Determining whether it is state aid

The European Commission (EC) allows state aid in specific circumstances, but generally it considers state aid to be incompatible with the common market, and to have a damaging effect on competition and trade across the European Union.

Consequently, the EC takes a serious view of aid provided without its approval and a particularly serious view of aid given in contravention of the state aid rules.

In these circumstances there can be serious repercussions:

  • the aid payment could be halted
  • the recipient could be required to repay the aid, plus interest
  • aggrieved competitors may also seek legal action for damages
  • the EC could commence infringement procedures against the Member State, possibly resulting in a fine

It is therefore extremely important to establish, at the earliest possible stage, whether your project or policy proposal contitutes state aid.

If it does, we must ensure it is taken forward in compliance with the state aid rules. They may require notification to the EC, or they may fit with an existing approved scheme or block exemption.

The state aid tests

There are four key tests that need to be considered to establish whether a measure contitutes state aid.

All four tests must be met for state aid to be present.

Before the state aid tests can be applied it is necessary to determine whether the following two aspects are present:

  The two initial assumptions
  1.  

Is the beneficiary an 'undertaking'?

An undertaking is defined as any entity, regardless of its legal status, which is engaged in economic (commercial/competitive) activity and where there is a market in comparable goods or services.

2.

Is an undertaking engaged in economic activity?

This is defined as offering goods and/or services on a given market and which could, at least in principle, be carried out by a private operator for remuneration in order to make profits.

If these two initial assumptions are correct, the four tests must then be applied to determine the possible presence of State aid. The tests are:

  The four state aid tests

Test 1

 

There has been an intervention by the State or through State resources which can take a variety of forms (e.g. grants, interest and tax reliefs, guarantees, government holdings of all or part of a company, or providing goods and services on preferential terms, etc)

Test 2

The intervention gives the recipient an advantage on a selective basis, for example to specific companies or industry sectors, or to companies located in specific regions.

Test 3

Competition has been or may be distorted.

Test 4

The intervention is likely to affect trade between Member States.

Examples of state aid

It is important to note that the European Court of Justice has sole competence over what is and what isn't a state aid. The only way we can determine for certain that state aid is present is to notify a measure to the European Commission (EC) for legal certainty.

However, the State Aid Team is able to provide advice based on case precedents from the European Court, as well as direct guidance from the EC itself.

Please see the table below for some examples:

Likely to constitute state aid:

Unlikely to be state aid:

  • Grants to firms for investment, research and development, employee training, etc.
  • Loans and guarantees below market rates
  • Free or subsidised consultancy advice
  • Cash injections to, and writing off losses of, public enterprises
  • Sale or lease of public land or property at discounted rates
  • Selectively promoting companies using public funding
  • Contracts not open to competitive tendering
  • Discretionary deferral of or exemption from tax, social security and other payments to the State
  • Legislation to protect or guarantee market share
  • Funding/cash injections to social enterprises and charitable organisations who are engaged in economic activity
  • Public funding of privately owned infrastructure
  • Aid to individuals, charities, organisations and public bodies not involved in an economic activity (see definition of economic activity here)
  • Commercial payments for services rendered, where a company is contracted by a public body in accordance with Scottish & EU competitive tendering requirements
  • General measures, which can apply to all firms throughout the UK, with no discretionary power e.g. the Modern Apprenticeship Programme.

 

If you require more clarification on any of the state aid tests or would like to discuss a particular project, contact the State Aid Team.

If it is state aid

If you've done the four tests and established that state aid may be an issue for you, next you need to determine whether the aid you want to provide is covered by an existing approved scheme, or can be awarded using existing European Commission guidelines and frameworks.