Case C-335/03

Portuguese Republic

v

Commission of the European Communities

(EAGGF – Beef premium – Monitoring – Representativeness of sampling – Transposition of monitoring results to the preceding years – Reasons)

Opinion of Advocate General Geelhoed delivered on 18 November 2004

Judgment of the Court (Second Chamber), 14 April 2005.

Summary of the Judgment

1. Agriculture – Common agricultural policy – Integrated system of management and supervision relating to certain aid schemes – Regulation No 3887/92 – Effective verification of compliance with the terms under which ‘livestock’ aid is granted – Weighting or compensating of those checks against those carried out in respect of other systems of aid – Not permissible

(Commission Regulation No 3887/92, Art. 6(1), (3) and(4))

2. Agriculture – EAGGF – Clearance of accounts – Refusal to accept expenses arising from irregularities in the application of the Community legislation – Challenge by the Member State concerned – Burden of proof – Apportionment between the Commission and the Member State

3. Acts of the institutions – Statement of reasons – Duty – Scope – Decision relating to the clearance of accounts in respect of expenditure financed by the EAGGF

(Art. 253 EC)

1. The provisions of Article 6(1), (3) and (4) of Regulation No 3887/92 laying down detailed rules for applying the integrated administration and control system for certain Community aid schemes are all intended to ensure effective compliance with the conditions for the grant of aid, in particular ‘livestock’ aid. It would therefore be contrary both to the intended objective of efficiency of the checks carried out and to that of ensuring true representativeness of the samples checked for it to be possible that certain categories of aid should partly or wholly escape the checks provided for by those provisions on the pretext that the minimum level of checks may be reached by compensating or weighting with more numerous checks carried out in other sectors or in respect of other categories of aid.

(see para. 54)

2. Where the Commission refuses to charge certain expenditure to the EAGGF on the ground that it was incurred as a result of a breach of Community rules for which a Member State can be held responsible, the Commission is not required to demonstrate exhaustively that the checks carried out by the Member States are inadequate or that the figures supplied by them are incorrect, but to provide evidence of the serious and reasonable doubt it entertains concerning the checks carried out by the national authorities or concerning the correct application of the Community law in force. 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 check the data required for the clearance of EAGGF accounts, and which is consequently required to adduce the most detailed and comprehensive evidence that its checks are actually carried out and, if appropriate, that the Commission’s assertions are incorrect.

(see para. 68)

3. The extent of the obligation to state reasons under Article 253 EC depends on the nature of the measure concerned and the context in which it was adopted. In the particular context of the drafting of decisions relating to the clearance of accounts in respect of expenses financed by the EAGGF, the reasons given for a decision are to be considered sufficient when the relevant Member State was closely involved in the process under which that decision was drawn up and knew the reasons why the Commission considered that the disputed amount should not be charged to the EAGGF.

(see paras 83-84)

JUDGMENT OF THE COURT (Second Chamber)

14 April 2005 ( * )

(EAGGF – Beef premium – Monitoring – Representativeness of sampling – Transposition of monitoring results to the preceding years – Reasons)

In Case C-335/03,

ACTION for annulment under Article 230 EC, brought on 25 July 2003,

Portuguese Republic, represented by L. Fernandes, acting as Agent, assisted by C. Botelho Moniz and E. Maia Cadete, advogados, with an address for service in Luxembourg,

applicant,

v

Commission of the European Communities, represented by A. Alves Vieira and L. Visaggio, acting as Agents, assisted by N. Castro Marques and F. Costa Leite, advogados, with an address for service in Luxembourg,

defendant,

THE COURT (Second Chamber),

composed of C.W.A. Timmermans, President of the Chamber, R. Silva de Lapuerta (Rapporteur), C. Gulmann, R. Schintgen and J. Klučka, Judges,

Advocate General: L.A. Geelhoed,

Registrar: K. Sztranc, Administrator,

having regard to the written procedure and further to the hearing on 14 October 2004,

after hearing the Opinion of the Advocate General at the sitting on 18 November 2004,

gives the following

Judgment

1 By its application, the Portuguese Republic seeks the annulment, in regard to it, of Commission Decision 2003/364/EC of 15 May 2003 excluding from Community financing certain expenditure incurred by the Member States under the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (EAGGF) (OJ 2003 L 124, p. 45; hereinafter the ‘contested decision’).

Legal background

The premium schemes at issue

2 Regulation (EEC) No 805/68 of the Council of 27 June 1968 on the common organisation of the market in beef and veal (OJ, English Special Edition 1968 (I), p. 187), as amended by Council Regulation (EEC) No 2066/92 of 30 June 1992 (OJ 1992 L 215, p. 49) and Council Regulation (EEC) No 125/93 of 18 January 1993 (OJ 1993 L 18, p. 1) (‘Regulation No 805/68’), created a scheme of premiums granted to producers who keep, in their holding, male bovine animals and suckler cows.

3 With regard to the different types of premiums thus granted, Regulation No 805/68 instituted a special premium for beef producers (Article 4b), an additional premium to that special premium (Article 4c), a suckler cow premium (Article 4d) and an additional premium granted to producers who receive the special premium and/or the suckler cow premium and who fulfil certain conditions (Article 4h). As regards the Portuguese Republic, special premiums are instituted by Council Regulation (EEC) No 1600/92 of 15 June 1992 concerning specific measures for the Azores and Madeira relating to certain agricultural products (OJ 1992 L 173, p. 1).

Administration and monitoring of the premiums at issue

4 Commission Regulation (EEC) No 3886/92 of 23 December 1992 laying down detailed rules for the application of the premium schemes provided for in Regulation No 805/68 (OJ 1992 L 391, p. 20), as amended by Commission Regulation (EC) No 2311/96 of 2 December 1996 (OJ 1996 L 313, p. 9) (‘Regulation No 3886/92’) laid down the administrative conditions necessary for the grant of those premiums.

5 Pursuant to Article 4 of Regulation No 3886/92, the duration of the retention period of the animals – in other words the period during which the animals for which an application for a premium has been made must not leave a specific place where they may be monitored (generally the producer’s holding) – is to be, for the beef premium, two months starting on the date following the date of submission of the application. In the case of suckler cows, according to the combined provisions of Article 4d(5) of Regulation No 805/68 and Article 23 of Regulation No 3886/92, the duration of the retention period is to be six months starting on the date following the date of submission of the application.

6 Article 4 of Regulation (EEC) No 729/70 of the Council of 21 April 1970 on the financing of the common agricultural policy (OJ, English Special Edition 1970 (I), p. 218), as amended by Council Regulation (EC) No 1287/95 of 22 May 1995 (OJ 1995 L 125, p. 1), (‘Regulation No 729/70’) provides that it is for the Member States to designate the authorities and bodies tasked with payment of the expenditure incurred by the Guarantee Section of the EAGGF.

7 Article 1(1)(b) of Council Regulation (EEC) No 3508/92 of 27 November 1992 establishing an integrated administration and control system for certain Community aid schemes (OJ 1992 L 355, p. 1) provides that each Member State is to set up an integrated administration and control system applying to the premium arrangements for beef and veal producers established by Articles 4(a) to 4(h) of Regulation No 805/68. That system is also applicable to other premium or payment schemes in the sectors of sheepmeat and goatmeat production.

8 Article 8 of that regulation requires Member States to carry out administrative checks on aid applications (paragraph 1), to supplement the administrative checks by on-the-spot checks ‘covering a sample of agricultural holdings’ (paragraph 2) and to designate an authority responsible for coordinating those checks (paragraph 3).

9 Commission Regulation (EEC) No 3887/92 of 23 December 1992 laying down detailed rules for applying the integrated administration and control system for certain Community aid schemes (OJ 1992 L 391, p. 36), as amended by Commission Regulation (EC) No 1678/98 of 29 July 1998 (OJ 1998 L 212, p. 23) (‘Regulation No 3887/92’), lays down the conditions which aid applications must satisfy (Title III), the provisions relating to control (Title IV) and those relating to part-financing (Title V).

10 According to Article 6 of that regulation, ‘administrative and on-the-spot checks shall be made in such a way as to ensure effective verification of compliance with the terms under which aids and premiums are granted’ (paragraph 1) and these include, inter alia, ‘cross-checks on parcels and animals declared in order to ensure that aid is not granted twice in respect of the same calendar year without justification’ (paragraph 2).

11 According to Article 6(3), on-the-spot checks are to cover at least a significant percentage of applications and the significant percentage is to represent at least 10% of ‘livestock’ aid applications or participation declarations.

12 Under the first subparagraph of Article 6(5), on-the-spot checks are to be unannounced and cover all the agricultural parcels and animals covered by one or more applications.

13 It follows from the second subparagraph of that paragraph that, of the sample of 10% of ‘livestock’ aid applications subjected to on-the-spot checking, at least 50% of the minimum checks on animals are to be made during the retention period, except in the case of male bovine animals in respect of which a special premium has been granted in accordance with Article 8 of Regulation No 3886/92 on slaughter or on the first placing on the market of animals with a view to their slaughter.

Identification of animals

14 Article 3 of Council Regulation (EC) No 820/97 of 21 April 1997 establishing a system for the identification and registration of bovine animals and regarding the labelling of beef and beef products (OJ 1997 L 117, p. 1) provides:

‘The system for the identification and registration of bovine animals shall comprise the following elements:

(a) eartags to identify animals individually;

(b) computerised databases;

(c) animal passports;

(d) individual registers kept on each holding.’

15 Under Article 4 of that regulation:

‘1. All animals on a holding born after 1 January 1998 or intended for intra-Community trade after 1 January 1998 shall be identified by an eartag approved by the competent authority, applied to each ear. Both eartags shall bear the same unique identification code which makes it possible to identify each animal individually together with the holding on which it was born.

…

5. No eartag may be removed or replaced without the permission of the competent authority.

6. The eartags shall be allocated to the holding, distributed and applied to the animals in a manner determined by the competent authority.’

16 Pursuant to Regulation No 820/97, Commission Regulation (EC) No 2629/97 of 29 December 1997 (OJ 1997 L 354, p. 19) lays down the conditions which must be fulfilled by eartags, holding registers and passports in the framework of the system for the identification and registration of bovine animals.

17 Under Article 1(1) of that regulation, eartags are to contain at least the name, the code or the logo of the competent authority or of the central competent authority of the Member State which allocated the eartags, and the characters provided for in paragraph 2 of that article, namely the country code of two letters, followed by a numeric code which is not to exceed 12 digits. Other than that information, Article 2 of that Regulation provides that ‘eartags shall meet the following requirements:

(a) they shall be of flexible plastic material;

(b) they shall be tamper-proof and easy to read throughout the lifetime of the animal;

(c) they shall not be re-usable;

(d) they shall be of a design which will remain attached to the animal without being harmful to it;

(e) they shall carry only non-removable inscriptions, as provided for in Article 1.’

The administrative procedure for the clearance of the accounts of the EAGGF

18 Pursuant to Regulation No 729/70 and Commission Regulation (EC) No 1663/95 of 7 July 1995 laying down detailed rules for the application of Regulation No 729/70 regarding the procedure for the clearance of the accounts of the EAGGF Guarantee Section (OJ 1995 L 158, p. 6), the Member States are to designate the competent authorities responsible for coordinating the expenditure financed by the Guarantee Section of the EAGGF. In Portugal, in accordance with Articles 1 and 5 of Decree-Law No 78/98 of 27 March 1998 (Diário da República I, series A, No 73, of 27 March 1998), the competent body in that regard is the Instituto Nacional de Intervenção e Garantia Agricola (‘the INGA’).

19 With regard to the procedure applicable to the present case, pursuant to Article 5(2)(b) of Regulation No 729/70, the Commission, after consulting the Funds Committee and before 30 April of the year following the financial year in question, clears the accounts of the paying agencies.

20 The decision taken by the Commission to clear the accounts, which relates to the completeness, exactitude and correctness of the accounts submitted, does not prejudice later decisions, in accordance with Article 5(2)(c).

21 Article 5(2)(c) of Regulation No 729/70 provides, inter alia, that ‘a refusal to finance may not involve expenditure effected prior to twenty-four months preceding the Commission’s written communication of the results of those checks to the Member State concerned …’.

The facts and pre-litigation procedure

22 From 18 to 22 September 2000, the services of the Commission, in the course of the clearance of the accounts of the Guarantee Section of the EAGGF, carried out checks on certain breeding holdings in Alentejo (Portugal) in order to determine whether the practices followed in those holdings complied with the Community legislation applicable to the sector in question.

23 By letter of 20 March 2001, the Commission informed the Portuguese authorities, under Article 8 of Regulation No 1663/95, of the opening of enquiry No 00/10 in the beef premiums sector, on the ground that ‘they [had] not complied fully with the provisions of Regulations (EEC) No 805/68, No 3886/92, No 3508/92 and No 3887/92 and (EC) No 1254/1999 and No 2342/1999’, which could justify the withdrawal of Community financing for part of the expenditure declared by those authorities.

24 The services of the Commission found, inter alia, that for the financial year 1999, the minimum levels of on-the-spot checks for the special beef premium had not been carried out, as ‘only 4.4% of the applications [had] been checked during the two-month retention period’, whereas Article 6(5) of Regulation No 3887/92 required a minimum level of 5%, corresponding to 50% of the minimum sampling of 10% provided for in paragraph 3 of that article.

25 Those services also found other irregularities relating to the identification of the cattle, such as the absence of any identifying mark or passport for certain animals, the omission of vital information in passports and on the applications for premiums and the habitual use of handwritten eartags.

26 By letter of 28 May 2001 and in reply to the findings made by the services of the Commission, INGA stated, with regard to the on-the-spot checks relating to the applications for the special beef premium, that following acceptance of a combined, single application for different ‘livestock’ aid, the fact remained that the minimum level of 5% of on-the-spot checks during the retention period was reached.

27 With regard to identification of the animals, the national authorities recognised that different types of marks were concurrently in use, but they stated that the handwritten marks faithfully reproduced the official identification numbers and were the result of the need to replace original marks which had been lost, as frequently happens in a large-scale breeding holding.

28 By letter of 31 October 2001, the Commission invited the Portuguese authorities to take part in bilateral discussions and indicated the financial corrections which it intended to apply.

29 During the meeting, the Portuguese authorities stated that they did not agree with the flat-rate corrections proposed. They maintained, in particular, that, during the course of 1999, the year in question, the animals had been marked adequately using regulation eartags and that the Portuguese Republic had fulfilled the legislative requirements concerning checks. The Commission did not change its position on the points raised.

30 By letter of 20 February 2002, the Commission formally sent its findings to that Member State following those bilateral discussions for the purposes of a possible application by the Portuguese authorities to the conciliation body set up by Commission Decision 94/442/EC of 1 July 1994 setting up a conciliation procedure in the context of the clearance of the accounts of the European Agricultural Guidance and Guarantee Fund (EAGGF), Guarantee Section (OJ 1994 L 182, p. 45).

31 On 30 May 2002, the services of the Commission sent a formal letter to those authorities in accordance with Articles 8(1) of Regulation No 1663/95 and 1(1)(a) of Decision 94/442, in which it proposed to apply a flat-rate correction of 2% on the expenditure relating to the suckler cow premium and a correction of 5% on the special beef premium. The consequence of those corrections was to exclude from the financing the amount corresponding to those percentages of the expenditure declared under the EAGGF for the 1999 marketing year.

32 On the request of the Portuguese authorities, the president of the conciliation body instituted by Decision 94/442 invited those authorities, by letter of 22 November 2002, to a hearing held on 16 December 2002 in Brussels (Belgium).

33 In its report of 3 January 2003, the conciliation body noted that the question raised by the Portuguese authorities, relating to the basis on which the minimum level of checks is applied, had not yet been raised by any other Member State. It stated that it had never had cause to doubt that point and that there remained differences of opinion between the services of the Commission and those authorities regarding the practice of marking animals.

34 Upon completion of the conciliation procedure, the Commission stated, in a letter of 19 February 2003, that ‘after weighing-up of the arguments put forward by the Portuguese authorities during the conciliation procedure, [its] services … [considered] that those arguments [did] not reduce the gravity of the omissions set out in the letter giving notice of the correction relating to the 1999 financial year …’.

35 Finally, after consulting the Funds Committee, which assessed the summary report produced by the services of the Commission, the latter adopted the contested decision.

36 In the annex to that decision, the Commission indicates that, with regard to the Portuguese Republic, the expenditure to be excluded concerns ‘livestock premiums’ and amounts to EUR 2 446 684.20, the flat-rate corrections (2% and 5% according to the budget headings) being based on failures to carry out key checks and secondary checks in the 1999 financial year.

Arguments of the parties

37 The Portuguese Republic claims that the Court should:

– annul the contested decision;

– order the defendant to pay the costs.

38 The Commission contends that the Court should:

– dismiss the application as unfounded;

– order the applicant to pay the costs.

The claim

39 The applicant submits three pleas in law in support of its application for annulment of the contested decision, namely:

– an error in law in the application of Article 6(5) of Regulation No 3887/92;

– an error in assessment of the facts;

– an infringement of the obligation to state reasons in accordance with Article 253 EC.

The first plea in law, alleging an error in law in the application of Article 6(5) of Regulation No 3887/92

Arguments of the parties

40 According to the Portuguese Government, with effect from the 1999 marketing year and pursuant to the first indent of Articles 1(1)(b) of Regulation No 3508/92 and 5 of Regulation No 3887/92, the national authorities adopted a combined application common to all the ‘livestock’ aid schemes available under the Guarantee Section of the EAGGF, namely the special beef premium, the suckler cow premium and the compensatory allowances and premium for producers of sheepmeat and goatmeat. For all the premiums covered in that combined ‘livestock’ aid application, the effective level (weighted average) of checks during the retention period was 6.3%, the required level of checks of applications relating to beef being, during the same period, 4.4%.

41 Contrary to the claim made by the Commission in the contested decision, the Portuguese Government considers that the rule laid down in Article 6(5) of Regulation No 3887/92 was followed during the 1999 financial year, since the ‘livestock’ aid applications and corresponding checks must be interpreted and assessed from the point of view of the holding as a whole, in other words considering all the ‘livestock’ aid schemes as a whole.

42 In support of its argument, the Government refers to the first subparagraph of Article 6(5), under which on-the-spot checks are to be unannounced and cover all the agricultural parcels and animals covered by one or more applications.

43 According to that Government, that provision does not mean that the checks must be made separately in respect of each scheme. On the contrary, its terms imply that the checks and the conditions which they must meet, namely, inter alia, the imposition of a minimum level of checks to be carried out during the retention period, must apply to all applications relating to the various ‘livestock’ aid schemes.

44 In the same way, the Portuguese Government considers the combined provisions of the second subparagraph of Article 6(5) and of Article 6(3) to be even more significant in that regard since they require, during the retention period, ‘50% of the minimal checks on animals’ to be carried out on a minimum sample of ‘10% of “livestock” aid applications or participation declarations’.

45 Furthermore, the Government points out that the third subparagraph of Article 6(5) provides that ‘on-the-spot checks pursuant to this Regulation may be carried out in conjunction with any other inspection provided for by Community legislation.’

46 Finally, the Portuguese Government disputes what it considers to be a retroactive application of new legal rules resulting from the amendment to the provisions in question made by Commission Regulation (EC) No 2801/1999 of 21 December 1999 (OJ 1999 L 340, p. 29). It recognises that, following that amendment, Article 6(5) of Regulation No 3887/92 requires that 5% of the on-the-spot checks, to be carried out during the retention period, must be carried out as part of each aid scheme.

47 According to Article 2 of Regulation No 2801/1999, that amendment applies only to ‘applications … starting from 1 January 2000’ and not to the 1999 marketing year. It would therefore seem that, in the contested decision, the Commission applied a legal scheme which was not in force at the material time.

48 The Commission disputes that interpretation which, it claims, runs contrary to the spirit and the wording of the provision in question.

49 With regard to the first part of the first plea, based on the possibility of accounting for the total number of checks carried out in the ‘livestock’ premiums sector, it considers that the wording of Article 6(3) and (5) of Regulation No 3887/92 in no way implies that the level of checks required during the retention period may be attained by the inclusion of checks carried out under several aid schemes.

50 According to the Commission, such an interpretation would be contrary to the aims of that regulation, since it would be sufficient, in order for a Member State, during the retention period, to attain levels of checks of 10%, for example, in respect of the suckler cow premium and the premium for producers of sheepmeat and goatmeat, to obtain a weighted average of 6.66% and, consequently, to be regarded as having passed the level of 5% of checks required by Article 6(3) and (5) of that regulation, without even having carried out a single check with regard to the special beef premium.

51 With regard to the second part of the plea, based on the alleged retroactive application of Regulation No 2801/1999, the Commission, referring to the correspondence and documentation exchanged by the two parties, submits that this allegation is entirely without foundation.

Findings of the Court

52 The first part of the plea is based on the alleged possibility of attaining the minimum level of checks to be carried out during the retention period under the special beef premiums by including the checks carried out in respect of other ‘livestock’ premiums.

53 In that regard it should be observed that Article 6(3) of Regulation No 3887/92 provides that ‘on-the-spot checks are to cover at least a significant percentage of applications and the significant percentage is to represent at least 10% of “livestock” aid applications’. Article 6(1) thereof provides, moreover, that checks are to be carried out ‘in such a way as to ensure effective verification of compliance with the terms under which aids and premiums are granted’. Finally, under Article 6(4), ‘applications subjected to on-the-spot checking shall be selected by the competent authority on the basis of a risk analysis and an element of representativeness of the aid applications submitted’.

54 When these provisions are read together, it is clear beyond doubt that they are all intended to ensure effective compliance with the conditions for the grant of aid. It would be contrary both to the intended objective of ‘efficiency’ of the checks carried out and to that of ensuring true ‘representativeness’ of the samples checked for it to be possible that certain categories of aid should partly or wholly escape the checks on the pretext that the minimum level of checks may be reached by compensating or weighting with more numerous checks carried out in other sectors or in respect of other categories of aid.

55 In those circumstances, the interpretation put forward by the Portuguese Government must be rejected. If such an interpretation were accepted, it could lead to a situation where certain schemes could not only avoid being subjected to efficient checks but also avoid checks altogether since to compensate for the total absence of checks in respect of one scheme it would be sufficient to reach a sufficiently high level of checks in respect of another of the aid schemes. Such a consequence would clearly be contrary to the objectives pursued by Regulation No 3887/92.

56 With regard to the second part of the first plea, based on the alleged retroactive application of Regulation No 2081/1999, it is sufficient to note that the contested decision and the communications which preceded it contain no reference to that regulation. The financial correction applied does not therefore rely on the application of that regulation, but on that of Regulation No 3887/92 in the version prior to that resulting from the amendment made by Regulation No 2801/1999, the interpretation of which is at issue in the present case. In those circumstances, since the latter regulation does not constitute the basis of the contested decision, the argument based on retroactive application of that rule must be rejected.

57 Having regard to the above, the first plea made by the Portuguese Government must be rejected.

The second plea in law, alleging an error in assessment of the facts

Arguments of the parties

58 In its second plea, alleging an error in assessment of the facts, the Portuguese Republic advances three arguments: the first relates to the date on which the irregularities were found; the second to the relevance of the findings made; the third to the representativeness of the sampling.

59 With regard to the date of the finding of the irregularities, the Portuguese Government submits that the checks which led the Commission to point to alleged deficiencies in the means of identification of animals were carried out between 18 and 22 September 2000. However, checks carried out during that month cannot be used as justification for corrections relating to the 1999 marketing year.

60 The Commission disputes that argument, referring to the wording of Article 5(2)(c) of Regulation No 729/70.

61 With regard to the relevance of those findings, the Portuguese Government submits that all means of identification used in Portugal fully comply with the conditions laid down by Regulation No 2629/97, even with respect to replacement eartags bearing an identification number handwritten in indelible ink.

62 The Commission disputes that argument, referring to the summary report which points out that the deficiencies in the identification of the animals seriously compromise the reliability of the identification system. Furthermore, the Commission observes that, according to Article 6(1) of Regulation No 3887/92, the checks are intended to ensure ‘effective verification of compliance with the terms under which aids and premiums are granted’, which was not achieved in the case of the checks carried out in the present case.

63 Finally, with regard to the representativeness of the sampling, the Portuguese Republic claims that the Commission has erred in its assessment of the facts relating to the expenditure incurred for 1999 in respect of the suckler cow premium, by using the single region of Alentejo – which has particular characteristics distinguishing it from the rest of the country – from which to make up the sample representative of the whole country and by failing to take account of the fact that livestock production in that region is extensive, with the consequence that the owners involved have additional difficulties in checking the animals.

64 Noting the general and abstract nature of the legal framework, the Commission considers that, even if the region in which the checks were carried out has particular characteristics, the conditions laid down by the Community legal rules must be met.

Findings of the Court

65 With regard to the argument of the Portuguese Government alleging that the Commission had no valid basis for applying flat-rate corrections to the expenditure incurred under the 1999 marketing year on the ground that the checks and the irregularities found took place in the 2000 marketing year, it should be noted that, on the basis of the findings made by its services in September 2000, it was reasonable for the Commission to consider that the deficiencies found in the Portuguese animal identification system existed before the year in which the checks were carried out and therefore also affected the 1999 marketing year.

66 Firstly, several adult animals checked in September 2000 had no eartag or, at the very least, no official identifying mark since, pursuant to the relevant Community rules, those animals should have had such marks in each ear since birth, that is to say during 1998 or 1999.

67 Secondly, the checks carried out by the Commission also made it possible to show several omissions affecting, generally, both the passports for the animals and the individual registers held on each holding.

69 Since in the present case the results of the checks carried out by the Commission, set out, inter alia, in paragraphs 66 and 67 of this judgment, were such as to raise, on the part of the Commission, serious and reasonable doubts as to the means of identification of the cattle applied in Portugal during the 1999 financial year, it was for the Portuguese Government, pursuant to the case-law cited in the preceding paragraph, to supply fuller and more detailed proof of the conformity of the means of identification applied during that financial year, in order to show that the Commission’s doubts were unfounded.

70 In this case, it should be noted that such proof has not been provided by that Government. Since the Commission informed the Portuguese authorities of the results of its checks by letter of 20 March 2001, it was able, as a consequence, in accordance with Article 5(2)(c) of Regulation No 729/70, to apply financial corrections relating to the 1999 marketing year.

71 In those circumstances, the argument of the Portuguese Government alleging that the Commission erred in applying the financial corrections to the period in question must be rejected.

72 With regard to that Government’s argument relating to the irrelevance of the Commission’s findings, it should be observed that, in the various letters which it sent to the Commission after the checks carried out in September 2000, the Portuguese Government did not dispute the existence of certain deficiencies in its animal identification system and, in particular, the fact that several animals checked by the Commission had no means of identification or that the original identification marks had been replaced.

73 Firstly, as the Advocate General noted in point 35 of his Opinion, these practices clearly contravene the wording of Article 4(1) of Regulation No 820/97, which provides that ‘all animals on a holding born after 1 January 1998 or intended for intra-Community trade after 1 January 1998 shall be identified by an eartag approved by the competent authority, applied to each ear’. Articles 1 and 2(b) and (e) of Regulation No 2629/97 provide more specifically in that regard that the eartags are to bear certain non-removable information relating, inter alia, to the designation of the competent authority of the Member State which allocated them and to the code of the country where the animal was first identified and are to be tamper-proof and easy to read throughout the lifetime of the animal.

74 Article 4(5) of Regulation No 820/97 specifies, secondly, that ‘no eartag may be removed or replaced without the permission of the competent authority’. In the present case, the Portuguese Government has not shown that such permission was granted to the farmers concerned by the checks carried out by the Commission.

75 In those circumstances, the argument of the Portuguese Government alleging the irrelevance of the Commission’s findings must be rejected.

76 Finally, the third argument advanced under the second plea alleges that the sampling was not representative since the on-the-spot checks were carried out only in the single region of Alentejo and extrapolated to the rest of the country.

77 However, that argument cannot be accepted. Firstly, as the Commission rightly points out, the legislative framework in this matter is general and abstract in nature and, consequently, the conditions laid down by the Community rules must be capable of general application, even if the region where the checks were carried out has particular characteristics.

78 Secondly, the Commission has maintained throughout the proceedings, without being contradicted on that point by the Portuguese Government, that Alentejo is the main area where the type of cattle in question is reared, which is confirmed, moreover, by the table attached to that Government’s application. Although it refers to the additional premium granted to producers who receive the special premium and/or the suckler cow premium and meet certain conditions, that table clearly indicates the dominance of Alentejo over other regions. It follows that that region is representative in nature.

79 With regard to the possibility of extrapolation to other regions of Portugal, the Court has already held that extrapolation of data is not prohibited in principle (see Case C-344/01 Germany v Commission [2004] ECR I-0000, paragraph 61). Such extrapolation must, however, always be justified by the evidence. In the present case, the fact that Alentejo constitutes the main cattle breeding region justifies that extrapolation.

80 In light of the foregoing, the second plea in law advanced by the Portuguese Government must be rejected in its entirety.

The third plea in law, alleging infringement of the obligation to state reasons under Article 253 EC

Arguments of the parties

81 In its third plea, the Portuguese Republic alleges that the contested decision stated insufficient reasons, since it failed to give details of the acts of the Portuguese authorities which were deemed contrary to Community law or of the legal rules which were infringed.

82 The Commission, relying on the Court’s case-law, contends that both the exchange of correspondence and documentation between the parties and the very wording of the contested decision set out its legal bases and the grounds leading to its adoption and therefore are sufficient to comply with the obligation to state reasons under Article 253 EC.

Findings of the Court

83 It has been consistently held that the extent of the obligation to state reasons under Article 253 EC depends on the nature of the measure concerned and the context in which it was adopted (see, inter alia, Case C-54/91 Germany v Commission [1993] ECR I-3399, paragraph 10).

85 In the present case, as the Commission has pointed out, it is clear from the documents in the file that the Portuguese Government was involved in the process leading up to the contested decision and that the doubts which the Commission had with regard to the methods of applying the monitoring system in Portugal were brought to the attention of the Portuguese authorities on several occasions, and they therefore had the opportunity of submitting their observations on the irregularities alleged.

86 In those circumstances, the reasons stated for the contested decision must be considered sufficient.

87 As the third plea in law cannot be upheld either, the application must be dismissed in its entirety.

Costs

88 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 applied for costs and the Portuguese Republic has been unsuccessful, the latter must be ordered to pay the costs.

On those grounds, the Court (Second Chamber) hereby:

1. Dismisses the action;

2. Orders the Portuguese Republic to pay the costs.

[Signatures]

* Language of the case: Portuguese.