© Łukasz Stępkowski 2016 For ll.b. - introduction to eu state aid law ADVANTAGE © Łukasz Stępkowski 2016 For ll.b. - introduction to eu state aid law

Advantage An advantage is one of the required components of a State aid measure Any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market Given it is a component of a State aid measure, the absence of an advantage in the sense of Article 107(1) TFEU renders the State aid regime inapplicable

Absence of an advantage for the purposes of Article 107(1) TFEU There is no advantage for the purposes of a State aid measure where: A measure works to the detriment of its addressee A measure is neutral to its addressee The measure confers an advantage, but said advantage is granted on normal market conditions

Detrimental measures In principle, should a measure be disadvantageous to the addressee, there is no advantage For this reason, self-standing taxes, levies, capital requirements, transparency obligations and other administrative burdens do not normally constitute aid However, a burden of that kind may constitute an advantage if it is more favourable than a general system For instance, a special tax for a certain category of undertakings which is lower than a general tax may be an advantage for the purposes of Article 107(1) TFEU

Neutral measures Measures that are either: Examples include : irrelevant for the purposes of State aid rules, or correct a market imbalance of some kind, which results in allaying a detriment of some sort to a ’zero’ Examples include : Members’ company rights (e.g. the right to withdraw from the company, C-237/04 Enrisorse) A grant for decontamination due to pollution of an industrial plot of land, where the owner is both not culpable for the pollution itself and has been unaware without fault on his part of the damage before buying the land at issue (C. Quigley, EU State aid law and policy, Oxford 2015, p. 24)

Advantageous measures Not every benefit is an advantage for the purposes of Article 107(1) TFEU In order for it to be so, the advantage has to be obtained not on market conditions An advantage that was obtained on market conditions is no State aid Examples include: A loan with a rate and collateral that are within range of those granted by market participants A guarantee with an appropriate market premium A capital injection where such an injection will lead to a greater return from equity Deferred payment or debt write-off, where it would lead to an overall greater percentage of claims having been paid A contract entered into with a party chosen over a public tender

Unmarketlike advantage For the purposes of Article 107(1) TFEU: „Whenever the financial situation of an undertaking is improved as a result of State intervention on terms differing from normal market conditions, an advantage is present”

Effects-based approach Only the effect of the measure on the undertaking is relevant, and not the cause or the objective of the State intervention the financial situation of the undertaking following the measure should be compared with its financial situation if the measure had not been taken Since only the effect of the measure on the undertaking matters, it is irrelevant whether the advantage is compulsory for the undertaking in that it could not avoid or refuse it

Effects-based approach, cont. As it is the norm with State aid measures, the form of an advantage is irrelevant Both positive measures and relief from burdens The existence of an advantage is not ruled out by the mere fact that competing undertakings in other Member States are in a more favourable position, because the notion of advantage is based on an analysis of the financial situation of an undertaking in its own legal and factual context with and without the particular measure

Assessing market conditions The Commission and the CJEU developed a tool for assessing whether a measure was „market-like” The tool is called a market economy investor principle (M.E.I.P.) or a market economy operator (M.E.O.) test A variation of the M.E.I.P. is the market economy creditor principle (M.E.C.P.), for when a State already acts as a creditor wishing to obtain the highest payment possible Further variation is found in the market economy vendor principle (M.E.V.P.), who wants a highest possible offer

Assessing market conditions, cont. The test is supposed to be carried out ex ante, ie. before the action to be taken, having regard to the information available at the time the intervention was decided upon only the benefits and obligations linked to the role of the State as an economic operator — to the exclusion of those linked to its role as a public authority — are to be taken into account

Methods of assessing market conditions pari passu investment competitive, transparent, non-discriminatory and unconditional tenders benchmarking expert valuation

Pari passu investment A method establishing direct evidence that an activity would be carried out on market conditions When a transaction is carried out under the same terms and conditions (and therefore with the same level of risk and rewards) by public bodies and private operators who are in a comparable situation The ‘pari passu’ condition may not be applicable in some cases where the public involvement (in view of its unique nature or magnitude) is such that it could in practice not be replicated by a market economy operator

Tender If an activity is carried out by way of a tender, the existence of aid is in principle excluded However, tender procedure has to be competitive, transparent, non- discriminatory and unconditional All interested parties are to be allowed to participate No „secret” or „special” rules for certain bidders No conditions that the buyer is to assume special obligations for the benefit of the public authorities or in the general public interest, which a private seller would not have demanded Using EU Public Procurement provisions generally is sufficient to exclude aid

Benchmarking If there is no pari passu investment and/or tender rules do not apply, benchmarking may be used to establish „market-likeness” Evidence of a genuine market measure within the projected parameters is strong evidence for market character of the aid measure Examples include: Loans with rates and due dates within parameters utilised by financial institutions Guarantee with a premium used by the financial sector

Expert valuation Independent experts may be called upon to assess the transactions, esp. where the projected measure is complex Experts should act on the basis of a generally-accepted, standard assessment methodology

Advantage and the amount of aid While advantage is required for the existence of aid and influences the amount of it, there is no requirement that the amount of a given advantage should directly correspond either to the amount of any transfer of funds or the amount of aid itself Even if the Commission must establish a sufficiently direct link between, on the one hand, the advantage given to the beneficiary and, on the other, a reduction of the State budget or a sufficiently concrete economic risk of burdens on that budget, it is not necessary that such a reduction, or even such a risk, should correspond or be equivalent to that advantage, or that the advantage has as its counterpoint such a reduction or such a risk, or that it is of the same nature as the commitment of State resources from which it derives (C-399/10 P and C-401/10 P Boygues, EU:C:2013:175, para 110).

Direct and indirect advantages While the primary „mode of application” for advantage is that of a direct benefit, it may be that a measure would grant indirect advantages to other entities than its primary addressee For instance, if an aid programme is designed in such a way as to funnel State benefits to intermediaries dispensing aid, those entities receive indirect advantage and are in themselves beneficiaries – especially where there was no public, competitive, transparent and unconditional tender procedure