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The European Commission's new powers under State aid Regulations

    • Competition, EU and Trade

    20-08-2013

    Two new State aid regulations come into force today – the Enabling Regulation 733/2013 and the Procedural Regulation 734/2013. They grant more powers to the European Commission, which can now issue block exemption regulations for more categories of aid. The Commission also gains the power to request information from sources other than the Member State granting the aid where that Member State is reluctant to provide information and the power to make State aid sector inquiries. State aid beneficiaries can now be forced to comply with the Commission’s requests for information or be fined. Furthermore, what they provide must also be copied to the Member State so there will be no hiding under the radar and all this even though beneficiaries have few if any formal procedural rights in State aid investigations.

    The new Enabling Regulation

    Regulation 733/2013 amends the original Enabling Regulation which confers powers on the Commission to adopt block exemptions for certain categories of State aid. The new Enabling Regulation extends the categories of aid for which the Commission can issue block exemption regulations. The new categories of aid include:

    • making good the damage caused by natural disasters and certain adverse weather conditions in fisheries;
       
    • social aid for transport for residents of remote regions;
       
    • certain broadband infrastructure;
       
    • innovation;
       
    • culture and heritage conservation;
       
    • sports and multifunctional infrastructure;
       
    • forestry; and
       
    • conservation of marine and freshwater biological resource.

    The Commission is now consulting on the compatibility criteria for block exemptions for the new categories and the consultation is open until 10 September 2013. Further categories are expected to be inserted at a later stage, when the Commission will have a clearer view on possible compatibility criteria.

    The new Procedural Regulation

    Regulation 734/2013 amends the State aid Procedural Regulation laying down detailed rules for the application of Article 108 of the TFEU.

    Requests for information made to other sources

    The new Procedural Regulation arms the Commission with powers to force information from sources other than the Member State granting the aid, such as the beneficiary undertaking.

    The powers to request information are almost identical to the powers under the Commission’s competition powers in Article 18 of Regulation 1/2013. However, there is one important limitation under the State aid Procedural Regulation, the Commission can request information only if the formal investigation procedures have been ineffective so the Commission must first request information from the granting Member State before using its power to request information from others.

    The information provided must be sent to the Member State concerned (to the extent that the information is not confidential vis-a-vis that Member State) at the same time as it is sent to the Commission.

    The Commission may enforce all this with fines. It may impose fines not exceeding 1% of an undertaking’s total turnover where the recipient of an information request intentionally or through gross negligence:

    • supplies incorrect or misleading information in response to a ‘simple request’; or
       
    • supplies incorrect, incomplete or misleading information in response to a more formal ‘request by decision’.

    Additionally, the Commission may impose a periodic penalty where an undertaking fails to supply complete and correct information pursuant to a ‘request by decision’ until the recipient supplies the information. The periodic penalty may not exceed 5% of the average daily turnover of the undertaking for each working day of the delay.

    The power to request information must also be exercised by taking into account the principle of proportionality, in particular for small and medium-sized enterprises.

    Investigations into sectors of the economy and into aid instruments

    The new Procedural Regulation equips the Commission with the power to conduct inquiries across various Member States into a sector of the economy or the use of an aid instrument where the Commission has a reasonable suspicion that State aid measures in that sector or based on that aid instrument may materially restrict or distort competition. This power is very similar to the power to investigate sectors under Article 17 of Regulation 1/2013, even though the powers to carry out inspections and dawn raids are not available to the Commission in State aid context.

    In the course of such inquiries the Commission may request information from Member States and/or undertakings or associations of undertakings concerned and the Commission may impose fines where they supply incorrect or misleading information, as explained above.

    Comment

    The new powers to request information from sources other than Member States backed by the power to impose penalties is a significant development in the EU State aid regime. The extended powers allow the Commission to request information from aid beneficiaries and others under a threat of a fine. This is quite extraordinary given that aid beneficiaries have few if any procedural rights in State aid investigations.

    However, the severity of the extended powers’ potential consequences is reduced by a provision in the new Procedural Regulation requiring the Commission to issue a request to an aid beneficiary only if the Member State granting the aid agrees to the request but this does not apply to others e.g. competitors to the beneficiary. Member States which have granted unlawful State aid will now face the pressure that someone else may provide the information which may force the Member State to provide the information itself. Where a Member State chooses to ‘tough it out’ and refuses to provide the information and chooses to block the beneficiary from receiving a request, anyone receiving the request from the Commission will, however, be forced to answer.

    For more information contact

    Tim London, Principal Associate

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