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Legal Aspects of Social Enterprises

Workshop 12: Competition and State Aid

Dr. Adinda Sinnaeve, European Commission, DG Competition

SBI Event: Empowering Social Entrepreneurs for innovation, inclusive growth and jobs

Strasbourg, 16-17 January 2014

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Overview

I. Introduction

II. Legal Framework: the application of competition and State Aid rules to social enterprises

III. What are the most relevant State aid rules for social

enterprises?

1. Services of General Economic Interest

2. De minimis

3. General Block Exemption Regulation

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II. Legal Framework

Competition and State aid rules only apply to undertakings:

“Any entity engaged in economic activity, regardless of the legal status of

the entity or the way in which it is financed” (Höffner, C-41/90)

• Economic activity: offering goods or services on a market

• Non-economic activity:

state prerogatives (police, security)

basic social security systems based on solidarity can qualify under

certain conditions as non-economic (compulsory affiliation, based on

solidarity, social purpose, supervised by the State, benefits not

necessarily proportionate to contribution, non-profit, …)

Public education organised within the national educational system,

funded and supervised by the State can be non-economic (offered for

free or without remuneration for the service, …)

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II. Legal Framework • Non-economic activity: very limited scope !

• Example: nature protection organisations (Case T-347/09, 12.9.2013)

Nature protection as such is not an economic activity

But if these organisations carry out other activities, which can be detached

from the non-economic activities, and are in competition with other

undertakings, they qualify as undertakings for the other activities (e.g. sale

of wood, granting hunting rights, tourism activities)

Legal status of the nature protection organisations (public interest activity

recognized under national law) is not relevant

Profit-seeking is not relevant if they operate in a market in competition with

other economic operators seeking profit

The fact that the other activities are loss-making and that the organisations

are mainly financed by gifts and contributions is not relevant

The obligation to use any profit from the other activities for the non-

economic activities is not relevant

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II. Legal Framework

► What matters is the activity, not the enterprise who provides it

► Most activities are considered as "economic"

► Competition and State aid rules apply

What is "State aid" ? Article 107(1) TFEU :

"Save as otherwise provided in this Treaty, 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, insofar as it affects

trade between Member States, be incompatible with the common market."

˗ Granted by a Member State or through State resources

˗ Advantage: "favouring"

˗ Selectivity: "certain undertakings or the production of certain goods"

˗ Effect on trade between Member States

˗ Distortion or risk of distortion of competition

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II. Legal Framework

Effect on trade and distortion of competition

˗ Very broad interpretation

It is sufficient that a product or service is subject to trade between Member

States,

… even if the beneficiary does not export

… or exports virtually all of its production outside EU

˗ No need to demonstrate real effect on trade; sufficient that aid is liable to

affect trade and distort competition (EPAC T-204/97, WAM C-494/06P)

˗ Consequence: this criterion is almost always met

Local transport ? (Altmark C-280/00)

Low amounts, small beneficiaries ? (Heiser C-172/03)

Example of no aid: Dorsten swimmingpool; local museum; local hospital; local

theatre

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III. Most relevant State aid rules

► State Aid rules apply but leave ample room to take

account of the specificities of social enterprises

1. Services of General Economic Interest (SGEI):

2011 package

Scope: applies to enterprises entrusted by the public authorities with the

provision of public services, e.g. health services, social housing

Objectives of the 2011 package:

• clarify and simplify the rules, in particular for local and social

services;

• strengthen the rules for larger, more competitive services

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III. Most relevant State aid rules

1. Services of General Economic Interest (SGEI): 2011 package

Application of State aid rules ?

Compensation for providing an SGEI constitutes State aid, unless it complies with

the Altmark conditions:

1. Clearly defined public service obligations

2. Parameters for calculating compensation are established in advance in an objective

and transparent way

3. No overcompensation (costs, taking into account the receipts and a reasonable profit)

4. Tender or compensation based on costs of a typical, well-run undertaking

Consequence: most compensations constitute State aid because the 4th

condition is not met

However: most compensations are exempted from notification

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III. Most relevant State aid rules

1. Services of General Economic Interest (SGEI): main

instruments:

a. Communication: clarifies the main concepts of State aid relevant for

SGEI (notion of SGEI/manifest error; non-economic; Altmark; relation

with public procurement rules; etc.)

b. Exemption Decision: exemption from notification

˗ Entrustment act (SGEI, parameters for calculating compensation, …)

˗ Full compensation (costs – revenues + reasonable profit) is allowed

˗ No limitation in amount for all "social services" (broad scope)

"SGEI meeting social needs as regards health and long term care, childcare,

access to and reintegration into the labour market, social housing and the

care and social inclusion of vulnerable groups"

˗ Non-social services: limitation to 15 million per SGEI per year

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III. Most relevant State aid rules

1. Services of General Economic Interest (SGEI): main

instruments:

c. Framework: non-exempted cases (large, non-social) have to

be notified; strengthened conditions

d. SGEI de minimis Regulation: simple instrument for small

cases, with minimal conditions

− SGEI (“light” entrustment act)

− Maximum EUR 500 000 over three years

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III. Most relevant State aid rules

2. General de minimis: NEW Regulation No 1407/2013 of

18.12.2013

• Concept: de minimis aid does not constitute State aid; it is too small to affect

trade or distort competition and thus not fulfilling all criteria of Art. 107(1) TFEU

• Main conditions:

1. Scope: no longer exclusion of undertakings in difficulty !

2. Ceiling: the total de minimis aid per undertaking is below EUR 200 000

over any period of three fiscal years (road freight transport: EUR 100 000)

˗ rolling period (current and previous two fiscal years before date of granting)

˗ date of granting: moment the legal right to receive the aid is conferred on the

undertaking under national law (≠ payment)

˗ per single undertaking: economic unit (not legal entity)

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III. Most relevant State aid rules

• Main conditions:

3. Transparent form: forms of aid which allow to calculate precisely the

gross grant equivalent, without need to undertake a risk assessment, eg.

˗ Grants

˗ Loans and guarantees if GGE is calculated on the basis of reference rates /

safe-harbour premiums as set out in Commission notices, and beneficiary is

not eligible for collective insolvency proceedings;

safe-harbours:

• loans: EUR 1 million for 5 year loan (500 000 for 10 years), secured by

50% collateral

• Guarantees: EUR 1 500 000 for 5 years (750 000 for 10 years) and

guarantee shall not exceed 80% of the underlying loan

4. Cumulation: cumulation with aid for the same eligible costs up to highest ceiling;

free cumulation if de minimis is not granted for specific eligible costs

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III. Most relevant State aid rules

3. General Block Exemption Regulation (GBER) No 800/2008

• Contents: exempts from notification a large number of State aid

measures, which are compatible with the internal market

• Conditions: for each type of aid the Regulation defines compatibility conditions

• Examples:

˗ Regional aid

˗ Aid for SME: investment aid, employment aid, consultancy, participation in fairs

˗ Aid for environmental protection

˗ Aid in the form of risk capital

˗ Aid for R&D&I

˗ Training aid

˗ Aid for disadvantaged and disabled workers

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III. Most relevant State aid rules

3. General Block Exemption Regulation (GBER) No 800/2008

! Currently under revision (new GBER will be adopted before the summer)

• Broad consultation process: public consultation on the second draft is

currently ongoing; all comments welcome

• Main objectives:

˗ more exemptions (new categories, higher notification thresholds)

˗ promotion of good types of aid fostering EU 2020 objectives

˗ more transparency and ex post control and evaluation

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III. Most relevant State aid rules

3. General Block Exemption Regulation (GBER) No 800/2008

• Main issues relevant for social enterprises:

Employment aid:

˗ Wage subsidies for recruitment of disadvantaged workers (50% of wage costs

for 1 year, or 2 years for severely disadvantaged workers – extended definition)

˗ Wage subsidies for employment of workers with disabilities (75% of wage

costs for the period of employment)

˗ Aid for compensating additional costs of employing workers with

disabilities, 100% (e.g. adapting premises, transport to working place, costs of

staff to assist workers with disabilities, constructing or modernising production units

for sheltered employment)

Accessibility costs: included under several aid categories, e.g. aid for culture

and heritage conservation, aid schemes for audio-visual works

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III. Most relevant State aid rules

3. General Block Exemption Regulation (GBER) No 800/2008

• Main issues relevant for social enterprises:

Training aid: more flexibility

˗ No distinction anymore between general and specific training

˗ Eligible costs include trainee's wage costs and general indirect costs (for SME)

˗ Eligible costs include costs linked to participation of workers with disabilities

in the training, including minimum necessary accommodation costs

Large schemes: notification threshold if annual expenditure exceeds 0,01% of

GDP and the annual expenditure exceeds EUR 100 mio; not applicable to

training aid and aid for disadvantaged workers and workers with disabilities

Thank you for your attention!