Foreign companies investing in the EU would be well-advised to find out a bit more about state aid control before accepting the very attractive incentives they are offered by some countries.
State aid control is still the poor brother of EU competition law, and often ignored even by the most sophisticated in-house legal departments. This is even more so for companies outside the EU, the only territory in the world to have state aid control.
Foreign companies are lured into the EU – desperate for investments and the accompanying job creations – by the prospect of incentives decided at government or local level (be it competitive energy prices, lower corporate tax rates, etc.). For undertakings unfamiliar with the state aid world, a decision by a Member State to grant a benefit such as a tax exemption to a company will generally be assumed to be legal. Indeed, is it not part of the sovereignty of a State to be able to take this type of decision?
Article 107 of the Treaty on the Functioning of the EU provides expressly that state aid is prohibited. Except where it is of a limited amount or where some clear conditions are met (as provided under the General Block Exemption Regulation), all aid measures must be notified by the national authorities – generally a Ministry is responsible for this type of procedure – to the competent surveillance body (the European Commission for the 28 Member States, the EFTA Surveillance authority for Norway, Iceland and Liechtenstein).
Because the obligation to notify aid measures lies with the State granting the aid, the companies who are the beneficiaries of the aid feel that they should not involve themselves in the process. They generally rely on the States. This is a mistake. Even though both the company and the State granting the aid have a common goal – that the aid is approved speedily so that the project can start – the consequences for the parties differ.
Where incompatible aid measures are granted without having been notified or in breach of the state aid rules, it is the beneficiary of the aid who will be sanctioned. In the state aid world, the company is always the one that has to pay back. A recent illustration may be found in the decision adopted by the EFTA Surveillance Authority on 16 September 2015 bringing Iceland to Court for not having recovered incompatible aid granted to several companies having benefited from attractive incentives to invest in the country[1]. The Icelandic authorities will have no choice but to recover the aid granted in breach of the state aid rules.
The gift will turn into poisoned chalice.
[1]http://www.eftasurv.int/press–publications/press-releases/state-aid/iceland-to-be-brought-to-court-for-failing-to-stop-granting-and-failing-to-recover-unlawful-aid