What is State aid?
Friday, 27th November 2015
The State aid rules are set out at Article 107(1) of the Treaty on the Functioning of the European Union ("TFEU") and apply in all circumstances where an organisation receiving financial support and/or an economic advantage from a public body is considered to be an "undertaking".
What is an undertaking?
To be an "undertaking" for the purposes of the State aid rules an organisation must be engaged in commercial and economic activity in a given market.
This will be the case for all organisations that place goods and/or services into any given market and is irrelevant of the legal status or commercial set-up of the organisation. For example, on many occasions local authorities and other public bodies, voluntary groups and charities have been found to be acting as undertakings for the State aid rules. This is where for the particular project or initiative that is being publicly funded or supported the local authority/public body/voluntary group/charity are engaged in commercial and economy activity in a market.
The State aid criteria
Article 107(1) TFEU provides four (4) criteria for State aid.
The State aid criteria are:
1. The aid is granted by the State or through State resources, and
2. The aid favours certain undertakings or the production of certain goods, and
3. The aid distorts or threatens to distort competition, and
4. The aid affects trade between member states.
If all four criteria are satisfied, the proposed financial support and/or advantage will be State aid, and can only be granted without breaching the State aid rules if it can be structured as compatible State aid (in reliance on an applicable exemption, derogation or approved scheme) or is first notified to and approved by the European Commission.
See our article on The complexities of State aid and the importance of early consideration in projects here for further details of how to ensure proposed aid is structured as compatible State aid, the importance of early consideration of State aid compliance, and the implications of getting it wrong.
Word of Caution: Multiple Beneficiaries
The State aid criteria apply separately to each beneficiary to the proposed financial support and/or economic advantage.
When applying the above State aid criteria to any financial support or economic advantage to be provided by a public body, it is therefore necessary to separately apply the criteria to all potential beneficiaries of the financial support or advantage to assess the State aid status of each beneficiary.
The financial support or economic advantage will only be State aid compliant if it either:
- Provides no aid - because, despite being subject to the State aid rules not all of the State aid criteria are satisfied, or
- It can be structured and provided as compatible State aid
…. at all levels of beneficiary!