C-280/95

Introduction severely disrupted the economic and social life of the country. On 19 April 1990, the Italian Government reached an agreement with the relevant trade associations to settle the dispute, which committed it to reducing the costs which burdened the sector's com­ 1. This case concerns the failure of Italy to petitiveness, and, in particular, to provide a recover an aid granted in 1992 to between tax credit to reduce the effective price of gas 100 000 and 150 000 Italian road-haulage oil. On 28 January 1992, the Italian Govern­ undertakings by means of a tax credit calcu­ ment introduced, by Ministerial Decree lated on the basis of their consumption of (hereinafter 'the 1992 Decree'), 1a tax credit motor fuel and lubricants. Italy does not dis­ for the fiscal year 1992 in favour of Italian pute its failure to take steps to recover the professional road hauliers operating on aid, as is required by a Commission decision behalf of third parties. This tax credit could of June 1993. In its defence to the present be deducted by such undertakings from the infringement action, Italy claims that it is income tax imposed on them as natural or impossible to recover the aid, because the legal persons, from municipal tax, from value hauliers affected would respond with a added tax, or from payments by them by strike, leading to social crisis and the under­ way of tax of monies deducted at source mining of public order, and because of the from employees or self-employed persons. technical difficulty in identifying the amount The amount of the credit was based on the of credit granted to so large a number of difference between the price in Italy and the beneficiaries in respect of a variety of taxes average price in the other Member States of and taxable periods. the Community of the motor fuel and lubri­ cants used by such road-haulage undertak­ ings in the course of their business, subject to ceilings established by reference to the average annual distance travelled and average Legal and factual background annual fuel consumption of vehicles in four different categories, defined according to total permissible weight. The credit was deductible from biannual instalments and final balances relating to direct taxation, from monthly and three-monthly value 2. Excise duties on gas oil in Italy are added tax returns and from monthly returns amongst the highest in the Community. of monies deducted at source arising during Difficulties in the road-haulage sector led, in 1990, to a one-week transport strike which

'(1) The aid in favour of professional road hauliers in Italy in the form of a tax credit on income tax or on municipal tax or on VAT which was introduced by 3. The Commission wrote to the Italian the Ministerial Decree of 28 January Government on 15 April 1992 seeking 1992 is unlawful in so far as it is granted detailed information about the 1992 Decree, in breach of the procedural rules laid and indicating that it considered the tax- down in Article 93(3) of the EEC credit scheme to fall within Article 92(1) of Treaty. The aid is also incompatible the Treaty establishing the European Com­ with the common market within the 3 munity (hereinafter 'the Treaty'). Being dis­ meaning of Article 92(1) of the EEC satisfied with the Italian Government's reply Treaty, in so far as it meets neither the of 4 August 1992, the Commission informed conditions for the exemptions provided the Government, by letter dated 26 October for in Article 92(2) and (3) nor the 1992, that it had decided to initiate the conditions of Regulation (EEC) No 1107/70.

2 — Ministerial Decree of 26 July 1990, GURI No 175 of 28 July 1990. 4 — A reminder was sent on 12 February 1993. 3 — A reminder was sent on 6 May 1992. 5 — OJ 1993 L 233, p. 10.

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COMMISSION v ITALY

(2) The Italian Republic shall abolish the 26 August 1993, contended that this exten­ aid referred to in Article 1 and ensure sion removed any ground of illegality, and that the aid granted is recovered within also that the recovery of credits granted two months of the notification of this would be, from the technical point of view, Decision. The aid shall be recovered in extremely difficult and onerous for the tax accordance with the procedures and authorities because the date, frequency and provisions of national law, in particular manner of administration of deductions var­ those relating to interest on overdue ied in accordance with the taxes from which payments owed to the Government, individual undertakings chose to deduct the with interest starting to run from the credit. However, it took no action to chal­ date on which the unlawful aid was lenge the Decision. granted.

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OPINION OF MR FENNELLY — CASE C-280/95

regarding a variety of different taxes. It 9. The Commission argues that Member should be noted that the Italian Government States may not plead obstacles in their did not in this letter or at any time prior to domestic legal orders as an excuse for failure 10 the institution of these proceedings contend to fulfil their Community-law obligations, that an attempt to recover the tax credit and that only absolute impossibility could would lead to unacceptable social disruption. justify the Italian Government's non- 11 implementation of the Decision. Where a Member State encounters unforeseen diffi­ culties in implementing a Commission decision in the field of State aids, it should bring the matter to the Commission's atten­ tion so that they can cooperate in good faith in addressing the problem, as prescribed by 12 Article 5 of the Treaty. While the Italian 7. On 18 August 1995, the Commission Government had raised its difficulties in its commenced proceedings before the Court correspondence with the Commission, it nei­ pursuant to Article 93(2) of the Treaty, ther attempted to recover the aid nor pro­ requesting that it declare that, by failing to posed any alternative course of action to the take the necessary measures to comply with Commission. the Decision, and by failing, in particular, to recover the aid granted pursuant to the 1992 Decree in the form of a tax credit for the 1992 fiscal year in respect of income tax, municipal tax or VAT, the Italian Republic had failed to comply with its obligations under the Treaty, and that the Court con­ demn the Italian Republic to bear the costs of the proceedings.

difficulties in implementing the Decision in 11. The Commission argues that Italy's its letters to the Commission of 26 August public-order argument would result in there 1993 and of 13 January 1994, after which, in being one law for the strong and another for the absence of any further communication the weak, and that its difficulties were not from the Commission, it considered the mat unforeseeable, because the aid was intro ter to be closed. Italy invokes the lapse of duced precisely in order to alleviate the sort time before the commencement of these pro of social crisis which Italy now maintains ceedings, not so much to question their would be unleashed by its attempted recov admissibility as to argue that the Commis

The dislocation by a very militant economic sec Commission accepts that recovery may not tor, which would undermine public order be possible 'to the last lira', but Italy chal and could only end in defeat for the State; lenges it, in this respect, to specify what and secondly, because the number of taxpay measures or degree of recovery would satisfy ers involved, and the variety of taxes, taxable it. Irrespective of any lapse of time, the periods and divisions of the tax administra Commission submits that its attitude on the tion over which the deductions could be need to recover the illegal aid was always spread, would make it unacceptably onerous clear, and that it made suggestions such as to seek recovery of the aid, which in any the establishment of a task force at the Min event could only be partial. In answer to a istry of Finance to demonstrate Italy's will written question posed by the Court regard ingness to give effect to the Decision.

Italy states that it was willing to seek to compromise with the Commission, although it asserts that even alternative strategies of partial recovery of the aid, for example by instal ments, would not be feasible.

13. A number of conditions have been 14. The justification of non-compliance with imposed on the application of the test of Community-law obligations on grounds of absolute impossibility, as articulated in the absolute impossibility appears, by its terms, specific context of the recovery of illegal to exclude any degree of relativism, and is State aid. A Member State which, 'in giving inconsistent with Italy's submission. Thus, a effect to the derision, encounters unforeseen distinction has been drawn in the case-law or unforeseeable difficulties or perceives con­ between absolute impossibility and the wider sequences overlooked by the Commission', concept of force majeure, which includes cir­ cumstances which, in spite of the exercise of all due care, could not have been avoided

14 — Case 52/84 Commission v Belgium, cited above, para- graph 14 of the judgment; Case 94/87 Commission v Ger- many, cited above, paragraph 8; Case C-183/91 Commission v Greece, cited above, paragraph 10. 16 — Case 52/84 Commission v Belgium, cited above, para- 15 — Case C-142/87 Belgium v Commission [1990] ECR I-959, graph 16 of the judgment, emphasis added. paragraph 61 of the judgment; Case C-5/89 Commission v 17 — Case 94/87 Commission v Germany, cited above, para- Germany, cited above, paragraph 12; Case C-24/95 Land graph 10 of the judgment; see, in virtually identical terms, Rheinland-Pfalz v Alcan Deutschland [1997] ECR I-1591, Case C-183/91 Commission v Greece, cited above, para- paragraph 24. graph 20.

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17. Secondly, the problems which Italy now expects to face if it proceeds to seek recovery of the illegal aid were entirely foreseeable. Article 93(3) of the Treaty requires proposed aids to be notified to the Commission, and, unless the Commission raises no objection, that proposed measures not be given effect until the procedure set out in Article 93(2) of the Treaty has resulted in a final decision. 16. First, no attempt whatsoever has been Italy had ample opportunity to notify the aid made by Italy to recover the aid. Indeed, it between the agreement of 19 April 1990 and appears that Italy continued, at least to some its implementation by the 1992 Decree. In extent, to grant the illegal aid, by permitting any event, as of 15 April 1992, when the unused credits to be carried over from 1992 Commission first informed Italy of its view and deducted from tax in subsequent fiscal that the tax-credit scheme constituted a State aid, or as of 26 October 1992, at the very lat­ est, when the Commission indicated that it had decided to initiate the procedure pro­ 18 — Case 11/70 Internationale Handelsgesellschaft v Einfuhr- und Vorratsstelle Getreide [1970] ECR 1125, paragraph 23 vided for in Article 93(2) of the Treaty, Italy of the judgment; see also Case 109/86 Theodorakis v Greece [1987] ECR 4319, paragraph 7, and Case C-136/93 Transa- was formally on notice that the credits frica v Administration of the Spanish State [1994] should not be awarded and that it might ECR I-5757, paragraph 14; cf., however, Case 125/83 OBEA v Corman [1985] ECR 3039, paragraph 28. have to recover any credits actually granted.

None the less, it did not inform the road Community-law obligations, but that they hauliers of this possibility and continued to can only be permitted to do so temporarily, operate the aid scheme. Given the circum­ until the conditions of normal administration 19 stances which gave rise to the scheme, Italy are restored. However, in the field of should have known whether attempted fishery controls, the Court has observed that recovery of the aid could result in a revival the uniform application of the common fish­ of militancy and strikes or other challenges eries policy would be jeopardised '[i]f the to public order. Furthermore, the manner of competent authorities of a Member State administration of the aid scheme should have were systematically to refrain from taking permitted Italy to foresee that its recovery action against the persons responsible for... 20 would be administratively burdensome. That infringements'. In response to France's burden does not arise from an external cause, submission that it was forced to refrain from but from Italy's own decisions about the taking action against persons responsible for manner of administration of the aid and the infringements of the quota regime because organisation of its revenue services. the socio-economic climate was so difficult that there was a risk of major disorders likely to give rise to serious economic prob­ ( lems, the Court stated that [m]ere apprehen- sion of internal difficulties cannot justify a 21 failure to apply the rules in question'. As I stated in my Opinion in that case, it follows from the obligations imposed by Articles 5 and 189 of the Treaty that, where Member States are specifically charged with the enforcement of Community law, they are obliged to utilise all their State apparatus, including, if necessary, their police powers, to ensure the fulfilment of their obliga­ 18. Thirdly, quite apart from its failure to tions. 22 The same reasoning can be extended satisfy the general conditions for justification without modification to the present case. by reason of absolute impossibility, the two The mere prospect of public-order problems specific grounds pleaded by Italy cannot be cannot permit Italy to shirk its duty to pro­ accepted. ceed to recover the illegal aid.

20. Italy's argument regarding the technical recovery between branches of the revenue difficulty of recovering the aid is equally service responsible for different geographical unacceptable. Commission v Greece also areas and different taxes. It does not seem to concerned the obligation to recover illegal me, however, that, given the computerisation aid granted by way of a tax exemption. of tax records, there is anything to distin­ Greece maintained that the trifling financial guish the recovery problem confronting Italy importance of the exemption, the administra­ from the routine need to control the myriad tive difficulties in distinguishing between the tax liabilities, claims and allowances which different activities of beneficiaries, and the are a feature of the fiscal machinery of a disproportionate cost of the measures for modern State. In any event, as I have already recovery of the aid would make it uneco­ indicated, and contrary to Italy's argument 24 nomic and unreasonable to collect the tax. for a test of reasonable and relative possibil­ The Court did not accept that these obstacles ity, the concept of absolute impossibility constituted absolute impossibility in the does not permit any assessment of the pro­ absence of attempted recovery or of any pro­ portionality of ends and means in terminat­ posal to the Commission of alternative ing an unlawful distortion of competitive 25 arrangements. In my view, the Court conditions, except, possibly, in the most should reach the same conclusion in the extreme circumstances. Furthermore, in so 26 present case. far as technical problems arise from Italy's recovery procedures, it should be borne in mind that national procedures should not be applied in such a way as to make recovery practically impossible.

(1) By not complying with Commission Decision No 93/496/EEC of 9 June 1993 concerning State aid procedure C 32/92 (ex NN 67/92) — Italy (tax credit for professional road hauliers), the Italian Republic has failed to fulfil its obliga­ tions under the Treaty establishing the European Community.

(2) The Italian Republic is ordered to pay the costs.

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