Notion of State aid
Commission Notice on the notion of State aid as referred to in Article 107(1) of the Treaty on the Functioning of the European Union
The notion of State aid is an objective and legal concept defined by Article 107(1) of the Treaty on the Functioning of the European Union (TFEU). The notice provides clarification on the key concepts relating to the notion of State aid as referred to in the article.
Definition of State aid in Article 107(1) of the TFEU
Any aid granted by an EU country, or through State resources in any form, which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods must, in so far as it affects trade between EU countries, be incompatible with the internal market.
There are 4 cumulative criteria for the presence of State aid:
- the support is granted by the State or through State resources;
- it favours one or more undertakings — there is a selective advantage;
- the support distorts or has the potential to distort competition; and
- it affects trade between EU countries.
Guidance and clarification
By systematically summarising the case-law of the EU courts and the European Commission’s decision-making practice, the notice provides general guidance on all aspects of the definition of State aid.
The notion of undertaking and economic activity — whether the entity concerned is carrying out an economic activity:
The Court of Justice has consistently defined ‘undertakings’ as entities engaged in an economic activity, regardless of their legal form and the way in which they are financed. ‘Economic activity’ is any activity consisting in offering goods and services on a market.
State origin — whether the aid is of public origin:
support granted directly or indirectly through State resources and attributable to the State can constitute State aid.
State resources include all resources of the public sector, including resources of other bodies within the State (decentralised, federated, regional or other) and, under certain circumstances, resources of private bodies.
Advantage — whether an economic benefit has been obtained:
an advantage is present whenever the financial situation of an undertaking is improved as a result of State intervention on terms differing from normal market conditions.
Selectivity — whether the public aid grants an advantage in a selective way to certain undertakings or categories of undertakings or to certain economic sectors:
general measures which are effectively open to all undertakings operating within an EU country on an equal basis are not selective. However, for the measures to be genuinely general in character, they shall not be in fact reduced in scope by factors that restrict their practical effect.
Effect on trade and competition — whether the economic activity distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods and only insofar as it affects trade between EU countries:
A measure granted by the State is considered to distort or threaten to distort competition when it is liable to improve the competitive position of the recipient compared to other undertakings with which it competes. It is not necessary to establish that the aid has an actual effect on trade between EU countries, but only whether the aid is liable to affect such trade.
Public investment in infrastructure
In addition, the notice clarifies a number of points regarding public investment in infrastructure, when public funding of infrastructure favours an undertaking, grants an advantage and has an effect on competition and on trade between EU countries.
Infrastructure projects often involve several categories of actors and any State aid involved may potentially benefit the construction (including extensions or improvements) and the operation or the use of the infrastructure. The notice therefore provides specific guidance on the distinction between:
aid to the developer and/or first owner of the infrastructure;
aid to the operators of the infrastructure (undertakings making direct use of the infrastructure to provide services to end-users, including undertakings which acquire the infrastructure from the developer/owner to exploit it economically or which obtain a concession or lease for the use and operation of the infrastructure); and
aid to the end-users of the infrastructure.
The ‘Notion of aid’ notice is the last part of the Commission’s State Aid Modernisation initiative, launched in 2012.
The specific guidance on public investment is designed to maximise the effect of investments on economic growth and jobs, in line with the Commission’s Investment Plan for Europe.
State aid procedural rules
Regulation (EU) 2015/1589 ays down the procedures for the application of European Union state aid* rules.
As a general rule, state aid is prohibited under EU law as it may give an unfair advantage to one company or group of companies over another, thus distorting competition in the EU. Under certain circumstances, however, state aid is permitted to support particular economic sectors in difficulty, for example. This regulation sets out the relevant procedural rules for the application of EU state aid.
Procedure regarding notified aid: EU countries must notify the European Commission of any plans to grant new aid. In such cases, the procedures include the obligation by the Commission to inform the EU country concerned without delay of the receipt of the notification and to decide within 2 months whether the aid is lawful or whether a further investigation procedure into the aid is needed.
Regarding any such investigation procedure, the Commission may request from any EU country, company or group of companies all the market information it needs in order to make a decision on whether the aid is lawful under EU rules. It may impose fines on any company that provides false or misleading information. The Commission must try to reach a decision within 18 months from the opening of the investigation procedure.
Procedure regarding unlawful aid: the Commission may, on its own initiative, examine any information it receives regarding any alleged unlawful aid. In such cases the procedures include the right of the Commission to obtain all the necessary information for making a decision. It may also issue injunctions requiring an EU country to provide relevant information (information injunction) or to suspend any unlawful aid until the Commission has taken a decision on the compatibility of the aid with the internal market (suspension injunction).
Limitation periods: the power of the Commission to recover aid is limited to 10 years from the day the unlawful aid is awarded to the relevant company or group of companies.
Investigations into sectors of the economy: the Commission may conduct an investigation where it suspects that state aid given to a particular sector of the economy distorts competition. It may request information of EU countries and relevant companies. In so doing, it must state the reasons for its inquiry and publish a report of its findings.