Summary European Union (EU) Law Masters (LLM) Competition Law Notes: State Aid
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Module
EU Competition Law
Institution
Universiteit Leiden (UL)
Book
Competition Law
In depth Masters module notes on European Union (EU) Competition law on State Aid.
Including a step-by-step guide on how to answer a legal problem question for exams.
EU Competition Law Article 101 Concept: Object or Effect
EU Competition Law Article 101 TFEU Concept: Undertakings
EU Competition Law: Market Definition and Market Power Notes
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EU Competition Law
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COMPETITION LAW AND THE STATE
Introduction
- EU competition law primarily addresses behaviour of undertakings
- But it also addresses Member State’s activities in the market:
- Member States as ‘market correctors’
- State aid rules: Articles 107-109 TFEU
- Member States as ‘market operators’
- Article 106 TFEU
- Article 4(3) TEU + 101/102 TFEU
- EU the only jurisdiction with State aid rules
- State Aid is, in principle, prohibited
State Aid rules (Substantive)
Rationale for a State Aid Regime
- Conferment of advantages by MS to certain undertakings can distort competition
between undertakings and between MS (subsidy race)
- A robust regime of control is essential to ensure the functioning of the internal market
(level playing field)
- Decisions permitting State aid when it is in common interest -> EU, not national, level
Guidelines
- Community guidelines on rescuing and restructuring firms in difficulty [2004] OJ C 244/2;
- On state aid for rescuing and restructuring non-financial undertakings in difficulty OJ
C249/1;
- Risk finance aid OJ C19/4
- CIRFS (C-313/90): the ECJ accepted that the commission was bound by the terms of its
policy framework
- Ijssel-Vliet (C-311/94) and held that Commission guidelines built into a Dutch aid
scheme were binding on the Dutch Government.
- Italy v Commission (C-310/99 [52]): Such guidelines are however not formally binding
on the EU courts.
Article 107 TFEU
, - Scheme of Article 107 TFEU
1. Principle of incompatibility State aid with the internal market
2. Exception for three kinds of aid that are compatible with internal market
3. Exception for four kinds of aid that may be compatible with internal market
- Article 107 lays down the test for state aids.
- It covers aid given to public undertakings within Article 106, subject to Article
106(2), as well as aid given to private firms. (C-387/92 Banco de Credito
Industrial BA)
Concept of State Aid
- Article 107 (1) TFEU states that aid granted by a Member State or through State
resources in any form whatsoever which distort, or threatens to distort, competition by
favoring certain undertakings or the production of certain goods is incompatible with the
internal market insofar the aid affects trade between the Member States.
- Constitutive elements (cumulative):
1. Beneficiary of the measure is ‘undertaking'
2. Granted by a MS and through State resources (says or in the treaties but this is a
typo.)
3. Advantage
4. Selective
5. Effect on trade and competition
- Banco de Credito Industrial BA (C-387/92)
- Provided a list of types of aid
- These include direct subsidies, tax exemptions, exemptions from parafiscal
charges, preferential interest rates, favourable loan guarantees, the provision of
land or buildings on special terms, indemnities against losses, preferential terms
for public ordering, the deferment of the collection of fiscal or social contributions,
and dividend guarantees.
Beneficiary is an undertaking
- See notes on undertaking.
State Origin and Sate Resources
- State origin = imputable to the State
- Broad Concepti: Concept of the state comprises all entities of the state including:
- Private bodies appointed by the state to administer resources (van der
Kooy, Cases 67,68, 70/85)
- And public undertakings (Transparency Directive 2006/111/EC)
- Can include regional as well as central government. (323/82 Intermills)
, - It has to be shown that the state actually exercised control over the
undertaking and was involved in the adoption of the measure. (C-482/99
France v Commission)
- Van der Kooy v COM (Cases 67,68 and 70/85 (1988)) [35-38]
- Tariffs charged by Gasunie for gas to certain firms in the horticultural
industry were preferential and constituted aid.
- G was a company incorporated under private law, but 50% of its shares
held by Dutch gov, and the tariffs charged by Gasunie were subject to
approval by a government minister.
- The fixing of the disputed tariffs was the result of action by the Dutch
state, G in no way enjoyed full autonomy in the fixing of gas tariffs, but
acts under the control and on the instruction of the public
authorities → falls within the aid granted by MS
- Commission v. France (Stardust);
- Aid must be granted by the member state or through state resources -
state imputability - indicators of state imputability in:
- Commission Notice provides some indicators.
a. The fact that the body in question could not take the contested decision
without taking account of the requirements of the public authorities;
b. The presence of factors of an organic nature which link the public
undertaking to the State;
c. the fact that the undertaking through which aid was granted had to take
account of directives issued by governmental bodies;
d. the integration of the public undertaking into the structures of the public
administration;
e. the nature of the public undertaking's activities and their exercise on the
market in normal conditions of competition with private operators;
f. the legal status of the undertaking (whether it is subject to public law or
ordinary company law), although the mere fact that a public undertaking
has been constituted in the form of a capital company under ordinary law
cannot be regarded as sufficient reason to exclude imputability, having
regard to the autonomy which that legal form confers on it;
g. the degree of supervision that the public authorities exercise over the
management of the undertaking;
h. any other indicator showing the involvement of the public authorities in
adopting the measure in question or the unlikelihood of their not being
involved, taking account of the scope of the measure, its content or the
conditions it contains.
- State resources = in any form whatsoever
- Financed directly by the State
- Financed indirectly by the State
- State resources can be defined as monetary resources that have directly or
indirectly an impact on the budget of the state (Case 72/91, Sloman Neptune;
Case C- 379/98, Preussen Elektra).
- Foregoing State revenue is sufficient i.e. not having to pay taxes.
, - Incl. State involvement in redistribution between private entities (parafiscal
charges or compulsory contributions)
- Depend on the amount of control over the money, does not have to have
direct access to the money, but sufficient, when state determines where
the money go (very wide interpretation)
- E.g. the licensing fee in the UK
Advantage
- Wide interpretation: any economic benefit which an undertaking could not have obtained
under normal market conditions (i.e. in absence of State intervention)
- Two Exceptions:
- Market Economy Investor Principle (MEIP):
- Regarding economic transactions carried out by public undertakings:
- This is the test to establish whether public investments take place under market
conditions
- Substance not the form is the criterion, measure must confer an advantage to the
recipient in order to constitute aid
- Aid covers not only positive benefits such as subsidies, but also measures that
mitigate the charges an undertaking would normally bear (supply of goods or
services at preferential rate, reduction in social security contributions, tax
exemptions)
- E,g: Measures that mitigate the charges an undertaking would normally
bear (C-237/04 Sotacarbo [42])
- Supply of goods or services at a preferential rate (C-241/94 France),
- A reduction in social security contributions (C-75/97 Belgium v
Commission),
- Tax exemptions (C-6/97 Italy v Commission).
- Commission’s list of types of aid: direct subsidies, tax exemptions, exemptions
from parafiscal charges preferential interest rates, favourable loan guarantees,
the provision of land or buildings on special terms, indemnities against losses,
preferential terms for public ordering, the deferment of the collection of fiscal or
social contribution, and dividend guarantees (illustrative rather than exhaustive)
- Any economic benefit, which undertaking would not receive under normal market
conditions (Public tenders, construction of motorways etc)
- General measures of economic policy (interest rate reduction) and aid for general
infrastructure will not constitute aid within Art. 107 (C-143/99 Adria-Wien [35])
- This is a non-sectoral measures of general taxation policy remains within
the area of state fiscal sovereignty. (C-308/01 GI Insurance Ltd [78])
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