What is state aid and how public bodies can make sure they comply with the rules
What is state aid?
State aid is any advantage granted by a public bodies through state resources on a selective basis, to any organisations that could potentially distort competition and trade in the European Union.
The definition of state aid is broad because ‘an advantage’ can take many forms. It is anything which an undertaking (an organisation engaged in economic activity) could not get on the open market.
State aid can sometimes provide an advantage to businesses at the expense of its rivals. By controlling state aid the European Commission can ensure that businesses across the EU are operating on a level playing field.
Identifying state aid
When support is given out by a public body to an undertaking engaged in economic activity there are 5 tests to apply.
- Is the funding granted by the state or through state resources?
- Is the funding providing an advantage the undertaking wouldn’t otherwise have?
- Is the funding selective (going to certain undertakings rather than others)?
- Is the funding distorting, or threatening to distort, competition?
- Is the funding affecting trade between European Union member states?
If the answer to any of the questions is ‘no’, it is unlikely that the support is state aid. You will need to keep a record of how you reached your decision for 10 years in case the European Commission decides to investigate.
If the answer to all the questions is ‘yes’, the support is likely to be state aid.
Exemptions from state aid
The European Commission accepts that sometimes states may need to intervene in a business. The state aid rules explain the following exemptions where public authorities can award state aid:
- de minimis
- general block exemption regulation schemes (GBER)
- services of general economic interest
- horizontal and sectoral regulations
Consequences of state aid
The aid may have to be re-paid, if the European Commission finds funding to be illegal or incompatible with state aid rules. Any repayment would be liable to compound interest.
State aid rules
State aid rules are split into two categories, horizontal and sectoral. Horizontal state aid rules apply to any industry; sectoral rules apply to specific industries.
To use the horizontal or sectoral rules you must formally notify the European Commission of what you wish to do. You must wait for a formal decision before any state aid is given. A decision can take 9 to 18 months.
It is often quicker to check if the aid can come under general block exemption regulation (GBER) or de minimis regulations. It may even be advisable to amend the scheme to bring it in line with the GBER.
General block exemption regulation
The general block exemption regulation (GBER) provides state aid cover for categories of aid which are exempt from the European Commission’s formal notification process.
The GBER allows member states to provide support without going through the EC’s full notification process. However, aid givers must register the award of aid, or the scheme under which it operates, within 20 working days of its start.
The Welsh Government has registered GBER schemes. The Welsh Local Government Association has also registered schemes that can be used by local authorities.
There is strict monitoring and transparency regulations around the use of the GBER. If you use one of the Welsh Government or WLGA GBER schemes you will need to notify the Welsh Government’s State Aid Team.
To register a scheme you must email the Welsh Government State Aid Unit on firstname.lastname@example.org.
State aid notified schemes
State aid notification allows us to provide support which otherwise could not be awarded under other forms of exemption.
Notified schemes allow more generous support or support for activities which are restricted. Before approval, notified schemes go through more scrutiny for potential distortion.
De minimis aid regulation
The de minimis regulation covers aid amounts which the European Commission (EC) regards as too small to effect competition. It allows support below €200,000 over a 3 year period (the current and last 2 fiscal years).
The de minimis regulation can be used to provide state aid cover for a variety of activities and to organisations of any size in most sectors.
Giving de minimis aid
Your de minimis aid must not put the recipient over the €200,000 limit. You must ask them how much de minimis aid they have received in the current and previous 2 fiscal years.
You must not give a part award aid. For example if a company asks for £10,000 but this takes them over the €200,000 threshold by £1,000 you can not reduce the amount you give them to £9,000.
The European Commission has a dedicated currency convertor that must be used to calculate de minimis aid. The exchange rate applicable is the rate at the time of award. You will also need to write to tell the recipient the value of the de minimis aid you’re giving them.
Receiving de minimis aid
When receiving de minimus aid, you should keep a record of how much you have received. If you are awarded more than €200,000 over this 3 year period you would be breaching the rules and the EC could demand you pay it back.
You must declare the amount of de minimis aid you have received to any public or granting authority that asks. This will usually be because you have requested money from another scheme or public authority that is classed as de minimis aid.
Services of general economic interest
Services of general economic interest (SGEI) are services which the state wants to provide for the general public, but which are not adequately supplied by market forces alone.
The SGEI package is made up of the framework, block exemption regulation and de minimis regulation, all of which are different from the general state aid rules.
The SGEI framework specifies the conditions under which state aid in the form of public service compensation is allowed.
To use the SGEI framework you first need to notify the European Commission of what you want to do and wait for their decision.
For information on how to do this contact the State Aid Team: email@example.com
SGEI block exemption regulation
The SGEI block exemption regulation details the support which can be given without first notifying the EC. Aid given under this regulation must be supported by an act of entrustment.
SGEI de minimis regulation
The SGEI de minimis regulation covers aid amounts that are too small to affect competition. It allows support below €500,000 over a 3 year period (the current and last 2 fiscal years).
The granting authority must also write entrusting the service to the provider.
Giving SGEI de minimis aid
Your de minimis aid must not put the recipient over the €500,000 limit. You must ask them how much de minimis aid they have received in the current and previous 2 fiscal years. This must include industrial de minimis and SGEI de minimis.
You must not give a part award aid. For example if a company asks for £10,000 but this takes them over the €500,000 threshold by £1,000 you cannot reduce the amount you give them to £9,000.
The European Commission has a dedicated currency convertor that must be used to calculate de minimis aid. The exchange rate applicable is the rate at the time of award.
You will also need to write to tell the recipient the value of the de minimis aid you’re giving them.
Receiving SGEI de minimis aid
When receiving de minimus aid, you should keep a record of how much you have received. If you are awarded more than €500,000 over this 3 year period you are breaching the rules and the EC could demand you pay it back.
You must declare the amount of SGEI de minimis aid you have received to any public or granting authority that asks. This will usually be because you have requested money from another scheme or public authority that is classed as de minimis aid.