Annex C: EU restrictions on state aid
[Footnote 1]
Annex A | Annex B | Annex C
| Annex D | Annex E
EU law on state aid derives from the Treaty of Rome and aims to
prevent member states from unfairly distorting competition within
the EU, except in certain permitted circumstances. Where a state
intervention distorts competition, this will usually constitute
state aid. The Treaty expressly prohibits the granting of state aid
except in certain circumstances where the European Commission has
discretion to approve state aid that does not unacceptably distort
the internal market.
State aid exists if all of the following four criteria apply to
the proposed funding:
- It is granted by the state or through state
resources
- It favours certain undertakings or the
production of certain goods
- It distorts or threatens to distort
competition
- It has the potential to affect trade within
the EU.
These are discussed below.
State resources
The subject of this DST is spending by government. This
criterion applies, therefore, to all the funding covered by the
DST. However, the use of government spending which constitutes
state aid is allowed in certain circumstances. There are a range of
instruments through which approval of a state aid may be achieved.
These include existing approved schemes, the ‘block exemption
regulations’, the ‘de minimis regulation’ and seeking approval for
a particular aid or aid scheme directly from the European
Commission (see below).
State aid policy evolves over time. So, for each public
programme involving the use of government spending, there is a need
to test compatibility with current state aid policy.
Favouring an undertaking
An ‘undertaking’ is an entity that undertakes ‘economic
activity’. An economic activity is an activity that could be
carried out for profit. As such, many TSOs carry out activities
that qualify them as ‘undertakings’. Whether or not a TSO will be
an ‘undertaking’ will be related solely to the nature of the
activities it carries out. Legal form or constitution (such as
charitable or not-for-profit status) does not have a bearing on
whether or not an entity is an ‘undertaking’.
Economic activity is activity for which there is a market in
comparable goods or services. It can include voluntary and
non-profit-making public or private bodies, such as charities or
universities, when they engage in activities that have commercial
competitors. It can include activity by the self-employed/sole
traders, but generally not employees as long as the aid does not
benefit the employers, private individuals or households.
So you need to determine whether or not your proposed programme
is an economic activity. There is case law to help interpretation
here: for example, air traffic control is not determined as an
economic activity.
To count as favouring an undertaking, the aid must:
- Be available to certain undertakings but not others in the
member state. It must select individual businesses, sectors, areas,
sizes of business, or production of certain goods. A benefit
available to all businesses is not state aid but a general
measure
- favour undertakings by conferring an advantage on them. An
advantage may be direct (eg grants) or indirect (eg favourable loan
terms or services provided at less than market cost, or relief from
charges a business would normally bear).
Distortion of competition
This test will be met, if state resources potentially or
actually strengthen the position of the recipient in relation to
competitors.
Almost all selective aid will have potential to distort
competition – regardless of the scale of potential distortion or
market share of the aid recipient.
If a policy objective is to make a market, funding
plans will have to be assessed on a case-by-case basis. In some
cases, moving from a monopoly to a market would suggest a
non-economic activity that is intended to become an economic
activity. However, market making in itself is likely to
represent state aid.
Intra-EU trade
Any programme proposed by a funder should not inhibit trade
between members of the EU. This includes potential effects. Most
products and services are traded between member states. Aid for
almost any selected business or economic activity is capable,
therefore, of affecting trade between states, even if the aid
recipient itself does not directly trade with member states. The
only likely exceptions are single businesses, such as hairdressers
or dry cleaners, with a purely local market not close to a member
state border. The case law also shows that even very small amounts
of aid can affect trade.
Options where a state aid is present
If your programme may constitute state aid, to deal with the
problem you can:
- Consider developing or adapting proposals to omit or minimise
the element of state aid
- Design or adapt the proposed aid to fit within the terms of one
of the state aid schemes which the European Commission has approved
for the UK
- Design or adapt the proposed aid to fit one of the existing
‘block exemption’ regulations
- Seek formal approval for the aid from the Commission. (This may
be on the basis of the Commission’s various state aid frameworks or
guidelines or on the basis of the relevant articles of the Treaty
of Rome.)
Block exemption regulations
There are three ‘block exemption regulations’ that allow
certain, limited types of aid to be granted without prior
Commission approval provided they comply with the criteria set out
in the regulations. The three regulations relate to aid for:
- Investment in Small and medium-sized enterprises (SMEs) and
research and development aid to SMEs
- Training
- Employment.
For state aid measures that satisfy all the conditions of the
SME, training or employment regulation, the member state is
required to send to the Commission standard summary information
about the aid measure within 20 working days of the implementation
of the measure. This should be sent to the Department of Trade and
Industry's (DTI) state aid branch for onward transmission to the
Commission.
De minimis
The ‘de minimis’ regulation in state aid rules allows
undertakings in all sectors (other than agriculture) to receive up
to a maximum of 100,000 Euros ‘de minimis’ aid from all
public sources over a rolling three-year period. Again, this is
subject to compliance with the terms set out in the regulation;
these include a requirement for the keeping of records of all
‘de minimis’ aid granted for ten years.
Separate rules exist regarding ‘de minimis’ aid in the
agriculture sector.
Seeking approval for state aid from the Commission
Where it is not possible to redesign a measure to avoid state
aid or to fit it under an existing scheme or the block exemptions,
it may be possible to seek approval from the Commission. Where this
is necessary, aid cannot be granted to potential recipients until
Commission approval has been received.
Seeking approval can be a complicated and lengthy process. A
straightforward notification to the Commission can take on average
five to six months to achieve approval. Where a case is more
complex or does not fit easily within the Commission’s state aid
guidelines, the approval process can take considerably longer. You
will need to ensure that you allow sufficient time to obtain
Commission approval within your policy timetable.
If you think your programme may require state aid approval from
the Commission, you should consult the EU or state aid advisers in
your organisation. All notifications for
Commission approval must be prepared on the
correct forms and submitted to the relevant state aid branches in
DTI, the Department for Transport (DfT) or the Department for
Environment, Food and Rural Affairs (DEFRA) for transmission to the
European Commission via the UK Permanent Representation in
Brussels.
Notes
- [back from footnote 1] Taking account of
state aid issues in policy making: A risk based approach (DTI,
2004).