State Aid - State Resources

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State aid - State resources

1. What are the key issues concerning the finding of State resources

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State resources
- Cost to State (in any form whatsoever)
- Inherence in system
- Parafiscal levies
- Access to State-controlled resources
Imputability
- Possibility to control
- Exercise of control
Community resources

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State aid - State resources

2. When does a measure have a cost to the State?

Back 2

Any burden on the public budget
- govt, admin, public companies

In any form whatsoever
- grants, guarantees and wavers

Hint 2

Wide Interpretation
- reference to purpose, not formal criteria (Air France)
Public budget
- Also by administrative bodies, not necessarily the government (Air France)
- Also by public companies or private bodies (Stardust), but imputability!
Burden
- Actual Expenditures: Grants, overpriced purchases, etc.
- Potential expenditures: Guarantees, etc.
- Foregone revenues: tax reduction, social security contribution reductions, dept waivers, underpriced sales, etc.

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State aid - State Resources

3. When do measures not constitute State resources even though they have a cost to the State?

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Cost to the State no State resource if
- Negative impact inherent in the system and
- System does not seek advantage.

Landmark judgement Sloman-Neptun.

Hint 3

Sloman-Neptun:
German shipping company employs Filipinos and applies to international shipping registry to evade social security charges.
Seebetriebsrat argues illegal State aid (foregone social security/tax revenues) and refuses registration.
Court finds no State resource: Losses are inherent to inscription in international shipping registry and rules governing inscription do not seek to create an advantage for undertakings concerned.

Kirsammer-Hackr:
Exclusion for small businesses from system of protection against unfair dismissal).

Viscido:
Transitional exemption for Poste Italiane from obligation to recruit under contracts of indeterminate duration.

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State aid - State Resources

4. What are the key issues with regard to the finding of State resources when a measure seems to be financed through parafiscal charges?

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'- Existence of parafiscal charge and
- Indissoluble link (integral part of measure), if so:
- Parafiscal levy compatible (Art.30,110)?
- Financed measure compatible (Art.107ff)?
- Combined effect compatible?
- Obligation to inform about financing!

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State aid - State Resources

5. What is a parafiscal charge?

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A parafiscal charge is a compulsory tax or charge
which is leveid by a public or private organisation
on the production or marketing fo certain products or services
in order to finance activities benefiting the whole or part of the professional sector concerned.

Hint 5

Difference to tax:
- the revenues do not enter the general budget but are 'earmarked' for the special purpose

Difference to fee:
- the revenues are levied on production and marketing of goods or services and are not a payment for an administrative service of the State.

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State aid - State Resources

6. When is there an indissoluble link between the levy and the aid measure and what is the consequence for the State aid assessment?

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Indissoluble link if levy is an integral part of the measure

This is the case when the levy is hypothecated to the measure (i.e. aid amount depends solely on revenue from levy)

Consequence: Commission checks compatibility of levy!

Hint 6

Nazairdis, formerly Casino (C-2666/04):
French law established tax on retail stores destined for the support of self-employed craftsmen and traders for i.a. i) cessation payments and ii) old-age insurance scheme.
The claimants (Casino) took action before the Cours d'Appel de Lyon arguing that measures financed by the tax constitute illegal State aid and that tax should be reimboursed. The French court asked ECJ whether method of financing (tax) constituted an integral part of the measure (support of old craftsmen).
ECJ ruled that tax is not integral part of the measure (C-174/02 Streekgewest) because it cannot be hypothecated to it: "the amount of payment actually made is not dependent on the revenue from the tax, but ... determined by ministerial order [with disrection enjoyed by the Ministers and] on the basis of factors [independent from the amount collected]"

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State aid - State Resources

7. How did the Commission assess parafiscal levies levied by an intermediary body before and after the Pearle judgement?

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Before:
- every revenue (of a professional body) from a contribution made mandatory by the State is a State resource.

After:
- No State resource if no State interference in professionals body's decision (i) on objective and design of financed measure (ii) on the collection of the funds (methods and rates), (iii) on distribution of funds and (iv) funds are obligatorily used for financing fo the measure without the possibilty of state intervention (redundant).

Hint 7

Pearle C-345/02
Dutch law gives professional bodies the right to levy parafiscal charges. In Pearle a professional body responsible for opticians imposed a compulsory earmarked levy on its members to finance a advertising campaign. Pearle (the appelant) took legal action arguing that the measure (financing of advertising campaign) constituted illegal State aid and that the levy to finance it was thus unlawful and had to be repaid. The Dutch court refered the question to the ECJ for preliminary ruling.
The ECJ ruled that revenues from levy made compulsory by law is still no state resource if
(i) objective is deterimed by professional body and not the State (esp. commercial purposes and no government policy);
(ii) methods and rates of contribution are established by professional body and not by State or law which makes parafiscal levy compulsory
(iii) the methods and ways of spending are established by professional body and not by State or law which makes parafiscal levy compulsory
(iv) no co-financing by the State or any other room for State intervention in the measure.
Mind that this check could also be done in the context of ‘imputability’ (i.e. control over funds and exercise of such control).
However: the Commission – in spite of Pearle – continued its practice and nearly always found that revenues from parafiscal levies consitute State resources (notable exception NN136/2003 Belgian Sectoral Funds Scheme).

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State aid - State Resources

8. When is a parafiscal charge incompatible with the TFEU (other than State aid reasons) and how can such an incompatibility be remedied?

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Parafiscal levy illegal if
- Illegal custom duty (Art. 30 TFEU) or
- Discriminatory tax (Art. 110 TFEU)
- e.g. levy is raised on imported electricity but aid is only granted to domestic sector.

Result:
- if levy is integral part of measure (van Calster/ Nazairdis) then measure is incompatible, too.

Remedy
- Possibility for importers to apply for reimbursement usually based on certificates of origin.

Hint 8

Mind: Even if parafiscal levy and financed measure are compaitble the combined effect could still be incompatible.

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State aid - State Resources

9. What happens to (compatible) parafiscal levy if State aid measure which it serves to finance is incompatible with State aid rules?

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Result:
- if levy is integral part of measure (van Calster/ Nazairdis) then levy is incompatible, too.
- National courts must order reimbursement of levy (Van Calster).

Hint 9

Van Calster C-266/01
Van Calster sells and buys cattle some of which is exported. Belgian law imposed compulsatory levy on the sale of each cattle payable to a fund for improving animal hygiene and health at the level of the producers (cattle farmers). Both the levy and the measure at such were established in 1987 but had been declared incompatible by the Commission. A revised version of the scheme was set up, notified and approved
The Court decided that the aid scheme

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State aid - State Resources

10. When can the combined effect of a (compatible) parafiscal levy and a (compatible) State aid measure still be incompatible with the TFEU?

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The combined effect of a compatible levy and compatible aid can be incompatible with the TFEU if both foreign and national producers pay levy but only national producers profit from aid.

Hint 10

Example: non-discriminatory tax on (imported) products finances research benefiting mostly domestic producers. Reasoning: Imported products hit twice by levy on product and by aid for competitors.

Solution: A priori Commission rejects such schemes (Greek cotton) but Member States can
- exempt imported products from levy OR
- extend aid advantages to foreign producers.

Exception: In Danish pesticides levy on pesticides financed measure against (!) pesticides, so no benefit for pesticide producers.

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"State aid - State Resources

11. When notifying a State aid measure, do Member States have an obligation to inform the Commission about the means of financing this measure?"

Back 11

Yes, Member States are obliged to inform about financing (Commission v France).

Otherwise Commission could not assess compatibility of levy and combined effect.

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Scope - State Resources

12. When does the granting of permits or licenses (exclusive rights) constitute State aid?

Back 12

When permits and licenses are granted at little or no charge as this constitutes foregone revenues for the State.

Hint 12

Court judgments in French Highways, SFTRF, ATMB, DK/UK ETS

Critic: Excessive limitation of policy choices other than profit (e.g. lower charge can support new players/ more competition).

Court: No State aid if no/low charge inherent in the system (Banks) AND equal treatment of all applicants (Bouyges)

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State aid - State Resources

13. How can the problem of cheap/free permits/licences be solved under State aid rules?

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1. Inherence in the system + equal treatment of applicants (Bouyges) - no State resources
2. Tender (Altmark) – no advantage
3. SGEI - compatible under Art. 106 (2)
4. Regular State aid - compatible under Art. 107 (3)

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State aid - State Resources

14. The landmark judgement on imputability was on the Stardust case. What was the case about, what did the Commission decide and what did the Court rule?

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Altus and CDR (both subsidiaries of publicly owned Crédit Lyonnais) grant capital injections to Stardust (subsidiary of Altus).

Commission: Public undertaking = Potential control = State aid.

Court: Possibility of control + exercise of control (mere potential control does not sufficient).

Hint 14

However, the Court also ruled that as regards need for evidence of exercise of control public indicators suffice (concrete proof too difficult due to privileged relation between State + public undertaking).

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State aid - State Resources

15. As regards imputability, what are the different levels of evidence needed when State aid is granted by (i) the State, (ii) a public undertaking or (iii) a private undertaking?

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State/public administration (no evidence)
- Possibility to control - obvious
- Exercise of control - obvious

Public undertaking (evidence partly needed)
- Possibility to control - obvious
- Exercise of control - evidence needed

Private undertaking (evidence needed)
- Possibility to control - evidence needed
- Exercise of control - evidence needed

Hint 15

General rule: The closer link to State, the less proof needed! The further away from the State the more proof is needed!

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State aid - State Resources

16. As regards imputability, what are the indicators for (i) the possibility to control and (ii) the exercise of this control? What is the general rule?

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Possibility to control
- Organic links (e.g shareholder rights)
- Regulatory links (e.g. permits)

Exercise of control
- Direct evidence (e.g. written orders)
- Circumstantial evidence (e.g. rules of control)
- Indicators (e.g.private investor test)

Hint 16

Organic links are shareholder rights, appointment of board members, integration public administration,…
Regulatory links are permits, licenses, …

Direct evidence is written orders, protocols, ...
Circumstantial evidence is rules of control, press releases, comments of politicians,...
Indicators are degree of control, involvement in the past, commercial interest/private investor test, etc.

General rule: The closer link to State, the less proof needed!

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State aid - State Resources

17. Are community funds State resources? What did the Court rule on structural funds and on what criteria relies today’s practice?

Back 17

Court on structural funds
(-) Levy was paid entirely from Community funds.

Today’s practice
(+/-) depending on level of control

Hint 17

Court on structural funds (-), Norddeutsche Vieh- und Fleischkontor: Levy was paid entirely from Community funds. Mind context: Regulation imposed compliance with and public co-financing (additionality) made whole measure subject to State aid rules anyway. Problem: What if only private co-financing?

Today’s practice (+/-) depending on level of control
- 7th R&D Framework programme (-) only Commission decides
- European Globalisation Fund (+) Member States implements (but mind that money flows directly to employees, thus no State aid!)
- European Fisheries Fund and European Agricultural Fund (-) because State aid rules explicitly not applicable to MS co-financing, thus even less for EU funds.
- European solidarity fund (+) Member States selects beneficiaries
- Cohesion fund and structural funds (i.e. European Regional Development Fund and - European Social Fund) (+) since 2007 MS implements (only informs EU)
- EEA/Norway financial mechanism (+) same system as structural funds but – on top – State aid rules explicitly apply!

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State aid - State Resources

18. What are the key issues to be assessed when the measure is financed by the State (refinancing, funding, spending)?

Back 18

State refinancing:
- no problems

State funding:
- Negative impact inherent, i.e. inavoidable side effect of system (?)
- Special or exclusive rights (?)

State spending:
- Positive impact inherent, i.e. system does not seek advantage (?)
- Special or exclusive rights (?)

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State aid - State Resources

19. What are the key issues to be assessed when the measure is financed by the a public undertaking (refinancing, funding, spending, case)?

Back 19

State refinancing:
- Parafiscal charge (?)

State funding:
- Negative impact inherent, i.e. purpose (?)
- Potential to control, i.e. imputability (+)

State spending:
- Positive impact inherent, i.e. system does not seek advantage
- Exercise of control

Hint 19

Cases: Stardust

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State aid - State Resources

20. What are the key issues to be assessed when the measure is financed by the a private undertaking (refinancing, funding, spending, cases)?

Back 20

State refinancing:
- Control over refinancing (?)
- Parafiscal charge: levy compatible (?)

State funding:
- Negative impact inherent, i.e. purpose (?)
- Potential to control, i.e. imputability (?)
- Parafsical charge: indisoluble link (?)

State spending:
- Positive impact inherent, i.e. purpose (?)
- Involvement in decision, i.e. imputability (?)
- Parafiscal charge: aid incompatible (?) (van Calster)

Hint 20

Cases: Pearle, Preussen (no control over refinancing), Sloman Neptun (negative/positive impact inherent)