State Aid is a term that refers to forms of public assistance, using taxpayer-funded resources, given to undertakings on a discretionary basis, with the potential to distort competition and affect trade between member states of the European Union.
Various categories of schemes are approved because their positive effects are considered to outweigh their negative impact, for example schemes to promote Regional Development (IDA grants, tax-break schemes etc.), or to promote Training or Research and Development and Innovation (RDI) in Industry etc.
Five Key Questions
Article 107(1) of the Treaty establishing the European Community sets out criteria, all of which must be met for a State aid to be present.
- granted by the state or through state resources? As well as government departments, this includes bodies that use resources that belong to the state, or are controlled by the state. State resources can include grants, interest and tax relief, guarantees, government holdings of all or part of a company, or the provision of goods and services on preferential terms, etc. The advantage granted must have a budgetary consequence for the government, i.e. the State must give something from its own resources, or fail to receive something from what is owed.
- confer an advantage to an undertaking? A benefit, whether direct or indirect, to an undertaking, granted for free or on favourable (non-commercial) terms, could be State aid. An undertaking is an entity that is involved in economic activity, irrespective of its legal form or how it is financed or whether it has a for profit orientation or not.
- selective, favoring certain undertakings? Aid that targets particular businesses, locations, types of firm e.g. SMEs or sectors is considered selective. A general measure affecting the whole of the state's economy e.g. nation-wide fiscal measures is not considered a State aid.
- If it strengthens the position of the beneficiary relative to other competitors or potential competitors then this criteria is likely to be met. The potential to distort competition does not have to be substantial or significant, and this criterion may apply to small amounts of aid and firms with little market share. Most interventions have the potential to distort competition.
- activity tradeable between member states? The Commission's interpretation of this is broad - it is sufficient that a product or service is subject to trade between member states, even if the aid beneficiary itself does not export to the EU. Consequently most activities are viewed as tradeable.
If one or more than one of these conditions is not met, then the matter is not a State aid and is therefore deemed Internal Market Aid.
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