European Commission signals intention to use the State aid rules to ensure a level playing field across the EU and beyond

Written on 15 Jun 2017

In recent decisions, policy announcements and external agreements, the European Commission has underlined its commitment to enforcing the State aid rules. The Commission appears determined to make sure that the EU rules apply in a fair manner to any company that does business in the EU, regardless of size, sector or nationality.

In this regard, the Commission’s recently published Report on Competition Policy (31 May 2017) discusses the action that the Commission is taking against selective tax advantages. The State aid rules apply to tax exemptions just as much as other types of State aid; a company that receives specific tax treatment receives a benefit comparable to receiving cash. Therefore, the Commission has been very active in tackling illegal State aid granted by means of tax rulings. For example, in August 2016, the Commission concluded that Ireland granted undue, illegal tax benefits to Apple, and ordered Apple to repay up to €13 billion of illegal State aid accrued over several years. This case is currently on appeal to the European Court of Justice.

The Commission has also recently opened an in-depth investigation into the proposed public financing of a new Jaguar Land Rover plant in Slovakia (24 May 2017). The Commission expressed serious concerns that the €125m public grant awarded to Jaguar Land Rover to invest in a new car plant in Slovakia may fall foul of State aid rules, primarily on the basis that it may not be genuinely incentivising private investment by Jaguar Land Rover (i.e. the car company would have made the investment in any event) and that the actual effect of the grant was to lure away investment from a region in the UK (or elsewhere in the EU) which is similarly or less economically developed than the location of the proposed plant in the region of Nitra in Slovakia.

Finally, on 2 June 2017, Commissioner Margrethe Vestager, in charge of competition policy, announced that the Commission has agreed a Memorandum of Understanding with China to start a dialogue on State aid control. The dialogue will be used to share with China the European experience in enforcing State aid control. It will also be used to learn more about the implementation of the newly adopted Fair Competition Review in China, which is designed to prevent public policies from distorting competition while maintaining fair market competition and promoting a unified market. Commissioner Vestager commented “Decisions by one country to grant a subsidy to a company that operates globally may affect competition elsewhere. The European Commission is pleased to start a discussion with China on how best to handle state intervention in the economy.”

Accordingly, we advise all organisations trading in the EU who may receive, or have received, public support for their projects or operations, to consider carefully the extent to which this support is compatible with EU State aid rules. In the UK, the EU State aid rules will continue to apply in full at least until the UK formally exits the EU, and it remains a probability that State aid regulation will continue as a prerequisite for any transitional or longer term trade deal with the EU after that.