Can an institution demand repayment of EU financing years later?
Contrary to popular belief, funding institutions’ claims for reimbursement of EU financing are not eternal. The national and EU regulations provide certain timeframes beyond which the institution loses the right to demand return of the funds. More and more frequently businesses which carried out and accounted for projects years before, financed from EU funds, are now receiving demands to repay the funds, often in connection with irregularities uncovered in subsequent audits. Does the institution still have the right to demand repayment five, eight, or even ten years after the project is completed?
The function of limitation periods—legal certainty, and setting limits on liability
Time limits on recovery of EU funds serve a very specific role. They demarcate the boundary beyond which the institution can no longer effectively pursue its claim. Apart from the procedural aspect, time limits foster legal certainty and economic stability, particularly for companies that completed projects many years ago and accounted for the funds in accordance with the applicable rules, while the institutions accepted the reports accounting for the projects.
With the passage of time it is hard for beneficiaries to recreate the facts surrounding the project, often due to personnel changes and the departure of employees responsible for implementation of the project. This is why the law establishes temporal limits on liability—they are designed to protect the enterprise against claims asserted years later, when the ability to mount a defence has been eroded. The other side of time limits is to motivate institutions to take proper steps to prevent long delays in audits and accounting for public funds.
Although claims for reimbursement of EU funds arise under public law, the purpose of time limits is similar to what it is under civil law. They aim to maintain a balance between the public interest and the beneficiary’s right to stability and predictability.
Two levels of counting time—national and EU
In cases involving repayment of EU funds, the main rules for calculating time limits are set by EU law. Council Regulation (EC, Euratom) No 2988/95 of 18 December 1995 on the protection of the European Communities financial interests establishes uniform rules for the time limits on claims for recovery of funds from the EU budget, including the moment when the time limit begins to run, when it is interrupted, and the maximum permissible period when the claim can be enforced.
Under Art. 3(3) of Regulation 2988/95, the member states can apply longer limitation periods. But this means only the possibility of extending the time limit. The freedom to change the rules for calculating the limitation period, or to determine when it starts to run, is doubtful.
For the beneficiary, in practice this means that determining the correct time limit may be decisive on whether the institution’s claim still exists at all.
EU law: four-year limitation period, with exceptions
Under Regulation 2988/95, the main limitation period for proceedings is four years from the time when an “irregularity” was committed, i.e. an infringement of EU law resulting from an act or omission by an economic operator, which has, or would have, the effect of prejudicing the EU budget. In the case of continuous or repeated irregularities, the limitation period runs from the day when the irregularity ceases.
The Court of Justice of the European Union has consistently held that the date of discovery of an irregularity by a national body is irrelevant for these calculations. What counts is the time when the irregularity actually occurred. This is often a key distinction, because many oversight proceedings are not conducted until several years after project completion. If the institution takes an action (e.g. conducting an investigation, including an ad hoc control, or making a written request for explanations preceding a demand for return of funds), and formally notifies the beneficiary, this may be regarded as an “act of the competent authority” under Art. 3(1) of the regulation. This interrupts the limitation period, and from that time the period starts again from the beginning.
But Regulation 2988/95 also sets a maximum time limit. Thus, even if the limitation period was interrupted multiple times by an act of the competent authority, the limitation shall become effective at the latest at the end of a period equal to twice the basic limitation period. This means that the total period when it is possible to pursue claims or impose an obligation to repay the funds cannot exceed eight years after commission of the irregularity (with certain exceptions referred to in the regulation).
Multiannual programmes—longer risk for the beneficiary
In the case of multiannual programmes, there is an additional EU rule that “the limitation period shall in any case run until the programme is definitively terminated.” Thus, if the four-year period has expired but the programme has not yet been formally closed by the European Commission, the beneficiary continues to be potentially liable (for example, in the 2007–2013 financial perspective, documents closing out programmes were supposed to be filed by 2017, according to the Commission Decision of 20 March 2013, C(2013)1573)).
In practice this mechanism can cause the period of potential liability to stretch out much longer. Until the given programme has been accounted for with the Commission, national institutions can still review the expenditures and demand return of the funds if they find irregularities. This approach is designed to protect the EU budget, but from the viewpoint of businesses it means that project closing within the national system will not always end their potential liability.
Longer limitation periods in the member states
Regulation 2988/95 permits member states to introduce longer limitation periods, so long as they do not infringe the principle of proportionality and legal certainty. A five-year limitation period has been adopted in Poland. This is still consistent with the EU regulation, so long as the method of calculating the limitation period is consistent with the EU rules, including the moment when the limitation period begins to run.
Polish law: five years, but not always starting from the same point
Under Art. 207 of Poland’s Public Finance Act, a beneficiary who has used funds not in compliance with the contract or the regulations must return the funds along with interest calculated in the same manner as tax arrears. The funds which a beneficiary is summoned to repay for irregularities found in the project constitute non-tax, public-law receivables. Under Art. 66a of the Public Finance Act, the obligation to return such funds becomes time-barred after five years, counting from the date when the decision on return of the funds becomes legally final, or when the final balance is paid, whichever is later. In practice this extends the period in which the institution may demand repayment of the funds, often by several additional years. In effect, the period of the beneficiary’s potential liability is prolonged.
This solution raises doubts in terms of its compliance with EU law, because it actually modifies the moment when the limitation period begins to run, which may overstep the member state’s allowable regulatory discretion. For this reason, the Polish courts increasingly hold that EU law takes precedence in this respect, and the limitation period should be counted from the time when the irregularity occurred, not from the time when the repayment decision was issued by the authority or served on the beneficiary.
Discrepancies in court rulings
The administrative courts in Poland have not developed a uniform position on this issue. Some rulings, such as the Supreme Administrative Court judgments of 13 June 2017 (case no. II GSK 3644/15) and 9 October 2024 (I GSK 11/21), hold that EU law constitutes a specific law overriding the national regulations, and the start of running of the limitation period should be tied to the moment when the irregularity occurred or ceased, and not the date when the decision is served or the funds are transferred to the beneficiary.
Another line of case law, e.g. in the Supreme Administrative Court judgments of 18 May 2017 (II GSK 4503/16) and 27 April 2023 (I GSK 408/19), recognises that the running of the limitation period should be calculated on the basis of the national regulations, indicating that it runs from the end of the calendar year in which the funds were transferred to the beneficiary, or from the date when the repayment decision became legally final.
State aid and the rights of the European Commission
A separate issue is the time limit in cases where the European Commission is seeking recovery of unlawful state aid. Under Council Regulation (EU) 2015/1589 of 13 July 2015 laying down detailed rules for the application of Article 108 of the Treaty on the Functioning of the European Union, the power of the Commission to recover unlawful aid (awarded as individual aid or under an aid scheme) is subject to a limitation period of 10 years, beginning on the day when the unlawful aid was awarded to the beneficiary. The running of this period is interrupted by any action taken by the Commission, directed to the member state, with regard to the unlawful aid in question. This period is independent of national regulations, which means that even if a claim by the national institution has become time-barred, the Commission can still launch its own investigation and order the member state to recover the unlawful aid from the beneficiary.
What does this mean for businesses?
What is relevant from a business perspective is that EU law provides for shorter and more predictable time limits, while Polish law provides for longer and often disadvantageous time limits. In case of doubt, it is worth relying on the principle of the primacy of EU law, if the national regulations prolong the time limit in a manner inconsistent with the EU rules.
Dr Anna Kulińska, Marta Grodzki, State Aid & EU Internal Market Regulation practice, Wardyński & Partners
