State aid (notion)


Institution Definition

Basic principles for the control of state subsidies and other aids in order to prevent distortion of competition are contained in Articles 107-109 of the Treaty on the Functioning of the European Union. The Commission determines whether aid violates the Treaty standard, and it can order the Member State to end it and order the recipient of illegal aid to return it. The policy motivation for state aid control in the original treaties was to prevent national favouritism and thus promote opportunities for trade and competition among the Member States. DG Competition administers the system for notification and approval and deals with state aid policy and decisions about most sectors. Other directorates-general apply the rules in transport, coal, agriculture and fisheries. The substantive criterion is whether the aid distorts or threatens to distort competition by favouring some products or enterprises (and affects trade between Member States). Drawing on this text, the elements that define state aid are state resources, advantage to firms or industries, selectivity, distortion of competition and effect on trade. Correct classification has practical consequences. A measure that falls within the formal category “state aid” must be notified and approved by the Commission in advance. Thus the first issue to determine is whether a program or action constitutes aid. To then assess whether aid is compatible with the common market, the Treaty describes permissible purposes for aid. Aid is permitted for redressing underdevelopment and unemployment and for dealing with serious economic disturbances and important projects of common European interest. Aid for other regional development and for promoting culture and preserving heritage is permitted only where it does not adversely affect trading conditions to an extent contrary to the common interest. © OECD

State aid is defined as an advantage in any form whatsoever conferred on a selective basis to undertakings by national public authorities. Therefore, subsidies granted to individuals or general measures open to all enterprises are not covered by this prohibition and do not constitute State aid (examples include general taxation measures or employment legislation). To be State aid, a measure needs to have these features: (i) 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.); (ii) 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 competition has been or may be distorted; (iii) the intervention is likely to affect trade between Member States. Despite the general prohibition of State aid, in some circumstances government interventions is necessary for a well-functioning and equitable economy. Therefore, the Treaty leaves room for a number of policy objectives for which State aid can be considered compatible. The legislation stipulates these exemptions. The laws are regularly reviewed to improve their efficiency and to respond to the European Councils’ calls for less but better targeted State aid to boost the European economy. The Commission adopts new legislation is adopted in close cooperation with the Member States. © European Commission

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