What is State Aid?
State Aid refers to forms of assistance from a public body, or publicly-funded body, given to selected undertakings (any entity which puts goods or services on the given market), which has the potential to distort competition and affect trade between member states of the European Union.
The European Commission monitors and controls State Aid in the EU. Member States are obliged to notify and seek approval from the Commission before granting State Aid. This gives the Commission the opportunity to approve or refuse to approve the proposed measure.
Why do I need to worry about this?
The Commission is obliged to order the recovery of any aid from the beneficiaries that has not been properly notified to and approved by the Commission and that is later found to be in breach of the rules. This involves repayment with interest to the public authorities that granted the aid, which could be devastating to firms awarded the aid. Money must be clawed back even if this means that the company concerned goes bankrupt.
For a helpful introductory guide to get up to speed on State Aid, please consult our beginners guide.
If you want more detailed guidance, you may find the State Aid guide for practitioners useful, also the Treasury published Risk Based Guide to State Aid.
Why have State Aid rules?
State Aid rules aim to ensure fair competition and a single common market. Giving favoured treatment to some businesses would:
- harm their business competitors and risk distorting the normal competitive market
- hinder the long-term competitiveness of the Community by propping up inefficient, aid dependent companies
- allow those Member States with the deepest pockets to favour their own industries.
That is why the European Community founding Treaty generally forbids State Aid, with certain exemptions. The State Aid rules contribute to the effective functioning of the Single Market and European Union economic reform in two key ways:
- They prevent State Aid that would seriously distort competition - thereby helping to achieve a fair market for businesses in all Member States.
- They allow State Aid that promotes economic development and other legitimate policy objectives, where this benefit outweighs any distortion of competition.
The European Commission guide, EU Competition Policy and the Consumer, contains a section on State Aid.
Our frequently asked questions guide may answer some questions you have.
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