Case C-129/12, Magdeburger Mühlenwerke – discretion to implement EU state aid law? [judgment 2013, ECLI:EU:C:2013:200]

Where the EU Commission required the reform of German investment law to comply with EU state aid law, did the EU legislature leave Germany any discretion to create a rule permitting aid when the goods would be supplied only after the Commission’s deadline?

Facts

In order to reflect a reform of the Common Agricultural Policy, the EU Commission wished to readjust EU state aid law. In 1994, the Commission decided that regional investment aid should no longer be allowed for the processing and marketing of agricultural and forestry products. Thus regional investment aid should not be used for companies producing flour, or companies investing in mills. The Commission’s 1994 Decision and subsequent Communication paved the way for the Commission’s 1995 state aid ‘guidelines and appropriate measures’ for investment aid in the processing and marketing of agricultural products.

Germany took the view that these Guidelines and appropriate measures had the legal status of a Recommendation for the purposes of Article 189 (5) EC (now Article 288 (5) TFEU). In 1996, the Commission decided to open a procedure against Germany to assess the compatibility of national aid measures with Article 92(3) EC. And in May 1998, the Commission took a further Decision against Germany requiring amongst other things that Germany change its investment aid law, and ensure that no state aid would be granted for investments in the processing and marketing of agricultural products in accordance with the Commission’s 1994 Decision.

On 18 September 1998, the German Finance Ministry dated an administrative circular which was published in the Federal Tax Journal ten days later. The announcement had two aspects. First, the former East-German Länder were not to award investment aid after 3 September in accordance with the Commission’s 1994 Decision. And second, the German Investment Allowances Act (the InvZulG) would be amended.

After the announcement, the German Investment Allowances Act was duly amended in the middle of December 1998 with the effect that no premium would be paid for those goods mentioned in the Commission’s 1994 Decision for goods bought or produced after 2 September 1998.

The problem in this case was that in 1999 the claimant, a miller, claimed for a sizeable investment which it had made back in 1998. The Magdeburg Tax Office rejected the claimant’s claim, and did so because the agricultural goods had been supplied after 2 September 1998 – the Office felt it of no consequence that before that date the investment decisions had been taken, the majority of the goods had been ordered, and that legal commitments had been entered into.

The claimant objected to this and pointed out that the subsidy norm had already achieved its steering effect, and this gave rise to a legitimate expectation that the norm would continue to exist until it was announced in the Journal that the measure was rescinded. The relevant date therefore was the date of the announcement in the Tax Journal, the 28 September 1998. In any event, the announcement had retroactive effect, and retroactivity was contrary to the German Basic Law.

The Financial Court of Sachsen-Anhalt agreed. Yet it also thought this was not an issue for the Court of Justice of the European Union since the law which had been infringed was national law. The Financial Court’s judgment was appealed up to the German Constitutional Court. And in October 2011, the Constitutional Court gave its decision; the Financial Court’s question and argument were inadmissible. The Financial Court had been insufficiently clear as to whether the alleged unconstitutionality flowed from either EU law (which binds the German legislature), or whether the measure flowed from any discretion granted to the German legislature. In this respect, the German Constitutional Court explained that it no longer exercised its jurisdiction to decide on the applicability of EU law inside Germany where public bodies used national legislation as a basis for their acts. If the EU had left no discretion to the German legislature on how to transpose an EU Directive or an EU Decision, then the national measure would not be reviewed for its compatibility with the German Basic Law. And if there was a lack of clarity surrounding EU law, then the Financial Court was under an obligation to make a preliminary reference to the Court of Justice of the European Union.

Question Referred

According to the Curia website, the Financial Court of Sachsen-Anhalt therefore asked:

Did Commission Decision C(1998) 1712 of 20 May 1998  grant the German legislature discretion in relation to the formulation of point 4 of the second sentence of Paragraph 2 of the Investitionszulagengesetz (‘InvZulG 1996′) (Law on investment grants of 1996) in the version of the Steuerentlastungsgesetz 1999 (Law on tax relief of 1999) of 19 December 1998, whereby a scheme would be covered by that discretion if it promotes investments under that scheme, in relation to which the binding investment decision was made before the expiration of the period for the implementation of the Commission Decision or before the publication of the intended measures in the Bundessteuerblatt (Federal Tax Journal, ‘BStBl’), but the delivery of the capital asset and the determination and disbursement of the grant take place afterwards?