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State aid (European Union)
State aid in the European Union is the name given to a subsidy or any other aid provided by a government that distorts competition. Under European Union competition law, the term has a legal meaning, being any measure that demonstrates any of the characteristics in Article 107 of the Treaty on the Functioning of the European Union, in that if it distorts competition or the free market, it is classified by the European Union as illegal state aid. Measures that fall within the definition of state aid are considered unlawful unless provided under an exemption or notified by the European Commission. In 2019, the EU member states provided state aid corresponding to 0.81% of the bloc's GDP.
The Treaty on the Functioning of the European Union (Art. 107, para. 1) reads:
"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 or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the common market."
This sets out the characteristics of a "state aid" and states that the award of a state aid will be unlawful unless compatible with the common market, which is achieved either by applying a block exemption or notification.
Five cumulative criteria shall be present for a "state aid" to exist:
Almost all state aid is awarded under block exemptions. For example, 96% of state aid is awarded under the General Block Exemption Regulation. States can award state aid via notification of the European Commission DG Competition under guidelines such as the Regional Aid Guidelines (RAG), the Climate, Energy, and Environmental Aid Guidelines (CEEAG), the Risk Finance Guidelines (RFG), and the Research, Development, and Innovation Framework (RDI).
State aid was formally introduced into European Union statute law by the Treaty of Rome, which classified state aid as any state intervention that distorted competition law. The European Commission announced plans to reform state aid in relation to research and development and innovation in 2006, in order to support the EU's overall strategy to enhance innovation, and the definition of state aid was later updated by the Treaty on the Functioning of the European Union in 2007. It stated that any aid given to a company by a state within the EU would generally be incompatible with the EU's Common Market. Within the new law under the treaty, the first chapter defines what is not allowed to be done with state aid, and the second chapter defines actions that can be done within legal limits. 1. Save as otherwise provided in the Treaties, 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 or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.
The intent of this was that, in order to avoid favouring a certain company or commercial group, an EU member state should not provide support by financial aid, lesser taxation rates, or other means to a party that does normal commercial business. For example, it would be considered illegal state aid by the EU if a government took over an unprofitable company with the sole intent to keep it running at a loss. However, state aid can be approved by the European Commission in individual circumstances but the aid can be reclaimed by the EU if it breaches the treaty.
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State aid (European Union)
State aid in the European Union is the name given to a subsidy or any other aid provided by a government that distorts competition. Under European Union competition law, the term has a legal meaning, being any measure that demonstrates any of the characteristics in Article 107 of the Treaty on the Functioning of the European Union, in that if it distorts competition or the free market, it is classified by the European Union as illegal state aid. Measures that fall within the definition of state aid are considered unlawful unless provided under an exemption or notified by the European Commission. In 2019, the EU member states provided state aid corresponding to 0.81% of the bloc's GDP.
The Treaty on the Functioning of the European Union (Art. 107, para. 1) reads:
"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 or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the common market."
This sets out the characteristics of a "state aid" and states that the award of a state aid will be unlawful unless compatible with the common market, which is achieved either by applying a block exemption or notification.
Five cumulative criteria shall be present for a "state aid" to exist:
Almost all state aid is awarded under block exemptions. For example, 96% of state aid is awarded under the General Block Exemption Regulation. States can award state aid via notification of the European Commission DG Competition under guidelines such as the Regional Aid Guidelines (RAG), the Climate, Energy, and Environmental Aid Guidelines (CEEAG), the Risk Finance Guidelines (RFG), and the Research, Development, and Innovation Framework (RDI).
State aid was formally introduced into European Union statute law by the Treaty of Rome, which classified state aid as any state intervention that distorted competition law. The European Commission announced plans to reform state aid in relation to research and development and innovation in 2006, in order to support the EU's overall strategy to enhance innovation, and the definition of state aid was later updated by the Treaty on the Functioning of the European Union in 2007. It stated that any aid given to a company by a state within the EU would generally be incompatible with the EU's Common Market. Within the new law under the treaty, the first chapter defines what is not allowed to be done with state aid, and the second chapter defines actions that can be done within legal limits. 1. Save as otherwise provided in the Treaties, 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 or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.
The intent of this was that, in order to avoid favouring a certain company or commercial group, an EU member state should not provide support by financial aid, lesser taxation rates, or other means to a party that does normal commercial business. For example, it would be considered illegal state aid by the EU if a government took over an unprofitable company with the sole intent to keep it running at a loss. However, state aid can be approved by the European Commission in individual circumstances but the aid can be reclaimed by the EU if it breaches the treaty.