Important State aid rules

State aid rules and regulations are both comprehensive and complex. To bring about some clarity, we have singled out the most important rules and will describe them over the following pages. Since the EU Rules are the ones most frequently applicable, we will take them for our basis.

The Rules will be explained in the three main categories into which a State aid process can typically be divided:



CONSIDERATION, DESIGN, AND ARRANGING OF AID

When is a measure to be regarded as State aid?

There are a number of criteria which all must be met in order for a given measure to qualify as State aid at all:

1. Imputability to the State and financing through State resources (public sector funding)
The principle of imputability is about the aid measure being imputable to the State (or other public-sector bodies, e.g. municipalities and regions), meaning that the decision to grant must have been made by such authority.

The criterion that the aid must be financed through State resources means the aid must be granted out of public funds (not just State resources, but also resources of intra-State entities like municipalities or regions). Aid can be direct (as in a good old ‘bag of money’) or indirect. Indirect State aid could be, for example, the granting of a tax benefit, duty exemption, etc., or where an authority elects to sell a public property below market value to a private undertaking. It is, therefore, a broad category, where the important element is whether any funds go out of the public ‘treasury’.

2. Selective economic advantage
The selectivity criterion is about whether the scheme only aids some enterprises (or sectors) among a larger target group (often a group of competitors), i.e. where X benefits, but Y and Z do not.

The criterion that the aid must confer an economic advantage implies that the recipient must achieve some sort of financial gain, directly or indirectly, which could not have been achieved on normal market conditions. This means the aid will qualify as an economic advantage only if it goes beyond what the recipient could have achieved on normal market conditions, e.g. by raising a loan in the bank or attracting new investors as an alternative to receiving the aid. See the fact box [til højre] for an elaboration of these economic considerations.

3. Effect on competition
The criterion of an effect on competition (the so-called ‘appreciability test’) means the aid must distort or potentially distort competition on the market.

4. Effect on trade
The effect on trade criterion is used only under the EU Rules. It is a relatively low threshold, but the decisive factor is whether the aid could potentially or does in fact affect a market which is not merely national in scope.

For all practical purposes, since the effect on trade criterion is used only under EU Rules, it will be the assessment of whether there is an effect on trade or not (see above) that decides if the EU Rules or the Danish Rules will apply. The other assessments of the measure will be largely the same under both sets of rules.

The European Commission has published a Notice on the notion of State aid as a practical tool for assessing the above criteria. The Notice offers general guidelines and concrete examples, but is not binding on the Commission, nor on the national authorities. Ultimately, the final interpretation of the rules falls to the European Court of Justice, hearing the cases brought before it.

The possibility of granting aid without prior approval
If a measure is found to constitute State aid, there are basically two ways of granting it without the need for approval under State aid rules. Any granting of aid under these two exemptions, however, require compliance with a number of formal requirements. One of the most important requirements - for aid granted under the block exemption - calls for registration with the European Commission (if the EU Rules apply). State aid rules cannot, therefore, be entirely disregarded simply because the aid falls under any of these two exemptions.

De minimis aid
If the aid is below a certain threshold, it will generally be presumed to not affect competition on the market. It will then qualify as so-called de minimis aid, not subject to the State aid rules. Aid may be granted under the de minimis rules if the aggregate amount is EUR 200,000 or less over a period of three financial years per recipient (all government assistance received will be accumulated). Additionally, there are special rules for certain sectors. Aid granted under the de minimis rules is based on ‘statements of truth’ and therefore not required to be registered - instead, the undertakings guarantee the correctness of the statements.

Block exemption
Aid may also fall under the rules of the so-called block exemption, in which case it will be considered compatible with the market. Aid falling under the block exemption will therefore be considered “pre-approved”. Recently extended, the block exemption now allows for aid to e.g. ports, airports, etc., but there are also a number of sector-specific block exemptions, for example within the area of fisheries and aquaculture. Common for all, however, is that there are for each aid category a number of requirements to be met in order for the aid to be comprised.

APPROVAL AND IMPLEMENTATION

Elements in the compatibility assessment

The compatibility assessment is known also as the balance test. It involves a balancing of the positive and negative effects that an aid measure (i.e. a measure which constitutes State aid under the criteria) is expected to entail.

As for the positive effects, special importance is attached to the purpose of the aid, including whether the aid measure is suitable for its purpose and whether it is proportionate (i.e. is it adequate for its purpose or is it excessive?). Another key element is that State aid will be allowed if it serves to correct market failure (also called incentive effect), as in the case of, for example, the so-called regional aid programme, which permits aid for the purpose of reviving periferal regions.

As for the negative effects, special importance is attached to the distorting of competition that the aid may cause. This might be in relation to other enterprises who are in direct competition with the recipient and will be at a disadvantage, which will ultimately reduce the product range to the detriment of consumers.

The balance test is done by weighing the positive and negative effects against each other. The test is best done if it is possible to quantify both the positive and the negative effects in monetary terms, which is, to a wide extent, an economic exercise. If the positive effects significantly outweigh the negative, the aid will be compatible with the market.
Intended to prevent any unnecessary distortion of competition, the compatibility assessment is closely linked to the overall objective of EU law to avoid local favouritism, so-called protectionism.

ECONOMIC STATE AID LAW

Many elements of State aid law are of a decidedly economic nature Parts of the balance test certainly are, not least the test applied to decide if a given measure entails an economic advantage, which is a precondition for qualifying as State aid in the first place.
Known as the ‘market economy operator’ (MEO) test, the test seeks to determine whether a public or private enterprise has been awarded an economic advantage compared to what it (or, in theory, a corresponding enterprise in a corresponding market) would have been able to obtain under normal market conditions. The idea behind the MEO test is that an aid measure entails an economic advantage only if it offers something more than a market economy operator - say, a bank or an investor - would offer under normal market conditions.

In practice, therefore, a public authority can take precautions to not award an economic advantage by not purchasing at a price above the market price under normal market conditions and by not setting sales prices below market value under normal market conditions.

An economic advantage may also exist outside normal buy or sell situations. e.g. where the advantage consists of issuing guarantees on favourable terms, lending of funds on favourable terms of interest, letting of premises below market rent, or setting a low transfer price. In the context of State aid, the definition of ‘economic advantage’ is broad.

In practice, establishing the relevant market price may be difficult. It is important to see if a price can be established, for example, on the basis of the market price of a comparable service. If this is not feasible, another way of determining the market price might be to enlist the aid of one or more independent experts. These might be experts who can assess what the cash price or rent payable for a given building would be on normal market conditions.

AFTER AID IS GRANTED

Complaints over State aid decisions

Decisions by the European Commission can be appealed to the General Court and, ultimately, to the Court of Justice of the European Union.

Decisions by the Danish Competition and Consumer Authority can be appealed to the Danish Competition Appeals Tribunal and, ultimately, to the courts.

Before lodging a complaint, one should consider how best to substantiate and document the complaint, legally and economically.

Repayment

In some cases, there may be, for the granting authority and the recipient alike, a risk of repayment, which, if materialised, can have grave consequences for both, and for the projects on the receiving end of the aid.

For aid implemented too early (illegal State aid) but subsequently approved (compatible State aid), market interest (so-called “illegality interest”) will be payable for the period in which the aid was unlawfully implemented.

For aid implemented too early (illegal State aid) and not subsequently approved (incompatible State aid), the full amount must be repaid, including interest (and compound interest) for the period from granting until repayment is made.

The applicable interest levels are adjusted regularly to reflect developments in the general economy, but in both cases the amounts may be substantial. It is important, therefore, to clarify as early on as possible whether notification is required and whether the aid is compatible.

Under the Danish Rules, repayment of aid always goes to the State, whether the funds were granted out of a municipal or regional budget or not. At this point, it is uncertain whether aid granted under the EU Rules is repayable to the granting authority or to the State.