 What is State Aid? On the screen is a paraphrase of article 107.1a of the Treaty on the Functioning of the European Union. State Aid is an EC term for any public resource given to an undertaking that could potentially affect competition and intra-community trade. Why control State Aid? Well, the Commission wants to ensure a level playing field is maintained with no distortion of competition. If we give indiscriminate State Aid, then this can make the market stagnate because if a company knows it's going to get money regardless of what it does, then there is no incentive to restructure or innovate and this can lead to higher prices for consumers. To avoid the subsidy race, for example, Germany offering €1m to attract a company to set up there and Spain offering €2m, the company will not be more effective, they will just have more money. The overall internal market within the EC works well and of its own accord, but the Commission recognises that it has to help out where there are market failures and in line with the objectives of the Lisbon Treaty, it allows for support for R&D training and has made it easier for SMEs to access aid. There's less money out there as budgets are tighter, so it's important that the public support is used effectively and targeted at the right areas. This is at the heart of the Commission's commitment of less and better targeted aid. These are the five tests or criteria for State Aid to be present. One, that the Aid be granted by the State or through State resources. Two, that the Aid confers an advantage upon the recipient. Three, that the Aid is selective. Four, that the Aid distorts or has the potential to distort competition. Five, that the Aid impacts or has the potential to impact upon trade between Member States. Before we look at these in detail, I just want to clarify what is meant by the terms economic activity and undertaking. What is an economic activity? It is an activity which relates to the provision of goods and or services for which there is a market and where the private sector do provide or could potentially provide the goods and or services for profit. This is an evolving concept. For example, refuse disposal used not to be an economic activity, however this is changing as recycling becomes more lucrative. What is an undertaking? An undertaking is an organisation which is involved in economic activity regardless of its organisational status. As a result, charities, local councils, et cetera, can all be classified as undertakings. Aid which is granted by the State or through Member State resources. State resources can include any funds which are controlled or regulated by the State. For example, lottery funding administered by a State body and structural funds administered by WEFO. EU funds administered directly by the European Commission with no involvement from the Member State Government are not State Aid. What is considered an advantage? Relief from charges which an organisation would normally have to bear can include things like tax breaks, subsidised resources such as rent, utilities of land purchases and the provision of support for free or at a reduced cost. Is the aid selective in nature? Aid is classed as selective in a number of ways. A scheme aimed at mobile phone manufacturers would be considered selective as it would be aimed at a certain sector. A scheme aimed at SMEs would also be selective as it is aimed at certain types of companies. Aid given to ABC Limited would be selective as it would be for an individual company. Even an all Wales scheme would also be classed as selective because it is the UK which is the Member State and companies based in England, Scotland or Northern Ireland would not be eligible. Distortion or potential to distort competition. The threshold for this test is very low and it is up to the Member State to prove there is no distortion or potential to distort. Aid undoubtedly strengthens the position of the beneficiary in the marketplace. For example, if we gave a mobile phone manufacturer money to set up a production unit then this would decrease their running costs which would in turn mean that they could produce their product cheaper resulting in them being able to sell their product cheaper and there would be potential to distort competition. The commission considers even small amounts of aid to be distortive and is not concerned about the size of beneficiary or the size of their market share. The exception to this is de minimus which the commission views as so small it wouldn't distort the market. We will look at the de minimus regulation in more detail later in the presentation but in general terms it is €200,000 over a three year fiscal year period and can be awarded for any purpose and any size company. Impact upon trade between Member States. Again the threshold for this test is very low and it is up to the Member State to make the argument that there is no effect on trade between Member States. It is important to point out that the beneficiary does not need to be involved in the trading between Member States for this test to apply. There just needs to be a market in the goods or services which they are providing. It is possible to use a local argument but case based evidence is needed. Local activities. It is possible to argue that an activity is so local in nature that it cannot meet the five tests. On the screen you will see some examples of what does and what doesn't always count as local activity. The commission's urban guidelines. Whilst these are now withdrawn they do provide us with some useful examples of local services including garages, hairdressers and restaurants but made the distinction between small businesses and larger franchises where it could not be guaranteed that the support would stay within the Member States. Terra Mitica is a theme park in Benidorm. The Spanish authorities argued that due to its size it was a local facility but the commission did not accept this argument as they felt it was a destination venue that people from other Member States would travel to Benidorm to specifically visit. It didn't help that the website for Terra Mitica can be viewed in different languages and there are details about how to get there from major European cities. In contrast, the Batavia Worth shipyards are a living history museum in the Netherlands. They were successfully able to argue that they were a local facility as they could evidence that between 75 and 85% of their visitors came from within a 75km radius of the site. Finally, to recap. The following five criteria must be met for state aid to be present. One, that the aid be granted by the state or through state resources. Two, that the aid confers an advantage upon the recipient. Three, that the aid is selective. Four, that the aid distorts or has the potential to distort competition. Five, that the aid impacts or has the potential to impact upon trade between Member States. So, what are the next steps you should take? With your project are all five conditions met for state aid to be present? If no, then proceed. But be sure to keep a record of why you do not consider it to be state aid should the Commission decide to investigate. If yes, then use the state aid rules to identify the appropriate cover. You can find more information at the link on the screen now or contact the State Aid Unit at state.aid at wales.gsi.gov.uk for more information.