State Aid for Policymakers – “Don’t get busted by Brussels!” Lorraine Lee Alan Coleman SG - State Aid Unit 11 September 2013
Aims & Objectives • Who we are / What we do • Introduce the concept of State aid • Learn how to spot State aid by applying basic tests • If it is State aid, understand how it can be given compliantly
State Aid Unit • Provide advice and analysis across Government and the wider public sector • SG Corporate resource – Advice, awareness raising, liaison with DBIS/UKRep • Advice to any body with the authority to grant public funding • Separate rules for Transport, Agriculture & Fisheries and Industrial
What is State Aid? When a public body, or publicly-funded body, gives assistance to selected undertakings which has the potential to distort competition and affect trade between member states of the European Union.
Some examples of State aid: • Grants to firms • Loans and guarantees at below market rates • Tax reliefs or exemptions • Provision of goods and services at preferential rates • Free or subsidised advice/consultancy or training • Sale of public land at less than market value • Public funding of infrastructure benefitting a specific operator/end user
What’s not State aid: Not all public support is necessarily State aid. Examples of ‘non - Aid’ measures are: • General measures • Aid to individuals or non-undertakings • Payment for goods/services at market rates • Loans at commercial rates / (MEIP)
Why does the EC Control State Aid? • To avoid a ‘subsidy race’ • To ensure a level playing field across the EU • To maintain competitiveness and encourage innovation and restructuring
What is State Aid? State aid is defined in Article 107 of the Treaty on the Functioning of the European Union: “Save as otherwise provided in this Treaty, any aid granted by a Member State or through State Resources, in any form whatsoever, which distorts, or threatens to distort competition by favouring certain undertakings or the production of certain goods, shall insofar as it affects trade between Member States, be incompatible with the internal market”
Is State Aid present? State aid can only be present when the award is made to an undertaking. An undertaking is defined as follows: Is the award beneficiary involved in economic activity (placing goods and/or services on a market which could be exchanged for remuneration)? Probably an Not an undertaking undertaking - – therefore no State apply 5 State aid Aid present tests
The Five State Aid Tests 1. Is the aid from a Member State or through State resources? 2. Does it confer an economic advantage on an undertaking? 3. Is it Selective? 4. Does it have the potential to distort competition? 5. Does it have the potential to affect intra- community trade?
1. Is the Aid from a Member State or through State resources? • This includes resources directly or indirectly under the control (or at the disposal) of the State. • Can be granted by central government, devolved administrations, local authorities, public bodies.
2. Does it confer an advantage? Advantage is defined as a benefit granted which lightens the burden normally assumed in an undertaking’s budget, that could not have been obtained under normal market conditions. These can include: • Transfer of resources, grants; loans; provision of services, or • Relief from charges – tax exemption • Advantage is for free or without adequate consideration
3. Selectivity • Geographical • Sectoral • Type of firm, e.g. SME
4. Potential to distort competition • Potential to distort is sufficient for this test to be met • Small amounts of aid can lead to distortion
5. Effect on intra-community trade • Most goods and services are tradable • Commission interpret this test widely • ‘Local trade’ argument difficult to make
The five tests summarised: The The The The measure YES measure measure The beneficiaries has the TO ALL involves the measure is has the receive potential to FIVE transfer of selective potential to economic affect intra TESTS state distort in nature advantage community resources competition trade NO NO NO NO NO State Aid is unlikely to be present State Aid is likely to be present – can we make it compliant?
Case Study 1 • A village hall has fallen in to a state of disrepair. The local authority has decided it will no longer fund it. The local community form a Trust and the council agrees to transfer ownership of the hall to the Trust for a nominal fee.
Case Study 1 (cont/d) • The Trust will operate on a not-for-profit basis and will be run mainly by volunteers. The aim is to make the hall self- sustaining and it will be used mainly by local groups, including a playgroup and a youth club who will pay for use. However, the hall is in a popular fishing village and the Trust applies for public funding to renovate the main room and grounds in order to attract weddings and events such as concerts and film screenings. • There is a tea room and a hotel in the village. 1. Is the Community Trust an undertaking? 2. If so, use the five State aid tests to consider whether State aid is present in the proposed transactions.
Case Study 1: Is the Trust an undertaking? 1. Hiring the community hall to youth clubs etc. would likely be considered as economic activity as these services may be provided elsewhere for remuneration 2. Furthermore, if the Trust begins to use the venue for weddings, concerts or film screenings, then that too is clearly an economic activity The Trust is therefore an undertaking in this example
Case Study 1: The Five State Aid Tests 1. Is the aid through State resources? Yes; Public funding required to renovate hall. The LA has also sold the hall for a nominal fee. 2. Does it confer an economic advantage on an undertaking? Yes; the Trust does not pay full price for hall and further public funding covers renovation costs. 3. Is it Selective? Yes; only the Trust receives money. 4. Does it have the potential to distort competition? Yes; could be other private operators doing similar things. 5. Does it have the potential to affect intra-community trade? Probably: Local trade argument may be difficult to make given the intention to host weddings/concerts.
Case Study 2 • A furniture factory in currently funded by an independent charity, but will lose the funding next year. The factory employs 53 people, two thirds of whom are disabled.
Case Study 2 (cont/d) • The factory needs to relocate to new premises and would like the local council to waive business rates for the first year. This is worth £85,000. The Government has pledged £300,000 but has still to finalise how this will be allocated. • New machinery is required, and the employees will need to be trained to use it. The company is also willing to take on four new members of staff, who will be employed as apprentices. 1. Is the factory an undertaking? 2. Apply the five State aid tests to determine whether there is State aid present
Case Study 2: Is the factory an undertaking? 1. The manufacture and sale of furniture products is clearly an economic activity 2. The fact that the company was funded principally by a charity in the past has no bearing on its status as an undertaking The factory is therefore an undertaking
Case Study 2: The Five State Aid Tests 1. Is the aid through State resources? Yes; funding is from the Scottish Government and the Local Authority. 2. Does it confer an economic advantage on an undertaking? Yes; it would relieve the business of costs that competitors would have to bear themselves. 3. Is it Selective? Yes; provided to one selected business. 4. Does it have the potential to distort competition? Yes; business may have its competitive position strengthened in comparison to competitors by input of state resources. 5. Does it have the potential to affect intra-community trade? Yes, the activity is common across several member states.
What if it is State aid?
Compatible Aid • Article 107(2) & (3) • Guidelines & Frameworks • General Block Exemption Regulation • Approved Schemes • De minimis Regulation
Article 107(2) (a) Aid of a social character (lifeline air routes in Scotland) (b) Aid to remedy damage by natural disaster/exceptional occurrence (volcanic ash, 9/11) (c) Aid to compensate for the re-unification of Germany
Article 107(3) a) Economic development of areas with abnormally low living standards. (currently includes H&I, attracts higher aid intensities) b) Promotion of project of common European interest or serious disturbance to economy. (bank bailouts during economic crisis) c) Development of certain economic activities/areas (majority of approved support in Scotland provided under this provision) d) Promotion of culture/heritage Other categories as specified by the EC e)
Guidelines & Frameworks Horizontal rules • Research & Development & Innovation • Regional Aid • Environmental Protection • Risk Capital • Rescue & Restructuring • Sale of Public Land & Buildings • Services of General Economic Interest
Sectoral Rules • Transport – Aviation – Road & Rail – Maritime • Agriculture & Forestry • Fisheries
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