Permissible State Aid

• MEASURES NOT CONSTITUTING AID

• AID COMPATIBLE WITH THE INTERNAL MARKET

• EXEMPT AID

• DE MINIMIS AID

• AID GRANTED IN THE FIELD OF SERVICES IN THE GENERAL ECONOMIC INTEREST (SGEI)

• CASEBOOK : FROM I TO IX

ŁUKASZ STĘPKOWSKI, CHAIR OF INT’L AND EUROPEAN LAW, UNIVERSITY OF WROCŁAW

INTRODUCTION TO EU LAW OF STATE AID

State aid : not always forbidden

Even measures that do fall within Article 107(1) TFEU can sometimes be allowed, even if State aid is prohibited in principle

For that reason, there is a set of derogations found under Article 107 (2) and (3) TFEU

Article 107(2) TFEU sets an obligatory derogation (i.e. aid granted under that provision is always compatible with the internal market)

Article 107(3) TFEU sets a discretionary derogation (in that the Commission may approve aid under it, but is not required to do so)

Measures under 107(2) and 107(3) TFEU are still State aid and must be notified to the Commission under Article 108(3) TFEU For 107(2) TFEU the Commission will assess if a measure truly falls within the derogation For 107(3) TFEU, in addition to the above, the Commission will assess if the benefits of

granting the measure outweigh its distortive risk („the balancing test”) Aid falling under 107(2) and 107(3) TFEU is still illegal if implemented before the

Commission (viz. Article 108(3) last sentence TFEU)

State aid : mandatory compatibility : 107(2) TFEU

The following shall be compatible with the internal market:

(a) aid having a social character, granted to individual consumers, provided that such aid is granted without discrimination related to the origin of the products concerned;

(b) aid to make good the damage caused by natural disasters or exceptional occurrences;

(c) aid granted to the economy of certain areas of the Federal Republic of Germany affected by the division of Germany, in so far as such aid is required in order to compensate for the economic disadvantages caused by that division. Five years after the entry into force of the Treaty of Lisbon, the Council, acting on a proposal from the Commission, may adopt a decision repealing this point.

State aid : discretionary compatibility : 107(3) TFEU 3. The following may be considered to be compatible with the internal market:

(a) aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment, and of the regions referred to in Article 349, in view of their structural, economic and social situation;

(b) aid to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State;

(c) aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest;

(d) aid to promote culture and heritage conservation where such aid does not affect trading conditions and competition in the Union to an extent that is contrary to the common interest;

(e) such other categories of aid as may be specified by decision of the Council on a proposal from the Commission.

State aid : the so-called „balancing test”

A tool of economic assessment introduced by the Commission

Summed up in a policy paper available under http://ec.europa.eu/competition/state_aid/reform/economic_assessment_en.pdf

A set of questions : 1. Is the aid measure aimed at a well-defined objective of common interest? 2. Is the aid well designed to deliver the objective of common interest i.e. does

the proposed aid address the mark et failure or other objectives? i. Is the aid an appropriate polic y instrument to address the policy objective

concerned? ii. Is there an incentive effect, i.e. does the aid change the behaviour of the aid

recipient? iii. Is the aid measure proportionate to the problem tackled, i.e. could the same

change in behaviour not be obtained with less aid? 3. Are the distortions of competition a nd effect on trade limited, so that the

overall balance is positive?

State aid : secondary law exemptions

107(3)(e) TFEU allows for specifying other categories of aid compatible with the internal market by way of secondary EU law

108(4) TFEU allows for secondary legislation that is exempt from notification

Moreover, 109 TFEU introduces a general competence of the Council to define the above (dual legal basis)

Council Regulation (EU) 2015/1588 of 13 July 2015 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to certain categories of horizontal State aid („the Enabling Regulation II”) http://eur-lex.europa.eu/legal-content/EN/TXT/?

qid=1446821870102&uri=CELEX:32015R1588 Exempted aid (art. 1 therein) De minimis aid (art. 2 therein)

Addendum : there are sectoral exemptions in addition to the Enabling Regulation (e.g. railway aid, shipyard industry aid, coal mine aid etc)

State aid : general block exemption regulation (GBER) Aid enabled by way of Art. 1 of Regulation 2015/1588 operates under the

second General Block Exemption Regulation (GBER II), thas is, under Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty http://eur-lex.europa.eu/legal-content/EN/TXT/?

qid=1446821364833&uri=CELEX:32014R0651 Different categories of aid allowed under the Enabling Regulation Incorporates the definition of a SME (Annex I) Aid under it is exempt from notification

State aid : de minimis aid

The other category of aid allowed by the Enabling Regulation

Aid that is deemed not to meet all the criteria laid down in Article 107(1) of the Treaty and is therefore not subject to the notification procedure

De minimis ceiling of 200.000 EUR per undertaking over the period of three fiscal years, in order not to have any effect on trade between Member States and not to distort or threaten to distort competition

Commission Regulation (EU) No 1407/2013 of 18 December 2013 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid http://eur-lex.europa.eu/legal-content/EN/TXT/?

qid=1446823084865&uri=CELEX:32013R1407

Apart from the limit of aid, other requirements of this Regulation must be met for the aid in question to be outside 107(1) TFEU

State aid : SGEIs

The notion of State aid is adjacent to the concept of a service of the general economic interest (a SGEI), which is found under Article 106(2) TFEU „Undertakings entrusted with the operation of services of general economic interest or having

the character of a revenue-producing monopoly shall be subject to the rules contained in the Treaties, in particular to the rules on competition, in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them. The development of trade must not be affected to such an extent as would be contrary to the interests of the Union”.

The Treaties do not contain a definition of what a SGEI may be

2012/21/EU: Commission Decision of 20 December 2011 on the application of Article 106(2) of the Treaty on the Functioning of the European Union to State aid in the form of public service compensation granted to certain undertakings entrusted with the operation of services of general economic interest http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1446823956386&uri=CELEX:32012D0021

Landmark case C-280/00 Altmark Trans http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1446823902541&uri=CELEX:62000CJ0280

State aid : the Market Economy Investor Principle (the M.E.I.P. test)

The tool for assesing the market character of State conduct

If the State behaved like a normal market participant motivated with obtaining a profit from his/her investment, then no State aid would be found

Applies to State conduct when not discharging public power (i.e. when not exercising imperium)

Example : Judgment of the Court of 5 June 2012, case C-124/10 P European Commission v Électricité de France (EDF), EU:C:2012:318, para. 78 et seq. http://eur-lex.europa.eu/legal-content/EN/TXT/?

qid=1446824808008&uri=CELEX:62010CJ0124

State aid : the Market Economy Creditor Principle (the M.E.C.P. test) The second test that is of relevance for assessing the market character of a

measure

Where there is a situation when a State is a creditor, a measure is „market-like” if the State acts as a market creditor concerned with maximising his/her payments due

Applies similarly to a situation where a State is acting outside its public prerogatives

Example : judgment of the Court of 24 January 2013, case C-73/11 P Frucona Košice a.s. v European Commission, EU:C:2013:32, para. 78 – 81, para. 100

http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1446825084544&uri=CELEX:62011CJ0073

Case I

Two undertakings (viz. private limited companies, A and B) that are wholly owned by the same shareholder who involves herself in the daily management of those undertakings as a member of respective boards of directors desire to be granted de minimis aid

Undertaking A receives 200.000 EUR in de minimis aid by way of a combined measure containing a soft loan and a direct grant

May undertaking B receive further de minimis aid ?

Case II

A wholly State-owned undertaking (viz. a company whose shares are wholly held by a local government entity) employs 5 employees and is managed by a full-time director

The undertaking in question applies for the grant of aid for risk financing measures targeted at SMEs under Regulation no 651/2014

May the undertaking in question receive that aid ?

Case III

Member State A is experiencing a terrorist attack that targets multiple sectors of economy and grinds the functioning of that State to a halt

Member State A wishes to grant large amounts of aid (e.g. >EUR 10 million) to the affected undertakings (esp. airlines)

Would this be compatible with the Treaty?

Case IV

Undertaking A is experiencing serious difficulties and is on the cusp of compulsory liquidation proceedings

Member State B is a holder of a significant shareholding in A

Member State B considers a capital injection into A as to maintain liquidity of A

Would this amount to aid ? If so, under what circumstances ?

Case V

Member State A selects a service of Internet cable network as a service in the general economic interest

Member State A operates that service in a remote area (viz. an island on its territorial waters)

Do Internet services count as SGEIs ?

How it would be legal ?

Case VI

Member State A is a creditor of company B

Company B is under the risk of default on its debts

B is a politically important undertaking, in that there are trade unions that will go on aggressive strikes if the company ceased operation, up to and including riots in the capital city

What would be the course of action for A to take in order not to grant illegal State aid ?

Case VII

Undertaking A whis is a SME applies for the grant of aid for SMEs under GBER II

Simultaneously, A applies for the grant of de minimis aid for the same expense (i.e. its expense is to be financed partly by exempt aid and partly by de minimis aid)

Can de minimis aid and aid under Regulation no 651/2014 be cumulated ?

Case VIII

Member States experience EU-wide sovereign debt crisis that has been caused by financial institutions accepting impaired assets and toxic debt, coupled with several Member States not adhering to the notion of prudent financial management

An amount of 661 billion EUR is granted over the duration of five years

Is this legal…?

Case IX

There is an aid measure that has been granted in 1949

The aid measure is in force and active

The measure satisfies all the conditions found in 107(1) TFEU and none of the requirements under 107(2) or 107(3) TFEU are present

The measure does not fall within the GBER, de minimis or SGEI

Is this State aid?

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