European State Aid Law
The internal market as set out in art. 3 of TEU includes a system ensuring that
competition is not distorted, more specifically on the competition rules
applying to the State, there is a prohibition on State Aid (Art. 107 TFEU).
It avoids distortions of competition by public spending and also avoids a
competition of State budgets.
The legal sources of EU State Aid Law are articles 107 and 108 TFEU, as well
as Commission decisions and judgments of the European General Court.
State aid is defined as any aid in any form whatsoever, granted by a Member
State or through State resources, favoring of certain undertaking or the
production of certain goods, causing a distortion of competition.
Derogations from the prohibition on State aid:
Legal derogations
Facultative derogations
Block exemptions
Derogation granted by the Council on application by a Member State
The prohibition on State Aid is not directly applicable. Commission enjoys a
wide margin of discretion in prohibiting aid.
The prohibition on putting aid measures into effect, though, is directly applicable
by national authorities and courts and gives rise to individual rights. As a
consequence, it rises the right to repayment of aid and claim damages.
Basic concepts of undertaking
Undertaking = any economic activity
Economic activity = offering goods/services on a giver market
Regarding specific action
Regardless of the legal status of the entity and the way in which it is
financed.
Making of profits/intention to make profits is not required
The distinction between economic action and sovereign action must be
observed. Sovereign action is understood as the exercise of public authority; in
other words, core competences of the state.
If the economic action is inseparably linked to the execution of public authority,
it must be observed the distinction of retention guarantee and performance
guarantee.
Economic action and social action must also be distinct.
Economic action and operation of services of general economic interest
(SGEI)
Economic activity requires that some kind of competition exists, i.e. if there
are private entities offering the same or substitutable goods and services.
The definition of state aid depends on five elements:
Advantage
o Benefit (economic advantage) without sufficient consideration
o Indirect advantage is sufficient
o Market Economy Operator Principle (MEO test)
Transaction at regular market conditions does not
constitute state aid.
Form: private investor principle (comparison to private
holding company or a private group of undertakings
pursuing a structural policy)
Several measures have to be considered jointly, if closely
connected because of temporal sequence, purpose or
situation of undertaking.
Open an transparent tender procedure without
discrimination and free of conditions
By a Member State or through State resources
o Criteria
Grant imputable to State
Means originally from the State
Certain undertakings or production of certain goods
o So-called selectivity of aid.
Distortion of competition
o Interference in an actual or potential competitive relationship by
potentially strengthening the competitive position of the aid
beneficiary
Affecting trade between Member States
o It is sufficient that trade might be affected.
o Can result from the circumstances.
Derogations from the prohibition on State Aid
Legal derogation
Facultative exceptions
o Commission enjoys a wide margin of discretion
Block Exemption Regulation enables horizontal transparent state aid for
o Regional aid
o Small and medium-sized enterprises
o Research and development
o Environmental protection
o Culture
o Sport and leisure infrastructure
o Local infrastructure
SGEI (Services of General Economic Interest)
Compensation for the services provided by the recipient undertaking in order to
discharge public service obligations do not constitute State aid if the public
service obligations are clearly defined and the parameters of the compensation
are established in advance in an objective and transparent manner.
About the privatizations, sales of land and buildings do not fulfil the conditions of
State said, if they follow an unconditional bidding procedure and they also follow
an independent expert evaluation which establishes the market value.
Individual guarantees do not constitute State aid if:
The borrower is not in financial difficulty
The extent of the guarantee can be properly measured
The guarantee does not cover more than 80% of the outstanding loan
A market-oriented price is paid for the guarantee
State aid for rescuing and restructuring is valid
Rescuing aid is the temporary assistance, which may take place if:
Aid consist of liquidity support
Aid must be warranted on the grounds of serious social difficulties
Aid restricted to the amount needed to keep the firm in business
Restructuring aid is the assistance in restoring long-term viability. Its conditions
are:
Viable restructuring plan
Avoidance of undue distortions of competition (compensatory measures,
as reductions in capacity or market presence)
Aid must be limited to the strict minimum.
The State aid procedure (Art. 108 TFEU with Regulation 2015/1589) is
conducted exclusively between the Member State concerned and the
Commission.
In case of the aid which existed prior to the entry into force of the Treaty or
authorized aid, therell be constant review by the Commission, as well as
cooperation with Member State and proposal for appropriate measures.
Alteration of aid on the future.
In case of new aid, theres an obligation to notify, as well as the standstill
obligation. Recovery with retroactive effect.
By the notification of the new aid, a preliminary examination takes place. By the
end of it, theres a decision on:
Whether the measure constitute an aid
Whether the measure is compatible with the Common Market
After that, theres an opening of the formal investigation procedure, that may be
commented by Member State and interested parties. After then, therell be the
final decision about the indicated behavior, which may lead to recovery of aid.
The recovery of aid consists on an obligation of Member State to take all
necessary measures to recover the aid from the beneficiary. The recovery shall
be effected without delay and in accordance with the procedures under national
law. In case of expiry of the limitation period, aid shall be deemed to be existing
aid.
Limits to the enforcement of recovery decision:
Protection of legitimate expectations (legitimate expectation caused by
Commission)
Impossibility
o Absolute and actual
o Legal impossibility is not sufficient
o Potential insolvency does not constitute absolute impossibility
