European Competition Law provides a wide-ranging review of the European rules relating to competition: restrictive agreements, abuse of a dominant position, impact of intellectual property rights, procedure, merger control, State aid.

European Competition Law

There is no legal definition of State aid. According to the case law of the Court of Justice and the Commission's decision-making practice, State aid is defined as the decision of a Member State by which, in pursuit of its own economic and social objectives, it gives undertakings or other persons resources or procures for them advantages intended to encourage the attainment of those objectives . Five elements must be fulfilled to characterize a State aid: (i) an intervention by the State or through State resources (ii) which confers an advantage on (iii) certain undertakings by (iv) distorting competition and (v) affecting trade between Member States . It may be an individual measure or an “aid scheme” . The Commission may conclude that an aid scheme exists where it is able  to demonstrate that that scheme is based on the application of a provision of a Member State, in accordance with a systematic approach by the authorities of that Member State, and that the characteristics of that approach satisfy the requirements laid down in Article 1(d) of Regulation No 2015/1589 .

In the context of the modernization of State aid policy, the Commission wished to clarify the main concepts related to the concept of State aid mentioned in Article 107(1) TFEU, with a view to contributing to a simpler, more transparent and more coherent application of that concept throughout the Union (recital 1). In its Communication of 19 May 2016 on the notion of State aid , the Commission for the first time returned to and clarified these criteria. It also clarifies the circumstances in which public funding of infrastructure may fall under State aid.

Case 61/79 Amministrazione delle finanze dello Stato v Denkavit italiana [1980] ECR 1205, LawLex200500005400JBJ.

Case C-280/00 Altmark Trans and Regierungspräsidium Magdeburg [2003] ECR I-7747, LawLex200500004593JBJ.

Article 1 of Regulation No 2015/1589 defines an aid scheme as "any act on the basis of which, without further implementing measures  being required, individual aid awards may be made to undertakings  defined within the act in a general and abstract manner and any act on  the basis of which aid which is not linked to a specific project may be  awarded to one or several undertakings for an indefinite period of time  and/or for an indefinite amount" and individual aid as "aid that is not awarded on the basis of an aid  scheme and notifiable awards of aid on the basis of an aid scheme".

Case C-337/19 P Commission v Belgium, Judgment of 16 September 2021, LawLex202100005336JBJ.

Commission Notice 2016/C 262/01on the notion of State aid as referred to in Article  107(1) of the Treaty on the Functioning of the European Union OJ C 262 of 19 July 2017, 1-54.

Concept

According to the Commission Notice on the notion of State aid , infrastructure projects often involve several categories of actors who may benefit from State aid: the developer/owner of an infrastructure, the operators who make direct use of the infrastructure to provide services, and the end-users. 

For aid to the developer, the notice notes an increase in the scope for commercial exploitation of infrastructures even if traditionally the public funding of much infrastructure was considered to fall outside the State aid rules since their construction and operation were considered to constitute general measures of public policy and not an economic activity. Overturning the case law, the Aéroports de Paris judgment, clarified that the operation of an airport had to be seen as an economic activity . This is also applicable to the construction of other infrastructures that are indissociably linked to an economic activity. On the other hand, the construction of military facilities, lighthouses and other equipment for the needs of general navigation is not of an economic nature and consequently falls outside the scope of the State aid rules. If an entity is engaged in economic and non-economic activities, Member States have to ensure that the public funding provided for the non-economic activities cannot be used to cross-subsidize the economic activities. The Commission in that case asks Member States to “limit the public funding to the net cost (including the cost of capital) of the non-economic activities, to be identified on the basis of a clear separation of accounts”. If the infrastructure is used almost exclusively for a non-economic activity, its funding may fall outside the State aid rules in its entirety, provided the economic use remains purely ancillary . This is the case inter alia when the economic activities consume the same inputs as the primary non-economic activities (e.g. material, equipment, labor or fixed capital). Ancillary economic activities must remain limited in scope, as regards the capacity of the infrastructure . The Commission also considers that public financing provided to customary amenities (such as restaurants, shops or paid parking) of infrastructures that are almost exclusively used for a non-economic activity normally has no effect on trade between Member States since those customary amenities are unlikely to attract customers from other Member States and their financing is unlikely to have a more than marginal effect on cross-border investment or establishment. Overall the public funding of an infrastructure will not affect trade between Member States where the infrastructure does not face direct competition from other infrastructures of the same kind or other infrastructures of a different kind offering services with a significant degree of substitutability. The absence of direct competition between infrastructures is likely the case for comprehensive network infrastructures that are natural monopolies, that is to say for which a replication is uneconomical. According to the Commission, the effect on trade between Member States or a distortion of competition is normally excluded as regards the construction of the infrastructure in cases “where at the same time (i) an infrastructure typically faces no direct competition, (ii) private financing is insignificant in the sector and Member State concerned and (iii) the infrastructure is not designed to selectively favour a specific undertaking or sector but provides benefits for society at large”. The method of assessment is completed by a sector-by-sector approach of the State aid nature of the public funding of the construction of infrastructure . The notices clarifies that where all the elements of Article 107(1) of the Treaty are fulfilled the developer is the recipient of State aid, irrespective of whether it makes direct use of the infrastructure to provide goods or services himself or makes the infrastructure available to a third party operator who in turn provides services to end-users of the infrastructure. 

Operators who make use of the aided infrastructure to provide services to end-users receive an advantage if the use of the infrastructure provides them with an economic benefit that they would not have obtained under normal market conditions. This normally applies if what they pay for the right to exploit the infrastructure is less than what they would pay for a comparable infrastructure under normal market conditions.

Lastly, in respect of aid to end-users, the notice states that an advantage is granted to end-users where the operator of an infrastructure has received State aid or if its resources constitute State resources. This is not the case where the infrastructure is made available to the users on market terms. The MEO (market economy operator) test can be satisfied for public funding of open infrastructures not dedicated to any specific user(s) where their users incrementally contribute, from an ex ante viewpoint, to the profitability of the project/operator. This is the case “where the operator of the infrastructure establishes commercial arrangements with individual users that allow covering all costs stemming from such arrangements, including a reasonable profit margin on the basis of sound medium-term prospect”. 

Commission Notice on the notion of State aid as referred to in Article 107(1) of the Treaty on the Functioning of the European Union, OJ C 262 of 19 July 2017, p. 1-54.

Case T-128/98 Aéroports de Paris v Commission, Judgment of 12 December 2000, LawLex200400002977JBJ. Due to the uncertainty that existed prior to the Aéroports de Paris judgment, public authorities could legitimately consider that the public funding of infrastructure granted prior to that judgment did not constitute State aid and that, accordingly, such measures did not need to be notified to the Commission. It follows that the Commission cannot put such funding measures definitively adopted before the Aéroports de Paris judgment into question on the basis of State aid rules. This does not however imply any presumption as regards the presence or absence of State aid or legitimate expectations as regards funding measures not definitively adopted before the Aéroports de Paris judgment, which will have to be verified on a case by case basis.

i.e. an activity which is directly related to and necessary for the operation of the infrastructure, or intrinsically linked to its main non-economic use.

According to the Notice, the economic use of the infrastructure may be considered ancillary when the capacity allocated each year to such activity does not exceed 20 per cent of the infrastructure's overall annual capacity.

European Competition Law

368. Concept

369. Public infrastructure financing