State aid

A general guide to assist you in identifying whether State aid may arise on any projects that you are working on.

This section of the portal is intended as a general guide to assist you in identifying whether State aid may arise on any projects that you are working on. It is not intended to be a definitive guide, and we strongly encourage you to seek legal advice if you suspect there is a risk that State aid may be present.

If you need further help please contact Christopher Brennan who will be happy to have an initial chat.

What is State aid and why is it important?
State aid can occur where State resources (in any form) are used to provide assistance to an organisation which puts them in an advantageous position over others.

State aid is unlawful unless either:
- it has been notified to the European Commission and the Commission has approved the aid as being compatible with the EU internal market. Commission approval must be obtained before the aid is given; or
- there is an established lawful State aid mechanism which enables certain aid to be granted without notification to, or approval by, the Commission (see below for further details of some of these mechanisms).
The Commission has the power to require the recovery (i.e. repayment) of any State aid which has been granted unlawfully and may do so for up to 10 years after the aid has been granted.

Spotting potential State aid at an early stage in your project will give you the best chance of designing the project to address any potential State aid concerns.
How do I identify if State aid may be present?

For State aid to exist all of the following four conditions must be present:

1. The Aid must be granted by the State or through State resources
Here, the term "the State" includes national and local government, government agencies and other arms of the government. Other bodies (whether public or private) may also be involved in granting aid (in the form of State resources) if this can ultimately be tracked back as impacting on the overall State budget.

2. The Aid favours an undertaking or production of certain goods
The definition of "undertaking" is wide, being any entity engaged in "economic activity". Economic activity is any activity that involves offering goods and services on a market. It is the nature of the activity which is important and not the status of the organisation. For example, public bodies and charities can still be regarded as undertakings and recipients of State aid when they carry out an economic activity.

The European Commission has given guidance in its Notice on the Notion of State Aid on the types of activity which are generally regarded as “non-economic”. This is usually the case when the body is exercising public powers (e.g. the police and armed forces). Other sectors where the activity can sometimes be regarded as non-economic include: social security; education and research; health and care; and culture and heritage. However, it is important to check that all the requirements for these to be non-economic apply - see again the Notice on the Notion of State Aid .

The aid (or advantage) can take a variety of forms, some of which are easier to spot than others. This includes, for example: cash grants (e.g. from UK or EU funds), relief from general taxation measures, selling assets at an under value, and providing guarantees on advantageous terms. In short, anything that would not be available to an undertaking under normal market conditions could amount to State aid.

This condition will only be met if the recipient of the aid receives a benefit which it could not have obtained under normal market conditions. This means that if the body giving the aid acts in the same way that a hypothetical private entity would act, and in line with normal market conditions, the recipient receives no advantage or benefit over its competitors and so cannot be in receipt of State aid. This is known as the ‘market economy operator principle’ (or MEOP).

A simple example of this would be where a public authority purchases goods or services and pays a market price for these (the market price having been established through an open, competitive procurement process under the Public Contracts Regulations 2015). In this case there should be no State aid to the selected supplier if the price paid for the goods / services is a market price. In contrast, if the same public authority disposes of an asset at less than its market price, or pays the supplier above a market price (or grants it other more favourable terms) for the goods/services provided then this condition for State aid is likely to apply.

Further details on MEOP are included in the Commission’s Notice on the Notion of State aid .

3. The Aid distorts/threatens to distort competition
If the recipient gains a benefit which would not have been available under normal market conditions and which improves its position over its competitors then there will be at least a threat of distortion to competition, if not an actual distortion. A threat is all that is required.

4. The Aid affects trade between EU member states
Most products and services are traded between EU Member States and so almost any selective assistance is potentially capable of affecting trade between Member States. Even if the recipient itself does not trade directly with other Member States, the fact that it has received aid to trade in its own domestic market may hinder or reduce the opportunity for providers from other Member States to operate in that domestic market. It is therefore presumed that where actual or threatened distortion of competition exists there is at the very least the potential to affect trade between Member States.

In some limited cases, the European Commission has determined that a measure had a purely local impact and consequently had no effect on trade between Member States. This was considered to be the case where the recipient supplied goods or services to a very limited area within a Member State, was unlikely to attract customers from other Member States, and where it could not be foreseen that the measure would have more than a marginal effect on the conditions of cross-border investments or establishment. For example, a sports facility serving a limited local community and which was unlikely to attract customers or investment from other Member States.
What do I do if all the above four conditions for State aid are or may be present?
Check whether the aid can be given through an established lawful State aid mechanism which does not require a notification to the Commission. These mechanisms are briefly summarised in the 5 question check-list below.

When considering using any of these mechanisms you must check that the aid, in the form proposed, will satisfy the relevant conditions for the mechanism to apply; and that you can comply with any additional administrative requirements associated with the use of the mechanism.

Reference should always be made to the source State aid legislation and guidance and, if in doubt, consult your lawyers or contact the team here at Mills & Reeve.

Question 1 - Does the aid fall within the De Minimis Regulation?

This applies where the recipient receives less than a total of €200,000 in de-minimis aid from any source in a rolling 3 year period.

You must take steps, and have evidence, to show that this limit has not been exceeded. There are also a number of administrative and record keeping requirements which both the giver and recipient of aid must comply with.

Question 2 - Does the aid fall within the General Block Exemption Regulation (GBER)?
The categories of aid listed below are within the scope of GBER:
- Regional aid
- Aid to SME’s
- Aid to access to finance for SME’s
- Aid for research and development and innovation
- Training aid
- Aid for disadvantaged workers and for workers with disabilities
- Aid for environmental protection
- Aid to make good the damage caused by natural disasters
- Social aid for transport for residents of remote regions
- Aid for broadband infrastructures
- Aid for regional airports
- Aid for ports
You must check that any proposed aid complies with all the relevant general and specific conditions of GBER. Specific conditions, which link to the relevant category of aid, include that the aid must:
- be applied towards ‘eligible costs’. The costs which can be treated as ‘eligible costs’ under GBER depend on the relevant aid category;
- not exceed the specified financial ceiling for the relevant category of aid; and
- not exceed the specified aid intensity for the relevant category of aid. The aid intensity is the proportion of “eligible costs” which can be granted in the form of aid.
General GBER conditions include that the aid must:
- be transparent (only certain forms of aid are permitted);
- have an incentive effect; and
- not be cumulated with other aid granted under GBER or the De Minimis Regulation relating to the same eligible costs (GBER contains detailed rules on cumulation).
There are also various other administrative and reporting obligations which must be complied with.

Question 3 - Does the aid fit (or can it be re-designed to fit) within an existing Commission approved aid scheme applicable to the UK?

Whilst not an exhaustive list, details of some of these schemes are available on the website for the Ministry of Housing, Communities and Local Government for the period 2014-2020.

As with other mechanisms, you must check that any proposed aid will meet the conditions and requirements of the relevant scheme.

Question 4 - Are there any other sector specific rules/guidelines which can be applied to avoid the need to notify the aid? For example (this is not an exhaustive list):
- Research & Development (framework) – Commission Framework
- Services of General Economic Interest (SGEI) – Commission web page on SGEIs
- Broadband – Commission Guidelines
- Important projects of European Interest – Commission Communication
- Public Broadcasting
- Transport
- Steel
- Agriculture
In most cases these rules / guidelines explain how the Commission will consider State aid within the relevant sectors including, for example:
- the circumstances when potential aid should first be notified to and approved by the Commission;
- the factors which the Commission would consider when deciding whether notified aid should be approved; and
- the circumstances where potential aid might fall in to the “no aid” category.
Question 5 - If none of these mechanisms apply to the project, as currently structured, is it possible to re-design the project or State aid measure to fit within one of them?

If none of these mechanisms apply and the project cannot be redesigned to fit within one of them, this is likely to be a notifiable aid which requires notification to, and approval by, the European Commission before any aid is granted.

Notification and approval can be an extremely time-consuming and lengthy process which invariably will impact on the timescales of a project. If you think aid will fall within this category you should consult your lawyers or you can contact the team here at Mills & Reeve.
Useful links for additional information
State aid web pages for the European Commission
- Click here to read the European Commissions State aid overview
- Click here to read the European Commissions State aid legislation
Includes all relevant legislation and guidance including: Commission Guidance on the Notice of State aid, the General Block Exemption Regulation (GBER) and the De Minimis Regulation.

State aid web page for Department for Business, Energy and Industrial Strategy

Click here to view the government State aid guidance This includes two useful guidance notes:
- A basic guide (includes a useful flow chart for assessing and managing State aid)
- A more detailed manual for practitioners