concept of state aid: the principles - european...

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Concept of State aid: the principles

Mihalis KekelekisExternal State aid Expert

Brussels – July 2017

This training has been organised by EIPA-Ecorys-PwC under the Framework Contract Nr 2013.CE.16 B.AT 044. The opinions expressed are those of the contractor only

and do not represent the EC's official position

Commission Notice on the notion of State aid as referred

to in Article 107 (1) of the TFEU

OJ C 262/1, 19.7.2016



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EU system of State Aid Control

Exceptions

applicable?

Existence

of state aid

twofundamental

issues

Procedure: notification, standstill, authorisation

[plus, register, reports, recovery, etc.]

Principle: state aid in any form is in general

incompatible with the internal market

European Commission



Schematic overview of State aid control

Direct application of the Treaty -Notification

EU Guidelines – Examination of common assessment principles

– Notification

GBER – Automatic compatibility – No notification

No aid – De minimis aid – No notification



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What is state aid?

Article 107(1) of the Treaty

“Save as otherwise provided in the Treaties any aid

granted by a Member State or through State resources in

any form whatsoever which distorts or threatens to distort

competition by favouring certain undertakings or the

production of certain goods shall, in so far as it affects

trade between Member States, be incompatible with the

internal market”



Criteria

� Aid granted to undertakings from public funds [MS or

State resources]

� Aid confers advantage

� Aid is selective

� Aid affects trade between MS

� Aid distorts or risk to distort competition

Criteria are cumulative



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Nature of aid� Concept of aid is wider than subsidies and includes and

public measure that reduces costs normally borne in

budget of undertakings:� Grants, capital injections

� Loans at below market rates; interest subsidies

� Guarantees

� Tax advantages: tax reductions, tax exemptions

� Reductions of social security contributions

� Provision of goods and services at below-market prices

� Sale of land at below-market price by the State

� Purchase of goods and services by the State at above-market price

� Irrelevant factor the intention and objective of the

granting authorityThis training has been organised by EIPA-Ecorys-PwC under the Framework Contract

Nr 2013.CE.16 B.AT 044. The opinions expressed are those of the contractor only and do not represent the EC's official position

Aid is given to undertakings

� “any entity engaged in economic activity”

� Regardless of legal status & way it is financed and

� Regardless of whether entity intends to make profit

� Regardless of whether it offers the services free of charge to its

users or customers

� Notion is addressed to economic activities rather than

to entities

� Economic activity is any activity that can be exercised by

private undertakings for remuneration



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Examples of non-undertakings

� Public entities exercising public powers e.g. activities

related to army or police, maintenance of air navigation

system, customs, maritime traffic control and safety

� The organisation, financing and enforcement of prison

sentences

� Employees and Trade Unions



Health care

Non economic activity

� Public hospitals integral part

of the national health service

� Free of charge or very small

charge

� Commercial activities to

support the NHS

� FENIN Judgement C-205/03

� Private operators offering

these services on behalf of

the State

Economic activity

� Health services for

remuneration

� Public or private health care

services

� Pharmacies

� Emergency medical care

� Ambulance services

� Competition in the market

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Education and research activities


� Public education integral part of

the national educational system

� Free of charge or very small

charge

� Vocational training, kinder

gardens, universities,

independent research,

dissemination of results

� Private operators offering these

services on behalf of the State

Economic activity

� Educational services for

remuneration

� Higher education financed

entirely by students

� Public and private educational

services depending on the way

they are financially structured

� Competition in the market

� Research on behalf or with

the industry

Cultural or heritage conservation activities


� Activities accessible to the

public free of charge (or with a

small charge)

� Museums, libraries, theatres,

opera houses, archaeological sites,

historical buildings, natural

heritage etc.

� Non- substitutable activities

� Public archives

Economic activity

� Activities with remuneration

� Cinemas, commercial music

performances, restoration of

private historical buildings etc.

� Customary amenities in

support of the activities

� Restaurants, shops, parking,

paid cloakrooms etc.

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Land development


� Provision and supervision of

land in line with urban

development plans

� Ground work, connection to

utilities and transport network,

street construction, street lighting,

anti-noise barriers etc.

� SA. 36346 - GRW

Economic activity

� Customized development of

land

� Land redevelopment for

large retail stores

� Construction and

revitalization of buildings



Aid granted by

a Member State

or through

State resources

� Central government, ministries or departments

� Regional governments, local authorities or councils

� Public undertakings or agencies of the State

� Funds or associations controlled by the State

are the actions

imputed to

the State?

� Does the State has discretion to control the actions ofits bodies?

Sources of funding of aid

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Imputability

C-482/99, Stardust Marine

� Level of companies’ integration in the public

administration

� Nature of activities

� Legal status of companies (i.e. subject to public law or

ordinary company law)

� Intensity of public supervision over the management of

companies



Sources of aid including structural funds

State resources No state resources

no state controlstate control

Otherstate-

controlledresources

EU

CAP

MSpublicfunds

ESI fundsHorizon

2020Private

Recipients of funding (undertakings)



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“by favouring” - Advantage

� Advantage is any relief from normal costs that are

inherent in the economic activity of the beneficiary

undertaking

� If State provides aid through open tender, then no state

aid

� If State behaves as any private investor or creditor then

no state aid and no need for public tender

� Indirect advantage

� Advantage at different levels (e.g. owner, operator and

user of infrastructure)



�Pari passu arrangements

� Tender eliminates advantage

The Advantage test

�No advantage where the State acts in the same way as a

private operator acting under normal market conditions

If not

�Benchmarking analysis

in view comparable situations

�Profitability analysis



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Services of general economic interest

� Altmark criteria [C-280/00]

� Public Service Obligation (PSO) well defined

� Public service compensation (PSC) predetermined

� Aid covers only extra costs

� Costs not higher than those of typical undertaking or public

tender chooses the beneficiary

� If above criteria are met, PSC is not state aid

� If these criteria are not all met for a PSO, PSC can be

compatible aid under Article 106 (2)



“by favouring certain undertakings” - Selectivity

� Aid favours certain regions, sectors, undertakings,products

� But general measures do not involve state aid

� De jure: it results directly from the legal criteria (e.g.companies of certain size)

� De facto: it is the result of conditions imposed by MSpreventing certain undertakings from benefiting from ameasure (e.g. tax credit to investment above a certainthreshold)



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Selective

�favouring small undertakings

over large ones in respect of the

purchase of commercial

vehicles

�favouring large insolvent

companies

�tax exemptions on exports

�derogations from tax system,

unless justified by the nature

and structure of it

General

�measures in order reduce

unemployment or to improve

working conditions

�consumer subsidies

�reduction of corporate tax

�setting corporate tax

�infrastructure projects for

public use



Selective v general measures

Fiscal selectivity and case example

� Derogation from reference tax systems is in principle

selective

� Case C-524/14 Lubeck airport: lowering of landing and

other fees charged by the airport for all airlines

� Commission: selective - at the detriment of other airports

� General Court: general - charges set by the Land under a

particular legal regime

� ECJ: general – all airlines using Lubeck airport benefit

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“distorts or threatens to distort competition”

� If trade is affected, then competition is normally found to be

distorted because the recipient of the aid gets a better

position in the market

� Unless the service is subject to a legal monopoly and cross-

subsidization is excluded

� Commission only has to explain how aid is capable of

causing distortion

� Irrelevant arguments from MS:

� “we give aid because in other States the market conditions are

more favourable”, or

� “we give aid because competitors in other States have received aid”This training has been organised by EIPA-Ecorys-PwC under the Framework Contract


“in so far as it affects trade”

� No requirement to establish that aid has real effects on

trade, but only to examine whether aid is liable to affect

trade

� The principle:

“It seems appropriate to check, in particular, whether the

beneficiary supplies goods or services to a limited area

within a Member State and is unlikely to attract

customers from other Member States, and whether it

can be foreseen that the measure will have more than a

marginal effect on the conditions of cross-border

investments or establishment”This training has been organised by EIPA-Ecorys-PwC under the Framework Contract


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Case: SA 43983� Financing a Sportcamp in Germany

� Funding : 20.73 million EUR

� Commission:

� Distinction between the provision of trainingcamp and the exercise of amateur sport in anon-profit association and school educationactivities

� 0.2% annual turnover for foreign visitors;below 1% foreign visitors; 81.5% of overnightstays of all users from Bavaria; and no morethan 4% overnight stays of foreign visitors

� Thus unlikely to attract visitors from other MS

� No positive evidence of relevant cross-borderinvestments or establishment



Case: SA 33149

� Provision of free information and advisoryservices to individuals and SMEs in adisadvantaged area of the city of Kiel (D)

� Commission:

� Services are provided exclusively to a very localmarket (19000 inh)

� Address only very small firms from the area

� Provided by a very small number of staff

� Complainant has only local operations

Thus

� Unlikely to attract customers from other MS

� No positive evidence of relevant cross-borderinvestments or establishment



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Guidelines: Horizontal• regional development• environmental protection• R&D&I• rescue & restructuring• fiscal aid• risk capital for SMEs• PSC framework• Guidelines: Sectoral• agriculture & fisheries• audiovisual• broadcasting• broadband• transport

BE Regulations• General block exemption regulation •agriculture & fisheries•Decision on PSC

Aid outside guidelines must be within Art 107(2 or 3)• necessary & proportional• in EU’s interest• not contrary to other provisions in EU Treaty

Article 106(2): SGEIArticle 93: transport

Article 107(3): may be compatible with IM• underdevelopment• European projects; serious disturbance• certain economic activities or areas• culture & heritage• other

Article 107(2): compatible with IM• aid to individuals• natural disasters; exceptional occurrences• division of Germany

Regulation on de minimis aid=> no aid in meaning of Art 107(1)

Compatibility ExceptionsOptions

Conditions

Compatibility main principles

� Objective of common interest

� Necessity and appropriateness of aid

� Incentive effect

� Proportionality of aid

� Effect on competition and intra-Union trade

� Transparency

Ex post evaluation of certain large schemes



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