In a recent decision (Case No. 1 Ob 23/26b), the Austrian Supreme Court provided a clarification – highly relevant for legal practice – regarding the relationship between national subsidy law and EU state aid law with respect to COVID-19 subsidies that have been granted. The key issue concerns how financial caps are to be calculated and the legal consequences of exceeding them. The court’s ruling has implications that extend well beyond the specific case:
Overview and Key Ruling of the Austrian Supreme Court
In the recent case decided by the Austrian Supreme Court, an Austrian company had received various COVID-19 subsidies. Like any state support, the Republic of Austria had to obtain prior approval for these subsidies (such as the business interruption bonus, fixed-cost subsidy, or loss compensation) from the European Commission in Brussels. Due to the large number of different subsidy programs, the European Commission had issued a specific guideline setting out the criteria it would use to assess Member States’ state aid measures to address the COVID-19 outbreak ("Temporary Framework"). Depending on the type of state aid – direct grants or compensation for uncovered fixed costs – the Temporary Framework set maximum thresholds of EUR 2.3 million or EUR 12 million, respectively.
The key issue in the case decided by the Austrian Supreme Court was whether these relevant state subsidy limits should be applied on the level of the individual company or on a group-wide basis. In the Temporary Framework, the European Commission used the term "per undertaking". In the relevant national funding guidelines, the caps were also intended to apply "per undertaking". The legal understanding in Austria had always been that subsidies could be applied for on an individual company basis. Both COFAG (the national Austrian body that had been created to decide upon COVID-19 subsidies) and the Austrian Ministry of Finance communicated this understanding that was also stated in the relevant FAQs and was repeatedly confirmed to the media.
Against this background, the European Commission’s subsequent statement that it interpreted the wording differently came as a surprise. Under EU law, the term "per undertaking" is understood in a broader sense to include the entire group of affiliated companies. Therefore, under this approach, the caps would also apply per corporate group rather than per individual company.
This divergence triggered extensive debate among COFAG, affected companies, and public authorities, in particular as to whether beneficiaries might at least be protected by the principle of legitimate expectations where aid had already been granted and used.
However, in this case, the Austrian Supreme Court has now clarified:
The European Commission’s approvals of COVID-19 subsidies are based – as is generally the case with the prohibition on state aid under Article 107 para 1 TFEU – on the concept of an "undertaking" under EU law. Accordingly, caps for government-granted COVID-19 subsidies are not to be applied to individual companies, but rather to the entire group of companies. If the permissible limit is exceeded, this constitutes unlawful state aid that must be repaid.
Definition of a Business: A Group of Companies Rather Than a Single Company
Despite contrary indications in the national funding guidelines, the Austrian Supreme Court expressly confirms the applicability of the EU definition of an "undertaking" in the context of COVID-19 subsidies:
- An undertaking is any entity engaged in economic activity, regardless of its legal form and how it is financed.
- It is therefore the economic entity, rather than the legal entity, that is decisive.
- Several legally independent entities form an economic entity if a natural or legal person actually exercises a controlling influence.
In practice, this means that the threshold does not apply "per company", but to the entire economic entity as a whole. Subsidies must therefore be aggregated across all affiliated group entities. In the view of the Austrian Supreme Court, COVID-19 support measures aimed at direct grants (fixed-cost grants, lockdown turnover compensation and loss bonuses) that exceed a total amount of EUR 2.3 million per group of companies require approval from the European Commission. The same would apply to support for uncovered fixed costs, such as subsidies for the compensation of losses. In this case, the relevant cap was most recently set at EUR 12 million.
This interpretation applies even where national authorities have applied a different, company-based approach, as any misconceptions at the national level do not affect the scope of the European Commission’s approval.
This has serious consequences:
Prohibition on implementation: Strict legal consequences for non-compliance
The Austrian Supreme Court emphasises the direct effect of the prohibition on implementation under state aid law pursuant to Article 108 para 3 TFEU:
- State aids may only be granted following approval by the European Commission. Any state aid exceeding the approved limit is deemed to be unauthorised.
- Accordingly, an overpayment exceeding EUR 2.3 million per group of companies constitutes a breach of the prohibition on implementation (Article 108 para 3 TFEU).
- Such aids are unlawful.
- Consequently, the Republic of Austria, as the legal successor to COFAG, is entitled to recover such overpayments from the recipient.
No protection of legitimate expectations, no referral to the European Court of Justice?
The main criticism of this interpretation by the Austrian Supreme Court is that, the principle of legitimate expectations was not applied, even though the European Commission had repeatedly granted individual authorisations of different state aid measures subject to the Temporary Framework. It is also notable that the Austrian Supreme Court did not initiate a preliminary ruling procedure on how the term "per undertaking" is actually to be interpreted under EU law. The matter is not, in fact, that clear-cut. In particular, the Temporary Framework does not contain a definition of the term itself, and other state aid legal acts have explicitly distinguished between the German terms of "undertaking" (Unternehmen) and "group of companies" (Unternehmensverbund).
It remains to be seen whether a reference will still be made to the European Court of Justice by other means – for example, through a public law court. This is likely to be prompted by an increasing number of claims for the repayment of subsidies. As the legal successor to COFAG, the Republic of Austria will have to attempt to recover such grants from groups of companies where the respective cap has been exceeded. The tax authorities are responsible for this.
DORDA is your point of contact
In light of this decision by the Supreme Court, any subsidies received or not yet paid out require careful legal scrutiny – particularly in the case of existing or previous COVID-19 subsidies within group structures. The decision may potentially affect a large number of companies that have claimed grants across their group or whose group structure has not yet been assessed in the light of the EU legal definition of an undertaking. Precisely because this may give rise to risks of having to repay grants and thus entail significant financial burdens, an early analysis of a company’s own grant history and associated risks is recommended.
DORDA is here to support you as a reliable partner – whether you need assistance with legal analysis, risk assessment or strategic communication with funding institutions and public authorities. Please feel free to contact us in confidence if you would like to gain clarity on your position under state aid law and the possible courses of action available to you.