On 19 May 2016, the European Commission published its long-awaited notice on the requirements for applying the EU's state aid rules. The notice is part of an overall modernisation programme of the EU's state aid rules that began in 2012, and the purpose of the notice is to help both the recipients of aid, i.e. companies, and authorities granting aid to evaluate when a benefit granted from public funds is or is not within the scope of the EU's state aid rules.
State Aid Rules Promote Equal Conditions for Competition
The purpose of state aid regulation is to ensure that companies operating in the EU's common market have equal operating conditions and to prevent preferential treatment by individual Member States of companies established in that Member State. The Treaty on the Functioning of the European Union (TFEU) prohibits a benefit that
- was granted from public funds
- is in favour of a company or branch of industry
- threatens to distort or distorts competition
- affects trade between Member States.
All of the above criteria must be met in order for aid to be considered a violation of the EU's state aid rules.
The notice clarifies when a public benefit granted to a company can be considered to meet each of the above criteria. The notice also takes a position on the assessment of certain forms of aid, such as tax benefits and infrastructure financing. The notice collects the Court of Justice's earlier case law and it replaces the Commission's previous instructions on direct taxation and the sale of public land and buildings.
Social Security and Health Care Services as Economic Activity
The Commission's notice evaluates the notion of aid in several different sectors. From the perspective of Finland's social welfare and health care reform, it is worth noting that the Commission has compiled the case law of the EU courts concerning, for example, what is meant by an undertaking or economic activity with respect to social welfare and health care services. The Commission notice takes a position on what kinds of health care or social welfare operations are in accordance with what is called the solidarity principle and, thus, outside the scope of EU state aid regulation, and what kinds of operations are market-based. The notice also directly acknowledges that health care is organised in very different ways in different Member States.
It is safe to assume that the issues brought up in the notice will be read carefully in connection with Finland's social welfare and health care reform. They are also closely linked to the debate surrounding competition neutrality between public and private actors (see our earlier posts in Finnish on that issue: Siivittääkö sote-uudistus yritykset innovoimaan uutta? ja Laki, jota meidän ei vieläkään tarvitse noudattaa?).
Fully Local Aid is not EU State Aid
The EU's state aid rules are not applicable to aid provided to fully local operations, provide certain conditions are met. Such aid does not affect trade between Member States. According to the Commission, this category of aid includes funding to sports and leisure facilities and cultural events serving predominantly a local audience and that are, thus, unlikely to attract customers from other Member States. Thus, the notice clarifies the types of aid that the Commission does not consider to affect trade between Member States. The Commission has no jurisdiction to assess or reclaim aid that does not fulfil all of the criteria of state aid.
In-House Activities Can also be Economic Activities that Must be Incorporated
The Commission's notice also takes a clear stand that in-house activities can be considered economic activities subject to the EU's state aid rules. This can be the case, for example, when an in-house unit provides services internally, but also offers the same services to other customers in exchange for payment. Given that the Local Government Act contains exceptions to the corporatisation obligation normally applied in such situations, it may be necessary to re-evaluate the Local Government Act.
Always Evaluate State Aid on a Case-by-Case Basis
Despite the clarity brought by the Commission's notice, the applicability of state aid rules is something that should always be carried out on a case-by-case basis and preferably in writing. If the Commission subsequently finds a granted benefit to be in violation of the EU's state aid rules, the benefit can be reclaimed from the recipient with interest during ten years after being granted.