State aid (European Union)

State aid in the European Union is the name given to a subsidy provided by a government. Under European Union competition law the term has a legal meaning, being any measure that demonstrates any of the characteristics in Article 107 of Treaty on the Functioning of the European Union, in that if it distorts competition or the free market, it is classed by the European Union as being illegal state aid.[1] Measures which fall within the definition of state aid are considered unlawful unless provided under an exemption or notified by the European Commission.[2]

History

State aid was formally introduced into European Union statute law by the Treaty of Rome where it classified state aid as being any state intervention that distorted competition law.[3] The definition was later updated by the Treaty on the Functioning of the European Union in 2007. It stated that any aid given to a company by a state within the EU would generally be incompatible with the EU's Common Market. Within the new law under the treaty, the first chapter of it defines what is not allowed to be done with state aid and the second chapter defines actions that can be done within legal limits.[1] 1. Save as otherwise provided in the Treaties, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.[1]

The intent of this was that in order to avoid favouring a certain company or commercial group, an EU member state should not provide support by financial aid, lesser taxation rates or other ways to a party that does normal commercial business. For example, it would be considered illegal state aid by the EU if a government took over an unprofitable company with the sole intent to keep it running at a loss.[4] However state aid can be approved by the European Commission in individual circumstances.[5] but the aid reclaimed by the EU if it breaches the treaty.[2]

There are specific exemptions to the treaty's provisions with regard to state aid.[6] State aid can be given to parties involved in charity or "to promote culture and heritage conservation".[7] The treaty also stated that aid given in response to natural disasters would be lawful. An exemption was given to allow Germany to provide aid providing the aid was used in relation to promoting development in former East German locations affected by the division of Germany after Germany's loss in the Second World War.[1]

Examples

In 2008, the British government was granted permission from the European Commission to provide state aid to nationalise Lloyds TSB during the financial crisis of 2007–08. However, the Commission decreed that because Lloyds TSB's financial requirements had come about from their takeover of HBOS, in order for the state aid to be legal, they would have to sell part of their business.[5] Lloyds Bank did this by splitting off TSB Bank as a separate company initially owned by them and sold it to Banco de Sabadell in order to stay within the EU's rules on state aid.[8]

In 2016, following a 2-year investigation, the European Commission ruled that the Republic of Ireland had given tax rulings to Apple Inc that acted as a form of illegal State aid under EU competition law. Apple has been using a customized variation of the "double Irish" tax avoidance system (used by many US multinationals in Ireland). The rulings from the Irish Revenue Commissioners, which enabled the customization, were deemed to be unfair State aid. The Commission stated that as a result, Apple would have to pay €13 billion in Irish taxes (2004-2014), plus interest penalties, to the Irish government.[9] The Irish cabinet stated they would challenge the Commission's finding of state aid and would appeal against the ruling.[10]

United Kingdoms Departure from the European Union (Brexit)

In September 2016 Opposition leader Jeremy Corbyn urged the government to abandon exiting EU rules on state aid, post brexit. He said “Any deal with the EU must recognise that the old state aid rules are no longer valid.”[11] In May 2018 The European Union said that could not allow the UK to remain in the single market and customs union after brexit and abandon the rules on state aid , and that the European Union would respond with tarrifs, in the event UK industries had government subsidies.[12][13]

The current government has not mentioned any changes to the EU rules on state aid after brexit. However the current chequers proposal by prime minister, Theresa May, suggests that the UK will keep the state aide rules post brexit, as the UK would adopt all current EU laws on Goods, and there manufacture. However the proposal is yet to be approved by both UK houses and the EU negotiating team.[14]

See also

References

  1. 1 2 3 4 "Hyperlink". TFEU. Retrieved 2015-07-25.
  2. 1 2 "What is state aid?". European Commission. 2016-07-01. Retrieved 2016-10-14.
  3. ↑ "Annex C: EU restrictions on state aid – Decision Support Toolkit". Nao.org.uk. 2009-06-09. Retrieved 2016-09-15.
  4. ↑ "Can the UK help the steel industry under EU rules?". BBC News. Retrieved 2016-09-02.
  5. 1 2 "Competition: Commission approves acquisition of TSB by Sabadell; major step in restructuring plan of Lloyds Banking Group". Europa.eu. 2015-05-18. Retrieved 2016-09-02.
  6. ↑ Kuhnert, Jan; Leps, Olof (2017-01-01). Neue Wohnungsgemeinnützigkeit (in German). Springer Fachmedien Wiesbaden. pp. 213–258. doi:10.1007/978-3-658-17570-2_8. ISBN 9783658175696.
  7. ↑ "English Aid for Cultural and Heritage Conservation State Aid Scheme" (PDF). Her Majesty's Government. Retrieved 2016-09-02.
  8. ↑ Goff, Sharlene (2014-05-13). "European Commission approves new Lloyds plan for TSB sale". Financial Times. Retrieved 2016-09-02.
  9. ↑ "Apple should repay Ireland 13bn euros, European Commission rules". BBC News. 1970-01-01. Retrieved 2016-09-02.
  10. ↑ Thompson, Mark. "Ireland doesn't want $14.5 billion in tax from Apple". CNN. Retrieved 2016-09-02.
  11. ↑ https://www.bbc.co.uk/news/uk-politics-37376733
  12. ↑ https://www.jacobinmag.com/2018/05/corbyn-labour-eu-single-market-economic-policy
  13. ↑ https://www.thetimes.co.uk/article/fear-of-corbyn-prompts-tough-eu-line-on-brexit-lrcmwgvlx
  14. ↑ https://www.theguardian.com/politics/2018/aug/02/uk-brexit-team-seeks-to-exploit-eu-concern-on-corbyns-state-aid-plans
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