Considerations for aid recipients

Legal right to state aid

Is there a legal right for businesses to obtain state aid or is the granting of aid completely within the authorities’ discretion?

Compared with other jurisdictions, in Germany the position of the aid recipient is relatively strong. Some schemes, in particular in the field of tax benefits, even grant an explicit legal right to obtain state support.

In most cases, the granting of state aid lies within the discretion of the authorities. In such cases, however, public bodies are not entirely free in their decision but are bound by the principles of non-discrimination (equal treatment). In addition, German courts have developed the principle that the administration is bound by its own decision-making practice and its guidelines (soft law). A combination of factors (continuous decision-making practice, ie, other players have received aid under similar circumstances; existence of guidelines, etc) might therefore lead to de facto entitlement, even though there is no explicit statutory right for a certain type of state support.

Main award criteria

What are the main criteria the national authorities will consider before making an award?

Similar to the situation in most member states, the authorities will primarily take the effect on employment into account when awarding aid - in other words, the number of jobs created or safeguarded through the project. In many cases, the aid recipient will also have to commit to maintain a certain number of jobs over a specific period of time (mostly five years) after the conclusion of the project.

Even in cases where there is no formal commitment to create or safeguard a certain level of employment, in exercising their discretion the public authorities will always consider the impact of aid on the job situation. This particularly applies to cases of rescue and restructuring aid. When negotiating an aid package with the authorities, it is therefore advisable to emphasise this aspect.

Apart from this, the criteria are mostly similar to those on an EU level; namely, environmental aid should lead to benefits in terms of environmental protection; research, development, and innovation aid to an increase in research, development and innovation efforts, etc.

Strategic considerations and best practice

What are the main strategic considerations and best practices for successful applications for aid?

An application for state aid is normally more successful either if it is based on an existing aid scheme that provides an explicit legal right to obtain state aid or where there is public authorities’ continuous decision-making practice to grant support if certain circumstances are met. In contrast, applications for ad hoc aid (in other words, where no scheme exists that could be the basis for the subsidy) are significantly less likely to succeed.

In addition, public authorities are often easier to convince if it can be demonstrated that the matter will not raise any concerns under EU state aid law; in other words, if the measure either is covered by an approved scheme or a block exemption or is clearly in line with the applicable legal framework so that it could be approved easily. On the other hand, if there are any potential concerns regarding compatibility with the EU state aid rules, public authorities might often use ‘EU issues’ as a pretext to reject an aid application and to cover their unwillingness to grant state support.

It goes without saying that, depending on the size of the assisted project, political contacts help in facilitating the discussions. As in every member state, the decision makers - in other words, politicians on every level (federal, states, regions and municipalities) - are receptive to the concerns of the national or local economy and the aid recipient’s employees. This applies both to members of the government and the opposition, and to trade union leaders and members of the works council.

Challenging refusal to grant aid

How may unsuccessful applicants challenge national authorities’ refusal to grant aid?

Under German law, the dismissal of an aid application (even partial dismissal) can be challenged in court, and the applicant can lodge an action for a grant decision to be issued. In cases where the authority did not take any decision at all, the aid recipient can file an action for failure to act. Such appeals will usually go to the administrative courts since under case law the decision to grant aid is of a public (administrative) law nature. In the field of tax benefits, the appeal should be lodged at the fiscal courts.

In most cases, the aid recipient will first have to undergo formal opposition proceedings against such a negative decision before going to court. In this case the procedure will basically be brought to the next administrative level; in other words, it is the superior authority that will decide (again) on the aid application.

Involvement in EU investigation and notification process

To what extent is the aid recipient involved in the EU investigation and notification process?

The BMWi, which is in charge of dealing with the Commission in all state aid procedures, attaches great importance to the aid recipient’s active involvement in the procedure before the European Commission. The BMWi is very transparent as far as the relationship with the aid recipient is concerned. Under normal circumstances the aid recipient will be fully informed at all stages of the procedure, will obtain full access to the file and will always have the possibility to attend (pre-notification) meetings with the Commission.

On the other hand, it is usually expected that the aid recipient fully supports the government in the drafting process - the text of the notification and the follow-up submissions are usually drafted by the aid recipient. This division of labour makes sense, because the public authorities usually do not have sufficient resources or the market knowledge required to fill in the elaborate notification forms. It also allows the aid recipient (which bears the main risks in that it is the recipient that will ultimately be affected by a negative decision) to present its case to the Commission, but within certain limits.