Brussels, 5 September 2014
State aid: Commission orders Bulgaria to recover incompatible State aid granted to certain parties to forest swap transactions
After an in-depth investigation, the European Commission has concluded that a Bulgarian law that allowed the swapping of privately-owned against publicly-owned forest land was incompatible with EU State aid rules. The law, which was in force at the time of Bulgaria's accession to the EU in January 2007 until January 2009, conferred a selective advantage on undertakings which benefitted from these forest swap transactions, distorting competition in the Single Market. Bulgaria must now either recover the incompatible State aid from the companies that received it or undo the swaps concerned.
Following the receipt of two complaints the Commission launched an in-depth investigation in June 2011 into the Bulgarian forest swap transactions and subsequent change in the designated use of the swapped forest land that occurred in some cases (see JOCE C/273/2011). The Commission's investigation focused on the period from 1 January 2007, when Bulgaria joined the EU, until 27 January 2009, when the swaps were discontinued by Bulgarian authorities.
Under the contested legislation, private owners of forest land were allowed to swap their estates for publicly-owned forests. The value of the forest land – both private and public – was determined for the purpose of the swap by an administrative method prescribed by Bulgarian law. The scheme had not been notified to the Commission for prior authorisation as required by Treaty rules.
The Commission found that the administrative prices used in the context of the swap transactions were not regularly updated and did not sufficiently take into account market considerations. Consequently, in the majority of cases they were relatively far from market prices for similar forest estates. As a result, private parties participating in these swap transactions gained a competitive advantage. Such aid is incompatible with EU rules. In particular, the Commission did not find any indications that the aid had been limited to the minimum necessary to achieve a certain policy objective.
In its investigation, the Commission also examined the reclassification by Bulgarian authorities of the swapped forest into land available for construction that occurred in a number of cases. However, the Commission concluded that, while changing the designated use of the swapped forest land may increase its value, this increase was not financed by state resources and therefore did not constitute State aid within the meaning of the EU rules.
Bulgaria must now either recover the incompatible State aid granted to undertakings that participated in the forest land swaps, or undo the swaps concerned. In this respect the Commission notes that, even though the total number of swap transactions during the period under scrutiny was substantial – 132 transactions in total – the number of individual cases where aid recovery is necessary is expected to be much smaller. Indeed, physical persons not having an economic activity related to the forest estates they swapped are not subject to EU State aid rules since they are not considered undertakings under EU law. Consequently, they will not be required to pay back any advantage received. Moreover, if the advantage received by an undertaking did not exceed the equivalent of EUR 200 000 over a three-year period (and provided the other requirements of the de minimis Regulation1are respected), this is not considered as State aid under EU law and does not have to be recovered either.
In the context of the Bulgarian legislation allowing the swaps of forest estates against administrative prices, the Commission has disputed the use of administrative prices that are not sufficiently close to market prices observed in similar transactions. The decision adopted today, therefore, does not call into question the use of administrative prices by Member State authorities as such, but only the lack of regular updates and the coefficients used for the administrative price-setting in the specific case of the swaps of forest estates in Bulgaria.
Article 108(3) of the Treaty on the Functioning of the European Union (TFEU) provides that Member States must notify State aid to the Commission for prior authorisation. If a Member State nevertheless grants State aid in breach of this obligation, the Commission may later examine the compatibility of the measures with EU State aid rules - either on its own initiative or following complaints. If the Commission then finds that the aid was incompatible with EU rules, generating an undue distortion of competition in the Single Market, then it must be recovered by the Member State concerned from the beneficiary undertakings. The corresponding amounts must be paid back to the Member State's own budget.
The Commission does not impose fines on Member States in State aid procedures. A fine on a Member State may only be imposed by the EU Court of Justice if a Member State has infringed EU law by failing to comply with a previous order to recover incompatible aid.
The non-confidential version of the decision will be made available under case number SA.26212 and SA.26217 in the State Aid Register on the Commission website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.
Commission Regulation (EC) No 1998/2006 of 15 December 2006 on the application of Articles 87 and 88 of the Treaty to de minimis aid, OJ L 379 of 28.12.2006, p. 5