Dont get busted by Brussels! Lorraine Lee Alan Coleman SG - - - PowerPoint PPT Presentation

State Aid for Policymakers – “Don’t get busted by Brussels!”

Lorraine Lee Alan Coleman SG - State Aid Unit 11 September 2013

Aims & Objectives

• Who we are / What we do
• Introduce the concept of State aid
• Learn how to spot State aid by applying

basic tests

• If it is State aid, understand how it can be

given compliantly

State Aid Unit

• Provide advice and analysis across Government

and the wider public sector

• SG Corporate resource

– Advice, awareness raising, liaison with DBIS/UKRep

• Advice to any body with the authority to grant

public funding

• Separate rules for Transport, Agriculture &

Fisheries and Industrial

What is State Aid?

When a public body, or publicly-funded body, gives assistance to selected undertakings which has the potential to distort competition and affect trade between member states of the European Union.

Some examples of State aid:

• Grants to firms
• Loans and guarantees at below market rates
• Tax reliefs or exemptions
• Provision of goods and services at preferential

rates

• Free or subsidised advice/consultancy or

training

• Sale of public land at less than market value
• Public funding of infrastructure benefitting a

specific operator/end user

What’s not State aid:

Not all public support is necessarily State aid. Examples of ‘non-Aid’ measures are:

• General measures
• Aid to individuals or non-undertakings
• Payment for goods/services at market rates
• Loans at commercial rates / (MEIP)

Why does the EC Control State Aid?

• To avoid a ‘subsidy race’
• To ensure a level playing field across the

EU

• To maintain competitiveness and

encourage innovation and restructuring

What is State Aid?

“Save as otherwise provided in this Treaty, any aid granted by a Member State or through State Resources, in any form whatsoever, which distorts, or threatens to distort competition by favouring certain undertakings

• r the production of certain goods, shall insofar

as it affects trade between Member States, be incompatible with the internal market”

State aid is defined in Article 107 of the Treaty on the Functioning of the European Union:

Is State Aid present?

State aid can only be present when the award is made to an

• undertaking. An undertaking is defined as follows:

Is the award beneficiary involved in economic activity (placing goods and/or services on a market which could be exchanged for remuneration)? Not an undertaking – therefore no State Aid present Probably an undertaking - apply 5 State aid tests

The Five State Aid Tests

• 1. Is the aid from a Member State or through

State resources?

• 2. Does it confer an economic advantage on an

undertaking?

• 3. Is it Selective?
• 4. Does it have the potential to distort

competition?

• 5. Does it have the potential to affect intra-

community trade?

• 1. Is the Aid from a Member State
• r through State resources?
• This includes resources directly or

indirectly under the control (or at the disposal) of the State.

• Can be granted by central government,

devolved administrations, local authorities, public bodies.

Advantage is defined as a benefit granted which lightens the burden normally assumed in an undertaking’s budget, that could not have been obtained under normal market

• conditions. These can include:
• Transfer of resources, grants; loans; provision of

services, or

• Relief from charges – tax exemption
• Advantage is for free or without adequate consideration
• 2. Does it confer an advantage?

• 3. Selectivity
• Geographical
• Sectoral
• Type of firm, e.g.

SME

• 4. Potential to distort competition
• Potential to distort is sufficient for

this test to be met

• Small amounts of aid can lead to

distortion

• 5. Effect on intra-community trade
• Most goods and services are tradable
• Commission interpret this test widely
• ‘Local trade’ argument difficult to make

The five tests summarised:

The measure involves the transfer of state resources The beneficiaries receive economic advantage The measure is selective in nature The measure has the potential to distort competition The measure has the potential to affect intra community trade NO NO NO NO NO

State Aid is unlikely to be present

YES TO ALL FIVE TESTS

State Aid is likely to be present – can we make it compliant?

Case Study 1

• A village hall has fallen in to a state of disrepair. The local

authority has decided it will no longer fund it. The local community form a Trust and the council agrees to transfer

• wnership of the hall to the Trust for a nominal fee.

Case Study 1 (cont/d)

• The Trust will operate on a not-for-profit basis and will be

run mainly by volunteers. The aim is to make the hall self- sustaining and it will be used mainly by local groups, including a playgroup and a youth club who will pay for

• use. However, the hall is in a popular fishing village and

the Trust applies for public funding to renovate the main room and grounds in order to attract weddings and events such as concerts and film screenings.

• There is a tea room and a hotel in the village.
• 1. Is the Community Trust an undertaking?
• 2. If so, use the five State aid tests to consider whether

State aid is present in the proposed transactions.

Case Study 1: Is the Trust an undertaking?

1. Hiring the community hall to youth clubs etc. would likely be considered as economic activity as these services may be provided elsewhere for remuneration 2. Furthermore, if the Trust begins to use the venue for weddings, concerts or film screenings, then that too is clearly an economic activity The Trust is therefore an undertaking in this example

Case Study 1: The Five State Aid Tests

1. Is the aid through State resources? Yes; Public funding required to renovate hall. The LA has also sold the hall for a nominal fee. 2. Does it confer an economic advantage on an undertaking? Yes; the Trust does not pay full price for hall and further public funding covers renovation costs. 3. Is it Selective? Yes; only the Trust receives money. 4. Does it have the potential to distort competition? Yes; could be other private operators doing similar things. 5. Does it have the potential to affect intra-community trade? Probably: Local trade argument may be difficult to make given the intention to host weddings/concerts.

Case Study 2

• A furniture factory in currently funded by an independent

charity, but will lose the funding next year. The factory employs 53 people, two thirds of whom are disabled.

Case Study 2 (cont/d)

• The factory needs to relocate to new premises and would like the

local council to waive business rates for the first year. This is worth £85,000. The Government has pledged £300,000 but has still to finalise how this will be allocated.

• New machinery is required, and the employees will need to be

trained to use it. The company is also willing to take on four new members of staff, who will be employed as apprentices.

• 1. Is the factory an undertaking?
• 2. Apply the five State aid tests to determine whether there is State aid

present

Case Study 2: Is the factory an undertaking?

• 1. The manufacture and sale of furniture products is clearly

an economic activity

• 2. The fact that the company was funded principally by a

charity in the past has no bearing on its status as an undertaking The factory is therefore an undertaking

Case Study 2: The Five State Aid Tests

1. Is the aid through State resources? Yes; funding is from the Scottish Government and the Local Authority. 2. Does it confer an economic advantage on an undertaking? Yes; it would relieve the business of costs that competitors would have to bear themselves. 3. Is it Selective? Yes; provided to one selected business. 4. Does it have the potential to distort competition? Yes; business may have its competitive position strengthened in comparison to competitors by input of state resources. 5. Does it have the potential to affect intra-community trade? Yes, the activity is common across several member states.

What if it is State aid?

Compatible Aid

• Article 107(2) & (3)
• Guidelines & Frameworks
• General Block Exemption Regulation
• Approved Schemes
• De minimis Regulation

Article 107(2)

(a) Aid of a social character (lifeline air routes in Scotland) (b) Aid to remedy damage by natural disaster/exceptional occurrence (volcanic ash, 9/11) (c) Aid to compensate for the re-unification of Germany

Article 107(3)

a) Economic development of areas with abnormally low living

• standards. (currently includes H&I, attracts higher aid

intensities) b) Promotion of project of common European interest or serious disturbance to economy. (bank bailouts during economic crisis) c) Development of certain economic activities/areas (majority of approved support in Scotland provided under this provision) d) Promotion of culture/heritage e) Other categories as specified by the EC

Guidelines & Frameworks

Horizontal rules

• Research & Development & Innovation
• Regional Aid
• Environmental Protection
• Risk Capital
• Rescue & Restructuring
• Sale of Public Land & Buildings
• Services of General Economic Interest

Sectoral Rules

• Transport

–Aviation –Road & Rail –Maritime

• Agriculture & Forestry
• Fisheries

A word on State aid for Industrial or Agricultural projects…

• Activity determines which rules should be

applied

• Primary agricultural production (Annex 1

products) = agricultural rules

• Marketing and processing of Annex 1

products (and beyond) = industrial rules

The 'sensitive sectors'

There are various guidelines relating to granting aid in

some sectors which may be in overcapacity. These take precedence over any other State aid rules. The ‘sensitive’ sectors are as follows:

• Audio-visual Production
• Broadcasting
• Coal
• Electricity
• Motor Vehicles
• Synthetic Fibres
• Shipbuilding
• Steel

General Block Exemption Regulation (GBER)

• Regional Investment
• SME Investment and Employment
• Consultancy and Trade Fairs
• Entrepreneurship
• Training
• Environmental Protection
• Research & Development & Innovation
• Risk Capital
• Disadvantaged and Disabled Workers
• Simpler & quicker notification process

Approved Schemes

• Property Development
• Structural Funds
• SME Investment
• Historic Environment Regeneration
• Research & Development
• Renewables Obligation
• Must be approved by Commission prior to

implementation

De minimis Aid

• €200k over a three year fiscal period - industrial sector
• €100k over same period for road transport sector
• €7.5k over same period for agricultural sector
• Limit per undertaking – not per project

Exclusions: Export aid, firms in difficulty and purchase of road freight transport vehicles

• No notification requirements but can involve significant

administration

If State aid is present…

Probable State aid is identified Is there cover under any existing approved schemes?

Speak with scheme administrator to arrange project delivery

Is there cover under the General Block Exemption Regulation? Is there cover under the de minimis Regulation? Speak to State Aid Unit and consider notification against Treaty, or

• ther

solutions

Register/notify a GBER scheme to meet policy aim Follow guidance on administering de minimis awards

NO YES YES YES NO NO

Notification

• Considered on face of the Treaty
• Commission carry out detailed assessment

against 7 key conditions

• Benefits of aid must outweigh distortion of

competition

• Will normally take >6 months
• No aid should be disbursed prior to EC

approval

Case Study 1

• A village hall has fallen in to a state of disrepair and the local authority

has decided it will no longer fund it. The local community form a Trust and the council agrees to transfer ownership of the hall to the Trust for a nominal fee.

• The Trust will operate on a not-for-profit basis and will be run mainly by

volunteers, with a few part time employees. The aim is to make the hall self-sustaining and it will be used mainly by local groups, including a playgroup and a youth club who will pay for use. However, the hall is in a popular fishing village and the Trust applies for public funding to renovate the main room and grounds in order to attract weddings and

• ther events such as concerts and film screenings.
• There is a tea room and a hotel in the village.
• 1. Are there ways in which some or all of the State aid which is present

could have been awarded compliantly?

• 2. How might the council manage the transfer differently to avoid State aid

being present?

Case Study 1

• How could the Aid be made compatible?

– Scope under GBER (SME investment aid, SME consultancy). – Give difference between nominal property price and market price as de minimis aid. – Give funding as a soft loan, using de minimis. – Depending on aid amount overall, de minimis.

• Could the council have managed the transfer differently, so

that State aid is avoided? – LA could sell hall at market rate/unconditional bidding procedure. – LA could rent hall at market rate.

Case Study 2

• A furniture factory in currently funded by an independent charity,

but will lose the funding next year. The factory employs 53 people, two thirds of whom are disabled.

• The factory needs to relocate to new premises and would like the

local council to waive business rates for the first year. This is worth £85,000. The Government has pledged £300,000 but has still to finalise how this will be allocated.

• New machinery is required, and the employees will need to be

trained to use it. The company is also willing to take on four new members of staff, who will be employed as apprentices.

How could the State aid be delivered compatibly?

Case Study 2

• How could the Aid be made compatible?

– Local Authority could provide rates relief as de minimis aid, provided thresholds not breached. (under €200k) – Scope under GBER for capital costs and staff training costs (SME investment aid, training aid). Subject to relevant Aid Intensities – SG could provide £300k funding as a loan at market rates to avoid the presence of State aid. – SG could provide part or all of the £300k funding as an equity investment on market terms, again ruling out presence of State aid

Getting it Wrong!

• Potential investigation by Commission
• Aid can be halted
• Any illegal aid must be repaid, with interest, by the

recipient

• Potential action by aggrieved competitors – possibility of

recovery order and damages by national courts

• Undermines UK government’s commitment to tighter

State aid control and reduction in aid

State Aid Modernisation

• Majority of the existing State aid regulations expire at end of

2013 and the Commission is undertaking an ambitious modernisation programme in reviewing these rules. Key principles of SAM:

• Foster growth in a strengthened, dynamic and competitive

internal market

• Focus enforcement on cases with the biggest impact on the

internal market

• Streamlined rules and faster decisions

State Aid Unit – contact details

State Aid Unit Scottish Government Business Directorate 3rd Floor 5 Atlantic Quay 150 Broomielaw Glasgow G2 8LU E-mail - stateaid@scotland.gsi.gov.uk Website – www.stateaidscotland.gov.uk

Specific contact details for policy leads on ‘contacts’ page of website.