State Aid Relevant Information

State aid-relevant information

State Aid – relevant information

State aid appears when the recipient of project funding is an undertaking. The term "undertaking" is used in this context in a wide sense:ANY entity which exercises an activity of an economic nature and which offers goods and services in competition (actual or potential) with other operators active in the market. This includes all private and public entities and the entirety of what they produce. In this respect, it is not the legal aspect (public or private) but the nature of the activities that the partnership intends to implement that determines whether the state aid discipline has to be respected or not.

Also, if an entity is not profit-oriented, state aid rules will apply as long as that entity competes with companies that are profit-oriented. Therefore, not only companies/economic operators are subject to state aid rules but also public authorities and non-profit organisations, if they carry out an economic activity on a given market.

Given that, in general, if other criteria are met, affecting trade between Member States is presumed to be automatically fulfilled and given that the measures are selective due to the mechanism of the Programme, there are the prerequisites that state aid incidence could occur.

In reference to economic advantage criterion, in order to clarify the distinction between economic and non-economic activities, the European Court of Justice ruled constantly that any activity consisting in offering goods and services on a market is an economic activity. An economic activity can exist where other operators are willing and able to provide these services on the market concerned.

An indirect advantage may also be granted (indirect state aid) if the funds received by entities which are direct beneficiaries of the Programme are channelled to identifiable undertakings/groups of undertakings (e.g. if the funds received by a direct beneficiary are used for building up infrastructure that is to be used for economic activities and the operation of this infrastructure is not granted through open, transparent and unconditional public procurement procedure that has been sufficiently publicized , or if the funds are used by the beneficiary in order to train the employees of certain undertakings and does not pay market price for that, so it has an advantage etc.).

In reference to effect on competition and trade criterion, public support can be considered capable to affect intra-EU trade even if the recipient is not directly involved in cross-border trade. For instance, the subsidy may make it more difficult for operators in other Member States to enter the market by maintaining or increasing local supply.

Please note that in order to analyse distortion of competition, this competition can be real, potential but not hypotethical and it is not influenced by the volume of activity.

In order to prove that activities have local character, the applicant is invited to have a look over the specific requirements in this respect foreseen in the document called “State aid – documents to be provided and assessed”, attached to the current guide.

Considering the activities financed under the current call, activities for which the beneficiaries do not act as economic operators and for which there are no considerations to assume that the competition will be distorted, the projects shall not be subject to state aid rules.

To this end, the following provisions shall be fulfilled by each project:

All expenditure must be made according to the relevant laws on public procurement procedure in force in Romania and in Hungary, at the time of the grant award. This condition applies to all partners (e.g. public administration bodies, NGOs). For direct public procurements, the market price level is to be observed and considered.
The project must not create an economic advantage to an economic operator/undertaking. The undertakings are defined as entities engaged in an economic activity, regardless of their status and the way in which are financed. The classification of a particular entity as an undertaking thus depends entirely on the nature of its activities. This general principle has three important consequences:

➢First, the status of the entity under national law is not decisive. For example, an entity that is classified as an association or a sports club under national law may nevertheless have to be regarded as an undertaking within the meaning of Article 107(1) of the Treaty. The only relevant criterion in this respect is whether it carries out an economic activity.

➢Secondly, the application of the state aid rules as such does not depend on whether the entity is set up to generate revenue.

➢Thirdly, the classification of an entity as an undertaking is always relative to a specific activity. An entity that carries out both economic and non-economic activities is to be regarded as an undertaking only with regard to the former. Any activity consisting in offering goods and services on a market is an economic activity.

A service that is reimbursed at market price valueis not conveying an advantage.
All studies or other results and/or outputs of the projects shall be made available for free, to all interested individual or legal persons, in a non-discriminatory way.

The training activities to be developed at project level will consider the following issues in order to avoid state aid:

If a project provides for training activities, the selection of the company that will carry out these activities will follow the tender procedure mentioned above. This holds true including for the partnership project in the sense that this partnership is not allowed to supply training services and it has to be selected within the tender;
From the viewpoint of the participants in the training activities, the following situations are recommended: a) either they participate on individual bases, as natural persons, free of charge or at the market price, b) or they will pay the course at the market price if they do not participate as individuals;
Regarding the training announcement, the following is recommended: this will be disseminated within the eligible area and also on the web site of the ProgrammeInterreg V-A Romania – Hungary;
Regarding the documents and /or hand-outs for training purposes: these will be published on the programme wb site (at least an executive summary of the respective documents and /or hand-outs for trening purposes).
According to Point 39 of the DRAFT Commission Notice on the notion of State aid, ’If an infrastructure is used for both economic and non-economic activities, public funding will fall under the State aid rules only insofar as it covers the costs linked to the economic activities. When it is possible to separate the costs and revenues corresponding to the economic and non-economic activities, the State aid rules shall only apply with regard to the State support granted in excess of the amount covering the costs of the non-economic activities.’ Point 40 of the DRAFT Commission Notice on the notion of State aid explains the meaning of ‘ancillary economic use’: ‘If, in cases of mixed use, the infrastructure is used almost exclusively for a noneconomic activity, its funding may fall outside the State aid rules in its entirety, provided the economic use remains purely ancillary, i.e. an activity which is directly related to and necessary for the operation of the to its main non-economic use. In general, such ancillary activities consume the same inputs as the primary non-economic activities; e.g. material, equipment, labour, fixed capital. Ancillary economic activities must remain limited in scope, as regards the capacity of the infrastructure. Examples of such ancillary economic activities may include certain research organisations that occasionally rent out their equipment and laboratories to industrial partners.’

Making the project results available only for certain natural or legal persons is strictly forbidden!

The existence of state aid is excluded where the State acts by exercising public prerogativeor where State authorities act in their capacity as public authorities. Any entity may be deemed to act by exercising public prerogatives where the respective activity is a task that forms part of the essential functions of the State or is connected with those functions by its nature, its aim and the rules to which it is subject.

Examples in this respect are as follows:

a.army or police;

b.air traffic safety and control;

c.maritime transport safety and control;

d.antipollution surveillance; as well as

e.organisation, financing and executionof prison sentences.

Generally speaking, unless the Member State concerned has decided to introduce market mechanisms, activities that intrinsically form part of the prerogatives of official authority and are performed by the State do not constitute economic activities.

Thus, the state aid rules do not apply where the State is carrying out a non-economic activity in its capacity as a public authority.

Useful guidance as to what constitutes a non-economic activity can be found in the Commission’s Communication on Services of General Economic Interest. The document is available at the following link:

Matters which are intrinsically the prerogative of the state (such as air traffic control) are not of an economic nature; national education and basic social security schemes are fulfilling a social function; and other activities where the function is social rather than commercial.

Nonetheless, whenever market mechanisms have been introduced into activities which intrinsically form part of the prerogative of the state, state aid law is applicable (for further reference please seeCourt judgment in the Leipzig-Halle airport case).

Regarding the tender procedure, we present the necessary elements to be considered:

An open procedure

Favoring an undertaking may be excluded if the public authority acts in the same way as a private investor, namely, if the private investor paid the market price for that infrastructure. The market price is presumed if the private partner is selected through an open, transparent and non-discriminatory tender procedure. In particular, if the provisions of national and Community public procurement laws are followed, it can be avoided for the tendering procedure to involve state aid. An open, transparent and non-discriminatory tender procedure, favors a fair competition for winning a contract and ensures an objective selection of the best offer. The conditions regarding an open, transparent and non-discriminatory tender procedure apply even outside the scope of the Community rules on public procurement, namely, below the thresholds provided for by law.

The requirement regarding an open procedure should not be confused with the open tendering procedure according to the law on public procurement. In this case, this principle should be interpreted as opening up towards the competition through an appropriate degree of publicity so that all stakeholders can participate in the tender.

For particularly complex projects "competitive dialogue" may apply, where the public authority is objectively unable to define the technical means best suited to its needs, or the legal and financial shape of the project.

The transparency

Regarding the transparency of the selection procedure, this means that all tenderers must have access to all relevant information, such as procedures, deadlines and selection criteria. The level of advertising that ensures the participation of all interested parties to submit an offer depends on the value of the contract. If there is potential interest regarding the project on behalf of other Member States, national advertising is not enough. The selection criteria should not be discriminatory, favoring certain tenderers, namely, local tenderers.

A non-discriminatory procedure

Non-discrimination refers to the equal treatment of tenderers, whether they belong to other Member States, or the country of origin. The award criteria must not discriminate in favor of local suppliers and regarding the conditions and obligations relating to the awarding of the contract. Equal treatment should be given in all matters of fact and law regarding the offer.

Unconditional character is generally meant to exclude any form of discrimination with regard to the character of the undertaking, other than those required by public order, environmental and urban planning requirements. However, an obligation attached to the awarding of the contract is not a discriminatory requirement if all potential stakeholders are able and obliged to fulfill.

It is necessary to take into account that the call for projects proposals is not considered a tender within the meaning of the above mentioned aspects.

Indirect aid (aid to third beneficiaries)

It may also be that project partners grant state aid to third parties outside the project partnership. This is because other undertakings (i.e. entities engaged in economic activities) not included as project partners in the project partnership (e.g. associated organisations, target groups, etc.) could receive an advantage through the project’s activities that they would not have received under normal market conditions. And this implies that they could be recipient of State aid.

It is worth mentioning, that even though the project beneficiary does not perform state aid relevant activities in the project thus at its level it does not mean state aid but its activities could mean an advantage for third parties outside the project partnership.

Therefore, when completing the state aid self-assessment and preparing the Full Application Form, each applicant must also consider whether its activities will give rise to state aid to third parties.

Where a beneficiary provides State aid to end users, it will be necessary for the project beneficiary providing the advantage to calculate the value of the supportive activities.

Then, consideration should be given to eliminating any Stateaid element, for instance, by charging a market price for that particularitem.