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General Court: German nature conservation organisations are undertakings

General Court: German nature conservation organisations are undertakings

In a judgement from 12 September 2013, the General Court of the European Union ruled that German nature conservation organisations (Naturschutzorganisationen) were undertakings within the meaning of state aid rules. As a result thereof, the transfer of title to tracts of land by the Bund (the German federal government) to these organisations for nature conservation must be checked against the state aid rules.

The case
In order to save costs, the Bund decided to transfer the title to huge tracts of land (including those situated in national parks, UNESCO Biosphere Reserves and military training areas) for no consideration or with subsidy to the Länder (the federal states), the foundation Bundesstiftung Umwelt and other organisations involved in nature conservation. In 2007 the measure was reported to the Commission solely for legal certainty considerations. After all, Germany held the view that no state aid was involved. The Commission did not share this opinion and determined in its decision of 2 July 2009 that state aid was in fact involved. Although this state aid was permitted since the Commission declared it to be compatible with the internal market, Germany appealed to the General Court. Specifically, Germany was of the opinion that the nature conservation organisations could not be regarded as undertakings. In addition, Germany believed that transferring the parcels of land for no consideration did not result in the fact that the nature conservation organisations were provided with benefits.

The definition of ‘undertaking’
According to what has long been established case law of the General Court, an undertaking is any entity that carries out an economic activity. An economic activity is offering goods and/or services in a specific market. Activities that relate to the exercise of powers of public authority have, by contrast, no economic character. If an entity conducts economic activities that are separate from the exercise of powers of public authority, this entity then acts as an undertaking with regard to these economic activities.

Nature conservancy is considered by the General Court to be equivalent to the exercise of powers of public authority. To this extent, the nature conservation organisations do not, of course, have the character of an undertaking. They do, however, also perform ‘ancillary activities’, such as the sale of wood plus hunting and fishing leases, and the provision of tourism services. In light of the foregoing, the General Court then looked into whether the ancillary activities are connected with nature conservancy. It turns out that the ancillary activities are intended as sources of income to enable nature conservancy. The nature conservation organisations were in a sense provided incentives to generate as much income as possible through the ancillary activities. Nevertheless, the General Court established that nature conservancy does not make the performance of ancillary activities necessary. Germany had pointed out that the ancillary activities were not being conducted to generate a profit and that the profitability level was low. This argument also failed to convince the General Court. The lack of a profit motive was irrelevant, while the low profitability level did not affect the fact that they competed with undertakings not involved in nature conservancy. Furthermore, according to established case law, the manner in which an entity is financed is irrelevant. The situation does not change due to the fact that the income generated through the ancillary activities must be used for nature conservancy.

Consequently, the General Court came to the conclusion that the nature conservation organisations must be considered to be undertakings in respect of their ancillary activities.

The benefit
The General Court agrees with the Commission that the nature conservation organisations are receiving a benefit, since they can use the land commercially. The fact that the revenues must be used for nature conservancy so that the organisations for nature conservation cannot make any profit is, according to the General Court, irrelevant.

Germany had further put forward that the nature conservation organisations did not receive any benefit because the Altmark criteria were met. According to the Commission, however, this was not the case. Germany and the Commission disagreed in particular as to whether the fourth Altmark criterion had been properly applied. The fourth criterion applies if an undertaking charged with a service of general economic interest (SGEI) is not selected within the framework of a public tender procedure. In that situation, the necessary compensation for the SGEI must be determined on the basis of the costs that an average, well-run undertaking charged with an SGEI would have incurred to carry out these obligations.

As evidenced by the notified measure, the intent is for the nature conservation organisations to be selected in a public bidding procedure. The nature conservation organisations were not, however, selected on the basis of the most economically advantageous tender, but rather on the basis of the eligibility profile of the organisations and, in respect of nature conservancy areas, the environmental benefits of the project. Thus, according to the General Court, the compensation was not established on the basis of a public tender procedure. Furthermore, it is not guaranteed that the SGEI is being performed at the lowest price. Therefore, the compensation for the SGEI was not established in compliance with the fourth Altmark criterion.

Comments
For quite some time, the Commission has held the view that nature conservation organisations also conduct economic activities and consequently must be considered to be undertakings. In the decisions of 20 April 2011 and 13 July 2011, the Commission considered Dutch nature conservation organisations as undertakings. The appeal lodged by various organisations for nature conservation against the latter decision was, however, not allowed by the General Court in a ruling of 19 February 2013. Consequently, the General Court did not address the question as to whether the Commission had rightly considered the Dutch nature conservation organisations to be undertakings. In light of the judgement discussed here, it must be assumed that the Commission could in fact consider the Dutch organisations for nature conservation as undertakings. This means that the Dutch organisations for nature conservation must also take the rules pertaining to state aid into consideration.

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