What is State aid?

State aid rules apply only to measures that satisfy all of the criteria listed in Article 107(1) of the Treaty on the Functioning of the European Community (TFEC), respectively:

(a) Transfer of State resources

State aid rules cover only measures involving a transfer of state resources (including national, regional or local authorities, public banks and foundations etc.). Furthermore, the aid does not necessarily need to be granted by the State itself. It may also be granted by a private or public intermediate body appointed by the State. The latter could apply for example in cases where a private bank is given the responsibility to manage a state funded SME aid scheme.

Financial transfers that constitute aid can take many forms: grants or interest rate rebates, loan guarantees, accelerated depreciation allowances, capital injections, tax exemptions etc.

(b) Economic advantage

The aid should constitute an economic advantage that the undertaking would not have received in the normal course of business. Less obvious examples of transactions satisfying this condition are given below:

• A firm buys/rents publicly owned land at less than the market price;

• A company sells land to the state at higher than market price;

• A company enjoys privileged access to infrastructure without paying a fee;

• An enterprise obtains risk capital from the State on terms which are more favourable than it would obtain from a private investor.

(c) Selectivity

State aid must be selective and thus affect the balance between certain firms and their competitors. “Selectivity” is what differentiates State aid from so-called “general measures” (namely measures which apply without distinction across the board to all firms in all economic sectors in a Member State – most nation-wide fiscal measures).

A scheme is considered “selective”, if the authorities administering the scheme enjoy a degree of discretionary power. The selectivity criterion is also satisfied if the scheme applies to only part of the territory of a Member State.

(d) Effect on competition and trade

Aid must have a potential effect on competition and trade between Member States. It is sufficient if it can be shown that the beneficiary is involved in an economic activity and that it operates in a market in which there is trade between Member States.

The nature of the beneficiary is not relevant in this context (even a non-profit organization can engage in economic activities).

The Commission has taken the view that small amounts of aid (de minimisaid) do not have a potential effect on competition and trade between Member States. It therefore considers that such aid falls outside the scope of Article 107(1) of the TFEC.

NEW! Communication from the Commission – Notice on the notion of State aid