How to identify State aid

Question 1 Does the activity provide support to undertakings involved in economic activities?

The information below provides definitions which will help you to answer this question

Definition of support

Support can take the form of direct payment of State resources in the form of grants and subsidies as well as indirect benefits that affect the public budget such as tax breaks, rate rebates, low interest loans sale of public land below market value and the provision of services for free or below market rates.

Definition of an undertaking

An undertaking is defined as any entity, regardless of its legal status, which is engaged in economic (commercial/competitive) activity and where there is a market in comparable goods or services.  It does not have to be profit-making as long as the activity carried out is one which in principle has commercial competitors.  It can include voluntary and non-profit-making public or private bodies when they are engaged in economic activity. Charities, universities, research institutions, voluntary entities, social enterprises and public sector bodies may be deemed to be undertakings when they are engaged in economic activity.

Definition of economic activity

Economic activity means an activity which consists in offering goods or services on a given market and which could, at least in principle, be carried out by a private operator in order to make profits.

If your answer to question 1 is:

• Yes      You will need to consider question 2
• No       The support is unlikely to be State aid

Question 2 Is the support classed as State aid?

The information in this section should help you to determine whether State aid is present.

There is State aid present where all the following conditions are met:

• Support is granted by the state or through state resources
• The measure confers an advantage on the recipient
• The measure is selective i.e. favours certain undertakings or the production of certain goods
• It distorts or has the potential to distort competition
• It has a potential or actual effect on trade between EU Member States.

State Resources

Aid that is granted by the state (central government, devolved administrations, regional and local Authorities), either directly or by companies and agencies established by the state to distribute public funds. Funding which is allocated under state control will also be classed as a state resource even if those funds do not originate from a State budget. In this context, lottery funding and structural funds money will be classed as a state resource.

Confers an advantage

An advantage is conferred when an aid measure relieves the burdens normally assumed in a recipient's budget and gives the recipient an economic advantage which it would not have obtained under normal market conditions. An advantage is a benefit that is granted to a recipient for free or on favourable (non-commercial) terms.

An advantage may occur through the transfer of resources (grants/loans/provision of service), or through the relief from charges which a company normally has to bear (tax exemptions/loan at low interest rates).

Selective

A selective measure is one that targets particular businesses, locations, types of firm e.g. small enterprises or a specific sector is considered selective. A measure that provides support to all companies in Wales would also be deemed to be selective as Wales represents only a part of the UK Member State. A general measure affecting the whole of the member state's economy e.g. a nation-wide fiscal measure, is not considered a State aid.

Distorts or has the potential to distort competition

Competition is distorted if the aid in question strengthens the competitive position of the recipient by reducing its costs in relation to its rivals. The undertaking's share of the market or the size of the distortion are irrelevant: small effects are sufficient to conclude distortion. The Commission interprets this very widely and it is for the member state to prove there is no distortion.

Tradable between member states

Most products and services are traded between member states and therefore aid for any selected business or economic activity is capable of affecting trade between Member States even if the recipient undertaking itself does not trade with other member states. Companies do not have to be involved in exporting goods themselves in order for there to be an effect on trade between member states. It is enough that the product or service is subject to trade between member states. The Commission’s interpretation of this test is very broad. Consequently most activities are viewed as tradable.

The European Commission and the European Court of Justice interpret the applicability of the State aid tests widely. The potential to distort competition and affect trade criteria in particular are very broad. 

However, it should be stressed that not all public assistance will be classed as State aid. Assistance for non economic activity or assistance that does not meet the 5 tests will not be State aid. 

For examples of what isn’t aid please view our 'what isn't State aid' page.

If all 5 tests are met, the support will be classed as State aid and will require the appropriate State aid cover in line with the State aid rules. 

For further information about the State aid rules view the Related link on the right.

For further information about putting in place the relevant State aid cover view the Related link on the right.