State aid rules only apply to organisations involved in economic activity ('undertakings'). The organisation does not have to be profit-making if the activity carried out is one which has commercial competitors. In some instances, public and voluntary sector organisations, such as universities and charities, could be classified as undertakings.
There are 5 criteria or questions which need to be considered in order to establish whether a measure constitutes State aid. Where all 5 criteria are met, State aid is involved and the State aid rules apply. Where 1 or more of the criteria appears not to be met, then funding is unlikely to constitute State aid. We recommend that you check with the State Aid Unit where any doubt exists
1. Is the measure granted by the state or through state resources? As well as central government departments, this includes regional or local authorities and other public, or private sector, bodies designated or controlled by the state. State resources include tax exemptions and also funds not permanently belonging to the state but under state control, e.g. lottery funding.
2. Does it confer an advantage to an undertaking? A benefit to an undertaking, granted for free or on favourable (non-commercial) terms, could be State aid. This includes the direct transfer of resources, such as grants and soft loans, and also indirect assistance - for example, relief from charges that an undertaking normally has to bear, such as a tax exemption or the provision of services, loans, at a favourable rate.
3. Is it selective, favouring certain undertakings? Aid that targets particular businesses, locations, types of firm e.g. SMEs or sectors is considered selective. A general measure affecting the whole of the state's economy e.g. nation-wide fiscal measures is not considered a State aid.
4. Does the measure distort or have the potential to distort competition? If it strengthens the position of the beneficiary relative to other competitors then this criteria is likely to be met. The potential to distort competition does not have to be substantial or significant, and this criterion may apply to small amounts of aid and firms with little market share. Most interventions have the potential to distort competition.
5. Is the activity tradable between member states? The Commission's interpretation of this is broad - it is sufficient that a product or service is subject to trade between member states, even if the aid beneficiary itself does not export to the EU. Consequently most activities are viewed as tradable.
Does your work involve State aid? If yes, find out what to do next.
Contact us if you require more clarification on any of these criteria, or if you would like to discuss a particular scenario that you have in mind.