State Aid - An Introduction

Paul McIlwraith

Scottish Government

State Aid Unit

Objectives

Introduce the concept of State aid Apply the State aid tests to assess your

projects If State aid present, awareness of how to

provide LEADER funds in a compliant way

State Aid Unit

Team of 10 (8 FTE and 1 secondee) Business Directorate SG Corporate resource

– Advice, awareness raising, liaison with DBIS/UKRep)

Industrial & Transport Also Scottish Enterprise, HIE, LAs Any public body with the authority to grant public

funding

SRDP (LEADER) and State Aid

Council Regulation (EC) No 1698/2005 – European Agricultural Fund for Rural Development

Numerous references to State aid

– E.g. Article 16(g), Article 70(8), Articles 88-89 Not clear on how to apply State aid rules – left to the individual

Member State/Managing Authority Clear that rules on competition may apply to rural development

projects, so an assessment must be made

Must adhere to State aid intervention rates

What is State Aid?

“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 internal market.”

Article 107(1) TFEU

The Five State Aid Tests

Member State/State resources Confers an advantage Selective Potential to distort competition Affect trade between Member States

Member State/State Resources

‘Member State’ - central government; devolved administrations; local authorities; agencies etc…

‘State Resources’ - directly or indirectly under the control (or at the disposal) of the state

Advantage

A benefit granted which lightens the burden normally assumed in an undertaking’s budget, that could not have been obtained under normal market conditions.

Grants Loans at below market rates Subsidised guarantee premiums Tax advantages: deferment; reductions; exemptions Provision of goods and services below market prices Purchase of goods and services above market prices

Undertakings

Any entity, regardless of its legal status, which is engaged in economic activity and where there is a market in comparable goods or services.

Economic activity means an activity which consists in offering goods or services on a given market and which could, at least in principle, be carried out by a private operator in order to make profits.

Social enterprises, charities, community trusts, etc

Selectivity

Geographical

Sectoral

Type of firm e.g. SME

Distortion of competition

Potential to distort is sufficient for this test to be met

Small amount of aid could lead to distortion

Effect on intra-Community trade

Most goods and services tradable

Commission interpret this test widely

Local trade argument difficult to make