State aid (unlawful aid)

Author Definition

Definition

Pursuant to article 1(f) of Regulation (EU) 2015/1589 of 13 July 2015 laying down detailed rules for the application of Article 108 of the TFEU, an unlawful State aid can be defined as “new aid put into effect incontravention of Article 108(3) TFEU”. In other words, an aid is unlawful when it is put into effect in violation of the notification obligation or of the standstill clause. An unlawful aid is examined by the Commission following a procedure distinct from the procedure regarding notified aid, and must be recovered when it is found that the aid in question is not compatible with the internal market.

Commentary

Article 108(3) TFEU provides that Member States must notify the Commission of any plans to grant or alter aid – the notification obligation - and must refrain from putting the proposed aid into effect pending a final decision of the Commission on its compatibility with the internal market – the standstill clause. Any aid put into effect in violation of these obligations must be considered unlawful. The definition of unlawful aid is stated in article 1(f) of Regulation 2015/1589, which is itself a codification of an established Court case law, since the case Saumon (C-354/90, 1991, paragraph 11). The unlawfulness of aid has several consequences.

First, the examination procedure conducted by the Commission has special characteristics, in comparison with the procedure regarding aids that have been notified. Articles 12 to 16 of Regulation 2015/1589 lay out the essential features of this procedure.

It starts with the Commission initiative. The Commission can act upon any information at its disposal, although the procedure usually starts following a complaint filed by a competitor of the beneficiary of the aid. In order to conduct its assessment, article 12 of Regulation 2015/1589 provides that the Commission can request information from the Member State concerned, and from any other Member State, from an undertaking, or association of undertakings, once the formal investigation procedure is initiated. In that regard, the procedure regarding unlawful aids is similar to the procedure to procedure regarding notified aid.

However, the procedures differ in a number of other aspects. In relation to unlawful aids, the Commission has extended powers and can adopt interim measures. According to article 12 of Regulation 2015/1589, when a Member States does not respond to the request for information or only provides insufficient information, the Commission can issue an “information injunction,” by which the Member State is required to provide specific information in an appropriate period of time.

Moreover, given the potential negative effects of an aid put into effect on competition within the internal market, the Commission also has the power to order the suspension of the aid, pursuant to Article 13 of Regulation 2015/1589 (see, for instance, Commission decision on the 26th May 2014, C(2014) 3192, in the Micula case). Both the information injunction and the suspension injunction have been codified in Regulation 2015/1589. Finally, in specific cases, the Commission can adopt a decision requiring the Member State provisionally to recover any unlawful aid.

Considering the severe implications of such a decision – especially on the undertaking already benefiting from the measure at stake – and the fact that it is an exception to the general rule according to which the Commission cannot order State aid to be repaid solely on the ground that it is unlawful, provisional recovery injunction can only be issued if three criteria are fulfilled. There must be no doubt that the measure at stake is an aid, there must be an urgency to act, and there must be a serious risk of substantial and irreparable damage to a competitor. Suspension injunctions and provisional recovery injunctions stay in force until the Commission adopts a final decision on the compatibility of the measure. Non-compliance with such injunctions entitles the Commission to refer the matter directly to the Court and to obtain a declaration that the failure to comply constitutes an infringement of the TFEU.

Another distinction with the procedure regarding notified aids lies in the time limits imposed on the Commission to conduct its assessment. It is clear from both the case law (HGA e.a. v. Commission (C‑630/11 P to C‑633/11 P, 2013), paragraphs 74 and 75) and Article 15(2) of Regulation 2015/1589 that when a Member State has not respected the notification obligation or the standstill clause, the Commission should not be bound by time limits. However, this must not be understood as exempting the Commission from any time limits. Indeed, article 12 of Regulation 2015/89 states that the Commission must examine any complaint “without any delay”, and it is established in the case-law of the General Court that the Commission cannot prolong indefinitely the preliminary investigation of State measures (see, recently, Navieras Armas v. Commission (T-108/16, 2018), paragraph 60).

The procedure ends with a final decision of the Commission, considering that the measure at stake is not an aid, that it is compatible with the internal market, or that it is incompatible with the internal market. In the latter case, the aid cannot be upheld and must be recovered from its beneficiary. The Commission is under an obligation to order the recovery of aid which it declares to be incompatible with the common market unless the recovery would be contrary to a general principle of EU law (Mediaset v. Commission (2011), paragraph 124). The purpose of the obligation to recover incompatible aid is to re-establish the previously existing situation. The Court has specified that that objective is attained once the recipient has repaid the aid in question, where appropriate with default interest, and thus forfeited the advantage which it had enjoyed over its competitors on the market (Commission v. Italy (C-348/93, 1995), paragraphs 26 and 27).

Secondly, the notion of unlawful State aid has relevance outside the scope of the Commission examination of the measure. In the Lorenz case (120/73, 1973, paragraph 8), the Court has established that Article 108(3) TFEU has a direct effect and gives rise to rights in favor of individuals, which national courts are bound to safeguard. National courts, therefore, have a role to play in relation to unlawful aids. Faced with an unlawful aid, they must pronounce measures appropriate to remedy the unlawfulness of the implementation of the aid, in order that the aid does not remain at the free disposal of the recipient during the period remaining until the Commission makes its decision (CELF (2010), paragraph 30). To that end, they must ensure that the measures, which they take with regard to the validity of the contested acts make it possible for the objective of restoring the competitive situation existing prior to the payment of the aid in question to be achieved (Residex Capital IV (2011), paragraph 45).

Case references

Case T-108/16, Navieras Armas v. Commission, ECLI:EU:T:2018:145

Commission decision C(2014)3192 final of 26 May 2014 in SA.38517 (2014/NN) – Micula v. Romania

Case C‑630/11 P to C‑633/11 P, HGA and Others v Commission, EU:C:2013:387

Case C-275/10, Residex Capital IV, EU:C:2011:814

Case C-403/10 P, Mediaset v Commission, EU:C:2011:533

Case C-1/09, CELF, en liquidation, and ministre de la Culture and de la Communication, EU:C:2010:136

Case C-348/93, Commission v. Italy, ECLI:EU:C:1995:95

Case C‑354/90, Féderation nationale du commerce extérieur des produits alimentaires and Syndicat national des négociants et transformateurs de saumon (Saumon), EU:C:1991:440

Case 120/73, Lorenz, EU:C:1973:152

Bibliography

Articles 12 to 16 of Regulation 2015/1589 of 13 July 2015 laying down detailed rules for the application of Article 108 of the TFEU

F. Picod, « Aides d’Etat – régime procedural », Fascicule 1532, JCl Europe traité, 2014

J.-L. Buendia Sierra, State intervention and EU competition law, Oxford, Owford University Press, 2020

J.-I., Signes de Mesa, J.-I., A., de Moncuit, Droit procédural des aides d’État, Bruxelles, Bruylant, 2019

L. Vogel, European State aid law, Bruxelles, Bruylant, 2020

Institution Definition

Unlawful aid is aid granted without prior Commission authorisation. The Commission must examine all information it receives concerning alleged unlawful aid immediately. If indeed there is unlawful aid, as for cases of notified aid, the Commission first opens a preliminary investigation and, if doubts as to the compatibility of the measure persist, subsequently carries out an in-depth investigation. The Commission may use injunctions to obtain information from Member States, suspend the further granting of aid or impose provisional recovery obligation on the Member State. In case of a final negative decision, recovery of the aid already paid out, with interests, will take place (see "Recovery of aid" below). European Commission

Case Comments

General Court of the European Union The EU General Court annuls the Commission’s decision declaring the Spanish tax scheme on the deduction for indirect acquisitions of shareholdings in foreign companies unlawful

The General Court annuls the Commission’s decision declaring the Spanish tax scheme on the deduction for indirect acquisitions of shareholdings in foreign companies unlawful* In 2002, Spain introduced a new corporate tax scheme. That scheme allowed companies that had acquired shareholdings (...)

Alain Ronzano Concept of State aid : The General Court, considering that the European Commission carried out an incomplete and insufficient examination of the attributability to the Danish and Swedish States of State aid granted to a subsidiary of the historic Danish and Swedish postal operators, partially annuls the Commission’s decision to not raise any objections (ITD / Danske Fragtmænd / European Commission)

On September 13, 2023, the General Court of the EU handed down a judgment in case T-525/20 (ITD and Danske Fragtmænd v. European Commission) on the question of the imputability of State aid to the State. Following a complaint from a trade association grouping together companies active in the (...)

Alain Ronzano Incompatible State aid: Advocate General Pitruzzella calls on the Court of Justice of the European Union to uphold the first ground of appeal and set aside the judgment of the Court of First Instance and the decision of the Commission provisionally finding that the environmental incentive measures adopted by Spain in favour of coal-fired power stations were selective (EDP España / Naturgy Energy Group et Naturgy Energy Group)

On July 13, 2023, Advocate General Giovanni Pitruzzella delivered his conclusions in joined cases C-693/21 (EDP España v. Naturgy Energy Group) and C-698/21 (Naturgy Energy Group v. European Commission), following the lodging of two appeals seeking annulment of thejudgment delivered on (...)

Alain Ronzano Incompatible aid: The Court of Justice of the European Union dismisses the appeal against the judgment of the Court of First Instance confirming the incompatibility with the internal market of aid granted by the Republic of Austria to an airline company (TUIfly)

On June 29, 2023, the European Court of Justice handed down a judgment in state aid case C-763/21 (TUIfly GmbH v. European Commission). concerning measures granted by Austria to Klagenfurt airport, as well as to Ryanair, TUIfly and other airlines using the airport. It dismisses the appeal (...)

Phedon Nicolaides The EU Court of Justice dismisses an appeal against the judgment of the General Court and confirms the incompatibility with the internal market of aid granted by Austria to an airline (TUIfly)

Profitability as a Criterion of the Compatibility of State Aid with the Internal Market* Introduction When the state has a realistic prospect of making profit, its financial transactions with third parties do not constitute State aid. The absence of profit is a strong indicator of the (...)

Bruno Stromsky Airline companies: The Court of Justice of the European Union rules that an agreement between an airport and an airline to set up a new route does not meet the private operator test where the airport’s investment is not profitable for the duration of the agreement (TUIfly)

The Court dismissed TUIfly ’s appeal against the judgment of the Court of First Instance of September 29, 2021 (TUIfly, aff. T-447/18, Concurrences 1-2022) and confirmed the validity of a final negative decision by the Commission concerning agreements concluded between an airport and an (...)

Alain Ronzano Incompatible aid: The European Court of Justice confirms the decision classifying the financing of an airport in Pomerania as state aid incompatible with the internal market and ordering its recovery by Poland (Gdynia-Kosakowo / European Commission)

On June 22, 2023, the European Court of Justice handed down its judgment in state aid case C-163/22 (Gmina Miasto Gdynia and Port Lotniczy Gdynia Kosakowo v. European Commission). In it, the Court dismisses in its entirety the appeal brought against thejudgment delivered, on reference after (...)

Alain Ronzano Incompatible aid: The General Court of the European Union dismisses the action brought by an Irish low-cost airline and confirms its obligation to repay €8.5 million to France (Ryanair)

On June 14, 2023, the European Union General Court handed down a judgment in case T-79/21 (Ryanair DAC and others v. European Commission) concerning marketing services contracts entered into between 2010 and 2017 by the Association de promotion des flux touristiques et économiques (APFTE) and (...)

Bruno Stromsky Incompatible aid: The General Court of the European Union confirms that the Commission correctly applied the genuine need test to marketing services purchased by a small airport (Ryanair)

The Ryanair ruling of June 14, 2023 sheds further light on the applicability and application of the private operator principle in a market economy, in the specific context of contracts concluded between the State or airports, on the one hand, and airlines, on the other, particularly low-cost (...)

European Court of Justice The EU Court of Justice AG Kokott suggests the Commission erred in deciding that Luxembourg had granted unauthorised State aid to a Big Tech firm in the form of tax advantages (Amazon)

Tax rulings: Advocate General Kokott is of the view that the Commission erred in deciding that Luxembourg had granted unauthorised state aid to Amazon in the form of tax advantages* The reference system relied on by the Commission in order to review whether there was a selective advantage, (...)

Phedon Nicolaides The EU Court of Justice confirms that purely regulatory measures do not necessarily constitute State aid, even where they confer advantages on certain undertakings, providing there is no transferring of State resources (Prestige / Limousine)

Regulatory Measures Are not State aid & Trade Unions Are not “Interested Party”* State resources On 8 June 2023, the Court of Justice clarified, by its judgment in case C-50/21, Prestige and Limousine SL, that purely regulatory measures may confer and advantage without, however, (...)

Alain Ronzano Selective advantage and State aid: Advocate General Kokott calls on the Court to dismiss the Commission’s appeal concerning Luxembourg’s advance tax ruling in favor of a GAFAM (Amazon)

On June 8, 2023, Advocate General Juliane Kokott presented her conclusions in case C-457/21 (Commission/Amazon.com and others). Despite an error made, in her view, by the General Court with regard to the reference system used to examine the possible existence of a selective advantage, (...)

Phedon Nicolaides The EU General Court clarifies a third party may be designated as an ’interested party’ provided it can evidence that its interests are affected by the grant of aid on which the case revolves (Unsa Énergie)

Regulatory Measures Are not State aid & Trade Unions Are not “Interested Party”* Interested party On 7 June 2023, the General Court delivered its judgment in case T-322/22, Unsa Énergie v European Commission. Unsa Énergie, a trade union representing employees of Électricité de France (...)

Alain Ronzano State aid: The General Court of the European Union confirms that the employees’ union of an energy company does not have the status of "interested party" enabling it to challenge an increase in the ARENH ceiling and in the price of additional electricity volumes insofar as these measures constitute a substantial modification of the aid scheme authorized by the Commission (UNSA énergie)

On June 7, 2023, the European Court of First Instance handed down a judgment in case T-322/22 (Unsa Énergie v. European Commission). In it, he dismissed the appeal lodged by the French employees’ union UNSA Energie against the Commission’s decision of April 8, 2022, rejecting its complaint (...)

Articles

Jacques Derenne, Alessandro Cogoni, Massimo Merola, Guillaume Blanc, Philipp Werner, Cvetelina Georgieva, Dimitris Vallindas, Ulrich Soltész, Christian Weinmann, Valérie Noël, Sébastien Thomas, Alistair McGlone, Clélia Jadot The role of third parties in State aid cases

The prior control of the granting of State aid by an independent and supranational authority, the European Commission, constitutes the essential cornerstone of the creation of the internal market. However, State aid procedural rules have privileged Member States, whilst third parties, (...)

Alain Alexis Foreign subsidy controls: The new European Commission proposal

Responding to the requests from the European Parliament and the European Council, the Commission has proposed an ambitious regulation to control foreign subsidies distorting the internal market. The challenge is to find a balance between the positive effects of foreign investments in Europe, (...)

Liza Lovdahl Gormsen European State Aid and Tax Rulings, Liza LOVDAHL GORMSEN

This section selects books on themes related to competition laws and economics. This compilation does not attempt to be exhaustive but rather a survey of themes important in the area. The survey usually covers publication over the last three months after publication of the latest issue of (...)

Events

Simon Holmes, Martijn Snoep, Dirk Middelschulte, Maurits Dolmans, Nicole Robins Competition Policy and the EU Green Deal

Webinar organised by Concurrences, in partnership with Cleary Gottlieb and Oxera, with Simon Holmes (Judge, Competition Appeal Tribunal | Visiting Professor, University of Oxford), Dirk Middelschulte (Global General Counsel Competition, Unilever), Martijn Snoep (Chairman, Netherlands Authority for Consumers and Markets), Maurits Dolmans (Partner, Cleary Gottlieb Steen & Hamilton) and Nicole Robins (Partner, Oxera).

Andrea Coscelli, Carles Esteva Mosso, Cecilio Madero Villarejo, Cristina Caffarra, Damien Neven, David Spector, Dominique Speekenbrink, Eric Barbier de la Serre, Frank P. Maier-Rigaud, Frederic Jenny, Gert-Jan Koopman, Hugues Calvet, Isabelle De Silva, Jacques Derenne, José María Marín-Quemada, Justus Haucap, Laurence Idot, Marc van der Woude, Mathew Heim, Mélanie Thill-Tayara, Robert McLeod, Wouter Wils New Frontiers of Antitrust 2017

Annual Concurrences Paris conference organized in partnership with Bredin Prat, CRA, Compass Lexecon, Dechert, Jones Day, MAPP, NERA, Sheppard Mullin (Panel Sponsors) and Cleary Gottlieb, Clifford Chance, Deloitte, Fréget-Tasso de Panafieu, Gide Loyrette Nouel, White & Case, Norton Rose Fulbright (Social Events Sponsors) and MLex (Media Sponsor).

Books

a b c d e f g h i j k l m n o p r s t u v w