State Aid - An Introduction Paul McIlwraith Scottish Government State Aid Unit

Objectives Introduce the concept of State aid Apply the State aid tests to assess your projects If State aid present, awareness of how to provide LEADER funds in a compliant way

State Aid Unit Team of 10 (8 FTE and 1 secondee) Business Directorate SG Corporate resource – Advice, awareness raising, liaison with DBIS/UKRep) Industrial & Transport Also Scottish Enterprise, HIE, LAs Any public body with the authority to grant public funding

SRDP (LEADER) and State Aid Council Regulation (EC) No 1698/2005 – European Agricultural Fund for Rural Development Numerous references to State aid – E.g. Article 16(g), Article 70(8), Articles Not clear on how to apply State aid rules – left to the individual Member State/Managing Authority Clear that rules on competition may apply to rural development projects, so an assessment must be made Must adhere to State aid intervention rates

What is State Aid? “Save as otherwise provided in this Treaty, 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.” Article 107(1) TFEU

The Five State Aid Tests Member State/State resources Confers an advantage Selective Potential to distort competition Affect trade between Member States

Member State/State Resources ‘Member State’ - central government; devolved administrations; local authorities; agencies etc… ‘State Resources’ - directly or indirectly under the control (or at the disposal) of the state

Advantage  A benefit granted which lightens the burden normally assumed in an undertaking’s budget, that could not have been obtained under normal market conditions. Grants Loans at below market rates Subsidised guarantee premiums Tax advantages: deferment; reductions; exemptions Provision of goods and services below market prices Purchase of goods and services above market prices

Undertakings Any entity, regardless of its legal status, which is engaged in economic activity and where there is a market in comparable goods or services. Economic activity means an activity which consists in offering goods or services on a given market and which could, at least in principle, be carried out by a private operator in order to make profits. Social enterprises, charities, community trusts, etc

Selectivity Geographical Sectoral Type of firm e.g. SME

Distortion of competition Potential to distort is sufficient for this test to be met Small amount of aid could lead to distortion

Effect on intra-Community trade Most goods and services tradable Commission interpret this test widely Local trade argument difficult to make