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The COVID-19 crisis is having a severe impact on many sectors of the economy, which has led to a major increase in the amount of aid that governments are providing in the form of grants, guarantees, debt and tax relief, and other measures to mitigate such impact. We recently informed about the various aid schemes that have been approved in Spain (see the posts here, here, here and here).
However, even in the current situation, State aid is still a source of controversy and may have significant implications for companies from a competition law perspective.
State aid rules
The Treaty on the Functioning of the European Union (TFEU) prohibits “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.” Member States must inform the European Commission of any aid that does not fall within the established exemptions so that it can be authorized before it is granted; otherwise, it will be considered to be in violation of EU rules.
If the Commission finds aid to be unlawful, it can order the beneficiary company to pay it back. In fact, if the aid is not only unlawful but also incompatible with the internal market, distorting competition by favoring certain companies, the Commission will be required to recover the aid.
The Commission has ten years to order the repayment of unlawful aid since it was granted, and it may also charge interest.
This may put an unlawful aid recipient in a delicate situation, because paying back all of the aid plus the interest built up over ten years may harm a company’s economic situation.
The Court of Justice of the European Union (CJEU) has repeatedly ruled that the fact that a recipient of unlawful and incompatible aid is insolvent or subject to insolvency proceedings does not release it from its obligation to return the aid (Case C-42/93, Spain v. Commission), and if the company’s financial situation makes returning the aid impossible, then the company must be wound up (Case C-52/84, Commission v. Belgium).
On the other hand, as in other areas of competition law, companies cannot ask the European Commission to authorize aid: only Member States can request the authorization. And if the Commission decides to question the validity of aid already paid out, it will be the Member State and not the company that will have to defend its legality (although beneficiary companies may intervene in the investigation).
Therefore, companies that receive aid must themselves conduct a preliminary assessment of the aid they are granted, and it is crucial for them to make sure that any aid offered in any form from any public sector body or entity was expressly authorized by the European Commission, or is covered by any of the possible exemptions under State aid rules.
The risk is clear in the case of aid granted without prior notification. As we discussed here, on October 4, 2017 the European Commission concluded that Luxembourg had granted Amazon roughly €250 million in unlawful aid through the mechanism of tax rulings. The Commission reached the same conclusion in August 2016 in relation to Apple’s tax benefits from the Republic of Ireland, which in that case amounted to €13 billion. Both companies have appealed the Commission’s decisions before EU courts.
The Apple case, in particular, highlights how a breach of State aid regulations may be even riskier than any type of antitrust infringement.In contrast to fines for anticompetitive agreements between companies or for the abuse of a dominant position, there is no legal limit on the amount of aid the Commission may claw back, and since it can order repayment of all of the aid plus interest, with a statute of limitations of ten years, the sums can be eye-watering. (To put this in perspective, the €13 billion in tax benefits that Apple had to pay back is nearly three times the Commission’s highest fine ever).
The risk of complaints and judicial challenges: Ryanair against everyone
On top of all this, the need to conduct a detailed analysis of aid received also becomes crucial insofar as there is a risk that competitors that did not benefit from the aid may lodge complaints before the European Commission against the granting of the aid, or they may even decide to challenge the Commission’s decision to authorize the aid before the General Court of the EU. An example of this is Ryanair and the actions underway with regard to the aid various Member States have granted to major European air carriers in the context of the COVID-19 crisis.
The airline industry is one of the sectors hardest hit by the crisis, with a projected 55% drop in demand according to the IATA. European governments have, therefore, launched various aid programs to offset the severe impact and keep the industry alive. In particular, even though aid has been granted to airports (on March 11, the Commission approved a Belgian plan to defer Walloon airports’ payments of their concession fees), the lion’s share of the aid is going to airlines. For example, Germany’s government provided Condor Airlines a state-secured loan, and the Commission approved the €7 billion aid package that France handed out to Air France, made up of a state guarantee and a shareholder loan for an urgent liquidity injection into the company.
In addition, a few months ago, in August 2019, the Commission ordered Ryanair to hand back over €8 million in aid from the French government. The Commission’s investigation which wasprompted by a complaint by a competitor, concluded that the marketing agreements between the Association for the Promotion of Touristic and Economic Flows (Association de Promotion des Flux Touristiques et Economiques, APFTE) and Ryanair and its subsidiary AMS, in which they received millions in exchange for promoting Montpellier and its surrounding areas as a tourist destination on Ryanair’s website, constituted unlawful aid incompatible with EU rules.
Ryanair’s CEO Michael O’Leary sent EU Commissioner for Competition Margrethe Vestager a letter complaining about the authorization of France’s tax and fee deferral for French licensed airlines, and as he announced in the letter, Ryanair has appealed the decision in EU courts on the grounds that the aid granted in the sector is in breach of EU law. O’Leary claims that the measures will distort the competitive environment in years to come by allowing companies to use aid to sell below cost, and he argues that the aid must be available to all EU airlines “in proportion to their share of traffic in the specific country.”
The Irish airline also appealed before the General Court a Swedish government grant to SAS on the grounds that it violated the principle of non-discrimination enshrined in EU law, since aid was only accessible to airlines with aviation licenses issued by Sweden.
In fact, on May 12, 2020, O’Leary said that by late summer Ryanair will have brought 10 to 15 cases of aid to competitors before EU courts.
In view of all of this, and despite the exceptional circumstances many industries are experiencing due to COVID-19 and the measures that various Member States have taken to control it, it is still crucial to get solid advice on state aid issues to avoid the risks that, due to their magnitude, can be significant.
Authors: Marta Simón and Alexandre Picón
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