What is State Aid?

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.

1. Is the measure 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.
2. Does it 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.
3. Is it selective, favouring 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.
4. Does the measure distort or have the potential to distort competition? 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.
5. Is the 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. Further details are available in the attached State Aid guide.

“De minimis” Aid

Small amounts of aid to one undertaking, i.e. less than 200,000 Euro in any 3-year period, are considered to be so small as to have no appreciable effect on competition or trade and, under the De Minimis rule, these are exempt from the general ban on State aid. However, De Minimis payments to one undertaking under a number of measures or schemes have to cumulatively observe the 200,000 Euro limit, and Member States are required to closely monitor de minimis payments to ensure that the limit is not breached.

In order to avoid the risk of the threshold being exceeded, it may be more prudent to give the aid in the form under a Group Block Exemption or even under a scheme approved individually by the Commission. This has the advantage that the recipient undertaking is not ‘using up’ some or all of its De Minimis limit, and may potentially be able to receive other De Minimis aid, from other sources (see page 44 of the attached State Aid guide for more details and the administrative procedure to be followed).