Spotlight on State Aid Law

May 22, 2018 1:44 pm
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Introduction

State Aid is a key compliance requirement of ERDF. Every applicant has to explain how their proposal meets the rules as part of the application process, gives specific commitments to comply with State Aid law when they enter into the funding agreement and will have to explain how they have complied with State Aid law during audit.

Failure to comply with State Aid law is a material breach of the funding agreement and may result in recovery of the ERDF grant with compound interest backdated to the point of the award (i.e. the sum to be paid can exceed what was awarded). For the Managing Authority, a breach of State Aid is a 100% irregularity which has a serious impact on the national error rate.

What is State Aid law and why does it exist?

State Aid law is the means by which the countries of the EU have decided to regulate State subsidies, with the aim of ensuring that businesses based in their own countries are able to compete on a level playing field with businesses based in other countries. The UK has been a keen supporter of greater State Aid control and has pushed for increased enforcement in recent decades.

What ERDF applicants need to do in respect of State Aid

In order to secure approval a project must explain which organisations may benefit from their proposal, identify which of those organisations are receiving a “State Aid” and for those receiving a “State Aid” identify which State Aid exemption is being used.

The act of identifying beneficiaries involves establishing which organisations may be put in a better position as a result of the measure (regardless whether this benefit is intentional or unintentional).

The State Aid test is explained in the Notion of State Aid guidance.

Where State Aid is present it is unlawful to provide the support unless it is under one of the block exemptions, the most popular being the GBER (used for 97% of State Aid in Europe) and De Minimis. Once a project is funded, applicants will need to keep detailed records of the original State Aid analysis and continue to meet the terms of any exemption.

Reminder: Applicants must complete Section 4 of the Project Progress Report – which accompanies each claim – where they are required to set out what State Aid has been disbursed under each notified scheme within the relevant project claim period.

Many applicants choose to obtain external State Aid advice, which can be helpful. However we have found the quality of this advice varies greatly. Therefore we strongly recommend that applicants thoroughly check the expertise and experience of their adviser before purchasing State Aid legal advice.

Who polices State Aid law?

The European Commission are responsible for enforcement of State Aid law. However irregularities can be levelled during any audit. The European Court of Auditors are especially strict, identifying State Aid non-compliance in 20% of the projects they review.

What does Brexit mean for State Aid law?

Much depends on the outcome of the EU-UK State Aid negotiations. If a transitional agreement is struck then compliance with EU State Aid rules will remain until the end of 2020. After that, compliance with a State Aid regime is expected to form a central part of any future trade deal with the EU.

However it has recently been revealed that the Competition and Markets Authority (CMA) are being lined up to take on the role of State Aid enforcer. Legislation is being prepared and the CMA have appointed Sheldon Mills as interim Senior Director of State Aid and Juliette Enser as interim Project Director of State Aid.

 

BCTA are currently running capacity building workshops and the State Aid workshop will take place on Friday 25th May 2018 at Molineux Stadium in Wolverhampton. If you are interested in attending the workshop please email BCTA@walsall.gov.uk.