State Aid Law
EU State Aid Law seeks to maintain the competitive level playing field in the European single market by prohibiting the authorities of EU Member States from subsidising undertakings in their territories.
Accordingly, State aid is unlawful unless it has been authorised by the European Commission, either on an individual basis or via a “block exemption” regulation that exempts entire categories of aid.
When the Commission becomes aware of potentially unlawful aid it will investigate and if it finds that the aid cannot be authorised, order its recovery from the beneficiary with interest (even if this may cause the beneficiary’s insolvency). Injured parties, e.g. competitors of the aided undertaking, may also sue the aid awarding authority in Court for damages.
A number of important points must be borne in mind in relation to State aid law:
- First, the prohibition on handing out State aid applies not just to central Government departments and agencies but to all “emanations of the State” including the devolved administrations, local authorities, universities, publicly owned and controlled companies.
- Secondly, State aid includes not just obvious advantages like subsidies and grants but less obvious ones such as tax breaks, “soft” loans and loan guarantees, sales of State assets at an undervalue, purchase of shares or other investments where these are not on market terms, etc.*
- Thirdly, State aid law prohibits advantages given to “undertakings” not just commercial companies. An undertaking is any entity that places goods or services on a market, irrespective of its legal form (company, partnership, sole trader, etc.), whether it has charitable or not for profit status, or is State-owned.
State aid can arise in the context of, for example:
- Economic regeneration projects funded by UK or EU funds
- Collaborative research projects between universities and private companies
- Renewable energy projects
- Rollout of publicly funded broadband or other infrastructure projects
- Commercial transactions entered into by publicly owned or controlled companies
- The rescue, re-structuring or privatisation of companies in financial difficulty
- Public-private ventures between State bodies and private undertakings
- Procurement of public services
- In mergers and acquisitions where the acquired undertaking may have benefited in the past from State aid
- Public authorities wishing to grant legally compliant State aid
- Private undertakings that wish to obtain comfort that any arrangements they may come into with a public body are State aid compliant
- Universities or other research organisations entering into commercial arrangements such as spin-offs or collaborative research projects
- Companies under investigation by the authorities for allegedly receiving State aid
- Companies who wish to challenge aid granted to their competitors
*A highly topical area of State aid enforcement at present is the investigation by the European Commission into the tax affairs of multi-national companies that are alleged to seek, via intra-group financial transactions, to account for a disproportionate share of their profits in low tax jurisdictions such as Ireland or Luxembourg.