C-159/01

NETHERLANDS v COMMISSION

OPINION OF ADVOCATE GENERAL LÉGER delivered on 12 June 2003 1

1. The Kingdom of the Netherlands has set 3. In the present action, brought under the up a system of levies designed to reduce the first paragraph of Article 230 EC, the infiltration of nitrogen and phosphates into Kingdom of the Netherlands seeks partial the ground as the result of the use of annulment of the contested decision in so fertilisers on farms. Those levies are payable far as it relates to horticultural under- by farmers who cause losses into the takings and garden centres which grow environment of nitrogen and phosphates crops under glass or on substrate. in excess of a given threshold. The King- dom of the Netherlands has also established an exemption from those levies for small undertakings (referred to as 'hobby-under- takings') and for horticultural undertakings and garden centres which grow crops under I — Legal framework glass or on substrate.

A — Community provisions

4. The provisions relevant to these pro- ceedings are those governing State aid and the protection of waters from nitrate pollu- tion.

2. By Decision 2001/371/EC of 21 Decem- ber 2000 on the exemption from mineral 1. The rules on State aid levies under the manure law which the Netherlands intends to grant,2 the Com- mission found those tax exemptions to be State aid incompatible with the common 5. Article 87(1) EC provides that: market.

7. According to the notice, in order to be qualified as prohibited State aid within the meaning of Article 87 EC, a tax measure must meet the following four cumulative criteria. 4 11. Fourthly, the measure must be specific or selective in that it favours certain under- takings or the production of certain goods. That selectivity may, however, be justified by the nature and general scheme of the system. Where that occurs, the measure falls outside the designation as aid con- 8. Firstly, the measure in question must tained in Article 87 EC. confer on its beneficiaries an advantage which relieves them of charges normally borne from their budgets. Such an advan- tage may derive from a reduction in the firm's tax burden in various ways. There may be, in particular, a reduction in the tax base (a special deduction) or a total or 12. As regards the last criterion, paragraph partial reduction in the amount of tax (an 23 of the notice makes it clear that the exemption or tax credit). differential basis of some measures does not necessarily cause them to be regarded as State aid. That is true of measures whose 3 — OJ 1998 C 384, p. 3 (hereinafter 'the notice'). economic rationale makes them necessary 4 — Paragraphs 9 to 12. to the functioning and effectiveness of the

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tax system. It is for the Member State to 2. Provisions on the protection of waters substantiate that fact. from nitrate pollution

15. Pursuant to Article 2 of Regulation No 659/1999, the Member State concerned 1. The levy system must, in principle, notify the Commission in sufficient time of any planned grant of new aid. That State must, in its notification, provide all necessary information in order 18. The levy system set up by the Kingdom to enable the Commission to take a decision of the Netherlands, known as the 'MINAS' as to whether there is aid and whether it is compatible with the common market. 7 — Council Directive of 12 December 1991 concerning the p rotection of waters against pollution caused by nitrates from agricultural sources (OJ 1991 L 375, p.1). 5 — Sec paragraph 34. 8 — '[L]ivestock manure' is defined i nArticle 2(g) of Directive 6 — Council Regulation of 22 March 1999 laying down detailed 91/676 as waste products excreted by livestock or a mixture rules for the application of Article 93 of the EC Treaty (OJ of litter and waste products excreted by livestock, even in 1999 1. 83, p. 1). Article 93 of the Treaty is now Article 88 processed form. EC. 9 — See Annex III, paragraph 2.

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system,10 is defined in the Wet van 27 the tolerated fertiliser loss.13The uptake of november 1986 houdende regelen inzake fertiliser by crops is set per hectare for the het verhandelen van meststoffen en de average area of agricultural land belonging afvoer van mestoverschotten. 1 1Under that to the farm over the year at 65 kg of system, farmers must keep records of the phosphates and 300 kg of nitrogen for quantities of minerals entering and leaving pasture, and 50 kg of phosphates and 125 their farms. Those arrangements seek to kg of nitrogen for arable land. 14 ensure that the input of phosphates and nitrogen before production is no greater than the removal of those minerals after production, plus a 'tolerated loss'. Where, on a given farm, losses of phosphates and nitrogen exceed the tolerated loss norms, the farmer in question is liable to pay a levy on the surplus.

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22. The tolerated loss norms are set at the the growing medium or land effectively same amounts for both types of levy. 17 used by the undertaking for those types of production in the course of the calendar year. 21

26. The third exemption is for garden 2. Exemptions centres which also perform horticultural activities under glass or on substrate. They enjoy the same partial exemption as the horticultural undertakings referred to above. 22 23. The regulation of 12 January 1999 of the Minister for Agriculture, Nature Con- servation and Fisheries 18 establishes three exemptions from the levies imposed by the Meststoffenwet. 27. The exemption regulation applies with retroactive effect from 1 January 1998, the date on which the levies imposed by Chapter IV of the Meststoffenwet came into force. 23 24. The first exemption relates to small undertakings, known as 'hobby-undertak- ings'. 19They enjoy a total exemption. 20

II— The administrative procedure and the contested decision 25. The second exemption covers horticul- tural undertakings which grow crops under glass (indoor soil-bound horticulture) or on substrate (non-soil bound horticulture). 28. By letter of 7 October 1999, the Those enterprises are exempt to the extent Kingdom of the Netherlands notified the of a maximum taxable quantity of fertiliser exemption regulation to the Commission, of 460 kg of phosphates and 800 kg of at the latter's request, 24 in compliance with nitrogen per hectare of the average area of

21 — Ibid., Paragraph 3. 22 — Ibid., Paragraph 4. 17 — Ibid., Article 19 and Article 26. 23 — Ibid., Paragraph 5. 18 — Stert 1999, No 9 (hereinafter 'the exemption regulation'!. 24 — In that letter, the Netherlands Government stated that it 19 — These are undertakings where there are, on average during had notified the exemption regulation to the Commission a calendar year, no more than three livestock units and on 5 January 1999 as a technical regulation. By letters of three hectares of farmland. In addition, they must not 20 May and 10 August 1999, the Commission intimated to obtain supplies of animal or organic fertilisers. that government that the regulation in question might 20 — See paragraph 2 of the exemption regulation. contain terms constituting State aid.

32. The Netherlands Government sub- mitted its observations by letter of 17 May 2000. 37. In respect of undertakings and garden centres performing horticultural activities under glass or on substrate, the Dutch authorities presented no new information. In view of the fact that the quantities exempted are well above the norms set for 33. On 21 December 2000, the Commis- agricultural land and that the same rules sion adopted the contested decision. apply to soil-bound and to non-soil-bound

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horticulture, there is no reason inherent to HI — Discussion the system to grant the proposed exemp- tions.

41. The Netherlands Government disputes the contested decision only to the extent 38. On the other hand, those exemptions that it relates to undertakings and garden do satisfy the four criteria referred to in the centres which grow crops under glass or on notice, which is applicable by analogy. substrate. It advances two pleas in support Further, aid of that nature must be regarded of its action. The first alleges an infringe- as an operating subsidy and does not meet ment of Article 87(1) EC. The second the requirements to be a permissible subsidy concerns failure to provide an adequate under Article 87(3) EC. statement of reasons.

39. Lastly, the Commission rejects the argument that it is using or misusing the State aid procedure in order to enforce 42. In the light of the arguments put Directive 91/676. It states, none the less, forward by the applicant in support of that a State aid procedure may never those two pleas, I shall examine the latter in produce a result contrary to the specific the order in which they are raised. provisions of the Treaty. It draws attention to the fact that a specific infringement procedure has been commenced against the Kingdom of the Netherlands for failure to comply with that directive. 25

44. The Netherlands Government asserts that the purpose of the exemption regula- tion is to offset the disadvantage at which the Meststoffenwet places horticultural 47. Firstly, the exemption in issue is not in undertakings which grow crops under glass its view an advantage which reduces the or on substrate. In its view, the Meststof- charges of producers who grow crops under fenwet disregards the fact that much greater glass or on substrate. One would only be amounts of minerals are removed in those dealing with a reduction in those charges if two methods of cultivation. That law those producers were able to apply more therefore results in such undertakings hav- nitrogen and phosphates than is authorised ing to pay undue levies. In order to rectify by the loss norms without having to pay the that error, the government claims, the corresponding levies. The exemption is exemption regulation therefore grants those designed, on the contrary, according to undertakings a partial exemption to the the Netherlands Government, to eliminate extent of 460 kg of phosphates and 800 kg an unintended disadvantage suffered by of nitrogen per hectare of cultivation under those undertakings as a result of the fact glass or on substrate. that the Meststoffenwet does not take into account the absorption of minerals by the plants grown on the holding.

51. In response to the Commission's argu- ment that it must review the legality of a decision on State aid on the basis of the information available to it at the time the 49. Thirdly, the exemption in dispute does decision is made, the Netherlands Govern- not, in the submission of the Netherlands ment asserts that the Commission had a Government, adversely affect trade between duty to submit a clear request for informa- Member States. It would only affect trade tion. At no time during the administrative or distort competition, both in relation to procedure, according to the Netherlands undertakings which grow crops under glass Government, did the Commission make it or on substrate in other Member States and aware of its precise objections to the in relation to other undertakings in the exemption regulation. Nor did it ask the Community in general, if the undertakings government to provide it with information which grow crops under glass or on which, according to the Commission, it was substrate in the Netherlands were entitled lacking for the purposes of forming a clear to use more fertiliser than other farmers. picture of the nature and consequences of Since the exemption in issue is based on the the regulation in question. uptake of minerals by the crops produced on the holding it does not, the government contends, affect trade, or distort competi- tion.

52. Thus, the Netherlands Government submits, in the telex of 26 October 1999 the Commission merely stated that the 50. Fourthly, the fact that the exemption is norms under the exemption provisions were selective is justified, the Netherlands Gov- higher than those applying to agricultural ernment asserts, by the nature of the land. The Netherlands Government pro- mineral levy system. It contends that the vided explanations in its letter of 10 situation under analysis is analogous to that January 2000. In its view, the Commission given as an example in paragraph 25 of the has not indicated why those explanations notice, concerning the exemption from were unsatisfactory. In its decision of 20 profit tax for associations or foundations. March 2000 to initiate the procedure under

53. The Commission disputes all the fore- going arguments. 56. The Commission points out that the contested decision is based on the lack of any justification by the Netherlands Gov- ernment of the proposed exemption in favour of horticultural undertakings. In particular, the Commission asserts, that 54. It asserts that, by virtue of Article 2 of government failed to demonstrate that the Regulation No 659/1999 and paragraph 23 uptake of nitrogen and phosphates by of the notice, it is for the Member States plants grown under glass or on substrate concerned to establish that an exemption is eight times higher than that of tradition- from a levy is not a State aid measure on the ally-grown crops. ground that it is necessary to the function- ing of the relevant tax system. If, in the course of the procedure, the Member State and the interested parties omitted to put forward the arguments or to provide the necessary information which would enable the Commission to allay the difficulties encountered in examination of the measure and would convince it that the measure is 57. On the basis of the foregoing consid- not incompatible State aid, the Commission erations, the Commission takes the view has no option, it believes, but to refuse that the four conditions laid down by the approval of that measure. notice are satisfied. I - 4472

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58. Firstly, it contends, the exemption 61. According to the Netherlands Govern- under analysis does reduce the charges ment, that exemption confers no advantage which the beneficiaries normally have to whatsoever on those undertakings but bear. Secondly, it is an advantage granted rectifies an error to their detriment in the by the State or through State resources in MINAS system. The differentiation in their that it entails a loss of tax revenue. Thirdly, favour which the exemption regulation it does affect trade between Member States, introduces, or even the fact that the since it strengthens the financial position of measure is selective, is therefore justified, the beneficiaries. Fourthly, it is not justified it contends, by the nature and general by the nature of the mineral levy system. scheme of the system of manure levies. I shall start by examining that argument.

63. It is worthy of note that, by virtue of Article 10 EC, Member States have an obligation to cooperate in the implementa- tion of Article 88 EC. 29 That obligation 64. That obligation of cooperation, requires Member States to provide the founded on Article 10 EC, is expressly Commission with all information necessary referred to in the sixth recital in Regulation for it to carry out its duties. Accordingly, a No 659/1999, which defines the Commis- Member State which seeks to be allowed to sion's procedures for monitoring State aid grant aid in derogation from the Treaty drawing on the practice of the Commission rules must provide all the information to and the case-law of the Court of Justice. 34 enable the Commission to verify that the That obligation is embodied, in Article 2(2) conditions for the derogation sought are of that regulation, in the obligation fulfilled. 30 A Member State which fails to imposed on the Member State concerned fulfil its duty of cooperation during the to provide all the information necessary in administrative procedure cannot, subse- order to enable the Commission to take a quently, charge the Commission with hav- decision on the existence of aid 35 and ing manifestly erred in its assessment nor whether it is compatible with the common with having given insufficient reasons for its market. decision, 31 or with failing to seek assistance

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scheme of the system and, consequently, — 'unlike outdoor crops, crops grown that it is not aid within the meaning of under glass or on substrate are not Article 87 EC. 36 It is therefore necessary to dependent on the seasons, and fertili- examine whether, on the facts of the present sers can therefore be applied and used case, the Netherlands Government has throughout the year; established that the quantities of nitrogen and phosphates exempted for horticultural undertakings and garden centres which grow crops under glass or on substrate are inherent in the nature and general scheme of the MINAS system. — with crops under glass or on substrate, the type of farming, measured by the number of plants per hectare, is much more intensive than outdoor cultiva- tion. The uptake of fertilisers per hectare by the plants is consequently significantly above that in outdoor cultivation;

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68. Admittedly, it seems undeniable that the Commission that the exempted quan- the yields of crops grown under glass or on tities of phosphates and nitrogen are substrate are higher than those from out- correct, and stating that such justification door, soil-bound cultivation. It is therefore could only be substantiated scientifically. plausible to suggest that, over a comparable area of cultivation, crops grown under glass or on substrate allow a greater uptake of phosphates and nitrogen by plants, in the course of a year, than outdoor, soil-bound crops. 71. The Netherlands Government never- theless contends that the justification which it did furnish to the Commission must be evaluated in the light of the fact that at no time did the Commission specify its criti- cisms of the exemption regulation. Nor, according to that government, did the 69. However, the foregoing explanations Commission state precisely what informa- do not establish that the uptake of fertilisers tion it needed on which to base its assess- by plants grown under glass or on substrate ment, in particular after the letter of 17 is on average eight times higher than that of May 2000. In the view of the Netherlands outdoor, soil-bound crops. Nor do they Government the Commission should, in the warrant the conclusion that the uptake absence of adequate information, have corresponds to average annual quantities reserved its approval and clearly formulated of 460 kg of phosphates and 800 kg of its request for information. nitrogen per hectare. Furthermore, they do not prove that the uptake of phosphates and nitrogen by crops grown under glass and those produced on substrate should be set at the same flat-rate amounts, when the Netherlands Government itself points out that the former are in direct contact with 72. In my view that argument is untenable. the ground and that the latter are not. I believe, on the contrary, that the Commis- sion did make its criticisms of the exemp- tion regulation sufficiently clear to the Netherlands Government.

74. Subsequently, in its letter of 20 March 2000 informing the Netherlands Govern- ment of its intention to initiate the formal 76. In the light of the foregoing, I consider investigation procedure, the Commission that the Commission did make it clear that stated that the explanations provided by the explanations provided by the Nether- that government in its letter of 10 January lands Government failed to justify exempt- 2000 were not sufficient to conclude that ing such large amounts of phosphates and the exemption in question was justified by nitrogen, bearing in mind, in particular, the the nature and general scheme of the fact that the same rules were proposed for system. The Commission observed that the horticulture under glass and for horticul- authorised input of phosphates (460 kg) ture on substrate and that, under those and of nitrogen (800 kg) appeared to be circumstances, such exemption arrange- much higher than for soil-bound outdoor ments had to be treated as operating aid. crops and that there appeared to be no reason inherent in the system to grant the proposed exemption. In respect of garden centres which carry on horticultural activ- ities, the Commission indicated that there did not appear to be any reason to grant an exemption of that nature either, since the same rules should apply to soil-bound and 77. Similarly, I am of the view that, in the to non-soil bound horticulture. circumstances of the present case, the Commission cannot be criticised for not reacting to the letter of 17 May 2000 from the Dutch authorities otherwise than by adopting the contested decision or for not making a further request to those autho- rities for additional information. 37 Indeed, given the terms of the Commission's letter of 20 March 2000, the Netherlands Gov- 75. The Commission added that, at the ernment could not have been unaware that stage then reached in the procedure, it took the view that, in the absence of justification, those exemptions should be treated as State aid. Further, since those exemptions 37 — The Commission in any event asked the Netherlands Government, by letter of 20 June 2000, if the letter of 17 appeared to meet all the criteria set out in May 2000 did in fact contain its official observations in the paragraphs 9 to 12 of the notice, they had context of the formal investigation procedure. That government replied in the affirmative by letter of 3 July to be qualified as operating aid. Finally, the 2000.

(ii) The other conditions to be fulfilled 78. To allow otherwise, in the circum- under Article 87(1) EC stances of the present case, would lead to a reversal of the burden of proof which lies, as has been seen, with the Member State. Mindful of the fact that, in response to its letter of 20 March 2000, the Netherlands Government merely restated the informa- 80. Since the criteria laid down by Article tion it had already set out, and submitted 87(1) EC are cumulative, the task remains no document, not even the studies which it of assessing the arguments of the Nether- cited for the second time, the Commission lands Government that, on the one hand, could legitimately take the view that the the exemption is not an advantage con- Netherlands Government had failed to ferred by the State or through State satisfy the requirement on it to provide resources and that, on the other, the proof and that it was, in consequence, in a exemption does not affect competition or position to make a definitive finding on the trade between Member States. exemption regulation. 38

82. The Netherlands Government main- tains, in essence, that the MINAS system is not a tax regime in that it seeks not to 84. 'State resources' can therefore be nega- generate revenue but to minimise losses of tive in form, and merely consist in the minerals into the environment by means of absence of a gain for the State in question. prohibitive levies. In consequence, it is not necessary that the purpose of the general scheme from which the disputed measures derogate is to gen- erate income for the State. In that respect, the Court held in Piaggio, 42 that an exemption from the obligation to pay fines or other pecuniary penalties had to be regarded as an advantage within the mean- 83. In the light of the case-law of the Court ing of Article 87(1) EC. of Justice, those arguments must, it seems, be dismissed. It is apparent from settled case-law that the concept of aid encom- passes not only positive benefits, such as subsidies themselves, but also interventions by public authorities which, in various forms, mitigate the charges which are normally borne from the budget of an undertaking and which therefore, without 85. It follows from the foregoing that the being subsidies in the strict meaning of the Commission properly held in the contested word, are similar in character and have the decision that the Netherlands Govern- same effect. 39 In Banco Exterior de ment's analysis of the MINAS system as España, 40 the Court inferred from that analogous to a system of administrative and case-law that a measure by which the public criminal fines rather than to a tax system is authorities grant to certain undertakings a not such as to cast doubt on the classifica- tion of the exemptions concerned as State aid. 39 — Sec Case 30/59 De Gezamenlijke Steenkolenmijnen in Limburg v High Authorily [1961] ECR 1, paragraph 39. Case C-200/97 Ecotrade [1998] ECR I- 7 907, paragraph 34 and Case C-6/97 Italy v Commission, cited above 41 — See also the judgment in Case C-75/97 Belgium v (paragraph 15). Commission, cited above (paragraph 24), concerning a 40 — Case C-387/92 Banco Exterior de España [1994] ECR measure consisting of increased reductions in social I-877. paragraph 14. In that case, the Court was addressing security contributions. an exemption for public credit institutions from all forms 42 — Case C-295/97 Piaggio v Commission [1999] ECR I-3735, of State, provincial and municipal taxes. paragraphs 41 to 4 3 .

88. The reasoning of the Netherlands 90. It follows that the Commission was Government on this point is founded on entitled to take the view in the contested decision that the disputed exemption could adversely affect trade between Member States. 46 43 — See Case C-56/93 Belgium v Commission [1996] ECR I-723, paragraph 79, Case C-241/94 France v Commission [1996] ECR I-4551, paragraph 20 and Case C-75/97 Belgium v Commission, cited above (paragraph 25). See also Case T-55/99 CETM v Commission [2000] ECR II-3207, paragraph 53. 45 — See paragraph 36. 44 — See paragraph 40. 46 — See paragraph 40.

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91. In view of the foregoing, I consider that crops under glass, a very large proportion the first limb of the first plea should be of the phosphates and nitrogen is taken up rejected as ill-founded. by the plants.

94. The Commission submits that it is not necessary for the Court to examine the 2. Compatibility of the exemption in ques- second limb of the first plea because it can tion with Directive 91/676 have no bearing on the legality of the contested decision. It is clear from that decision that the incompatibility of the exemption with Directive 91/676 is merely an additional reason to refuse approval of the aid measure. (a) Arguments of the parties

99. In the light of the above, the Nether- lands Government is wrong to assert that the Commission's finding that the exemp- tion is State aid incompatible with the common market rests on an incorrect legal framework. 97. The Commission then stated that the type of aid in question had to be regarded as an operating subsidy and did not satisfy the requirements for it to fall within any of the exceptions established in Article 87(3) EC. 51 Lastly, it refuted the proposition that it used or misused the State aid procedure in order to enforce Directive 91/676. 52

104. It seems to me that the reasoning put forward by the Netherlands Government in relation to the second plea seeks to call into 101. Having regard for the foregoing, the question the burden of proof incumbent on second limb of the first plea should also be it and, therefore, to dispute the substance of rejected. the contested decision. That allegation by the Netherlands Government of a failure to state reasons is in effect tantamount to challenging the finding that, on the one hand, it was for it to establish that the proposed exemption was justified by the nature and general scheme of the system as a whole and that, on the other, it has not discharged that obligation. B — Failure to comply with the obligation to state reasons

IV — Conclusion

109. In view of all the foregoing I therefore propose that the Court should:

(1) dismiss the application brought by the Kingdom of the Netherlands;

(2) order the applicant to pay the costs.

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