Lithuania applies to the GC for the Commission’s partial positive milestone assessment of the plan “Next Generation Lithuania”
The Republic of Lithuania brings the action to the General Court of the European Union (GC) with a request to assess whether the partial positive assessment by the Commission applied to Lithuania complies with the Recovery and Resilience Facility (RRF) Regulation. Also, the GC is requested to abolish the partial positive decision and to order the Commission to pay the costs of proceedings.
To defend Lithuania’s interests, an argument is that the Commission taking the partial positive assessment infringed the principle of fiscal autonomy of the Member States, the principles of proportionality, transparency, legal certainty and legitimate expectations and Regulation (EU) 2021/241.
It should be noted that, in its decision, the Commission wrongly assessed that the requirement to draw up and submit to the Seimas draft amendments to tax proposals on the basis of the published cost-benefit analysis had not been satisfactorily fulfilled. The Commission misinterpreted the requirements that Lithuania had to fulfil under the RRF Regulation and, based on a wrong interpretation made an unjustified finding that the scope of the proposed legislative amendments was too narrow and that there were too few proposals to abolish tax benefits in order to make the tax system more efficient. In the EU treaties the discretion of the states includes the right to determine the direction and essential characteristics of direct tax policies. In its assessment, the Commission, ignoring the division of competences between the EU and the Member States, denied Lithuania’s right to decide for itself on the direction of improving the country's tax system.
The Commission also unjustifiably assessed that the requirement to publish the cost-benefit analysis of existing tax exemptions and special tax regimes, which are inefficient and no longer in line with state priorities and the Green Deal, has not been met. Lithuania argues that the requirements for the depth of the analysis mentioned in the Commission’s decision were not foreseen. The analysis of tax exemptions and special tax regimes was carried out in accordance with national legislative requirements and submitted to both the Seimas and the Commission. The analysis identified the costs of each benefit and provided qualitative information on the benefits of each exemption.
Finally, it is argued that the Commission violated the principles of legal certainty, legitimate expectations, transparency and proportionality by misapplying the Methodology for the calculation of EUR 8.7 million and imposing a disproportionate reduction of funds. The Commission has applied an increased significance of the reform index, although none of the documents approved with the plan “Next Generation Lithuania” contains any classification of reforms and investments indicating the significance level. Accordingly, there is no indication that any reform or investment is more significant than others and, therefore, to apply an extraordinarily high index. It is also noted that the Methodology has not been published either when Lithuania submitted its first payment application or when the plan “Next Generation Lithuania” was approved, so it was not possible to know that the Commission would apply indices increasing the significance of reforms, which would make the reduction of funds unjustified.
It should be also noted that the Regulation sets out the output-based logic of the RRF instrument, but the Commission’s decision puts this logic off balance, and the reduction of EUR 8.7 million effectively becomes a financial sanction aimed at deterring the Member States from implementing the reforms and investments. The Methodology allows the Commission to impose disproportionately high financial sanctions for underachievement of one milestone, which substantially reduces the amount of payment for those milestones and targets that have been satisfactorily fulfilled. This not only contradicts to the principle of legitimate expectations, but also distorts the substance of the RRF as an output-based instrument.
In the event the Republic of Lithuania brings the action provided for in Article 263 of the Treaty on the Functioning of the European Union, the Commission will have the opportunity to lodge a defence within two months after service of the action.
It is worth noting that currently more than two thirds of the reformed actions of the plan “Next Generation Lithuania” have been implemented (72%) and the investments have gained momentum: calls for proposals for the subsidy tranche were announced for EUR 2.241 billion (98%), and project contracts were signed for EUR 1.815 billion (79%). For the loan tranche, calls for proposals have been announced for EUR 1.399 billion (90%).
Reporting on the results achieved, 2 payment applications, accounting for 38 indicators,were submitted. Total funds received from the Commission, including advance payments, amount to EUR 1.356 billion.
Last updated: 13-08-2024
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