State Aid Regime Research Articles

CMDI Resolution Funding and State Aid Control

Abstract The State aid regime has dominated crisis management in the EU financial sector ever since the Global Financial Crisis. Even with the BRRD/SRM resolution framework taking effect, most European banks in distress continue to receive public financial support subject only to the State aid regime. However, it is one of the declared aims of the CMDI reform proposals to (further) reduce the bank-sovereign nexus by making it easier for banks of all sizes to access industry-financed resolution and deposit insurance funds instead of obtaining financial support directly from State budgets. This paper explores how the CMDI framework and the State aid regime currently interact and how this would change pursuant to the CMDI reform proposals. It argues that these reform efforts will be unlikely to make much of a difference and that, following their implementation, failing institutions will continue to be channeled away from the BRRD/SRM resolution framework towards a State aid-based assessment and treatment.

EU State aid and the tax allocation of multinationals’ profits

This contribution examines the impact of the EU prohibition of State aid over the tax allocation of multinationals’ profits. All EU Member States apportion the taxable profit of multinational groups in accordance with transfer pricing regulations based on the arm’s length standard, namely, following a market valuation rationale. Although apparently neutral, such a standard may lead to prohibited aid both at the level of its regulatory design and its enforcement. These issues have been recently exacerbated due to the assessment of the “tax rulings” cases, i.e. State aid proceedings opened against the granting of individual, unpublished rulings by certain Member States to some of the largest multinationals operating in the EU, recently reviewed by the ECJ. Unlike most of the scholarly literature, which has focused on the specific issues raised in these cases, this article aims to comprehensively analyse the issues raised by the said regulations when confronted with the EU State aid regime, in line with the latest jurisprudence in this field. The examination starts by defining the aim and contradictions of the arm’s length standard, which is necessary to build a proper reference framework against which deviations resulting in a selective advantage may be detected. Such derogations potentially resulting in prohibited aid may arise when assessing the scope of these regulations, the existence of specific regimes deviating from the arm’s length standard rationale, and in the context of individual administrative acts (e.g. tax rulings) deviating from the content of the applicable transfer pricing regulations.

State aid policy in the United Kingdom post-Brexit: a case of de-Europeanisation as orbiting Europeanisation

ABSTRACT Competition policy has been at the core of the European integration project from its very inception. The United Kingdom (UK) played a truly pivotal role in the development of European Union (EU) competition policy with the policy long presenting one of the best illustrations of Europeanisation. The public vote for Brexit in 2016 pushed the reset button for the UK’s engagement with the EU and saw successive UK governments all pursuing a de-Europeanisation trajectory as part of their objective of ‘taking back control’. State aid emerged as a contentious issue during the Brexit negotiations. The UK government hailed its new Subsidy Control Act (2023) as a clear departure from the EU state aid regime, but is this a case of de-Europeanisation or partial de-Europeanisation? This article argues that the UK has still not entirely broken free from EU’s state aid regime and finds itself in a state of orbiting Europeanisation.

Protecting the Internal Market From Subsidisation With the EU State Aid Regime and the Foreign Subsidies Regulation: Two Sides of the Same Coin?

The European Union’s (EU) internal market is a popular venue for international investments and activities by third-country entities. Once on the EU internal market, foreign companies can operate freely and enjoy the benefits of the internal market: free circulation of goods, services, establishment, and capital, complemented by competition and State aid rules to allow a level playing field with EU companies. However, in recent years, the issue of subsidisation of companies active on the EU internal market by third States and the corresponding distortions have gained novel prominence and lead to an increased discussion in practice and academia. Reports by the European Court of Auditors,1 the German Monopoly Commission (Monopolkommission),2 and several Member States3 have given examples that third-country subsidies, notably those subsidies granted by the Chinese State to State-owned enterprises (SOEs) with subsidiaries active on the EU internal market, would constitute State aid if granted by an EU Member State. Yet, State aid rules do not apply to such financial contributions granted by third States. Therefore, foreign subsidies could create an uneven playing field on the internal market: the companies receiving financial support from EU States are subject to EU State aid discipline, while companies receiving third-country subsidies are not subject to comparable State aid systems. Thus, the latter are having a noticeable advantage over EU companies for their economic activities on the EU internal market.

Quo Vadis? Export Credit Regulation After Corona: State Aid, WTO Export Subsidies Laws and the Arrangement

Officially supported export credits matter greatly for private contracts: they provide the possibility of large export transactions and contracts which would otherwise not take place. It is therefore important to know how these instruments are regulated on an international level. The international regulation for public European export finance has three levels: rules set by the WTO to curb export subsidies, the Arrangement on Officially Supported Export Credits (which is a gentlemen’s agreement) and the EU state aid framework. Whilst the WTO framework has an official carve-out for the Arrangement, the EU state aid regime does not. Post-Covid, this article looks at the way to proceed with regulating official export credits, and how the different levels of regulation should be applied (and when), concluding that the Arrangement should be the core text of international regulation on export credits.

Reviving financial markets – a critical assessment of the single resolution mechanism

ABSTRACT The creation of the Banking Union, set to be an integrated financial framework for the Eurozone, should be better understood as part of a larger process of governing through financial markets, where policy-makers resort to market-based instruments and policies for governance purposes, thus forming an alignment with the interests of financial elites. This paper assesses the Single Resolution Mechanism and highlights overlooked aspects of its design and decision-making process that are actively strengthening and further integrating market-based finance in the European banking system. The resolution framework and its underlying conditionalities imposed by the limited public intervention toolkit and the European State Aid regime are promoting banking capital concentration and the marketization of more traditional banking systems. Meanwhile, the discretionary decisions imposed by the European technocratic body reinforces the integration agenda, with often detrimental effects for the member states of the Southern Periphery. While the Banking Union has the overall goal of financial stability and increased convergence between member states, the outcomes of the Single Resolution Mechanism point to an increase in market-based finance and riskier business models at the expense of smaller and more traditional banking systems, fostering too-big-to-fail institutions and further deepening the already rooted intra-euro divergences.

Brexit and control of subsidies

AbstractThe paper reviews the implications of the EU–UK Trade and Cooperation Agreement (TCA) for the control of subsidies. Controls will be less strict than under the EU state aid regime but tighter than with no deal and WTO rules. A subsidy control authority will be established by the UK which will oversee the application of broad principles set out in the TCA. A well-designed authority would help to prevent a repeat of the UK experience in the 1970s and 1980s, when subsidies were detrimental to economic performance. Regrettably, however, the government has decided to adopt a politicized approach to subsidy policy.

Between State Aid, Trade and Antitrust: The Mixed Procedural Heritage of the Foreign Subsidies Regulation and the Overarching Principle of Non- Discrimination

The FSR intends to fill a regulatory gap between trade law, State aid and antitrust law, and achieves this through a unique blend of familiar concepts and rules, drawing from the rich legal traditions of the EU State aid, antitrust, and trade defense regimes. This legal inheritance can be observed throughout the FSR’s procedural framework, including the structure of its review procedures, the Commission’s investigative powers, and the rights of defence of undertakings. Given its legacy, there will be a continuing dialogue between the FSR and these other regulatory systems, possibly with the FSR exerting its own influence, such as on due process rights under the State aid regime.

The Legitimacy of EU Soft Law:

This article takes issue with the State aid soft law and its questionable legitimacy, transparency and compatibility with the rule of law. Although critics in this regard are almost ‘traditional’, the practice of adoption of EU soft law does not imply a conclusion that something is changing in this regard. What is more, the dimensions of the current pandemic seem to emphasize them. Recognising advantages of soft law and the existence of wide discretion of the European Commission this paper looks at the current state of affairs regarding EU soft law in EU State aid regime (and briefly also other EU policies), determines the gap between EU soft law and the rule of law and presupposes solutions that would improve EU soft law’s quality in the European integration. Keywords: legitimacy; EU soft law; soft law; rule of law; democratic safeguards; COVID-19 soft law

Protecting the Internal Market from Subsidisation with the EU State Aid Regime and the Foreign Subsidies Regulation: Two Sides of the Same Coin?

Protecting the Internal Market from Subsidisation with the EU State Aid Regime and the Foreign Subsidies Regulation: Two Sides of the Same Coin?

Distorted promotion of undistorted competition? Commission decisions after formal investigations in the EU state aid regime

ABSTRACT This article aims to explain the Commission's decisions after formal investigations in the EU state aid regime. It proceeds from the idea that the Commission is confronted with an enforcement dilemma: it must weigh the benefits of promoting undistorted competition on the internal market against the potential costs of losing member state support. This study explores to what extent characteristics of state aid cases and characteristics of member states influence this dilemma and thereby the Commission's decisions. Based on multilevel logistic regression analysis of a newly created dataset consisting of all formal investigations initiated and decided on by the Commission between 2004 and 2018, we find that aid that has been granted unlawfully and aid consisting of tax measures is more likely to result in a negative decision. Member states characterized by a larger administrative capacity are less likely to face negative decisions.

Changes to the state aid rules in response to the crisis due to the spread of Covid-19

In these extraordinary times for the world’s economies, it is inevitable that Member States will support their economies in entire sectors and industries, including through public resources. However, this approach must be followed carefully, as such allocation of public resources in the form of state support is subject to strict state aid rules. The article examines the changes in the state aid regime that the economic consequences of the spread of COVID- 19 have imposed.

The Implementation of the European Green Deal – Tensions Between a Market-based Approach and State Aid for Renewables

Energy policies which promote a green transition are of particular interest to the European Commission and are one of the key elements of the European Green Deal. This article takes a close look at the interplay and tensions between two theoretically separated frameworks, renewable energy law and the State aid regime, and analyses the impact of the European Green Deal on their revision. As State aid plays a pivotal role in the green transition and in the fulfilment of the Commission’s policy objectives, the implementation of the European Green Deal can offer a great opportunity to establish new State aid control rules. More specifically, the analysis focuses on a market-based approach towards renewable energy support schemes, and attempts to answer the question of whether or not such a solution fits the purpose of achieving the newly established EU sustainable goals defined in the European Green Deal. Recommended Citation

State Aid Rules and Public Financing of Infrastructure. The Case of Autostrada Wielkopolska S.A.

Abstract The operation of a toll road typically involves an economic activity for which State aid rules apply. However, if the construction and operation of the road infrastructure is bundled and they are tendered out together, they usually fall outside the State aid regime. The reason for it lies in the fact that the use of competitive procurement procedures aim to increase the efficiency of public expenditure and to ensure a level playing field for private operators to compete for public contracts. Nevertheless, based on the European Commission’s decisional practice, it transpires that an economic advantage for a concession holder cannot be ruled out automatically, in particular when there are amendments made to the original agreement. On the example of the Autostrada Wielkopolska S.A. case, critical State aid issues are discussed, among others, the application of State aid rules to public financing of infrastructure, the amendments made to a concession contract in the light of the risk assignment problem, as well as the existence of State aid in the form of overcompensation for a concession holder. The considerations are carried out on the canvas of a concrete case; however, they are enriched by the analysis of relevant legal provisions as well as conclusions from the EU courts and the European Commission decisions made in similar cases.

Ništavost i nepunovažnost ugovora kao posledica kršenja prava konkurencije EU i pravila o javnim nabavkama

The presented paper will focus on the extent of requirements of EU law for nullity or ineffectiveness of contracts in specific areas linked to functioning internal market: competition law, including agreements restricting competition, abuse of dominant position, merger control and state aid, and rules of public procurement. The scope of EU-law-based nullity is quite limited and only Art. 101(2) TFEU provides expressed nullity of agreements restricting competition. In the case of abuse of dominance, nullity of contract constituting abuse of dominant position can be drawn from the principle of effectiveness of EU law. Validity or nullity of contracts violating suspension clause in merger control regime are assessed in two periods - before decision on merger and after decision of the Commission. State aid regime cannot rely on EU-law-based nullity of contracts that violate EU state aid rules. Finally, public procurement rules appear the most complex in this context since they operate with the "right" of the contracting authority to terminate contract and power of revision authority to declare "ineffectiveness" of illegally awarded contract, and therefore revision of directives is suggested.

Applicability of the EU State Aid and Environmental Rules in the Nuclear Energy Sector · Case C‑594/18 P Republic of Austria v Commission ('Hinkley Point')· Annotation by Alicja Sikora

In its judgment of 22 September 2020 in Case C-594/18 P Austria v Commission (the Hinkley Point judgment), the Court of Justice addressed a number of issues pertaining to the applicability of the EU State aid and environmental rules to the nuclear energy projects under the Euratom Treaty. Although it is not strictly speaking revolutionary for the State aid regime, the Hinkley Point judgment significantly contributes to the wider development of Union law. First, it brings further clarity regarding the links between the Euratom Treaty and the other Treaties on which the Union is founded. Secondly, it addresses a long-standing issue of relationship between the environmental protection and the objective of safeguarding trade and competition within the internal market, even though without bringing a clear-cut definitive answer to all related questions.

State Aid for Solid Biomass: The Case for Improved Scrutiny

State Aid for Solid Biomass: The Case for Improved Scrutiny

How Single is the Single Resolution Mechanism?

Since the first of January 2016, the Single Resolution Mechanism (SRM) has become fully operational. For the Member States of the European Banking Union the new regime entails a transferral of the decision-making on failing banks to the European level, specifically the Single Resolution Board (SRB). The political sensitivity hereof is illustrated by the European and Italian reaction to the mounting troubles in some parts of the Italian banking sector. The new European regime raises the question if, and if so to what degree, Member States participating in the European Banking Union (EBU Member States) retain discretion in determining the course of action for, and future of, a troubled bank. This question is explored along three lines of inquiry. First, we analyse the degree of harmonisation provided for by the BBRD and SRM. The second line of inquiry analyses EBU Member States’ influence in the SRB’s decisionmaking process. The third line of inquiry considers the possibilities (if any) for a public recapitalisation of troubled banks without applying the new general bail-in standard. Our first line of inquiry leads us to conclude that the EBU Member States have surrendered the decision-making on bank resolution to the EBU level, specifically to the SRB. The SRM regulation, consequently, provides for maximum harmonisation, leaving no room for national resolution tools. National resolution powers which operate and compete in the same area as the SRM, such as the Dutch nationalisation law, must thus be held as inapplicable. In the second line of inquiry we found that the SRM has both a supranational and an intergovernmental dimension. While the SRB in its executive session has a strong supranational character Member State influence in bank resolution decision remains present through the involvement of the Council and the SRB in plenary session in key decisions. In the third line we conclude that the rules imposed by the BRRD and SRM Regulation in combination with the State aid regime have rendered public recapitalisation without a bail-in virtually impossible.

How Single is the Single Resolution Mechanism?

How Single is the Single Resolution Mechanism?

Državna pomoć za investicije u energetsku infrastrukturu - dileme u vezi projekta "Kolubara B"

One of the key issues in the E U accession negotiations in Chapter 8 (Competition Policy) is the transitional state aid regime for aid granted before joining the EU, which must be compatible with E U law. This paper examines the legal framework for state aid in the field of energy in E U law, including the interpretative acts of the European Commission, as well as the normative obligations of Serbia in the stabilization and association process, the accession negotiations and the Energy Community Treaty. The subject of this paper is an analysis of the criteria for the assessment of state aid for investments in energy infrastructure, with particular emphasis on financial advantage in the form of state guarantees, since the Republic of Serbia issued guarantees for investment loans approved for the implementation of the project "Kolubara B ", which was debated in a dispute before the Ministerial Council of the Energy Community.