1.

In this reference for a preliminary ruling, the Court of Justice will be required to interpret Regulation (EC) No 1685/2000 ( 2 ) in order to determine the scope of the requirement to submit receipted invoices or, where that is not possible, accounting documents of equivalent probative value, which provide evidence of the amount of expenditure incurred, in a situation where the beneficiary of aid co-financed by EU Structural Funds has constructed a building using its own materials, tools and labour.

2.

Recitals 35 and 43 provide as follows:

…

…’.

3.

Paragraph 3 of Article 30 (‘Eligibility’) establishes as follows:

‘The relevant national rules shall apply to eligible expenditure except where, as necessary, the Commission lays down common rules on the eligibility of expenditure in accordance with the procedure referred to in Article 53(2).’

4.

According to the third subparagraph of paragraph 1 of Article 32 (‘Payments’):

‘Payments may take the form of payments on account, interim payments or payments of the final balance. Interim payments and payments of the balance shall relate to expenditure actually paid out, which must correspond to payments effected by the final beneficiaries, supported by receipted invoices or accounting documents of equivalent probative value.’

5.

In Chapter II of Title IV (‘Financial Control’), paragraph 1 of Article 38 (‘General provisions’) establishes the following:

‘1.   Without prejudice to the Commission’s responsibility for implementing the general budget of the European Communities, Member States shall take responsibility in the first instance for the financial control of assistance. To that end, the measures they take shall include:

…

…’

6.

Recital 5 is as follows:

‘… For certain types of operation the Commission considers it necessary in order to guarantee the uniform and equitable implementation of the Structural Funds across the Community to adopt a common set of rules on eligible expenditure. The adoption of a rule relating to a particular type of operation does not prejudge under which of the abovementioned Funds such operation may be co-financed. The adoption of these rules should not prevent Member States, in certain cases which should be indicated, from applying stricter national provisions. …’

7.

Pursuant to paragraph 2 (‘Proof of expenditure’) of Rule No 1 (‘Expenditure actually paid out’) of the Annex (‘Eligibility Rules’):

…’

8.

Article 4(4)(c) of the law devolved the administrative functions and tasks relating to EU regional, structural and cohesion policies to the regions.

9.

Article 31 quater established that, with regard to the Calabria Regional Operational Programme (ROP) 2000-2006, approved by the European Commission in Decision C(2000) 2345 of 8 August 2000, the Region of Calabria would promote the creation and development of small and medium-sized enterprises in the industry, trade, craft, tourism and services sectors, by means of aid granted in accordance with Regulation (EC) No 70/2001. ( 6 )

10.

By Regional Executive Decision No 398 of 14 May 2002, the Region of Calabria published the notice inviting applications for the assistance provided for in the Calabria Regional Operational Programme (ROP) 2000-2006 under ‘axis IV – Measure 4.4.b’. Applications for that assistance were open to small and medium-sized enterprises which were planning initiatives in the tourism sector.

11.

Article 8 of that notice referred to Regulation No 1685/2000 ‘as regards eligibility of expenditure in respect of operations co-financed by the Structural Funds’. Eligible expenditure included expenditure in connection with: (1) land; (2) buildings and equipment; (3) furnishings and fittings; (4) planning and surveys.

12.

According to Article 9 of that notice:

13.

By Decree No 4457 of 20 April 2004, aid was granted to Eurocostruzioni Srl for the construction of a hotel and associated leisure facilities in Rossano (Region of Calabria, Italy). As a result, that undertaking obtained capital funding equating to 47% of the investment, amounting to a total of EUR 4918080.

14.

According to the referring court, Decree No 4457:

15.

Eurocostruzioni carried out the works, purchased the furnishings and provided the Region of Calabria with the measurement booklet and accounting ledger, thus obtaining the certificate of conformity from the inspection committee, following a review of the works.

16.

The Region of Calabria paid Eurocostruzioni the sum of EUR 1661638 in respect of the expenses incurred for furnishing and fittings, of which the undertaking had provided proof by submitting receipted invoices.

17.

Eurocostruzioni sought payment of the remaining balance; this amounted to EUR 1675762 since, following the conformity inspection, it had been awarded a final payment of EUR 3337470 net, after deduction of the advance and the first progress payment.

18.

The Region of Calabria refused payment of the EUR 1675762 sought, because Eurocostruzioni had not provided receipted invoices or accounting documents of equivalent probative value, in accordance with point 2.1 of Rule No 1 of the Annex to Regulation No 1685/2000, referred to in the notice of 14 May 2002. ( 10 )

19.

Eurocostruzioni lodged an application with the Tribunale di Catanzaro (District Court, Catanzaro, Italy) for an order for payment, which was granted by the court by judgment of 4 April 2012.

20.

The Region of Calabria appealed against the judgment at first instance in the Corte d’Appello di Catanzaro (Court of Appeal, Catanzaro, Italy).

21.

In its judgment of 27 October 2014, the appeal court found in favour of the Region of Calabria, taking the view that:

22.

On 27 October 2015, Eurocostruzioni lodged an appeal in cassation with the referring court, alleging, among other things, breach of Regulation No 1685/2000.

23.

In its appeal, Eurocostruzioni argued that:

24.

In that context, the Corte suprema de cassazione (Supreme Court of Cassation, Italy) refers the following questions to the Court of Justice for a preliminary ruling:

25.

The request for a preliminary ruling was lodged with the Court on 19 January 2021.

26.

Observations were submitted by Eurocostruzioni, the Region of Calabria, the Italian Government and the European Commission.

27.

The Court did not consider it necessary to hold a hearing, but asked the parties to submit written comments – which they did – on the arguments put forward by the Italian Government concerning the concept of ‘accounting document of equivalent probative value’.

28.

The debate centres on determining whether an economic operator which has constructed a building using its own resources (materials, tools and labour) can provide proof of the expenditure it has incurred by means of ‘accounting documents of equivalent probative value [to that of an invoice]’ where those documents (a) consist of the measurement booklet and the accounting ledger; (b) have been duly signed on each page by the director of works and the beneficiary undertaking; (c) contain a statement of the expenditure, which is within the limits established by a standard scale of unit prices plus 15%. It should also be noted that the services of the administrative authority audited and confirmed the works carried out by the beneficiary undertaking.

29.

Before resolving that issue, it is necessary to make a preliminary point. If there is shown to be a breach of the requirements for proof of payment required by the EU rules which apply in this case, ( 11 ) it would not be possible to pay the sum claimed by Eurocostruzioni out of the EU Structural Funds (allocated to Italy) under the Regional Operational Programme.

30.

However, as the Commission has pointed out, that would not mean that Eurocostruzioni could not be entitled to payment of the sum it is claiming if, in the view of the referring court, it qualifies under the Italian legislation, having not only built the hotel but also complied with the requirements concerning accounting records stipulated in the provisions governing the award of the assistance. ( 12 )

31.

In that case, payment to Eurocostruzioni would be chargeable to the national budget but not the EU budget.

32.

According to the Region of Calabria, the first question referred is inadmissible, because the applicability of Regulation No 1685/2000 was not raised in the referring court and the court cannot raise it of its own motion, given the nature of the appeal before it (an appeal in cassation). The Region of Calabria argues that, consequently, no evidence has been provided of the connection between the dispute and Regulation No 1685/2000, nor has there been any explanation of the reasons for referring the question to the Court of Justice for a preliminary ruling.

33.

The objection cannot be upheld. The order for reference notes that the reference specifically concerns the requirements to provide proof of the expenditure incurred by Eurocostruzioni, as the final beneficiary of assistance co-financed by EU Structural Funds. Regulation No 1685/2000 therefore applies, as the Region of Calabria itself acknowledges in its written observations (paragraph 12). The referring court explains in that order why it requires an interpretation of the regulation. Whether or not it is able to introduce that consideration in an appeal in cassation is solely for the referring court to decide.

34.

The Region of Calabria also believes that the third question referred is inadmissible, because the referring court has failed to explain the link between Regulation No 1685/2000 and the ‘national legislation’ or ‘regional legislation’, which it has not fully addressed. The Region of Calabria argues that the content of the regional legislation and the Executive Decision of the Region of Calabria of 14 May 2002 goes beyond that described in the order for reference.

35.

Once again, the objection should be dismissed. It is for the referring court to set out the scope of the relevant domestic legislation and its relationship with EU law. In this case, the court’s description of the national and regional legislative framework is succinct but sufficient, and includes reference to the notice inviting applications for assistance and to the decree by which the Region of Calabria granted the assistance. The relationship between that legislative framework and the EU legislation is set out in the order for reference. ( 13 )

36.

The assistance at issue was granted on 20 April 2004. Proof of expenditure is therefore governed by Regulation No 1260/1999 (the basic regulation) ( 14 ) and Regulation No 1685/2000 (the implementing regulation), ( 15 ) as amended by Regulation No 448/2004, which applied retrospectively from 5 July 2003 and, in the case of some provisions, from 5 August 2000.

37.

In accordance with the principle of subsidiarity, both regulations state that ‘the relevant national rules shall apply to eligible expenditure except where, as necessary, the Commission lays down common rules on the eligibility of expenditure …’. ( 16 )

38.

The Commission availed itself of that option in order to issue common rules on the eligibility of expenditure, through Regulation No 1685/2000. ( 17 ) In consequence, Member States had to follow the common provisions on proof of expenditure laid down in Regulation No 1685/2000 unless they decided, exceptionally, to apply stricter national provisions.

39.

The referring court does not state that the Italian State had introduced stricter national provisions, and that is confirmed by the Italian Government. ( 18 ) Therefore, evidence of the expenditure incurred by Eurocostruzioni is governed by Regulation No 1685/2000.

40.

As I noted earlier, by its first question referred for a preliminary ruling, the referring court wishes to know, in summary, whether point 2.1 of Rule No 1 of the Annex to Regulation No 1685/2000:

41.

Article 32 of Regulation No 1260/1999 draws a distinction between the financial management of payments on account ( 19 ) and that of interim payments and payments of the final balance. With regard to the latter, the third subparagraph of Article 32(1) stipulates that these ‘shall relate to expenditure actually paid out, which must correspond to payments effected by the final beneficiaries, supported by receipted invoices or accounting documents of equivalent probative value’.

42.

Therefore, in the case of payments of the final balance (the type of payment claimed in this case by Eurocostruzioni), accounting evidence of the expenditure actually paid out by the beneficiary of the assistance is required before payment can be made.

43.

This requirement is reiterated in point 2.1 of Rule No 1 of the Annex to Regulation No 1685/2000, which applies to operations co-financed by the Structural Funds; the wording of the provision was set out above and I reproduce it here: ‘As a general rule, payments by final beneficiaries, declared as interim payments and payments of the final balance, shall be supported by receipted invoices. Where this cannot be done, payments shall be supported by accounting documents of equivalent probative value.’

44.

The wording of these two provisions is clear:

45.

The context for these two provisions also points in the same direction. That is evidenced by recital 43 of Regulation No 1260/1999, ( 20 ) which supports a narrow interpretation of Rule No 1 of the Annex to Regulation No 1685/200.

46.

The objective of sound financial management, which underpins management of the Structural Funds, ( 21 ) confirms this interpretative approach. According to Article 38(1) of Regulation No 1260/1999, Member States are to take responsibility in the first instance for the financial control of assistance and, to that end, the measures they take are to include:

47.

The Court has declared that the system established in Article 32 of Regulation No 1260/1999 and in Rule No 1 of the Annex to Regulation No 1685/2000 is based on the principle of reimbursement of expenses, which must be justified and certified. ( 22 )

48.

The fact that the beneficiary of the assistance has constructed the building using its own resources does not excuse it from complying with the evidential provisions in Regulations No 1260/1999 and No 1685/2000.

49.

If the beneficiary is unable to submit invoices as evidence of the construction of a building, because it carried out the construction using its own resources without recourse to third parties – it is for the competent national court to judge whether it is impossible to provide invoices – it must, in any event, provide evidence of the expenditure incurred by means of accounting documents of equivalent probative value to that of a receipted invoice. ( 23 )

50.

There is, therefore, no middle way. Article 32 of Regulation No 1260/1999 and point 2.1 of Rule No 1 of the Annex to Regulation No 1685/2000 do not provide for any form of evidence other than receipted invoices or, where they cannot be produced, accounting documents of equivalent probative value. The same applies where the beneficiary of the assistance has constructed a building using its own materials, tools and labour.

51.

The fact that those accounting documents of equivalent probative value may include documents which are specifically a matter of dispute in these proceedings is a separate issue. Those documents are addressed in the third question referred for a preliminary ruling.

52.

The second question concerns the meaning of the expression ‘accounting documents of equivalent probative value’, which is used – but not defined – in Regulations No 1260/1999 and No 1685/2000. Nor is its meaning clarified in the regulations which have replaced those two pieces of legislation.

53.

The Commission believes that the expression refers to the forms of proof of payment acknowledged and accepted by the Commission in cases where issuing an invoice in respect of a disbursement is not relevant under a Member State’s tax and accountancy rules. ( 24 )

54.

In its opinion, the expression refers to genuine and reliable supporting documents which, like receipted invoices, are capable of demonstrating that the expenditure was actually made. ( 25 )

55.

I agree with the Commission that proof of expenditure under this option (that is, where receipted invoices cannot be provided) may be provided by accounting documents recognised under a Member State’s national law, provided they give a true and fair view of the disbursements actually made.

56.

Such documents would include, for example:

57.

However, the Italian Government puts forward a broader interpretation of the concept at issue here, which would cover situations where works or a project are carried out using own resources. In its view:

58.

The Court asked the parties to the proceedings and the Commission to comment on the interpretation put forward by the Italian Government. In response to that request:

59.

In my view, the interpretation put forward by the Italian Government stretches the evidential provisions in point 2.1 of Rule No 1 of the Annex to Regulation No 1685/2000 too far. In the same vein, in applying the exemption at issue it adopts broad, rather than narrow, interpretive criteria.

60.

As I noted earlier, the option of providing proof in the form of ‘accounting documents of equivalent probative value’ is an exception which may be used only where it is not feasible to submit duly receipted invoices. An interpretation such as that suggested by the Italian Government does not comply with Article 32 of Regulation No 1260/1999 and point 2.1 of Rule No 1 of the Annex to Regulation No 1685/2000.

61.

If, where a building has been constructed using own resources, evidence could be provided in the form of certification of the value of the contribution by an independent qualified professional or duly authorised official body, this would provide scope for double counting of expenditure or potential fraud in the evidence required in order to obtain money from the EU Structural Funds.

62.

Moreover, as argued by the Commission, that interpretation would unjustifiably restrict the scope for submitting ‘accounting documents of equivalent probative value’ to documents issued by auditors or official audit bodies. Under point 1.7(d) of Rule No 1 of the Annex to Regulation No 1685/200, such a requirement is imposed only in the case of the provision of land or real estate and does not apply to other contributions in kind. I do not see why that restriction should be extended to cover contributions from developers of works financed by EU Structural Funds made from own resources.

63.

The principles of sound financial implementation and reimbursement of expenditure by which the European Union is governed in this matter point to a rejection of the interpretation argued for by the Italian Government.

64.

The referring court wishes to know whether Regulation No 1685/2000 precludes national and regional legislation and consequent administrative acts which, where funding has been granted to the beneficiary in order to construct a building using its own materials, tools and labour, provide for a system of auditing expenditure consisting of:

65.

I shall begin by addressing the question as worded in general terms – that is, without considering the particular circumstances of the assistance granted to Eurocostruzioni – before going on to examine the details of that assistance, in order to provide the referring court with the most helpful response possible.

66.

Without prejudice to the assessment to be carried out by the referring court, the expenditure review method it describes in its third question appears to derive from the decree granting the assistance rather than deriving directly from a national or regional law. ( 29 )

67.

In determining whether that system complies with Regulation No 1685/2000, the problem lies in knowing the precise content of the two documents (that is, ‘the measurement booklet and the accounting ledger’) ( 30 ) required as proof of the construction expenditure where this is borne by a beneficiary which is using its own resources.

68.

On an initial consideration, I can agree with the Commission and the Region of Calabria that those two documents do not in themselves have equivalent probative value to that of an invoice.

69.

Indeed, if the measurement booklet and the accounting ledger simply record progress on the various stages of the works, ( 31 ) and they are ‘signed on each page’ by the director of works and the beneficiary solely for that purpose, they would not be sufficient to provide proper proof of the monetary values for the entire construction of the hotel.

70.

If, on the other hand, the ‘accounting ledger’ of the beneficiary undertaking provided reliable and detailed information on the expenditure paid by the undertaking in staff wages or building materials, for example, among other similar cost items, then, in my opinion there would be no difficulty in classing that accounting ledger as a document of equivalent probative value to that of an invoice.

71.

It is for the referring court to verify those points and, on the basis of its own assessment, to determine the extent to which those two accounting documents can provide a true and fair view of the expenditure paid by the beneficiary of the assistance, in the event that, objectively, it was not possible to issue receipted invoices.

72.

With regard to confirmation of the work by an inspection committee appointed by the regional administrative authority, undertaken purely by reference to a predetermined price list, I do not consider that to be an appropriate method of verifying that, in a specific case, the expenditure actually incurred matches the costs which are provided, as abstract calculation parameters, in that list.

73.

The referring court appears to accept that the works which received funding (a hotel in Rossano) were actually carried out by Eurocostruzioni in accordance with the approved project, and conformed to the project in quantitative and qualitative terms. It therefore rules out any suggestion of defective implementation or fraud in the execution of a project co-financed by Structural Funds.

74.

According to the information in the case record, the work for which assistance was granted was carried out; moreover, Eurocostruzioni received the funding for the furnishings, because it submitted the receipted invoices for the purchases in accordance with the notice of 14 May 2002 inviting applications and the decree of 20 April 2004 granting the assistance.

75.

The doubts expressed by the referring court concern proof of the other expenditure incurred by the developer, resulting from the fact that it constructed the building using its own materials, tools and labour, as noted above. Eurocostruzioni did not submit receipted invoices for that expenditure.

76.

In my view, the first point which must be confirmed is whether it was really feasible for proof of that expenditure to be provided by means of receipted invoices, as maintained by the Region of Calabria.

77.

If duly receipted invoices could not be issued then, under Article 32 of Regulation No 1260/1999 and point 2.1 of Rule 1 of the Annex to Regulation No 1685/2000, proof of the expenditure could, exceptionally, be provided by means of accounting documents of equivalent probative value. ( 32 )

78.

Specifically, as I have already said, the documents containing the audit and confirmation of the work, which were carried out by an inspection committee appointed by the regional administrative authority, would not provide sufficient reliable proof of the expenditure incurred if they merely applied estimates in accordance with a standard scale which has no direct, objective connection with that expenditure but merely lays down abstract parameters.

79.

Consequently, those documents do not in themselves provide a true and fair view of the operations that were actually carried out, nor do they reflect the added valued contributed to the project by the undertaking or eliminate the possibility of duplication.

80.

Lastly, it is also relevant to note that, under Article 8 of the notice of 14 May 2002 inviting applications (referred to by the appeal court in the final part of its judgment of 27 October 2014), assistance would not be provided for expenditure on (construction) processes commissioned internally, non-capitalised expenditure and cash payments.

81.

In the light of the considerations set out above, I propose to the Court that it should reply to the Corte suprema di cassazione (Supreme Court of Cassation, Italy) as follows:

‘Article 32 of Council Regulation (EC) No 1260/1999 of 21 June 1999 laying down general provisions on the Structural Funds, and point 2.1 of Rule No 1 of the Annex to Commission Regulation (EC) No 1685/2000 of 28 July 2000 laying down detailed rules for the implementation of Council Regulation (EC) No 1260/1999 as regards eligibility of expenditure of operations co-financed by the Structural Funds must be interpreted as meaning that: