The European Commission and the Courts have interpreted the concept of state aid widely to include not only state grants, but also less obvious forms of public financing such as tax relief, interest relief, state guarantees and holdings, and the provision of goods and services at below-market rates.
The consequences of a finding of illegal state aid can be serious, with the recipient forced to pay back all the aid granted plus interest. However, state aid is not always found to be incompatible with the common market. For example, aid may be permitted if it promotes the development of certain disadvantaged areas; if it funds a public service obligation; if it is designed to remedy inefficiency in the supply of risk capital to small and medium enterprises; if it is designed to improve research and development not supported by the private sector; or if it is needed to rescue and restructure important firms in difficulty.
The European Commission has moved to a more economic approach to state aid assessment, which began with the State Aid Action Plan in 2005. CRA has strong skills in assessing whether a given measure should be classified as state aid and, if so, whether it should be declared compatible with the common market. For example, we can investigate whether the investment would have been undertaken by a market investor, whether the aid appreciably distorts competition in the market, whether it remedies a market failure, and whether it has an impact on trade.
CRA has prepared reports on the economic impact of state aid for presentation to the European Commission and the European Courts in a number of sectors, including airlines, broadcasting, telecommunications, pay-TV, banking, energy, entertainment, and postal services.
CRA also developed an analytical framework for the Commission to use in evaluating the effect of state aid on competition and trade. This methodology is part of the compatibility test, a tool used to prioritise EC state aid control and focus on those cases where true harm to welfare is likely.