Incompatible state aid: An old and new problem for the EU


Under European Union rules it is illegal for EU countries to give financial help to some companies and not others in a way that would distort fair competition.

Recently, the European Commission has issued several decisions regarding incompatible state aid. Here we can remember the Spanish football clubs that received incompatible aid, the Hellenic shipyards or the situation of Belgian multinational companies.

Under European Union rules it is illegal for EU countries to give financial help to some companies and not others in a way that would distort fair competition. State aid is governed by the Treaty on the Functioning of the European Union.

Article 107 of the Treaty on the Functioning of the European Union (TFEU) stipulates that “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 common market.”

What are the exceptions to the prohibition of State Aid?

However, according to Regulation 1407/2013, an aid that consists in less than 200.000 Euros over three years and guarantees of up to 1.5 million Euros are not considered to affect market equality and, thus, will not be notified to the Commission.

While the second paragraph of Article 107  of the TFEU states what type of aid can be compatible with the internal market – aid having a social character, granted to individual consumers, aid to make good the damage caused by natural disasters or exceptional occurrences and aid granted to the economy of certain areas of the Federal Republic of Germany affected by the division of Germany – the third paragraph enumerates the aid that may be compatible with the common market:

  • When meant to promote the economic development of areas with economic or social problems;
  • When intended to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State;
  • When wishing to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions;
  • When meant to promote culture and heritage conservation.

In order for the Commission to adopt a position regarding an eventual application of one of the above derogations from the incompatibility of aid, Member States are obliged, under Article 108 paragraph 3 of the TFEU to inform it in sufficient time, through a detailed questionnaire, of any plans to grant new aid or alter existing aid. Such aid may not be granted by Member States until the Commission has taken a final decision on it.

If the Commission finds that aid granted by a State or through State resources is not compatible with the internal market or that such aid has being misused, it shall decide that the State concerned shall abolish or alter such aid within a period of time to be determined by the Commission. If the State concerned does not comply with this decision within the prescribed time, the Commission or any other interested State may refer the matter to the Court of Justice of the European Union direct.

A special procedure is proposed by article 108, paragraph 2 of the TFEU and detailed in Council Regulation 2015/1589 and Commission Regulation 794/2004. Therefore, on application by a Member State, the Council may, acting unanimously, within three months of the said application, decide that aid that State is granting or intends to grant should be considered to be compatible with the internal market, in which case the Commission should drop the proceedings against the Member State.

 The General Block Exemption Regulation

On the basis of Article 109 TFEU, the Council has adopted Regulation 998/94 which has granted to the Commission the power to adopt block exemption regulations for certain categories of horizontal aid and for aid below a given threshold through Regulation 2015/1588. On this basis, a General Block Exemption Regulation of the Commission consolidates into one text and harmonises the exemption rules previously existing in five separate Regulations, and enlarges the categories of state aid fulfilling the conditions of compatibility outlined in article 107, paragraph 3 of TFEU.

The general block exemption means automatic approval by the Commission for aid in favour of small and medium enterprises, research, innovation, regional development, training, employment and risk capital. The Regulation also authorises environmental protection aid, aid measures promoting entrepreneurship, such as aid for young innovative businesses, aid for newly created small businesses in assisted regions, and measures tackling problems, like difficulties in access to finance, faced by female entrepreneurs.

The General Block Exemption Regulation of the Commission applies to transparent aid in all sectors of the economy except for fisheries and aquaculture, agriculture and coal. By allowing Member States to grant the above-mentioned types of aid without first notifying the Commission, the General Block Exemption Regulation of the Commission encourages Member States to focus their state resources on aid that is of real benefit to job creation, environment protection and Europe’s competitiveness, along the lines of the Europe 2020 strategy.

Radu Suicescu

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