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State Aid

18 August 2009
by inadim -- last modified 18 August 2009

The objective of EU state aid control is, as laid down in the founding Treaties of the European Communities, to ensure that government interventions do not distort competition and intra-community trade.


State aid is defined as an advantage in any form whatsoever conferred on a selective basis to undertakings by national public authorities. Therefore, subsidies granted to individuals or general measures open to all enterprises are not covered by Article 87 of the EC Treaty and do not constitute State aid.

The EC Treaty pronounces the general prohibition of State aid. The founders, however, saw of course that in some circumstances, government interventions are necessary for a well-functioning and equitable economy. Therefore, the Treaty leaves room for a number of policy objectives for which State aid can be considered compatible. By complementing the fundamental rules through a series of legislative acts that provide for a number of exemptions, the European Commission has established a worldwide unique system of rules under which State aid is monitored and assessed in the European Union. This legal framework is regularly reviewed to improve its efficiency and to respond to the call of the European Councils for less but better targeted State aid in order to boost the European economy.

While new legislation is adopted in close cooperation with the Member States, the application of exemptions to the general prohibition of State aid rests exclusively with the European Commission, which possesses strong investigative and decision-making powers. At the heart of these powers lies the notification procedure which -except in certain instances- the Member States have to follow. It is only after the approval by the Commission that an aid measure can be implemented. Moreover, the Commission has the power to recover incompatible State aid.

Through these means, four Directorate-Generals are carrying out effective State aid control: while sector-specific services safeguard fair competition in Transport (aid to companies in the road, rail, inland waterway, sea and air transport sectors), Coal, Fisheries (the production, processing and marketing of fisheries and aquaculture products), and Agriculture (the production, processing and marketing of agricultural products), DG Competition deals with all other sectors.

The Commission aims at ensuring that all European companies operate on a level-playing field, where competitive companies succeed. It ascertains that government interventions do not interfere with the smooth functioning of the internal market or harm the competitiveness of EU companies.

Companies and consumers in the European Union are also important players who may trigger investigations by lodging complaints with the Commission. Furthermore, the Commission invites interested parties to submit comments through the Official Journal of the European Union when it has doubts about the compatibility of a proposed aid measure and opens a formal investigation procedure.

What is State Aid?

A company which receives government support obtains an advantage over its competitors. Therefore, the EC Treaty generally prohibits State aid unless it is justified by reasons of general economic development. To ensure that this prohibition is respected and exemptions are applied equally across the European Union, the European Commission is in charge of watching over the compliance of State aid with EU rules.

As a first step, it has to determine whether a company has received State aid, which is the case if the support meets the following criteria:

  • there has been an intervention by the State or through State resources which can take a variety of forms (e.g. grants, interest and tax reliefs, guarantees, government holdings of all or part of a company, or the provision of goods and services on preferential terms, etc.);
  • the intervention confers an advantage to the recipient on a selective basis, for example to specific companies or sectors of the industry, or to companies located in specific regions;
  • competition has been or may be distorted;
  • the intervention is likely to affect trade between Member States.

By contrast, general measures are not regarded as State aid because they are not selective and apply to all companies regardless of their size, location or sector. Examples include general taxation measures or employment legislation.

Source: European Commission