C-91/01

'1. Save as otherwise provided in this Treaty, 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, insofar as it affects trade 2. In particular, Italy claims that, by failing between Member States, be incompatible to authorise the increase in aid intensity with the common market. provided for small and medium-sized enter- prises ('SMEs'), the Commission infringed Articles 87 and 88 EC, the Community Guidelines on State aid for small and medium-sized enterprises (the 'Guide- lines'), 3 Commission Recommendation 96/280/EC of 3 April 1996 concerning the definition of small and medium-sized enter- prises (the 'Recommendation'),4 and the principles of legitimate expectation and 3. The following may be considered to be legal certainty. compatible with the common market:

1 — Original language: English. 2 — OJ 2001 L 292, p. 45. 3 — OJ 1996 C 213, p. 4. (a) aid to promote the economic develop- 4 — OJ 1996 L 107, p. 4. ment of areas where the standard of

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living is abnormally low or where there ing regard to Article 87, or that such aid is is serious underemployment; being misused, it shall decide that the State concerned shall abolish or alter such aid within a period of time to be determined by the Commission.

(c) aid 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 3. The Commission shall be informed, in interest; sufficient time to enable it to submit its comments, of any plans to grant or alter aid. If it considers that any such plan is not compatible with the common market hav- ing regard to Article 87, it shall without delay initiate the procedure provided for in paragraph 2. The Member State concerned shall not put its proposed measures into effect until this procedure has resulted in a final decision.' 4. Article 88 EC provides:

7. Point 3.2 of the Guidelines states: 'For the purpose of applying the guidelines, an 6. At the fourth paragraph of point 4.2.1 SME is defined in accordance with the the Guidelines state: recommendation concerning the definition of SMEs adopted by the Commission on 3 April 1996'. The Guidelines then set out that definition 6 and make it clear that 'the independence test, according to which a large enterprise must not hold 25% or more of the SME's capital, is based on practice in a number of Member States where this percentage is the threshold at which super- vision becomes possible'.

'... In assisted areas, the Commission may 5 — Assisted areas are those which are eligible for regional aid under Article 87(3)(a) EC (and Article 87(3)(c) EC). Each approve aid to SMEs which exceeds the Member State has its own regional aid map which identifies the assisted areas as well as the ceilings on the intensity of level of regional investment aid it has aid. Regional aid maps are authorised by the Commission. authorised for large enterprises in the area: 6 — See paragraph 8 below.

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The Recommendation concerning the defi- — conform to the criterion of indepen- nition of SMEs dence as defined in paragraph 3.

8. The Annex to the Recommendation is entitled 'Definition of small and medium- sized enterprises adopted by the Commis- sion'. Article 1 of the annex provides:

9. Article 1 of the Recommendation itself 'Whereas independence is also a basic provides: criterion in that an SME belonging to a large group has access to funds and assistance not available to competitors of equal size; ...

'Member States ... are invited: Whereas, in respect of the independence criterion, the Member States, the EIB and the EIF should ensure that the definition is not circumvented by those enterprises which, whilst formally meeting this criter- ion, are in fact controlled by one large — to comply with the provisions set out enterprise or jointly by several large enter- in Article 1 of the Annex for their prises; programmes directed towards "SMEs"

10. Article 2 provides: Whereas, therefore, fairly strict criteria must be laid down for defining SMEs if the measures aimed at them are genuinely to benefit the enterprises for which size represents a handicap; 'The thresholds specified in Article 1 of the Annex are to be regarded as ceilings. Member States ... may, in certain cases, choose to fix lower thresholds. In imple- ...' menting certain of their policies, they may choose also to apply only the criterion of number of employees, except in fields to which the various rules of State aid apply'.

The Multisectoral framework on regional aid

11. The 18th, 19th and 22nd recitals in the preamble to the Recommendation read as 12. The Multisectoral framework on regio- follows: nal aid for large investment projects (the

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14. Point 3.1 of the Multisectoral frame- work states: The procedure before the Commission

16. By letter of 24 November 1999 Italy notified the Commission of the aid it 'The Commission will determine, in accor- planned to grant to Solar Tech. The dance with the calculation formula set out measure was a non-repayable EUR in point 3.10, a maximum allowable aid 42 788 290 grant for the construction of intensity for a proposal to award aid. It will a plant for producing amorphous silicon begin by identifying the maximum aid film and integrated solar panels in the Article 87(3)(a) EC area of Manfredonia, Foggia. The aid was provided for in the 7 — OJ 1998 C 107, p. 7. Secondo Protocollo Aggiuntivo del Con-

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tratto d'Area per l'Area di Manfredonia 18. Having doubts as to whether Solar (second additional protocol to the area Tech could be classed as an SME in contract for Manfredonia, the 'Secondo accordance with the Guidelines and Protocollo') of 19 March 1999, in the whether it suffered from the typical handi- context of the regional aid scheme caps of SMEs, the Commission informed authorised by the Commission by letter of Italy by letter of 4 April 2000 that it had 30 June 1997. 8 Given the total cost of the decided to initiate proceedings under Arti- project, the combined intensity of the cle 88(2) EC. 11 amount of the aid and the ratio of aid per job created, the aid had to be notified in accordance with the Multisectoral Frame- work.

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may circumvent the definition of an SME, It is necessary, however, to make sure thus allowing a large enterprise to receive that the bonus is indeed granted to the aid intensity reserved for SMEs'. enterprises suffering from such handi- caps. In particular, the SME definition used has to circumscribe the concept of a small or medium-sized enterprise so as to include therein only those enter- prises which generate the positive externalities envisaged and suffer from The Decision of 15 November 2000 the abovementioned handicaps. It should not therefore extend to the many larger firms which do not necessarily produce the positive exter- 20. On 15 November 2000, the Commis- nal effects or suffer from the handicaps sion adopted the Decision under review. typical of SMEs. Aid granted to such firms is liable to result in further distortion of competition and intra- Community trade.

21. In the statement of reasons it observed that:

That principle is set out in the 22nd recital to the Commission recommen- dation, which reads as follows: '(34) Point 1.2 of the SME guidelines states that SMEs play a decisive role in job creation but suffer from a number of handicaps that can slow down their development. Those handicaps include the difficulty in obtaining capital and "Whereas, therefore, fairly strict cri- credit, the difficulty in gaining access teria must be laid down for defining to information, new technology and SMEs if the measures aimed at them potential markets, and the costs of are genuinely to benefit the enterprises complying with new regulatory for which size represents a handicap." requirements.

This is because, from an economic 'Solar Tech does not qualify for the bonus standpoint, Solar Tech has to be for SMEs because, thanks to its economic, regarded as belonging to the Permas- financial and organisational links with teelisa Group, a large firm, despite the Permasteelisa, it does not suffer from the fact that the latter holds only 24% of typical handicaps of SMEs to which the its shares. Thanks to the economic, SME guidelines refer. Consequently, the financial and organisational links bonus of 15% gge for SMEs cannot be between the two companies, Solar applied in the case in point'. The Commis- Tech does not have to contend to any sion then applied the formula provided in great extent with the handicaps from the Multisectoral framework and found which SMEs usually suffer and which that the intensity of the planned aid constitute a fundamental justification (45%) was, contrary to point 3.10(3) of for the increase in the maximum the framework, above the regional ceiling amount of aid allowable for such (40%). enterprises.'

— Article 87 EC, the Recommendation and the Guidelines;

27. Italy contends that the Commission based its Decision on a definition of an SME different from that in the Recommen- dation and the Guidelines. Solar Tech — Article 88(1) EC; clearly fulfilled the requirements of the Community definition of an SME, and in particular the independence criterion. The Commission was bound by its own Guide- lines and should have confined itself to applying the precise criteria therein. It did not enjoy any discretion in the matter and, — the principles of legitimate expectation since the clear requirements of the regime and legal certainty. were satisfied, it could not take other factors into account or make other assess- ments. Moreover, the fourth paragraph of point 4.2.1 of the Guidelines did not confer any power to assess whether an under- taking qualifying as an SME under the definition given did in fact suffer from the disadvantages typical of SMEs. Since Solar 25. Italy therefore asks the Court to annul Tech came within the definition of an SME, the Decision and order the Commission to those disadvantages were to be presumed. pay the costs. The Commission asks the That being so, the Commission was under a Court to dismiss the application and order duty to authorise aid up to the increased Italy to pay the costs. maximum intensity for SMEs.

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28. I am not convinced by those argu- the purpose of setting up Solar Tech was to ments. enable Permasteelisa to extend its range of products, that Solar Tech would supply a significant part of its production directly to the group and that it was in a position to benefit from the technological know-how, commercial contacts and financial standing of the Permasteelisa group. 29. The two issues of the definition of an SME and of the power to authorise increased aid intensity are strictly linked and are largely dealt with together in the Decision; for the sake of clarity, however, I will analyse them separately.

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the definition is not circumvented on formal ple in which the control criterion is drafted grounds. 12 so widely that it covers all situations where there is any possibility of exercising decisive influence. 14Unlike Italy, however, I do not consider that the wording in the Recom- mendation and the Guidelines precludes the Commission from adopting a similar approach when that is demanded by the need to interpret those instruments consis- 34. Bearing that rationale in mind, I con- tently with their purpose and hence to sider it quite proper for the Commission to avoid incongruous decisions. 15 look behind the form to the substance of an undertaking. In that light, the relationship between Solar Tech and the Permasteelisa group is clearly of a different nature from that which is usual between separate, independent businesses. It may thus be considered not a 'true' SME but an under- taking fully integrated in a large group and, because of that integration, free from the handicaps targeted by the SME regime. 36. Italy further argues that the Recom- mendation expressly provides for those cases where the 25% threshold may be exceeded or reduced. 16 In my view, how- ever, the definition of the two cases in which that threshold may be exceeded

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rather reinforces the view that an under- mission from the obligation to assess each taking may be classed as an SME, with case against the criteria laid down in that concomitant entitlement to favourable provision. If circumstances require, the treatment, only when the circumstances Commission may well repeal or amend show that it is effectively independent from those guidelines. 18 The Commission's dis- large companies. The same is true for cretion cannot be fettered once and for all Article 2 of the operative part of the by adopting such documents. 19 Accord- Recommendation which provides that ingly, it may even derogate from them if Member States may, 'in certain cases', their application in a given case would run choose to fix thresholds lower than those counter to Article 87 EC. specified in Article 1 of the Annex. Clearly, the rationale of that power is to ensure that the undertaking seeking the preferential treatment for SMEs is really an SME.

37. Finally, I do not agree with Italy that the Commission acted inconsistently with Article 87 EC.

39. As I have explained above however, I am in any event of the view that, in this case, the Commission did not derogate from the Guidelines but simply construed 38. The adoption of guidelines, or other the definition of an SME therein in line with forms of 'soft law', setting out for purposes their underlying purpose. In denying that of information and simplification the cri- an undertaking which is part of a large teria the Commission intends to apply when group can be regarded as an SME, it cannot examining whether planned aid is compa- be considered to have infringed Article 87 tible with the common market, cannot EC. Further, by according different treat- derogate from Article 87 in any circum- ment to different situations — those of large stances, 17 and does not release the Com- companies and SMEs — it also ensured respect for the principle of equality. 20

The power to authorise the increase in types of circumstances to be taken into maximum allowable aid intensity account in its assessment. Neither, most crucially, does it limit that assessment to market conditions, precluding any analysis by the Commission of the situation of the undertaking. The Commission was thus 40. In the previous section I have con- entitled to take account of the fact that, cluded that the Commission was entitled to owing to its integration in the Permasteelisa find that Solar Tech was not an SME. group, Solar Tech did not face the handi- caps typical of SMEs. In its words, 'purely formal compliance with the Community rules does not constitute sufficient justifica- tion for allowing the bonus for SMEs, which, as stated earlier, should be reserved exclusively for enterprises which suffer 41. Iam however of the view that, even if from handicaps on account of their size. Solar Tech had been considered to be an Thanks to its links with Permasteelisa, Solar SME, it would still not have been auto- Tech does not suffer from such handi- matically entitled to the increase in max- caps'. 22 Finally, as the Commission points imum allowable aid intensity for SMEs. out, there are good reasons for insisting on more limited aid to companies that in fact are not SMEs because such aid may produce more severe distortions of the market.

42. The fourth paragraph of point 4.2.1 of the Guidelines states that 'the Commission may approve aid to SMEs which exceeds the level of regional investment aid it has authorised for large enterprises in the area' 21 by different percentages according to area and, in particular, by 15% in the region at issue. It is clear from that wording that the Commission is not obliged to authorise any particular increase but may do so.

50. The assumption underlying that claim is that the Commission breached those duties by derogating from the Recommen- dation and the Guidelines. However, as I have explained above, the Commission did not, in my view, derogate from those instruments. 47. In its written submissions and at the hearing, the Commission also raised the argument that in Solar Tech's case the conditions in which increased aid intensity could be allowed were created artificially, and that such conduct amounted to an 51. This claim must therefore also be 'abuse of right'. rejected.

The alleged breach of the principles of 48. Although doubts as to a possible legitimate expectations and of legal cer- circumvention of the definition of SME tainty were raised in the decision opening the Article 88(2) EC procedure, it does not appear that the Decision under review is based on a finding to that effect. That 52. Finally, Italy claims that the Decision argument cannot therefore be raised by the breaches Solar Tech's legitimate expecta- Commission in these proceedings and it is tions and infringes the principle of legal accordingly not necessary to deal with it. certainty.

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53. In Italy's submission, Solar Tech was trary, it was clear that allowing increased entitled to rely on the precise requirements aid intensify to Solar Tech would be likely of the Recommendation and the Guidelines to defeat the established purpose of the and to organise its legal arrangements policy underpinning the Recommendation accordingly. It could thus reasonably expect and the Guidelines. that, by fulfilling those requirements, it would be entitled to the increase in aid intensity. The Commission's novel inter- pretation has breached those expectations and created uncertainty as to the conditions for the application of the Community regime relating to SMEs.

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59. It was thus not possible to count on a Tech, it was, in my view, entirely predict- favourable outcome of the Commission's able that the Commission would refuse review, particularly as regards the increase authorisation. of the maximum allowable aid intensity for SMEs under the Guidelines. Even if an undertaking is classed as an SME, the Commission is not required to approve that increase but is merely authorised to do so. Given the purpose of the Multisectoral 60. This claim must therefore also be framework and the characteristics of Solar rejected.

Conclusion

61. Accordingly the Court should in my opinion:

(1) dismiss the application;