What are the conditions of State Aid?
The essential elements of State Aid that derive from the above definition are the following:
- The grant of an economic advantage
- The direct or indirect funding through State resources,
- The preferential treatment of certain undertakings or the production of certain goods, and
- The possibility of distortion of competition and effect on inter-State trade.
It must be stressed that these conditions are cumulative. All four must concur simultaneously for an economic advantage to be considered as State Aid. It should also be noted that all of these conditions are interpreted broadly both by the Commission and the CJEU.
When is there an advantage conferred to the recipient?
The main rule established by the CJEU on the matter, is that the substance of a State measure, and not its form, is the decisive criterion when defining the notion of aid. The essential point is that to constitute aid, a measure must confer an advantage on the recipient. The Commission has not provided a full list of aid types. These include, but are not limited to, direct subsidies and grants, tax exemptions, exemptions from parafiscal charges, preferential interest rates, favorable loan guarantees, the provision of land or buildings on special terms, indemnities against losses, the deferment of the collection of fiscal or social contributions, dividend guarantees etc. The CJEU has made it clear that the concept of State Aid covers not only positive benefits, but also measures that mitigate the charges an undertaking would normally bear. Not strictly financial advantages are also considered to constitute an aid, as long as their monetary value can be assessed. The advantage may consist of a direct grant through State resources, or an indirect loss of State resources that confer an advantage to the recipient. In recent years, the Commission and the CJEU have also applied State aid rules in a number of high-profile cases regarding “tax rulings”, i.e. prior administrative decisions on how particular cases or entities (usually involving trans-border intragroup arrangements) will be treated fiscally.
What aid is considered as granted through State resources?
Only advantages granted directly or indirectly through State resources are regarded as aid. It is clear, that this can include regional as well as central government. It can also include advantages granted by a public or private body designated or established or controlled by the State, or even by public undertakings, if it can be established that the State was involved in adopting the aid measure.
What is considered as selective treatment?
An aid granted by the State constitutes selective treatment if it confers an advantage to certain undertakings or the production of certain goods that places them in a more favorable position in comparison to their competitors. What is essential is that certain undertakings or sectors are favored preferentially, while others are excluded. A comparative approach is therefore required. On the other hand, general measures of economic policy applied to more than one economic sectors and based on objective criteria will not by themselves be classified as aid. However, the dividing line between general measures of economic policy and State Aids may be a fine one.
When is an advantage considered to distort competition and affect inter-State trade?
Competition is deemed to be distorted in the sense that trade between EU member-States is affected, if aid strengthens the financial position of an undertaking as compared to others within the EU. The relatively small amount of the aid, or the relatively small size of the recipient, does not, as such, exclude the possibility of inter-State trade to be affected; neither does the local character of the service provided by the recipient undertaking preclude an effect on inter-State trade, since the aid may render it more difficult for other undertakings from other member-States to penetrate that market. It is not necessary for the effect to be proven; it is sufficient to show that trade might be affected. In this context, the notion of an “undertaking” is treated in the broadest sense, based on an economic or functional approach rather than a legal one. What matters in this perspective, is that a given entity exercises an economic activity, regardless of its legal status or its source of funding. Even state-controlled entities or public authorities with economic activity are subject to State Aid rules, although specific rules may apply in some cases.
Are there any exceptions to the incompatibility rule?
The general rule that State Aid is incompatible with the common market has several exceptions; these draw the limits within which EU member-States may grant subsidies, aids, tax exemptions etc. to individual undertakings and economic sectors. Such exemptions are outlined in article 107 (2) and (3) TFEU and are further detailed through specific legislative texts4 or soft law in the form of guidelines. The exceptions to the incompatibility rule can be classified in two main categories:
The first category, with a more limited practical importance, contains types of aid deemed a priori to be compatible with the common market, as provided in article 107 (2). These include: (a) aid of a social character, which is granted to individual consumers, provided that such aid is granted without discrimination related to the origin of the products concerned, and (b) aid to make good damages caused by natural disasters or exceptional occurrences.
The second category, with a broader scope of application, contains types of aid that may be deemed to be compatible with the common market, as provided in article 107 (3). These include (a) aid to promote economic development of areas with a low standard of living or with serious underemployment, (b) aid to promote the execution of an important project of common European interest (e.g. environmental policy), (c) aid to remedy a serious disturbance in the economy of a member-State – which, although very rarely invoked, played a limited role in Greece in recent years – (d) aid to promote culture and heritage conservation, and (e) aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest – the latter being the most significant of the abovementioned exceptions. Moreover, within the frame of the exemptions outlined in the Treaty, the Commission has issued regulations and guidelines5, regarding certain types of aid to specific economic sectors (“exempted sectors”) and stipulating that these shall be regarded as compatible with the common market, subject to certain terms and conditions specific to each type of aid. In this regard, a set of comprehensive rules was adopted in the form of a General Block Exemption Regulation (GBER)6 issued in 2014, declaring certain categories of aid compatible with the internal market.
Which exemptions are most often applied in Greece?
Taking into account the specific characteristics of the Greek economy (such as the substantially different level of economic growth among its different regions; the relatively small size and large number of active enterprises; focus on the tertiary sector versus heavy industry; and the impact of the financial crisis) some of the abovementioned exempted sectors, governed by specific rules in each case7, are of greater importance to an investor active in the Greek market. These include the following:
- Regional aid, usually supported by EU funds, including investment incentives laws. This is usually linked to an initial investment, job creation and/or the restructuring of the activities of an existing undertaking. The current Greek investment incentives Law (L. 4399/2016) established a simpler and more transparent investment regime, compliant with EU State Aid rules, favoring smaller projects and focusing more on tax exemptions rather than direct subsidies.
- “De minimis” aid, for total amounts of aid not exceeding € 200,000 in three years8
- Aid to small and medium-sized enterprises (SMEs)9
- Training aid
- Aid for research and development and innovation
- Aid for employment
- Aid for the rescue and restructuring of enterprises
- Aid for environmental protection, including energy production from renewable sources
- Aid in the sector of transports and infrastructure (especially air and maritime transport to remote islands and mountainous regions)
- Aid for agriculture and fisheries
- Aid to the banking and financial sector10
What about aid granted to services of public interest?
There are specific rules11 applicable to State measures (subsidies or other favorable regimes) that are regarded as compensation for the services provided by undertakings in order to provide so-called “services of general economic interest” (SGEI), i.e. services or economic activities that are considered as being of particular importance to citizens and the State is concerned that they would not be supplied without public assistance. This is of particular importance in Greece, where the notion of “public interest” is quite broad and several economic
activities are more or less closely supervised by the public sector, a typical example being undisrupted air and maritime transport to remote islands throughout the year. In brief, for an undertaking to receive aid as compensation for providing services of general economic interest, such obligations must be clearly defined in advance and the relevant compensation must be calculated proportionally and in a transparent manner. These rules apply to both private and State-controlled entities that have been assigned with general economic interest obligations.
How are State Aids controlled?
The only competent authority to monitor State Aid measures and control their compatibility with the internal market is the European Commission, excluding any discretionary power of member-States on the matter of the compatibility of the aid with the internal market12. The monitoring procedure for State Aid is outlined in article 108 TFEU13. The monitoring system is in essence twofold: State Aids are divided into: (a) existing ones, which are kept under review by the Commission, and (b) new ones – these are of greater interest to a potential investor – which are subject to a procedure of prior notification by the member- State and preliminary review by the Commission. Article 108 (3) provides for the prior notification and preliminary investigation procedure, which is essential for the monitoring by the Commission of any aid proposal. Member-States are therefore under a duty to notify the Commission of any aid prior to granting it; they may not implement the aid during the period in which the Commission undertakes its initial review of the proposed aid (“standstill clause”). Compliance with the procedure of article 108 is of paramount importance. A State Aid that has not been subject to prior notification and review by the Commission is deemed to be illegal, even if it is in substance compatible with the common market as regards the rules set out in article 107, and may be recovered at any time. “Compatibility” and “Legality” of an aid are two distinct, independent notions. Aid that has been awarded in breach of the “standstill” obligation can be challenged before national courts for damages, recovery or injunctive measures. However, special rules applicable to aid in “exempted sectors”, as described above, may also provide for exemption from the prior notification obligation14.
What can the Commission do?
The powers of the Commission are provided for in Council Regulation (EU) 2015/1589. Following notification by a member-State of a planned aid, the Commission may issue the following decisions:
Decision declaring that the notified measure does not constitute State Aid.
“Decision not to raise objections”, meaning that following a short preliminary review the Commission has no doubts that the notified measure constitutes State Aid compatible to the common market.
“Decision to initiate the formal investigation procedure”, meaning that the Commission, after a preliminary examination, has doubts as to the compatibility of a notified measure and decides to initiate further proceedings.
“Positive decision”, meaning that, following a longer formal investigation procedure, the doubts of the Commission have been raised and the aid is deemed to be compatible with the common market.
“Conditional decision”, where the Commission may attach conditions to a positive decision, subject to which an aid may be considered compatible with the common market, and may lay down obligations to enable compliance with the decision to be monitored.
“Negative decision”, meaning that the Commission finds that the notified aid is not compatible with the common market and decides that the aid shall not be put into effect.
These decisions may be challenged by the parties involved – member-States, intended beneficiaries of the aid, or competitors – before the General Court of the EU (GCEU)15. If the State concerned does not comply with the abovementioned decisions within the prescribed time, the Commission may refer the matter to the CJEU directly.
How long does the reviewing procedure take?
Council Regulation (EU) 2015/1589 sets time limits as to the duration of each step of the abovementioned procedure. As a rule, the preliminary review following notification of a planned aid must be completed within two months. If the Commission needs more time, the formal investigation procedure must be initiated. This latter procedure may last up to 18 months; however, this time limit may be extended by common agreement between the Commission and the Member State concerned.
What should an investor check before receiving an aid?
The duty to notify the Commission of any planned aid prior to granting is incumbent on member-States alone, and not on potential recipients. However, any investor should make sure in advance that any form of advantage that is to be received through State resources does not constitute unlawful State Aid. This mainly includes control of its legality, i.e. whether the measure falls within one of the sectors exempted from the prior notification obligation, or it has been duly notified and approved by the Commission. In case of doubt, the recipient should always consult the competent national authority and expedite the prior notification procedure. If the aid is not exempted or has not been duly notified and approved by the Commission prior to its granting, investors cannot rely on their alleged legitimate expectations that the measure did not involve State aid, even if they have received assurances from the State itself.
What if a competitor is suspected to receive unlawful State Aid?
The Commission examines information from whatever source regarding alleged unlawful State Aid. This includes the prior notification procedure described above, regular cooperation of the Commission with member-States, as well as information provided by any third party. Any enterprise active within the EU may inform the Commission of a suspected unlawful State Aid to a competitor by lodging a complaint form provided by the Commission. The Commission will assess all available information and may initiate an investigation procedure against the member-State concerned if doubts are raised as to the legality and compatibility of the alleged aid.
What happens if an aid is found to be unlawful?
As a matter of principle, illegal State Aid should be repaid, as derives from article 108 (2)TFEU16. The Commission has exclusive competence to decide whether unlawful aid is to be recovered; however, the actual recovery of unlawful State Aid is a procedure reserved to member-States17, following a decision of the Commission, which has exclusive competence to decide for the recovery. The repayment obligation covers every advantage conferred by the illegal aid, including interest, and is subject to a limitation period of 10 years before
any action has been taken by the Commission. The obligation may not be deflected by claims that repayment entails difficulties for the recipient, even if this means winding up of the recipient company. Moreover, under certain circumstances the Commission may issue injunction decisions, requiring member-States to suspend any unlawful aid or to proceed to its provisional recovery, until the formal investigation procedure is completed. Recovery decisions may be challenged before the General Court of the EU. In case of non compliance of a member-State with a recovery decision, the Commission may refer the matter to the CJEU.
Is there a central authority for State Aid in Greece?
As of 2013, the Central State Aid Unit (CSAU / KE.M.K.E.) is the competent authority for State Aid in Greece18 and the unique contact point for State Aid issues with European Commission and other European institutions. The goal of the CSAU and the relevant network of Decentralized State Aid Units is the efficient and organized utilization of State resources in order to promote economic growth and avoid the negative effects of granting illegal and/ or incompatible State Aid. The CSAU examines and assesses every draft State Aid measure
for its compatibility with EU State Aid rules, expresses its opinion, which is attached to the draft measure, and is responsible for notification of all draft measures to the European Commission. Moreover, the CSAU monitors all State Aid cases and coordinates authorities granting State Aid on a national level, while advising other authorities on State Aid policies.
1. Former article 87 (1) of the Treaty establishing the European Community (TEC).
2. Formerly European Court of Justice (ECJ).
3. The notion of State aid has been outlined in the Commission Notice on the notion of State aid (C/2016/2946).
4. Mainly Regulations of the European Commission, by delegation from the Council of the EU, as well as
informal rule-making through guidelines issued by the Commission.
5. See e.g. below main references to those exemptions most often applied in Greece.
6. Commission Regulation (EU) 651/2014.
7. Several of them are included in the General Block Exemption Regulation (Commission Regulation (EU)
651/2014).
8. Commission Regulation (EC) 1998/2006.
9. Included in Sections 2 & 3 of the General Block Exemption Regulation (Commission Regulation (EU) 651/2014); SMEs are defined in the Commission Recommendation of 6.5.2003 concerning the definition of SME.
10. Currently regulated by a comprehensive “EU banking framework”, including the Bank Recovery and Resolution Directive (Directive 2014/59/EU - BRRD) and the Single Resolution Mechanism Regulation (Regulation (EU) No 806/2014 - SRMR).
11. Such rules have been laid down by the CJEU (Altmark case, C-280/00) and have since been specified bythe Commission (currently under Decision 2012/21/EU).
12. However control of the application of the notification procedure laid out in article 108(3) TFEU also belongs to national Courts; see Commission Notice on the enforcement of State aid law by national courts (2009/C 85/01).
13. Former article 88 TEC. The procedure is further specified in Council Regulation (EU) 2015/1589 (which replaced Council Regulation 659/1999 previously in force).
14. For example sectors included in the General Block Exemption Regulation (Commission Regulation 651/2014).
15. Former European Court of First Instance.
16. See Notice from the Commission towards an effective implementation of Commission decisions ordering Member States to recover unlawful and incompatible State aid (2007/C 272/05).
17. In Greece, recovery of unlawful State Aid is carried out pursuant to the special provisions of Law 4002/2011 as amended and in force, as well as the provisions of the Code for the Collection of Public Revenues (“KEDE”); the relevant administrative acts may be challenged before Greek courts, for limited reasons.
18. Instituted by Law 4152/2013.
