EEA – EFTA ForumState aid rules - modernisation

Advokat Hanne S. TorkelsenE-post hanne.torkelsen@wla.no

www.wla.no

The objective of state aid legislation

• To ensure that government interventions do not distort competition and trade inside the EU/EEA.

• Research and development• Environment• Risk capital • Infrastructure (i.e. broadband)

State aid is accepted to achieve certain objectives, i.a.:

• EEA agreement - Article 61 (TFEU Art 107) • Secondary legislation (directives and regulations)• Commission Decisions (i.e.re public service compensation

granted to undertakings entrusted with operation of services of general economic interest)

• Commission Guidelines• ESA and the EEA Joint committee adopt legislative

measures for State aid rules which are identical to that of the European Commission

State aid legislation

EFTA Surveillance Authority (ESA):• investigates allegations re illegal State Aid• approves new aid schemes and individual aid• decide that the State concerned shall abolish or

alter such aid within a period of time to be determined by ESA

If a member state does not comply with the decision within the prescribed time, ESA or any other interested State may refer the matter to the Court of Justice direct.

Enforcement in the EEA

Decisions by EFTA Court and the European Court of Justice are very important – ESA decisions may be reversed by the EFTA Court ODA protocol 3 – On application by an EFTA state , The EFTA States can unanimously decide that aid given or planned aid is compatible with EEA article 61 if justified by exceptional circumstances (before the Authority has made its decision).

Enforcement in the EEA, cont

«[s]ave as otherwise provided in this Agreement, any aid granted by EC Member States, EFTA States 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 Contrating parties, be incompatible with the functioning of this Agreement»

State aid - EEA Art 61(1)

1. The measure involves an economic advantage 2. Granted by State resources: public funds3. To «undertakings» - (not individuals or households)

engaged in economic activity, irrespective of its legal status and the way in which it is financed

4. Aid is selective – it favours only certain undertakings or production of certain goods

5. The aid affects competition and trade within the EEA

Cumulative criteria

State aid – EEA Art 61(1)

Art. 61 (2) Shall be compatible with EEA Agreement: • Aid to individuals• Natural disasters; exceptional occurrences

Art 61 (3). May be compatible with the EEA agreement:• Underdevelopment• European projects, serious disturbance • Certain economic activities or areas• Culture & heritage• other

Art 61(2) and (3): Exception

• EC Court decision: «Altmark criteria» and EC Regulation for compensation for services of general economic interest

• Regulation regarding «De Minimis aid» (200 000 Euro over 3 years) may be granted without notification

• Aid covered by group excemptions and guidelines (horizontal or sectoral) and hence is considered legal (for instance regional investment aid)

Exemption from state aid

Undertakings entrusted with the operation of services of general economic interest or having the character of a revenue-producing monopoly shall be subject to the rules contained in the Treaties, in particular to the rules on competition, in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them. The development of trade must not be affected to such an extent as would be contrary to the interests of the Union.

EEA art 59. no 2 - SGEI

Illegal state aid must be recovered with interest (up to 10 years!)

Existing Aid = aid existing before the entry in force of the EEA agreement – must not be recovered – only aid granted after the decision regarding illegal aid is made by ESA

Existing or new aid - recovery

State Aid Art. 61(1)No

Case closed

Exceptions applicable?- De minimis aid- Block

Excemptions- Guidelines- Art 59.2

Yes

No Existing Aid?

No Recovery

System of state aid control

Aim to reduce overall state aid and to increase «horizontal objectives» such as research and development, environment, risk capital

Commission proposal – «de minimis» aid: To keep the current treshold value at 200 000 Euro Establish a national registry for de minimis aid – within 1.1.2016 - to increase surveillance and controlEstablish yearly reporting system (register) to monitor aid

Ongoing modernisation

- New «de minimis aid» in force:- Aid granted to undertakings providing a service

of general economic interest provided that the total amount of aid does not exceed EUR 500 000 over any period of three fiscal years.

- This also apply to the «road passenger transport sector»

Ongoing modernisation

The general block exemption regulation, inter alia:

• SME aid: risk finance measures will be revised and a broad category of start-up aid established

• Research and Development: definitions are improved, reasearch infrastructures are introduced and broader innovation aid for SME

• Category of Training Aid is established

Ongoing modernisation

• Definition of disadvantaged workers enlarged to include young people

• Aid for environmental protection - New block exemption for district heating

Ongoing modernisation

Measure assessed in the decision:• The waste collection fee charged by municipality to its

inhabitants to finance costs (household waste) – to avoid possible cross-subsidies

• The income tax exemption for municipal waste collectors that are part of the legal person of the municipality

The Authority has proposed to the Norwegian Government as an appropriate measure:

ESA case 69911 – financing of municipal waste collectors

- To organise internal accounts in the way that they show separately the costs and revenues associated with the non-economic activities and those of economic activities

- The Norwegian authorities should ensure that the waste collection fee will be calculated on the basis of the costs directly related to non-economic activity as well as a proportionate share of fixed common cost

Financing of municipal waste collectors, cont.

- What is «a proportionate share of fixed commn cost» ?

- the principle of «full cost» (incl. capital cost) or principle of «incremental cost/marginal cost»?

- Regulation will affect the municipal waste incinerators ability to offer services in a market, and utilize the free capacity

- In the case of municipal waste incinerators, capital costs are

high, and the price including full capital cost might be higher then the market price for industrial waste

Financing of municipal waste collectors, cont.

- To abolish the tax excemption, in

so far as it applied to the economic activities of the municipal waste collectors

Financing of municipal waste collectors, cont

- The municipalities of Trondheim has been

operating a laboratory for more than 100 years in order to carry out the task for verifying the quality of drinking water and foodstuffs

- In 2004 the Norwegian Food Safety Authority was established, which immediately delegated some of its repsonsibilities back to the Municipality of Trondheim (Analysis Center)

Case regarding laboratories

- There is a market for laboratory services, and it is a sector subject to competition between commercial providers

- The Analysis Center provides inhouse services to the municipality, but also provides laboratory services to third parties.

Case regarding laboratories

ESA considered the following as an advantage:- The municipality of Trondheim provides a

number of collective services for free or at least at a price below market price

- Budget transfer to be used for upgrading the building and equipment

- Tax excemption for municipalities

Case regarding laboratories

- Proposed measure:- To keep separate accounts for non-

economic and economic activites- To ensure that accounts contain the

direct cost of the economic activities and a contribution to the indirect costs common to both economic and non-economic activities

Case regarding laboratories

- Proposed measure:- To demonstrate that the distribution of

common costs allocated to economic/non-economic activites is appropriate (i.e. use of premises, collective services etc at market prices)

- To ensure that the Analysis Center are subjected to business taxes

Case regarding laboratories

Thank you for your attention!

E-mail: hanne.torkelsen@wla.no

www.wla.no