61999J0147

1. Agriculture - EAGGF - Clearance of accounts - Quantities missing from the stockpile when checked and quantities in store shown by tests to be ineligible - Financial correction - Basis of calculation - Amounts accounted for in the application - Burden of proof

(Council Regulation No 1766/92; Commission Regulation No 689/92)

2. Agriculture - Common organisation of the markets - Oils and fats - Olive oil - Consumption aid - Withdrawal of approval from packaging undertakings where aid improperly applied for - Date of taking effect - Consideration in the light of the purpose of the sanction - Date at which the conditions for applying the sanction are satisfied - No unlawful retrospective effect

(Commission Regulations Nos 2677/85, Art. 12(6), and 643/93)

3. Agriculture - EAGGF - Clearance of accounts - Disallowance of expenditure arising from irregularities in the application of the Community rules - Flat-rate correction of 25% - No unlawful retrospective effect

(Council Regulation No 729/70)

4. Agriculture - Common agricultural policy - EAGGF financing - Principles - Conformity of expenditure with the Community rules - Burden of proof - Divided between the Commission and the Member State concerned

(Council Regulation No 729/70, Arts. 2 and 3)

5. Acts of the institutions - Statement of reasons - Obligation - Scope - Decision relating to the clearance of accounts in respect of expenditure financed by the EAGGF

(EC Treaty, Art. 190 (now Art. 253 EC))

1. For the clearance of expenditure in respect of quantities charged to the EAGGF, it is not the amount actually present which must be taken into account, but the amount accounted for and charged to the EAGGF. Therefore, although the tests showed that the durum wheat in store at the time of the check was not of a quality eligible for intervention, the correction must be made by the Commission on the basis of the amount accounted for. In accordance with the apportionment of the burden of proof, including the mitigation of the burden of proof on the Commission where it refuses to charge certain expenditure to the EAGGF on the ground that it was incurred as a result of breaches of Community rules for which a Member State can be held responsible, it is for that Member State to show that the amounts missing at the time of the check were eligible for intervention.

( see paras. 9, 20 )

2. Article 12(6) of Regulation No 2677/85 laying down implementing rules in respect of the system of consumption aid for olive oil, as amended by Regulation No 643/93, provides that, where the amount for which aid, which is granted only to approved olive oil packaging undertakings, has been improperly applied for exceeds the checked amount for which the entitlement to aid is recognised by at least 20%, the Member State shall withdraw the relevant approval. However, it does not specify from what date that withdrawal must take effect. Even if the sanction of withdrawal is made subject to a finding by the competent authority of the fact that the application for consumption aid covers an amount greater than that for which the entitlement to aid has been recognised, the wording of the said Article 12(6) does not specify whether the finding in question is declaratory or dispositive.

In that regard, consideration of the purpose of the sanction constituted by the withdrawal of approval shows that the reinforcement of the sanctions in cases of excessive applications for consumption aid for olive oil arises in the context of the campaign against fraud. The preamble to Regulation No 643/93, which rewrote the wording of Article 12(6) of Regulation No 2677/85, establishes a link between the smooth operation of the aid scheme [for the consumption of olive oil] and the necessity of extending the system of sanctions against packaging undertakings which apply for excessive quantities of aid. The efficacity and the deterrent effect of such sanctions cannot therefore be ignored in the context of determining the effect and temporal scope of the sanction constituted by withdrawal of approval.

Taking account of those circumstances, the payment of consumption aid by the EAGGF cannot be allowed if that aid corresponds to a period later than the date at which the conditions for applying the sanction under the second paragraph of Article 12(6) of Regulation No 2677/85 were satisfied. The impact of the sanction constituted by withdrawal would be diminished if a packaging undertaking, having lodged, in the course of a given marketing year, applications for excessive quantities within the meaning of those provisions, could lodge further applications in the course of the following years, with nothing to fear until the possible making of the formal report of a control check. Withdrawal under the second paragraph of Article 12(6) of Regulation No 2677/85, taking effect from the date on which the conditions for applying the sanction are satisfied, therefore seems necessary to ensure the efficacity of that system. The withdrawal decision still does not acquire any unlawful retrospective effect since, under that interpretation, the sanction applies simply from the moment when its conditions of application are satisfied and not from the check relating to the meeting of its conditions of application.

( see paras 37-42 )

3. The application by the Commission of a flat-rate correction of 25% of the premiums for sheepmeat and goatmeat paid to the producers of Sicily and Calabria for the 1993 and 1994 marketing years cannot be characterised as retrospective or unlawful. In the absence of precise rules, with regard to the amounts to disallow, in the penultimate subparagraph of Article 5(2)(c) of Regulation No 729/70 on the financing of the common agricultural policy, as amended by Regulation No 1287/95, it is necessary to take into consideration the guidance concerning the evaluation of the financial consequences during the preparation of the decision to clear the accounts, adopted by the Commission in Report No VI/216/93 of 1 June 1993, known as the Belle Report. That guidance provided that, in exceptional circumstances, the Commission could make a flat-rate correction at a rate higher than those normally laid down, that is to say 2%, 5% or 10% of the expenditure.

( see para. 53 )

4. Articles 2 and 3 of Regulation No 729/70 permit the Commission to charge to the EAGGF only sums paid in accordance with the rules laid down in the various sectors of agricultural production, leaving the Member States to bear the burden of any other sum paid, and in particular any amounts which the national authorities wrongly believed themselves authorised to pay in the context of the common organisation of the markets. Although it is therefore for the Commission to prove an infringement of the Community rules, it is for the Member State concerned, in an appropriate case, to demonstrate that the Commission made an error as to the financial consequences to be attributed to it.

( see para. 54 )

5. In the particular context of the preparation of decisions on the clearance of accounts in respect of expenditure financed by the EAGGF, the reasons for a decision applying a flat-rate correction must be considered adequate if the Member State to which the decision is addressed was closely involved in the decision-making process and is therefore aware of the reasons why the Commission considered that it was not required to charge the sum in dispute to the EAGGF.

( see paras 57, 61 )

In Case C-147/99,

Italian Republic, represented by U. Leanza, acting as Agent, assisted by D. Del Gaizo, avvocato dello Stato, with an address for service in Luxembourg,

applicant,

v

Commission of the European Communities, represented by F.P. Ruggeri Laderchi, acting as Agent, assisted by A. Dal Ferro, avvocato, with an address for service in Luxembourg,

defendant,

APPLICATION for annulment of the part concerning the Italian Republic of Commission Decision 1999/187/EC of 3 February 1999 on the clearance of the accounts presented by the Member States in respect of the expenditure for 1995 of the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (notified under document number C(1999) 209) (OJ 1999 L 61, p. 37),

THE COURT (Sixth Chamber),

composed of: F. Macken, President of the Chamber, N. Colneric, C. Gulmann (Rapporteur), V. Skouris and J.N. Cunha Rodrigues, Judges,

Advocate General: C. Stix-Hackl,

Registrar: R. Grass,

having regard to the Report for the Hearing,

after hearing oral argument from the parties at the hearing on 15 March 2001, at which the Italian Republic was represented by D. Del Gaizo and the Commission by L. Visaggio, acting as Agent, assisted by A. Dal Ferro,

after hearing the Opinion of the Advocate General at the sitting on 12 June 2001,

gives the following

Judgment

1 By application lodged at the Registry of the Court of Justice on 12 April 1999, the Italian Republic sought the annulment, under the first and second paragraphs of Article 173 of the EC Treaty (now, after amendment, the first and second paragraphs of Article 230 EC), of the part concerning it of Commission Decision 1999/187/EC of 3 February 1999 on the clearance of the accounts presented by the Member States in respect of the expenditure for 1995 of the Guarantee Section of the European Agricultural Guidance Guarantee Fund (OJ 1999 L 61, p. 37) (hereinafter the contested Decision).

2 The action seeks the annulment of that Decision in so far as the Commission refused to allow against the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (hereinafter the EAGGF) the following sums:

- approximately ITL 500 000 000 in respect of amounts of durum wheat missing from the stockpile and considered ineligible for intervention;

- ITL 2 751 722 888 in respect of aid for the consumption of olive oil, because of defects in the administrative procedure withdrawing the approval of olive oil packaging undertakings, and

- ITL 62 685 916 000 and ITL 13 998 973 000 in respect of premiums for sheep and goats because of administrative deficiencies and inadequate checks.

3 The reasons for the corrections are briefly set out in the Summary Report No VI/646/98 on the results of the checks for the clearance of the accounts of the Guarantee Section of the EAGGF for the 1995 financial year, in its consolidated version of 12 January 1999 (hereinafter the Summary Report).

The correction in respect of amounts of durum wheat ineligible for intervention

4 The basic legislation for the system of intervention with effect from the 1993/1994 marketing year is Council Regulation (EEC) No 1766/92 of 30 June 1992 on the common organisation of the market in cereals (OJ 1992 L 181, p. 21). Commission Regulation (EEC) No 689/92 of 19 March 1992 fixing the procedure and conditions for the taking-over of cereals by intervention agencies (OJ 1992 L 74, p. 18), as amended on several occasions, lays down the rules for such taking-over.

5 It appears from paragraph 4.5.1.1.1.3 of the Summary Report that [D]uring a check made in Italy in December 1993, the services of the Unité de la lutte antifraude (UCLAF) (Unit on Coordination of Fraud Prevention) established some missing quantities of cereals and some quantities of cereals of ineligible quality in certain shops.

6 Those findings gave rise to a financial correction of ITL 3 857 589 582 in respect of the 1995 financial year.

7 The Italian Government challenges the corrections for the San Lorenzo, Castellaci and Jungetto warehouses. Basing itself on the stocktakings by AIMA (Azienda di Stato per gli interventi nel mercato agricolo), the Italian intervention body, it considers that the correction made by the Commission is excessive by an amount of about ITL 500 000 000.

8 In this regard, reference should be made, at the outset, to the settled case-law of the Court concerning the apportionment of the burden of proof in the context of actions for annulment brought by a Member State against a Commission decision on the clearance of EAGGF accounts.

9 When the Commission refuses to charge certain expenditure to the EAGGF on the ground that it was incurred as a result of breaches of Community rules for which a Member State can be held responsible, it is for that State to demonstrate that the conditions for obtaining the funding refused by the Commission are met. The Commission is not required to demonstrate exhaustively that there are irregularities in the data submitted by the Member States, but to adduce evidence of serious and reasonable doubt on its part regarding the figures submitted by the national authorities. The reason for this mitigation of the burden of proof on the Commission is that it is the State which is best placed to collect and verify the data required for the clearance of EAGGF accounts; consequently, it is for the State to adduce the most detailed and comprehensive evidence that its figures are accurate and, if appropriate, that the Commission's calculations are incorrect (see, inter alia, Case C-44/97 Germany v Commission [1999] ECR I-7177, paragraph 28).

10 By its first claim, the Italian Government disputes only three specific corrections, which, it contends, are due to mistakes in the calculation of the quantities of ineligible durum wheat stored in the three abovementioned warehouses. It is not therefore the principle of those corrections which it challenges, but their amount. In accordance with the apportionment of the burden of proof mentioned in the preceding paragraph, the matter for consideration is therefore whether that government has established that the corrections at issue were wrong.

The San Lorenzo warehouse

11 The Italian Government challenges the refusal of the Commission to allow for intervention an amount of 954.22 tonnes of durum wheat stored during the 1987/1988 marketing year in the San Lorenzo warehouse. First of all, as the Commission maintains that it made no correction covering cereals stored during the 1987/1988 marketing year, but that, on the other hand, it made a correction covering 1 076.22 tonnes of durum wheat, mentioned at paragraph 4.5.1.1.1.3 (b) of the Summary Report, stored during the 1991/1992 marketing year, of which 954.22 tonnes related to the San Lorenzo warehouse, the Italian Government replies that there appear, in the table annexed to a note of the Commission of 6 August 1997, the challenged amount of 954.22 tonnes of durum wheat, its date of entry into store, the 26 May 1988, which corresponds to the 1987/1988 marketing year, as well as the indication of the warehouse, that is San Lorenzo.

12 According to that government, it was in a letter of 31 August 1998 that the Commission stated, for the first time, that it had allocated 1 076.22 tonnes, of which 954.22 tonnes was in respect of the San Lorenzo warehouse, to the amounts missing during the check of December 1993, and that it was in the course of the proceedings before the Court of Justice that it had stated that that amount of 954.22 tonnes had been stored during the 1991/1992 marketing year. It thus appears from the aforementioned documents and statements of the Commission, that, in the course of the proceedings, it has changed the basis of its complaint in respect of the San Lorenzo warehouse, in relation to the relevant amount and the marketing year, in breach of the principle of a fair hearing and preventing the Italian Government from defending itself at the appropriate time and in the appropriate manner on that point.

13 The Italian Government asserts, next, that, in relation to the 1991/1992 marketing year, although two different auditing firms, Sitris and SGS, checked the amounts actually present in the San Lorenzo warehouse and came to different results, the Commission unfairly preferred the assessment of the missing stock provided by Sitris, which was the higher.

14 Finally, the Italian Government maintains that the difference between the amounts of durum wheat actually present in the San Lorenzo warehouse and those which appear in the account books notified by the national authorities is due to the failure to enter certain dispatches of merchandise from the warehouse in the stock movements registers.

15 In that regard, it should first be noted that it appears from a letter of the Commission of 1 October 1998 addressed to the Italian authorities that, after the final report of the Conciliation Body and an exchange of information with those authorities, the Commission decided that the corrections concerning durum wheat stored in the San Lorenzo warehouse during the 1987/1988 marketing year, mentioned in the Commission's note of 6 August 1997 and in the Summary Report for the 1994 financial year, should be deleted. On the other hand, Audit Report No 4(b) by UCLAF in relation to the check of 10 December 1993, which was put on the file by the Italian Government itself, expressly refers to the 1991/1992 marketing year. The Commission has therefore not altered its complaint in the course of the proceedings.

16 Next, in relation to that part of the claim to the effect that the Commission preferred the assessment of missing stock in the San Lorenzo warehouse provided by Sitris, without taking account of that provided by SGS, it must be held that the Commission simply based itself on the results of a check made by the first of those firms in the presence of all the interested parties. The reasons for that decision follow from the Check Report - made after hearing both sides - of 3 January 1994. The Commission therefore based its decision on plausible information.

17 Finally, it must be held that the assertion of the Italian Government that the difference between the amount of durum wheat actually present at the San Lorenzo warehouse and that entered in the account books resulted from the failure to register certain dispatches from the warehouse is not supported by any evidence.

The Castellaci warehouse

18 According to the accounting documents of the Italian authorities, 956.77 tonnes of durum wheat stored during the 1991/1992 marketing year should have been in the Castellaci warehouse in December 1993. However, a check carried out by the UCLAF revealed that only 861.37 tonnes of durum wheat was there. In addition, tests showed that the wheat stored in the warehouse was not of a quality eligible for intervention. The Commission therefore made a financial correction for 956.77 tonnes of durum wheat.

19 The Italian Government challenges the correction in respect of the missing tonnage, that is 95.4 tonnes of durum wheat. According to it, the Commission should have proved that the missing quantity was also of a quality ineligible for intervention.

20 In that regard, it should be noted that, for the clearance of expenditure in respect of quantities charged to the EAGGF, it is not the amount actually present which must be taken into account, but the amount accounted for and charged to EAGGF. Therefore, although the tests showed that the durum wheat in store at the time of the check was not of a quality eligible for intervention, the correction must be made by the Commission on the basis of the amount accounted for. In accordance with the apportionment of the burden of proof described in paragraph 9 of this judgment, it is for the Italian Government to show that the amounts missing at the time of the check were eligible for intervention. However, it has presented no evidence to that effect.

The Jungetto warehouse

21 According to the accounting data submitted by the Italian authorities, the Jungetto warehouse should have contained 1 994.014 tonnes of durum wheat stored during the 1991/1992 marketing year. However, the appraisal of the amounts in stock carried out by Sitris after an inspection on 9 February 1994 revealed that only 1 450.80 tonnes were actually there. In addition, tests showed that the wheat actually there was of a quality ineligible for intervention. The Commission therefore also made a financial correction for the missing amount, that is 543.214 tonnes of durum wheat.

22 The Italian Government challenges that correction. Since the Commission claimed that, at the time of the check by the UCLAF, the accounting documents provided by the Italian authorities mentioned an amount of 1 994.014 tonnes stored in the Jungetto warehouse, that Government submits that, on 30 October 1993, only 969.25 tonnes of durum wheat were stored in that warehouse. An additional 1 024.764 tonnes were taken into store between 30 December 1993 and 5 January 1994, after having been made available by the Grammichelle and Raddusa warehouses. At the time of the check carried out by the UCLAF, on 16 December 1993, only the amount of 969.25 tonnes was therefore in store. Therefore only that amount could be the object of a possible correction. The Italian Government explains the presence of only 1 450.80 tonnes in the Jungetto warehouse after the inspection by Sitris on 9 February 1994, by the fact that 500 tonnes had already been taken out of store on 29 December 1993 to be sold. The rest of the missing amount could be explained by natural losses in the course of storage.

23 The Commission said that it was ready to accept that argument and to waive the correction in this respect if the Italian Government would provide supporting evidence to that effect. None the less, it appears from the file, that it considered the argument of the Italian Government as contradictory and incomplete.

24 In that regard, it should be noted that, if the Italian Government contends that some consignments came from other warehouses, it has not adduced evidence of them. It relies, in particular, on a transfer of 997.244 tonnes from the Raddusa warehouse although, according to the formal report of the inspection of 16 December 1993 relating to that warehouse, only 888.44 tonnes were stored there.

25 The first claim in the action must therefore be dismissed.

The correction in respect of the aid for the consumption of olive oil

26 Article 11 of Council Regulation No 136/66/EEC of 22 September 1966 on the establishment of a common organisation of the market in oils and fats (OJ English Special Edition, Second Series 1965-1966, p. 221) introduced a system of aid aimed at encouraging the consumption of olive oil produced and sold in the Community. That article, in its version resulting from Council Regulations (EEC) Nos 1917/80 of 15 July 1980 (OJ 1980 L 186, p. 1) and 2210/88 of 19 July 1988 (OJ 1988 L 197, p. 1) provides that enterprises undertaking the packaging of olive oil may apply for an aid to consumption where the production target price minus the production aid is higher than the representative market price for olive oil. In such a case, the aid is to be equal to the difference between those two amounts.

27 The general rules in respect of aid for the consumption of olive oil were enacted by Council Regulation (EEC) No 3089/78 of 19 December 1978 (OJ 1978 L 369, p. 12), as amended by Council Regulation (EEC) No 3461/87 of 17 November 1987 (OJ 1987 L 329, p. 1) (hereinafter Regulation No 3089/78).

28 Article 1 of Regulation No 3089/78 provides that the aid is to be granted only to approved olive oil packaging undertakings. Articles 2 and 3 lay down the conditions for the grant and withdrawal of approval. According to Articles 5 and 6, entitlement to consumption aid shall be acquired the moment the olive oil leaves the packaging undertaking, which must make its applications on a periodic basis.

29 Article 7 of Regulation No 3089/78 provides that the Member States are to institute a system of checks to ensure that the product for which the aid has been applied satisfies the conditions for obtaining the aid. According to Article 8, the aid is to be granted only if the checking body designated by the Member State has established that the conditions for granting the aid have been satisfied. However, the aid may be advanced as soon as the aid application is submitted, provided that sufficient security is provided.

30 Article 9(3) of Commission Regulation (EEC) No 2677/85 of 24 September 1985 laying down implementing rules in respect of the system of consumption aid for olive oil (OJ 1985 L 254, p. 5), as amended by Commission Regulation (EEC) No 643/93 of 19 March 1993 (OJ 1993 L 69, p. 19) (hereinafter Regulation No 2677/85), provides:

The Member State shall pay the aid within 150 days of submission of the application for the quantities for which entitlement to aid has been recognised following on-the-spot checks. ...

The body responsible for checking entitlement to aid shall notify the paying agency of its findings as regards recognition of entitlement to aid in respect of each approved undertaking within 45 days of the on-the-spot check and at least 20 days before the end of the time-limit referred to in the previous subparagraph.

31 Article 12 of Regulation No 2677/85 lays down the detailed rules for the checks which the national authorities must carry out and requires, inter alia, that the checks must be carried out at least once every 12 months. Paragraph 6 thereof, which specifies the conditions for the withdrawal of approval, provides as follows:

Where the competent authority finds that an application for consumption aid relates to a quantity greater than that for which entitlement to aid has been recognised, the Member State shall impose a penalty on the packaging undertaking equal to between three and eight times the aid improperly applied for, depending on the seriousness of the infringement. ...

However, where the quantity for which aid has been improperly applied for exceeds the checked quantity for which entitlement to aid has been recognised by at least 20%, the Member State, in addition to imposing a financial penalty, shall withdraw approval for a period of from one to three years depending on the seriousness of the infringement.

In the case of any further infringement, and irrespective of the extent by which the quantity for aid has been improperly applied for exceeds the checked quantity, in addition to the financial penalty, approval shall be withdrawn for a period of from one to five years depending on the seriousness of the infringement.

The penalties referred to in the first, second and third subparagraphs shall apply without prejudice to any other penalties.

32 It appears from paragraph 4.7.3.1 of the Summary Report that the financial correction covering the consumption aid for olive oil paid during the 1993/1994 marketing year (in respect of the 1994 financial year) and the 1994/1995 marketing year (in respect of the 1995 financial year) amounts to a total of ITL 2 751 722 888. According to the Commission, the Italian authorities had paid aid to some undertakings from which approval should have been withdrawn given that, during the preceding marketing years, they had received aid which had been improperly applied for in quantities greater than the limit of 20% provided by Article 12(6) of Regulation No 2677/85. The Commission decided that the effective date of the withdrawal of the approval was that of each separate excessive application rather than that of the formal report of the check of the application. Aid cannot, according to it, be charged to the EAGGF if the checks on site reveal that the approval as a packaging plant should be withdrawn under Article 12(6) of Regulation No 2677/85. It is clear that the later the checks take place the later will be the withdrawal.

33 The Italian Government challenges the specific corrections in respect of aid for the consumption of olive oil. It argues that the Commission wrongly considered that the withdrawal of approval must take effect from the day of the deposit of the excessive application and not from the date of the formal report substantiating the irregularities. According to that government, the Commission's view leads to the withdrawal decision taken by the Member State being given unlawful retrospective effect.

34 The Commission adheres to its interpretation of Article 12(6) of Regulation No 2677/85. It points out that there have been differences within the Italian administration as to the competent authority for the withdrawal of approval. Because of that, the checks were not carried out with the required speed and their results were only analysed after substantial delay. The Commission considers it has a duty to take care that the consequences of those delays are not charged to the EAGGF.

35 It also argues that, in any event, the specific corrections have less impact on the Member State concerned than a flat-rate correction of 2%. And, according to it, given the uncertainty which existed at that time concerning the distribution of powers within the Italian administration and the carrying out of the checks, a flat-rate correction of that type would have been perfectly justified.

36 The Italian Government replies that the differences relating to the withdrawals of approval mentioned by the Commission had no negative effect on the carrying out of the necessary controls. In any case, withdrawal without a previous check would be impossible.

37 It should be noted that Article 12(6) of Regulation No 2677/85 provides that, where the amount for which aid has been improperly applied for exceeds the checked amount for which the entitlement to aid is recognised by at least 20%, the Member State shall withdraw the relevant approval. However, it does not specify from what date that withdrawal must take effect. In fact, even if Article 12(6) of Regulation No 2677/85 makes the sanction of withdrawal subject to a finding by the competent authority of the fact that the application for consumption aid covers an amount greater than that for which the entitlement to aid has been recognised, the wording of that provision does not specify whether the finding in question is declaratory or dispositive.

38 In those circumstances, it is appropriate to consider the purpose of the sanction constituted by the withdrawal of approval.

39 The reinforcement of the sanctions in cases of excessive applications for consumption aid for olive oil arises in the context of the campaign against fraud. The preamble to Regulation No 643/93, which rewrote the wording of Article 12(6) of Regulation No 2677/85, establish a link between the smooth operation of the aid scheme [for the consumption of olive oil] and the necessity of extending the system of sanctions against packaging undertakings which apply for excessive quantities of aid. The efficacity and the deterrent effect of such sanctions cannot therefore be ignored in the context of determining the effect and temporal scope of the sanction constituted by withdrawal of approval.

40 Taking account of those circumstances, the payment of consumption aid by the EAGGF cannot be allowed if that aid corresponds to a period later than the date at which the conditions for applying the sanction under the second paragraph of Article 12(6) of Regulation No 2677/85 were satisfied.

41 The impact of the sanction constituted by withdrawal would be diminished if a packaging undertaking, having lodged, in the course of a given marketing year, applications for excessive quantities within the meaning of those provisions, could lodge further applications in the course of the following years, with nothing to fear until the possible making of the formal report of a control check. Withdrawal under the second paragraph of Article 12(6) of Regulation No 2677/85, taking effect from the date on which the conditions for applying the sanction are satisfied, therefore seems necessary to ensure the efficacity of that system.

42 Contrary to the Italian Government's point of view, the withdrawal decision still does not acquire any unlawful retrospective effect since, under that interpretation, the sanction applies simply from the moment when its conditions of application are satisfied and not from the check relating to the meeting of its conditions of application.

43 It must therefore be held that, if a packaging undertaking has applied for amounts of aid exceeding by at least 20% the verified amount for which entitlement to aid is recognised, its approval must be withdrawn with effect from the date on which that figure was exceeded, that is to say from the lodging of the relevant applications.

44 In those circumstances, the second claim must be dismissed.

The correction in respect of premiums for sheep and goats

45 Article 5 of Council Regulation (EEC) No 3013/89 of 25 September 1989 on the common organisation of the market in sheepmeat and goatmeat (OJ 1989 L 289, p. 1, corrected in OJ 1989 L 296, p. 40), provides for the grant of a premium to the producers of sheepmeat and goatmeat in the Community to the extent necessary to offset an income loss during a marketing year.

46 Following on-site checks carried out in 1995 and in 1996, particularly in Calabria and Sicily, the Commission made a flat-rate correction of 25% of the premiums for sheepmeat and goatmeat paid to the producers of Sicily and Calabria for the marketing years 1993 and 1994.

47 At paragraph 4.9.4.6 of the Summary Report, the following findings were made:

- large differences revealed by the comparison of the premium and veterinary statistics in Sicily;

- a high percentage of irregularities revealed during inspections in farms carried out in Calabria and Sicily at the instigation of Unit A.I.3, a large proportion having led to the total or partial rejection of the applications;

- useless registers of flocks precluding worthwhile inspection outside the period of keeping;

- insufficient notification of the place of keeping of the animals;

- non-existent system of marking of flocks when several are kept together, which makes checking impossible;

- doubts raised as to eligibility from the fact that male animals and young female animals, which were ineligible, were included incorrectly by the inspectors;

- checks carried out by the Italian authorities themselves in Sicily in 1996.

In 1996, the Italian authorities decided to carry out a full inspection in the Sicilian farms which had made an application for the premium for sheepmeat. For the whole of Sicily the results of that inspection, based on a check of 79% of the applicants, necessitated partial rejection of 33.66% and total rejection of 19.8% of applications.

48 In its Final Report No 98/IT/92 of 10 September 1998 concerning the audit of premiums for sheepmeat and goatmeat during the 1993 and 1994 marketing years, the Conciliation Body decided that it was necessary to carry out an additional detailed statistical examination for the 1993 marketing year and that the flat-rate corrections of 25% for Calabria and Sicily were inadequately reasoned.

49 As a result, the Commission reduced or even withdrew the corrections suggested for certain regions and raised them for others. The correction of 25% for Calabria for the 1993 marketing year was reduced to 10%. The corrections of 25% for Sicily for the 1993 marketing year and for Calabria and Sicily for the 1994 marketing year remained unchanged.

50 The Italian Government challenges the application of those flat-rate corrections. It submits, first, that the flat-rate correction of 25% was unlawfully applied since it had retrospective effect. That rate was put into effect by the guidelines for the application of flat-rate corrections laid down by the Commission in 1997 (Document No VI/5330/97 of 23 December 1997). The 1993 and 1994 marketing years were prior to the entry into force of those guidelines. Flat-rate corrections could only be applied to them in accordance with the guidelines laid down in the document called the Belle Report (Document No VI/216/93 of 1 June 1993), which did not provide for a rate of 25%.

51 The Italian Government submits alternatively, that, under the guidelines of 1997, a correction of 25% is justified only if the operation of the system of checks by a Member State is completely non-existent or seriously deficient and there are signs of very frequent irregularities and of negligence in the campaign against irregular and fraudulent practices. Therefore it considers that the correction of 25% is obviously disproportionate, taking account of the circumstances of this case.

52 Finally, despite the report of the Conciliation Body concluding that it had insufficiently justified the application of that rate, the Commission confined itself to reducing from 25% to 10% the correction applying to Calabria, and that only for the 1993 marketing year, without explaining why it was not applying a similar correction to Sicily for the 1993 marketing year and for Calabria and Sicily for the 1994 marketing year.

53 In that regard it must be held, first, that the application of a rate of correction of 25% for the 1993 and 1994 marketing years is not retrospective and unlawful. In the absence of precise rules, as to the amounts to disallow, in the penultimate subparagraph of Article 5(2)(c) of Council Regulation (EEC) No 729/70 of 21 April 1970 on the financing of the common agricultural policy (OJ 1970 L 94, p. 13), as amended by Council Regulation (EC) No 1287/95 of 22 May 1995 (OJ 1995 L 125, p. 1), it is necessary to take into consideration the guidance concerning the evaluation of the financial consequences during the preparation of the decision to clear the accounts, adopted by the Commission in Report No VI/216/93. That guidance provided that, in exceptional circumstances, the Commission could make a flat-rate correction at a rate higher than those normally laid down, that is to say 2%, 5% or 10% of the expenditure.

54 Secondly, as the Court has consistently held, Articles 2 and 3 of Regulation No 729/70 permit the Commission to charge to the EAGGF only sums paid in accordance with the rules laid down in the various sectors of agricultural production, leaving the Member States to bear the burden of any other sum paid, and in particular any amounts which the national authorities wrongly believed themselves authorised to pay in the context of the common organisation of the markets. Although it is therefore for the Commission to prove an infringement of the Community rules, it is for the Member State concerned, in an appropriate case, to demonstrate that the Commission made an error as to the financial consequences to be attributed to it (see, inter alia, Case 242/96 Italy v Commission [1998] ECR I-5863, paragraphs 121 and 123).

55 In this case, it must be held that the Italian Government has not established to what extent a smaller correction than that applied by the Commission would have been more appropriate. However, according to the statement of facts by the Commission, which was not challenged by the Italian Government, not only did the Italian system of control involve some substantial deficiencies, but also some serious irregularities were established in the relevant regions.

56 The correction adopted by the Commission does not therefore appear to be unjustified.

57 Finally, according to the settled case-law of the Court, in the particular context of the preparation of decisions on the clearance of accounts, the reasons for a decision must be considered adequate if the Member State to which the decision is addressed was closely involved in the decision-making process and is therefore aware of the reasons why the Commission considered that it was not required to charge the sum in dispute to the EAGGF (see Germany v Commission, cited above, paragraph 21).

58 In this case, the documents before the Court show that the Italian Government was involved in the process of preparing the contested decision. In fact, the substantial deficiencies of the Italian system of control, and the irregularities established in the relevant regions, were brought to the attention of the Italian authorities, not only in writing, but also by the reference of the matter to the Conciliation Body.

59 Thus, on 4 March 1998, the Commission sent the Italian authorities a letter which contained the same statements as those appearing in the Summary Report. That letter informed the Italian authorities at the same time of the flat-rate corrections applied to the various Italian regions, among which were Calabria and Sicily, for the 1993 and 1994 marketing years, and of the specific reasons which had led the services of the Commission to fix those rates. It further appeared from that communication that the rate of 25% had been applied to Calabria and Sicily because of the exceptional seriousness of the situation prevailing in those regions, where the checks were very rare and ineffective and/or the irregularities established were very numerous.

60 Further, it is important to point out that the Commission, when it adopts its decision, is not bound by the conclusions of the Conciliation Body (see Germany v Commission, cited above, paragraph 18).

61 In those circumstances, the decision of the Commission to apply a flat-rate correction of 25% to Sicily for the 1993 marketing year, and to Calabria and Sicily for the 1994 marketing year, must be held to be sufficiently reasoned.

62 Consequently, the third claim must be dismissed.

63 Having regard to all the preceding considerations, the action of the Italian Republic must be dismissed.

Costs

64 Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party's pleadings. Since the Commission has applied for costs and the Italian Republic has been unsuccessful, the latter must be ordered to pay the costs.

On those grounds,

THE COURT (Sixth Chamber)

hereby:

1. Dismisses the action;

2. Orders the Italian Republic to pay the costs.