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)?
Not an undertaking
– therefore no State
Aid present
Probably an
undertaking apply 5 State aid
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 intracommunity 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
measure
involves the
transfer of
state
resources
The
beneficiaries
receive
economic
advantage
NO
NO
The
measure is
selective
in nature
The
measure
has the
potential to
distort
competition
The
measure
has the
potential to
affect intra
community
trade
NO
NO
NO
YES
TO ALL
FIVE
TESTS
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 selfsustaining 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
e) Other categories as specified by the EC
Guidelines & Frameworks
Horizontal rules
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•
•
•
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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
A word on State aid for Industrial or
Agricultural projects…
• Activity determines which rules should be
applied
• Primary agricultural production (Annex 1
products) = agricultural rules
• Marketing and processing of Annex 1
products (and beyond) = industrial rules
The 'sensitive sectors'
There are various guidelines relating to granting aid in
some sectors which may be in overcapacity. These take
precedence over any other State aid rules. The
‘sensitive’ sectors are as follows:
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•
•
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Audio-visual Production
Broadcasting
Coal
Electricity
Motor Vehicles
Synthetic Fibres
Shipbuilding
Steel
General Block Exemption Regulation
(GBER)
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•
•
•
•
•
•
•
•
Regional Investment
SME Investment and Employment
Consultancy and Trade Fairs
Entrepreneurship
Training
Environmental Protection
Research & Development & Innovation
Risk Capital
Disadvantaged and Disabled Workers
• Simpler & quicker notification process
Approved Schemes
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•
•
•
•
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Property Development
Structural Funds
SME Investment
Historic Environment Regeneration
Research & Development
Renewables Obligation
• Must be approved by Commission prior to
implementation
De minimis Aid
• €200k over a three year fiscal period - industrial sector
• €100k over same period for road transport sector
• €7.5k over same period for agricultural sector
• Limit per undertaking – not per project
Exclusions: Export aid, firms in difficulty and purchase of
road freight transport vehicles
• No notification requirements but can involve significant
administration
If State aid is present…
Probable State aid is identified
Is there cover
under any
existing
approved
schemes?
NO
Is there cover
under the
General Block
Exemption
Regulation?
NO
Is there cover
under the de
minimis
Regulation?
YES
YES
YES
Speak with scheme
administrator to
arrange project
delivery
Register/notify a
GBER scheme to
meet policy aim
Follow guidance on
administering de
minimis awards
NO
Speak to
State Aid
Unit and
consider
notification
against
Treaty, or
other
solutions
Notification
• Considered on face of the Treaty
• Commission carry out detailed assessment
against 7 key conditions
• Benefits of aid must outweigh distortion of
competition
• Will normally take >6 months
• No aid should be disbursed prior to EC
approval
Case Study 1
• A village hall has fallen in to a state of disrepair and 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.
• The Trust will operate on a not-for-profit basis and will be run mainly by
volunteers, with a few part time employees. 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
other events such as concerts and film screenings.
• There is a tea room and a hotel in the village.
1. Are there ways in which some or all of the State aid which is present
could have been awarded compliantly?
2. How might the council manage the transfer differently to avoid State aid
being present?
Case Study 1
• How could the Aid be made compatible?
– Scope under GBER (SME investment aid, SME consultancy).
– Give difference between nominal property price and market
price as de minimis aid.
– Give funding as a soft loan, using de minimis.
– Depending on aid amount overall, de minimis.
• Could the council have managed the transfer differently, so
that State aid is avoided?
– LA could sell hall at market rate/unconditional bidding
procedure.
– LA could rent hall at market rate.
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.
• 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.
How could the State aid be delivered compatibly?
Case Study 2
• How could the Aid be made compatible?
– Local Authority could provide rates relief as de minimis
aid, provided thresholds not breached. (under €200k)
– Scope under GBER for capital costs and staff training
costs (SME investment aid, training aid). Subject to
relevant Aid Intensities
– SG could provide £300k funding as a loan at market
rates to avoid the presence of State aid.
– SG could provide part or all of the £300k funding as an
equity investment on market terms, again ruling out
presence of State aid
Getting it Wrong!
• Potential investigation by Commission
• Aid can be halted
• Any illegal aid must be repaid, with interest, by the
recipient
• Potential action by aggrieved competitors – possibility of
recovery order and damages by national courts
• Undermines UK government’s commitment to tighter
State aid control and reduction in aid
State Aid Modernisation
• Majority of the existing State aid regulations expire at end of
2013 and the Commission is undertaking an ambitious
modernisation programme in reviewing these rules.
Key principles of SAM:
• Foster growth in a strengthened, dynamic and competitive
internal market
• Focus enforcement on cases with the biggest impact on the
internal market
• Streamlined rules and faster decisions
State Aid Unit – contact details
E-mail stateaid@scotland.gsi.gov.uk
Website –
www.stateaidscotland.gov.uk
Specific contact details for policy leads on
‘contacts’ page of website.
State Aid Unit
Scottish Government
Business Directorate
3rd Floor
5 Atlantic Quay
150 Broomielaw
Glasgow
G2 8LU