Decision of the European Ombudsman Closing His Inquiry Into Complaint 1708/2011/JF Against the European Commission

Decision of the European Ombudsman closing his inquiry into complaint 1708/2011/JF against the European Commission

Decision Case 1708/2011/JF - Opened on 26/10/2011 - Decision on 14/01/2013 - Institution concerned European Commission ( No maladministration found ) |

The complainant submitted a complaint against Portugal to the European Commission, alleging a failure of that Member State correctly to apply EU State aid rules.

When the Commission decided that there was no reason to investigate the complaint, the complainant turned to the European Ombudsman. He argued that the Commission took that decision too quickly and, moreover, failed properly to justify it. It also failed to reply to the complaint in Portuguese, which was important because what the complainant challenged was the Portuguese authorities' very interpretation of EU legislation. Finally, it also failed to reply to the complainant's further correspondence. The complainant claimed that the Commission should properly investigate his complaint and clarify its interpretation of the legislation in question.

In reply to the Ombudsman's inquiry, the Commission explained that its Directorate-General (DG) for Competition had already dealt with a matter similar to that referred to by the complainant in his complaints in the context of a procedure that it closed in 2011. That was why DG Competition was able to reply so quickly. It further provided its interpretation of the legislation in question, which coincided with that of the Portuguese authorities. Finally, it apologised for having committed some administrative mistakes and explained the reasons for their occurrence.

The Ombudsman found that, in addition to not having committed maladministration, the Commission even satisfied the complainant's claims. While emphasising that the interpretation of EU law is a matter that can only be authoritatively settled by the EU Courts, the Ombudsman also took the view that the Commission's interpretation of the relevant EU legislation was reasonable. In view of the foregoing, he closed the case.

The background to the complaint 1. The complainant owns two companies, one based in Portugal and the other in the Netherlands.

2. By e-mail of 11 April 2011, the complainant submitted to the European Commission a complaint against Portugal, alleging an infringement of EU law (the 'First Complaint'). The

1 complainant argued that by refusing to grant aid related to intangible assets acquired by one company from another company belonging to the same owner, Portugal infringed Article 12(2)(c) of the General block exemption Regulation [1] and thus failed properly to comply with EU law on State aid.

3. On 4 May 2011, the Commission's Directorate-General (DG) for Competition replied to the First Complaint. It explained that it was unable to identify any unlawful State aid granted by the Portuguese authorities. It added that, in accordance with Article 107 of the Treaty on the Functioning of the European Union (TFEU), a measure constitutes unlawful State aid if it has been 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, in so far as it affects trade between Member States. In DG Competition's view, the complainant did not put forward any allegation concerning the unlawful granting of State aid, but rather referred to the absence of State aid. In light of the above, DG Competition did not envisage pursuing the matter further.

4. On 9 May 2011, the complainant submitted a new complaint to the European Commission about the same matter, in Portuguese (the 'Second Complaint').

5. On 12 May 2011, the Commission's Secretariat-General (the 'SG') acknowledged receipt of the Second Complaint.

6. On 27 July 2011, the complainant drew the SG's attention to the fact that he had not received any further news as regards the Second Complaint.

7. On 29 July 2011, the SG replied that it had registered the Second Complaint under reference number " Ares (2011 )516669 " and had assigned it to DG Competition.

8. On 3 August 2011, DG Competition registered the Second Complaint. It apologised to the complainant for the delay and inconvenience caused which, as it explained, were due to "[a] problem with [its] registry system who deleted [the complainant's] e-mail. "

9. The complainant then asked DG Competition to confirm that it had received all relevant documents concerning the Second Complaint. DG Competition confirmed that it had received all the documents. It reassured him that " it was just an [IT] problem. "

10. On 4 August 2011, that is, the following day, DG Competition replied to the Second Complaint in English. In sum, DG Competition found no evidence in the Second Complaint that Portugal had infringed Article 12(2)(c) of the General block exemption Regulation. Consequently, it did not envisage pursuing the matter further.

11. The complainant replied on the same day, expressing his disagreement with DG Competition's position. He argued that the incorrect application of Article 12(2)(c) of the General block exemption Regulation by the Portuguese authorities caused damages to his company in Portugal. According to the complainant, the United Kingdom ('UK'), applies the said article differently. This has the result that foreign companies are in a more

2 advantageous position vis-à-vis companies which are based in Portugal. The complainant asked DG Competition to clarify what the correct interpretation of Article 12(2)(c) of the General block exemption Regulation was.

12. Not having received any reply, on 17 August, and 18 and 22 September 2011, the complaint turned to the European Ombudsman. The subject matter of the inquiry 13. The complainant alleged that the Commission failed properly to handle his Second Complaint.

14. The complainant claimed that the Commission should

(i) thoroughly analyse and investigate the Second Complaint, keeping him informed of the developments at all stages and making any resulting conclusions public, with a view to guaranteeing a uniform application of EU law; and

(ii) provide the correct interpretation of Article 12(2)(c) of the General block exemption Regulation, having particular regard to the Portuguese linguistic version of that article. The inquiry 15. On 26 October 2011, the Ombudsman forwarded the complaint to the President of the European Commission for an opinion.

16. On 27 February 2012, the Ombudsman received the Commission's opinion in English and, on 12 March 2012, its translation into Portuguese which he forwarded to the complainant with an invitation to make observations. The Ombudsman received no observations on the Commission's opinion except for a copy of a letter the complainant had sent to DG Competition directly on 1 January 2012. The Ombudsman's analysis and conclusions A. Allegation of failure properly to handle the Second Complaint

Arguments presented to the Ombudsman

17. First , the complainant argued that it was unreasonable to believe that DG Competition had been able to analyse thoroughly and, subsequently, to reply properly to the Second Complaint within only 24 hours of its registration.

18. In its opinion, the Commission explained in this respect that DG Competition was able promptly to reply to the Second Complaint because it had already examined in detail the relevant issues in the context of the First Complaint. Indeed, it was the fact that the two complaints were very similar that resulted in the Second Complaint's erroneous deletion, due to DG Competition's impression that it amounted to a duplication of the First Complaint.

19. In addition, DG Competition had already dealt with the issues referred to by the

3 complainant in his two Complaints in the context of another procedure which was initiated in 2009 and which DG Competition closed on 14 July 2011 (the '2009 Procedure'). This was the reason why DG Competition was able swiftly to reply to the Second Complaint.

20. Second , in the complainant's view, DG Competition did not properly justify why it considered that the complainant had not provided any indication that the Portuguese authorities infringed Article 12(2)(c) of the General block exemption Regulation.

21. With its opinion, the Commission enclosed a letter which DG Competition had sent to the complainant on 15 December 2011. In that letter, DG Competition explained its view that the Portuguese authorities applied Article 12(2)(c) of the General block exemption Regulation correctly. In sum, according to DG Competition, in cases where companies selling and buying intangible assets are controlled by the same person, the 'third party' condition of that article cannot be considered to be met.

22. The Commission explained further that DG Competition's 2009 Procedure had already focused on the Portuguese authorities' interpretation of Article 12(2)(c) of the General block exemption Regulation. When closing that case, DG Competition reminded the Portuguese authorities that, when transactions take place between two related companies, the 'third party' requirement is not met. This is, in DG Competition's view, the correct interpretation of the said article and the Portuguese authorities thus had an obligation not to grant aid in situations similar to that referred to by the complainant in his complaints.

23. In his letter to DG Competition dated 1 January 2012, the complainant contested the Commission's position. While acknowledging that he fully controlled the companies selling and buying the intangible assets, the complainant emphasised that he did not control or influence the transactions between them. Market conditions did. In addition, the companies in question were subject to fully independent tax systems in the Member States in question [2] . Finally, he pointed out that, at the time when the General block exemption Regulation was being drafted, one Member State and one law office expressed doubts about the clarity of Article 12(2)(c) which the Commission ignored.

24. Third , the complainant argued that DG Competition did not reply to his Second Complaint in Portuguese, which was not just the language of the complaint but also that of the version of Article 12(2)(c) of the General block exemption Regulation which gave rise to the complaint. Moreover, it did not take into account the fact that the UK interpreted that article differently.

25. In its opinion, the Commission referred to DG Competition's letter of 15 December 2012 in which the latter apologised to the complainant for the administrative errors that had occurred. In its opinion, the Commission further acknowledged having failed to reply to the Second Complaint in Portuguese and also apologised for that fact.

26. The Commission nevertheless also emphasised that all the complainant's e-mails to DG Competition, as well as certain annexes, were drafted in English. This explained why DG Competition, after identifying the Second Complaint as a complaint, sought quickly to reply

4 to it in English.

27. As regards the Portuguese version of Article 12(2)(c) of the General block exemption Regulation, the Commission took the view that it barely differed from the English version of that article [3] . In this respect, the Commission referred to the EU Courts' case-law concerning the interpretation of legislation drafted in different languages [4] .

28. Finally, the Commission understood the complainant's submissions that the UK authorities interpreted the requirements of Article 12(2)(c) of the General block exemption Regulation differently to mean that that Member State infringed EU law. The Commission took the view that the issue whether the UK authorities applied EU law correctly or not was irrelevant for DG Competition's assessment of the First and the Second Complaints, which concerned the compatibility of the Portuguese legislation at issue with EU law. Any possible doubts as regards the implementation of State aid rules by another Member State would have had to be expressed and investigated in the framework of separate proceedings against the Member State concerned.

29. In his letter to DG Competition dated 1 January 2012, the complainant emphasised that he meant to argue that the UK (as well as some other Member States) actually applied EU law correctly whereas Portugal did not. He reiterated that companies based in Portugal and those based in the UK were treated differently.

30. Fourth , the complainant argued that DG Competition did not reply to his e-mail dated 4 August 2011, concerning the Second Complaint.

31. In its letter to the complainant dated 15 December 2012, and in its opinion to the Ombudsman, the Commission acknowledged having failed to reply to the complainant's e-mail of 4 August 2011. It apologised for this " oversight ", which, it explained, was due to (i) the fact that the DG Competition official dealing with the Second Complaint was repeatedly on sick leave; and (ii) the summer break, meaning that fewer staff members were available and there was a need to prioritise resources, with a view to allowing DG Competition to deal with cases subject to rigid deadlines.

The Ombudsman's assessment

As regards DG Competition's swift reply to the Second Complaint ( first argument )

32. The Commission's explanation summarised in points 18 and 19 above is reasonable. Moreover, the complainant did not submit any observations in this regard in order to rebut the Commission's explanation.

As regards DG Competition's justification for not investigating the Second Complaint ( second argument )

33. The Ombudsman points out that the purpose of the General block exemption Regulation

5 was, among other things, to establish a clear set of conditions which, once fulfilled, would allow a number of state aid measures to be considered compatible with state aid rules without the need to fulfil the requirement of prior notification.

34. According to Article 12(2)(c) of the General block exemption Regulation:

"[i] n order to be considered eligible costs for the purposes of this Regulation, intangible assets shall fulfil all the following conditions:

[...] they must be purchased from third parties under market conditions, without the acquirer being in a position to exercise control, within the meaning of Article 3 of [the EC Merger Regulation] , on the seller, vice versa ".

Article 3 of the EC Merger Regulation [5] provides as follows:

" 2. Control shall be constituted by rights, contracts or any other means which, either separately or in combination and having regard to the considerations of fact or law involved, confer the possibility of exercising decisive influence on an undertaking, in particular by:

(a) ownership or the right to use all or part of the assets of an undertaking;

(b) rights or contracts which confer decisive influence on the composition, voting or decisions of the organs of an undertaking.

3. Control is acquired by persons or undertakings which:

(a) are holders of the rights or entitled to rights under the contracts concerned; or

(b) ... have the power to exercise the rights deriving therefrom. "

35. In the Ombudsman's understanding of the above articles [6] , intangible assets are only considered to be eligible costs when they are purchased from third parties.

36. In the Commission's view, the term 'third party' excludes transactions that take place between seller and buyer companies which are controlled by the same person [7] .

37. Since, as the complainant himself acknowledges, he controls both companies selling and buying the intangible assets [8] , the Commission's position that, in sum, in the present case, the 'third party' condition is not fulfilled, appears to be coherent and reasonable.

As regards the language of DG Competition's reply to the Second Complaint and the alleged failure to take into account the interpretation of the relevant provision by other Member States ( third argument )

6 38. The Ombudsman notes that the Commission has acknowledged having committed mistakes, namely, by not replying to the complainant in Portuguese, and has apologised. The Ombudsman certainly welcomes the Commission's initiative.

39. The Ombudsman further notes that, both in its letter of 15 December 2012 and in its opinion on the complaint, the Commission gave its interpretation of Article 12(2)(c) of the General block exemption Regulation in Portuguese (summarised in points 22 and 36 above). The Ombudsman does not see any reason to consider the Commission's interpretation wrong, as opposed to the complainant's interpretation that, in sum, the 'third party' requirement is met in cases where, despite controlling fully both the buying and the selling companies, the owner does not control the intangible assets market, or must comply with obligations resulting from the fact that the companies in question are subject to different tax systems [9] .

40. Finally, as regards the complainant's argument that, in sum, a number of Member States interpret Article 12(2)(c) of the General block exemption Regulation in a manner which is different from DG Competition's interpretation, the Ombudsman considers the Commission's reply to this argument to be accurate. Analysing the implementation of the EU legislation at issue by all Member States each time the Commission deals with specific pre-litigation infringement proceedings concerning one Member State could hardly comply with the principle of procedural economy. Moreover, any decision to join proceedings concerning infringements by other Member States to ongoing pre-litigation proceedings or any decision on interpretative standards in such proceedings (provided that these standards comply with the case-law) is within the Commission's discretion. The complainant did not show that, by limiting its analysis to the Portuguese situation, the Commission did not exercise its discretion correctly.

As regards the absence of a reply to the complainant's e-mail of 4 August 2011 ( fourth argument )

41. The Ombudsman takes the view that the Commission has remedied its conduct by apologising and offering explanations for its failure to reply.

The Ombudsman's overall assessment of the complainant's allegation

42. In light of his findings in points 32, 37, 39, 40 and 41, the Ombudsman considers that no maladministration has taken place.

B. Claims

43. The complainant claimed that the Commission should

7 (ii) provide the correct interpretation of Article 12(2)(c) of the General block exemption Regulation, having particular regard to the Portuguese linguistic version of that article.

44. In its opinion, the Commission referred to the conclusions of its 2009 Procedure and offered additional explanations for its decision not to investigate the Second Complaint.

The Ombudsman's assessment

45. The evidence available to the Ombudsman enables him to conclude that DG Competition decided on the Second Complaint in a sufficiently reasonable manner. In addition, in its letter of 15 December 2011, and in the opinion it submitted in the course of the inquiry leading to the present decision, the Commission provided sufficient, clear and easily understandable explanations for its decision not to investigate the Complaints. Finally, it clarified its interpretation of Article 12(2)(c) of the General block exemption Regulation, having particular regard to the Portuguese linguistic version of that article.

46. In view of the foregoing, the Ombudsman concludes that not only has the Commission not committed maladministration, but has also satisfied the complainant's claims. He therefore closes the case.

C. Conclusion

On the basis of his inquiry into this complaint, the Ombudsman closes it with the following conclusion:

No maladministration has been found as regards the complaint's allegation. In addition, the Commission has satisfied the complainant's claims.

The complainant and the President of the Commission will be informed of this decision.

P. Nikiforos Diamandouros

Done in Strasbourg on 14 January 2013

[1] Article 12(2)(c) (entitled 'Specific conditions applicable to investment aid') of Commission Regulation (EC) No 800/2008 of 6 August 2008 declaring certain categories of aid compatible with the common market in application of (the then) Articles 87 and 88 of the Treaty (the 'General block exemption Regulation'), OJ 2008 L 214, p. 3, provides that: "[i] n order to be considered eligible costs for the purposes of this Regulation, intangible assets shall fulfil all the following conditions: ... they must be purchased from third parties under market conditions, without the acquirer being in a position to exercise control, within the meaning of Article 3 of

8 Council Regulation (EC) No 139/2004 [of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation), OJ 2004 L 24, p. 1] , on the seller, or vice versa ... ".

[2] In the original Portuguese version: "[e] u controlo plenamente a empresa vendedora e a empresa adquirente. Importa no entanto referir que nas transacções em causa bem em como praticamente todas as que as empresas realizam as mesmas não são alvo do meu controlo ou influência mas sim das condições do mercado , ou seja qualquer uma das minhas empresas (tal como é comum no mercado comercial) não vai comprar um bem ou serviço mais caro a uma empresa ou grupo quando pode encontrar o mesmo bem ou serviço a preços mais baratos noutra empresa - tal seria ilógico e não nos trataria quaisquer vantagens. Devo referir que fiscalmente somos até obrigados (procedimento que é monitorizado pelas autoridades fiscais - até de forma activa e perceptível no caso das autoridades Holandesas) a estabelecer preços de mercado para licenciamento de software entre ambas as empresas por forma a proteger os interesses fiscais de cada país... "

[3] The relevant part of the said article provides, in Portuguese: " tenha a possibilidade de exercer controlo " and, in English: " being in a position to exercise control ".

[4] Joined cases T-349/06, T-371/06, T-14/07, T-15/07 and T-332/07 Germany v Commission [2008] ECR II-2181, paragraph 67: "[a] s Community legislation is drafted in various languages and the different language versions are all equally authentic, an interpretation of a provision of Community law involves a comparison of the different language versions... The need for a uniform interpretation of Community regulations necessitates that one language version should not be considered in isolation, but that it should be interpreted and applied in the light of the versions existing in the other official languages, ... even if that means that the provision at issue has to be interpreted and applied in a manner at variance with the natural and usual meaning of the words used in one or more linguistic versions, contrary to the requirements of legal certainty ".

[5] Cited in footnote 1 above.

[6] The Ombudsman emphasises that the Court of Justice of the European Union is the only body competent to give a binding interpretation of EU law.

[7] In its letter to the complainant dated 15 December 2011, DG Competition explained (in Portuguese) that "[p] ode dificilmente argumentar-se, como se afigura ser a sua opinião, que uma interpretação razoável da expressão " um terceiro " abranja o caso de um vendedor e um adquirente que são controlados pela mesma pessoa. Tal interpretação, se aceite, privaria quase totalmente de objecto o " requisito de um terceiro " ". In its opinion to the Ombudsman, the Commission explained further that "[i] n their letter of 14 July 2011 to Portugal, the services of DG COMP... informed the Portuguese authorities that [the] ' third party ' requirement is not met if the transactions take place between two related companies. "

[8] In the complainant's own words: "[e] u controlo plenamente a empresa vendedora e a empresa adquirente. "

9 [9] The Ombudsman reiterates that the Court of Justice of the European Union is the only body competent to give a binding interpretation of EU law.