which distorts or threatens to distort competition is incompatible with the internal market. Some specific types of aid may be considered compatible with the internal market if they are approved by a decision of the European Commission.

State aid must be notified to the Commission in advance (i.e. before being issued), otherwise it is considered unlawful (unless exemptions apply). The Commission may decide even without having been notified that a certain state measure amounts to state aid and claim that the aid is unlawful. A Commission decision overrides national legal regulations and is a source of law for national authorities, which must ensure the decision is fully implemented.

If the state aid has already been issued and the Commission decides that this state aid is unlawful, the Member State must recover it from the beneficiary, including interest. The state must promptly take all measures necessary to implement the Commission decision. The national laws of the Member State will apply, provided they allow immediate and effective implementation of the Commission decision. Recovery of unlawful state aid means the obligation to achieve a result that restores market conditions to where they were before they were distorted by issue of unlawful state aid to a market participant. Any activity by the state is insufficient while state aid declared unlawful is not fully recovered.

The national authorities implementing EU legal regulations within their jurisdiction must ensure full effectiveness of the regulations, even where this means using their discretion in not applying a conflicting provision of national law. In order to achieve better effectiveness and legal certainty it is desirable to suspend or abolish application of provisions of national law which could hinder recovery of unlawful state aid.

Slovakia has had significant problems in complying with its obligations to effectively recover unlawful state aid, mainly in the infamous Frucona case. For various procedural reasons originating in national law, the state was unable to recover state aid granted in the form of partial remission of Frucona's tax debt (amounting to approx. Euro 13.8 million) and which the Commission later decided was unlawful state aid. This resulted in the Commission bringing an action against Slovakia for failing to fulfil its obligations under the EC Treaty.

In the light of these circumstances, it seemed necessary to reform the mechanism for recovering unlawful state aid in order to prevent serious financial penalties threatening Slovakia.
Under the existing system, if the beneficiary fails voluntarily to return unlawfully granted state aid, filing a civil action with the court is necessary to claim an order for return of unlawful state aid. This may result in procedural delays and postponement of actual recovery.

This situation led to adoption of an Amendment to the Act on State Aid (as well as the Act on Court Enforcers) on March 23, 2011. The Amendment suggests that a Commission decision should represent a direct enforcement order, under which unlawful state aid will be enforced in execution proceedings, i.e. no separate civil proceedings are required on the claim itself. If necessary, the enforcement order will be supplemented by an administrative decision by the national authority specifying the facts, which need not be included in the Commission decision. An administrative decision can be reviewed by applying standard procedures under national law but without prejudice to its enforceability as well as to implementation of the Commission decision.

The Amendment will be effective as of June 1, 2011. Under its transitional provisions, it will also apply to recovery of unlawful state aid not recovered by May 31, 2011 (i.e. the Frucona recovery). Initially, this fact raised some doubts on the constitutional conformity of the Amendment and led to a presidential veto. However, the veto was overridden by the National Council and the Amendment was finally approved.

Due to the conservative character of the Slovak judiciary it is unclear at the moment how practice will react to this essential change in the law.

To conclude, it should be noted that the Amendment could also have an effect on another publicly controversial case. The sale of land under the Bratislava’s PKO (Culture and Leisure Park) by the municipality to a private investor is currently under investigation by the Commission and a decision is expected whether the sale (allegedly below the market price) represents unlawful state aid.

This article is of an informative nature only. For more information please contact our Law Office:

bnt – Sovova Chudáčková & Partner, s.r.o.
Phone +421 2 57 88 00 88
Fax +421 2 57 88 00 89
info.sk@bnt.eu
www.bnt.eu

Topic: Finances and Advisory


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