On Tuesday, 25 January, the Court of Justice of the EU ruled in Case C-638/19 P that the EU’s General Court erred in law when it concluded that the European Commission was not competent to examine, in light of the law on State aid, the compensation that Romania paid Swedish investors in implementation of an arbitral award.
This judgment of the General Court was based on the argument made by these investors according to which that Member State had unlawfully repealed a tax incentives scheme prior to its accession to the European Union, but the aid measure to which the European Commission referred had nevertheless been granted afterwards.
On 29 May 2002, Romania and the Kingdom of Sweden concluded a bilateral investment treaty on the promotion and reciprocal protection of investments (“BIT”), which notably provides that disputes shall be settled by an arbitral tribunal. In 2005, in the context of the negotiations for the accession of Romania to the European Union, the Romanian government repealed a national tax incentives scheme benefiting certain investors from disadvantaged regions.
Taking the view that Romania had breached its obligation to ensure fair and equitable treatment of their investments in accordance with the BIT by repealing the tax incentives scheme, several Swedish investors had requested an arbitral tribunal be established; in December 2013, this tribunal had ordered Romania to pay them approximately €178 million.
Despite various warnings from the European Commission on the procedures applicable to State aid, the Romanian authorities paid this compensation.
In 2015, the European Commission classified this compensation as State aid incompatible with the internal market and ordered the recovery of the sums. However, the General Court had annulled this decision on the grounds that the European Commission had retroactively applied its competences to facts predating Romania’s accession in 2007.
This is the decision that the Court of Justice overturned on 25 January by confirming the European Commission’s competence.
“As the Commission had acquired competence to control, pursuant to Article 108 TFEU, aid measures granted by Romania with effect from its accession to the European Union”, the Court of Justice recalls that State aid must be regarded as being granted on the date on which the right to receive it is conferred on the beneficiary under the applicable national legislation. The decisive factor for establishing this date is the acquisition by the beneficiaries of a definitive right to receive the aid in question as well as the corresponding commitment, by the State, to grant that aid.
[The court states,] “It is at that date that such a measure is liable to distort competition and affect trade between Member States”. In the present case, the Court of Justice notes that the right to compensation for the damage alleged by the Swedish investors, although it was the result of the repeal—allegedly in breach of the BIT—of the tax incentives scheme by Romania, was only granted by the arbitral award of 11 December 2013. Thus, as the aid measure in question was granted after the country’s accession, the General Court erred in law in holding that the European Commission was not competent.
Link to the judgment: https://bit.ly/3KGgBEA (Original version in French by Solenn Paulic)