At the end of April, the European Commission announced that seven measures were found not to constitute State aid because they could not be reasonably expected to affect cross-border trade. The finding of no affectation of trade is rare. That seven measures were thought not capable of affecting trade is very exceptional. Perhaps the Commission is trying to signal to Member States that after years of widening the concept of State aid, the time has come to hold it back.
Three of the measures concern hospitals or clinics in Hradec Králové, Czech Republic [SA.37432], Durmersheim, Germany [SA.37904] and Bad Nenndorf, Germany [SA.38035], respectively. The other four measures concern advisory services in Kiel, Germany [SA.33149], the Lauwersoog port in the Netherlands [SA.39403], the Glenmore Lodge in the UK [SA. 37963] and golf clubs in the UK [SA.38208].
This article reviews six of those measures. The decision on the Dutch port is not yet in the public domain. The reasoning of the Commission is the same in all cases. In order to avoid repetition, the article examines in more depth the oldest case which sets out the principles. For the other cases, it is sufficient to note the particular facts that were considered by the Commission as determinant of the impact on trade.
The guidance that should be drawn from these cases is the following:
- The affectation of trade does not have to be direct, substantial or actual. It can be indirect, small or likely. However, it cannot be purely hypothetical. It must be shown, on the basis of credible evidence, that there is a reasonable expectation that trade can be non-marginally affected.
- Trade can be affected directly at the level of the goods or services provided to clients, users or consumers. Trade can also be affected indirectly through inward/outward investment or establishment or through other cross-border operations of the beneficiary undertaking.
- In all of the cases examined here, the expected effect on trade was marginal, insignificant or very unlikely due to one or more of the following reasons:
i) the services in question were expressly intended for local users or patients, or
ii) they were of interest only to local users or patients, or
iii) they could be commercially provided only locally.
- The evidence that is taken into account concerns:
i) the geographic scope of actual operations and their catchment area,
ii) the origin and number of clients or users,
iii) historic data and practices as well as prospective/future developments,
iv) the incentives for market entry through trade or establishment.
SA.33149: Wirtschaftsbüro Gaarden[1]
The city of Kiel in Germany set up an entity, in the form of a company, to offer free services to SMEs. The company, Wirtschaftsbüro Gaarden, provided free information and advice to individuals and firms for the purpose of inducing them to locate in Kiel-Gaarden, a disadvantaged part of Kiel. The Commission confined its assessment solely to the question whether there was any affectation of trade.
First, the Commission explained the main points of the case law on affectation of trade. “16. Public support can be considered capable of having an effect on intra-Union trade even if the recipient is not directly involved in cross-border trade. For instance, the aid may make it more difficult for operators in other Member States to enter the market by maintaining or increasing local supply, or to exercise their right of establishment.”
“17. It is settled case-law that the Commission is not required to carry out an economic analysis of the actual situation on the relevant markets, the market share of the undertakings in receipt of the aid, the position of competing undertakings or trade flows between Member States. In the case of aid granted unlawfully, the Commission is not required to demonstrate the actual effect which that aid has had on competition and on trade.”
“18. Nevertheless, an effect on intra-Union trade cannot be merely hypothetical or presumed. It must be established why the measure distorts or threatens to distort competition and it is liable to have an effect on trade between Member States, based on the foreseeable effects of the measure.”
“19. In that respect, the Commission has in several cases [the following are cited in a footnote: N 258/2000, Leisure Pool Dorsten [DE]; C10/2003, non-profit harbours for recreational crafts [NL]; N 458/2004, Editorial Andaluza Holding [ES]; SA.33243 Jornal de Madeira [PT]; SA.34576, Jean Piaget Continuing Care Unit [PT]; N 543/2001, capital allowances for hospitals [IE]] considered that certain activities have a purely local impact and no such effect. It seems appropriate to check in particular whether the beneficiary supplies goods or services to a limited area within a Member State and it is unlikely to attract customers from other Member States, and whether it can be foreseen that the measure will have more than a marginal effect on the conditions of cross-border investments or establishment.”
In other words, trade is affected either directly through an impact on imports or exports or indirectly through an impact on inward or outward investment.
Having recalled the principles developed in the case law, the Commission proceeded to examine the facts of the case. “20. In the present case, the Commission has gathered information from the German authorities. The latter have submitted substantial facts and arguments regarding the measure’s lack of effect on trade between Member States. On the basis of that information, the Commission comes to the following conclusions.”
In other words, the effect on trade is an empirical concept. It cannot be merely supposed. It must be based on credible evidence.
“21. As regards the regional zone within which the alleged beneficiary’s services may compete, the Commission notes that the nature and scale of the beneficiary’s operation is purely local: The services provided cater exclusively to a very local market, namely a part of the City of Kiel (Gaarden, with 19.000 of some 242.000 inhabitants of the City of Kiel), address only very small firms as clients, and are provided by a very small number of staff. The economy in that district is mainly characterized by a small-scale structure. The Commission also notes that the complainant has only local operations. Based on an overall assessment of these various elements, the Commission therefore considers that the competition for the services in question occurs at a purely local level by being limited to a part of the City of Kiel and is thus unlikely to attract customers from other Member States.”
“22. With regard to the effect on the conditions of cross-border investments or establishment, the Commission notes that there is no positive evidence of relevant cross-border investments for such services which provide basic advice to very small businesses in socially deprived urban areas. It does not appear reasonably foreseeable that the alleged subsidy could have any impact on the conditions that determine cross-border investments or establishment in business consultancy services.”
SA.37904: Medical centre in Durmersheim[2]
An old school building, which was initially renovated by the municipality of Durmersheim in Germany for the purpose of accommodating medical practitioners, was eventually rented to the Klinikum Mittelbaden at a rate below the prevailing market level. Klinikum Mittelbaden is owned by the city of Baden-Baden. Klinikum Mittelbaden operates four hospitals, three medical centres and several care facilities solely in the region of Mittelbaden. The rental agreement was concluded for 15 years. The monthly rent (excluding all utilities and charges) was EUR 7980 per month for 950 m2 [or EUR 8.40 per m2/month]. Complainants alleged that the market rate was at least EUR 10 m2/month.
“(16) In the present case, the Commission observes, first of all, that the alleged beneficiary of the measure is owned by the city of Baden-Baden and the county of Rastatt and is only active in the region of Mittelbaden (in the cities of Baden-Baden, Rastatt, Bühl and Forbach). As regards the local zone within which the alleged beneficiary operates, the services offered in the medical centre at stake are standard medical services aimed at the local population, such as out-patient paediatric care, orthopaedics care and surgery. Moreover, the services offered by Klinikum Mittelbaden in its other facilities are also aimed at the population of the respective area. The fact that Klinikum Mittelbaden also offers, for example, orthopaedics care services in its medical centre in Baden-Baden (approximately 20 km from Durmersheim) further demonstrates the local attractiveness and local catchment area of the individual centres operated by it.”
“(17) In addition, standard health and medical services, which the alleged beneficiary provides, show specific characteristics that distinguish them from other health and medical services. For instance, the choice of the health provider is strongly influenced by the language spoken and by the features of the national health or reimbursement system, which might make treatment within the same Member State administratively easier for patients. Those features make cross-border competition particularly unlikely for standard health and medical services that are available locally. In that respect, the Commission has, in several cases, considered that certain activities, due to their specific circumstances, have a purely local impact and consequently no such effect on trade between Member States if the following criteria are met. First, the beneficiary supplies goods or services to a limited area within a Member State and is unlikely to attract customers from other Member States. Second, it cannot be foreseen, with a sufficient degree of probability, that the measure will have more than a marginal effect on the conditions of cross-border investments or establishment. Thus, the Commission has already previously considered that standard health and medical services normally provided within a relatively small geographic area should not be considered to affect trade between Member States, since competition between such services only occurs at a local level. Although the Commission acknowledges that Durmersheim is located close to the French border, based on the characteristics of the services provided by the clinic, the Commission considers that the measure cannot reasonably be foreseen to affect trade between Member States.”
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“(18) With regard to the effect of the measure on the conditions of cross-border investments or establishment, the alleged beneficiary is not active on markets other than the local generalised health services market. Therefore, the alleged aid cannot indirectly strengthen the position of an undertaking active in a transnational market. The fact that the complainants are individual doctors with their offices, in Germany, in close vicinity to the medical centre in question is further evidence that, if at all, the measure affects mainly local competition and not trade between Member States.”
“(19) Finally, the Commission observes that the amount of the advantage alleged by the complainants to have been conferred upon Klinikum Mittelbaden by the municipality as a result of the rental agreement, assuming that the rental price agreed between them is indeed below market price, is rather limited, since Klinikum Mittelbaden paid a rent of EUR 8.40 per m2 per month, which is only EUR 1.60 per m2 per month below the alleged market rent without installations for medical services.” The Commission noted that the aid, if any, would fall below the de minimis threshold.
Indeed, if the amount of aid per m2 was EUR 1.6, then the amount of aid per month was EUR 1520 [= EUR 1.6 x 950 m2]. The amount of aid per year was EUR 18,240 [EUR 1520 x 12]. Therefore, the amount of aid per three-year period was EUR 54,720 [= EUR 18,240 x 3].
SA.38035: Specialised rehabilitation clinic for orthopaedic medicine and trauma surgery[3]
Landgrafen-Klinik is a rehabilitation clinic with 201 beds specialising in treatment after orthopaedic and trauma surgery. It is situated in Bad Nenndorf, a spa town in Lower Saxony. The municipality of Bad Nenndorf owns the clinic. Lower Saxony granted public funding, averaging EUR 1.25 million per year, to Landgrafen-Klinik as compensation for the losses incurred related to the provision of its healthcare.
“(13) In the present case, the Commission notes first of all that the services provided by Landgrafen-Klinik are purely local in nature and available only within a limited geographical area. As explained by the German authorities, of the 3080 patients (2932 inpatients and 148 outpatients) that were treated at Landgrafen-Klinik in 2013, not a single patient resided in and came from another Member State. In addition, more than 90% of patients treated at Landgrafen-Klinik came from Lower Saxony. The city of Bad Nenndorf, in which the clinic is located, does not seem to have an international appeal as a spa town. In 2013, Bad Nenndorf only registered 249 106 overnight stays, which indicates limited touristic activity.”
“(14) The Commission observes next that Landgrafen-Klinik offers primary care rehabilitation, including physiotherapy, ergotherapy, rehabilitation medicine and physical therapy. It does not offer complex healthcare services. For such simple health care services, patients are generally not willing to travel far to be treated outside their local area and, since the clinic’s patients have reduced mobility, this further reduces their desire to travel afar for competing health care services. Such standard health and medical services show specific characteristics that distinguish them from other health and medical services. For instance, the choice of the health provider is strongly influenced by the language spoken and by the features of the national health or reimbursement system, which might make treatment within the same Member State administratively easier for patients. Those features make cross-border competition particularly unlikely for standard health and medical services that are available locally. In that respect, the Commission has already previously considered that standard health and medical services normally provided within a relatively small geographic area should not be considered to affect trade between Member States, since competition between such services only occurs at a local level.”
“(15) Finally, the German authorities indicated that for more than 200 years, Staatsbad Nenndorf Betriebsgesellschaft mbH and its predecessors have provided healthcare and rehabilitation services through public institutions and companies that have been partly financed by the public authorities. However, over the years, this public financing has never attracted substantial investment to the district of Schaumburg or the regional state of Lower Saxony in which Bad Nenndorf is located nor created concrete obstacles to the establishment of undertakings from other Member States. In fact, there are more than 20 rehabilitation clinics in the field of orthopaedics within 100 kilometres of the Landgrafen-Klinik. This suggests that the public funding granted to Landgrafen-Klinik does not create obstacles to the establishment of undertakings providing similar services in the market.”
SA.37432: Public hospitals in the Hradec Králové Region, Czech Republic[4]
Five public hospitals of the Hradec Králové Region receive public funding as compensation for the provision of Services of General Economic Interest [SGEI]. The hospitals are wholly owned by a corporation which in turn is wholly owned by the Region. The average grant per hospital per year was approximately EUR 1.6 million.
“(16) In the present case, as regards the local zone within which the alleged beneficiaries’ services compete, the Commission notes, first, that two basic areas of hospital activities can be distinguished for the hospitals in question: (1) emergency services and (2) planned/scheduled healthcare services.”
“(17) With regard to emergency services, the latter are those that are outside the control of the patients who must be treated in the shortest time possible (e.g. for acute injuries). The provision of emergency services is therefore the task of any public hospital, regardless of the quality of its personnel, technical or other facilities. In sum, a hospital cannot influence which group of patients will require its emergency services. Moreover, the patient cannot, in the vast majority of cases, influence which medical facility will perform these emergency services. Given the patient’s condition, it will usually be the medical institution that is the nearest to the patient.”
“(18) Concerning the provision of planned/scheduled healthcare services, they encompass the provision of any treatment that does not belong to the category of “emergency services”. Therefore, for those services, the patient has a choice of the medical facility in which he will have such a treatment performed. When choosing a medical facility, the patient may take into account factors such as the quality of the staff, the quality of the technical facilities, the reputation, etc.”
“(19) While the Commission has acknowledged in its previous decisions that aid to public hospitals may affect intra-EU trade where those hospitals provide highly specialised medical services which give them an international reputation or where those hospitals are located in border regions with frequent mobility of patients between Member States [footnote: SA.19864, public financing of Brussels public IRIS hospital], the Commission notes, first, that none of these five hospitals is a highly specialised hospital with any international reputation.”
“(20) Second, according to the information provided by the Czech authorities, taking together the five public hospitals owned by the Region, the Commission could identify the total number of patients residing outside the Czech Republic that used the planned/scheduled healthcare services of the concerned public hospitals of the Region.”
“(21) Comparing the total number of patients residing outside the Czech Republic that used the planned/scheduled healthcare services of the five public hospitals concerned in 2013 (i.e. 3 patients) to the total number of patients admitted by those hospitals (i.e. 267 049 patients) the proportion of patients from other Member States that are using those hospitals’ services is 0.001% of the total number. In addition, in all of the five years preceding 2013 the number of patients from other Member States using those hospitals’ services was never above 3 patients per year and, in most of those years, the number of patients was even below. Therefore, the proportion of patients residing in other Member States using the planned/scheduled healthcare services of the five public hospitals concerned is a negligible fraction of the total number of patients admitted by those hospitals.”
“(22) Third, the Commission notes that the main objective of the hospitals owned by the Region is to provide accessible medical care in all disciplines necessary for people living in the catchment area of each hospital. All of those hospitals are located in small cities with a limited number of inhabitants […] Therefore, the catchment area of each of the five public hospitals appears to be purely local, since those hospitals primarily serve the purpose of satisfying the need of the inhabitants of their district.”
“(23) Finally, with regard to the effect on the conditions of cross-border investments or establishment, the Commission notes that there is no indication of relevant cross-border investments in hospitals in the Region.”
Although the Commission concluded that there was no State aid, it went on to examine whether any aid could be compatible with the internal market. It decided that any such aid would be exempted on the basis of the 2012 SGEI decision [2012/21].
SA.37963: Glenmore Lodge, UK[5]
Glenmore Lodge is an outdoor training centre in the Scottish mountains. It belongs to a public institution and provides courses for mountain coaches and instructors and training in mountain skills, mountain biking, and mountain walking. Glenmore Lodge received GBP 665,000 in public funds and GBP 185,000 in public assets.
“(15) In the present case, with regard to the geographical zone within which the alleged beneficiary’s services compete, the Commission takes the view that the services provided cater to a local market.”
“(16) The Commission notes that Glenmore Lodge provides for two different activities. The first type of activity consists in organising courses and certifications for coaches and trainers, which leads to qualifications issued by National Governing Bodies (NGB) for different sports.” “(17) […] Around half of the customers in Glenmore Lodge were participants in such NGB training”. “(18) […] It is therefore in the nature of the NGB courses that they target customers who are resident in Scotland (or at most in the UK).”
“(19) With regard to the second type of courses (“skills courses”), offered to the general public, Glenmore Lodge proposes skill courses designed for the participants to experience new outdoor disciplines or to improve their outdoor sporting skills and knowledge. This activity is secondary to the NGB courses and intended to generate some revenue for Glenmore Lodge to supplement the NGB courses which benefit from the support of Sportscotland. According to the information available, the Commission finds that the activities provided address a local market. Indeed, Glenmore Lodge addresses only local customers, to whom it provides its services, mainly in the Scottish mountains and to a lesser extend overseas (7% of Glenmore Lodge’s revenue in the year 2012/13, coming from 50 participants). Moreover, the Commission notes that the scope of this activity is very limited. In the year 2012/13, only 1248 customers participated in the skills courses (out of a total of 2555 customers, including the NGB qualification courses). The very limited scope of the activity indicates that any public financial support to Glenmore Lodge is unlikely to have more than a marginal effect, if any, on the trade between the Member States.”
“(20) Furthermore, the Commission notes that no foreign students participated in Glenmore Lodge’s winter skills courses over the past three years. As regards Glenmore Lodge’s overseas courses, the Commission notes that the participants in those courses are from the UK and that, in general, no demand for the use of Glenmore Lodge’s services occurs outside the UK. Finally, Glenmore Lodge’s overseas activity represents only a small part of its yearly total activity, ranging from 4% to 7% in the years 2011-2013 (as also presented in recital (17) above).”
“(21) With regard to the effect on the conditions of cross-border investments or establishment, the Commission notes that there is no positive evidence of relevant cross-border investments in the sector of courses providing outdoor sporting training for the provision of qualification courses, as well as the provision of training in mountain skills and navigation for non-coaches in Scotland. In the light of the available information submitted to the Commission, no foreign investors are based in Scotland in order to offer similar services in the same domain as the alleged beneficiary.”
SA.38208: Member-owned golf clubs, UK[6]
In the UK, clubs can be created by members who come together for the purpose of providing facilities to play golf. They can be contrasted to “proprietary” golf clubs which are privately owned and conduct business as commercial concerns.
Member-owned clubs, or CASC under UK law, are considered as amateur sports club when they are (i) open to the whole community, (ii) organized on an amateur basis, (iii) must have as their main purpose to provide facilities for, and promote participation in one or more qualifying sports (including golf). If a club qualifies as CASC, then it benefits from certain exemptions from corporate taxation.
“(13) With regard to the first requirement of being open to the whole community, this involves that the club should be open to all with no discrimination, should set fees at a level that does not pose a significant obstacle to membership or use of the club’s facilities.”
“(14) With regard to the second requirement according to which the club should be organized on an amateur basis, this implies that the club should be non-profit making, meaning that the constitution of the club requires any surplus income or gains to be reinvested in the club and does not permit any distribution of club assets in cash or in kind to members or third parties. Moreover, a CASC can provide for members and visitors only the ordinary benefits of an amateur sports club, such as provision of sporting facilities, provision of insurance cover, reasonable provision of post-match refreshments for players and match officials and sale or supply of food or drink as a social benefit which arises incidentally from the sporting purposes of the club. This limited activity of providing the ordinary benefits show that a CASC does not engage in competition at a professional level which could have an international dimension, nor does it aim to attract international members or visitors.”
“(15) With regard to the third requirement, CASCs should not only provide facilities, but it should also promote participation in one or more sports. It should encourage all members to participate regardless of ability.”
“(16) It follows from the foregoing that, given the very nature of the CASCs, the latter operate at a purely local level, since they have to remain open to the whole community by being within the financial reach of any member or visitor, they have to be non-profit making and they are limited to provide only the strict ordinary benefits. Hence, the CASCs should be regarded as amateur clubs whose only objective is to promote sport to the local community.”
“(25) In the present case, as regards the geographical zone within which the alleged beneficiary’s services compete, the Commission notes that […] CASCs are engaged in minimal levels of economic activity with non-members. Indeed, if the turnover from trading exceeds £30,000 or the revenue property £20,000, the CASCs become liable to tax on the full amount of their profits, not just the income on the turnover or property revenue in excess of the limit. It follows that the CASCs benefiting from the tax exemptions will have only a very limited commercial activity targeted at non-members.”
“(26) It appears therefore that the services provided cater almost exclusively to a local market. The alleged beneficiaries, are local unions of members who come together for the non-commercial purpose of providing themselves with the facilities to play golf or for other recreational purposes and cater essentially to local customers, i.e. members and visitors.”
“(27) Furthermore, the Commission notes that the CASC rules only permit limited trading, meaning that any golf club which runs an operation on a scale capable of attracting visitors from an international market would be subject to the normal regime of corporation taxation, and this on the full amount of its profits. The normal rules of taxation will apply to the trading subsidiary. Therefore, a clear distinction should be made between CASCs which provide amateur sporting facilities for the local community and clubs which attract visitors from a national and international market and are subject to normal taxation.”
“(28) It follows that the Commission considers that the competition for the services provided by the amateur golf clubs with CASC status occurs at a local level and is thus unlikely to attract customers from other Member States to any meaningful degree.”
“(29) As regards the effect on the conditions of cross-border investments or establishment, the Commission notes, as aforementioned, that the tax exemptions apply only to small local golf clubs with very limited commercial activities and which are subject to restrictions (to qualify as CASC) which makes them unsuited to attract customers from abroad on a meaningful scale. Therefore, it is reasonably foreseeable that the measures covered by the complaint would have less than, at most, a marginal impact on other operators decisions in terms of cross-border investment or establishment.”
Although on the basis of the above reasoning, the Commission found that there was no State aid, it proceeded to confirm, for the sake of completeness, that, had there been aid, Article 55 of the GBER on sport infrastructure could apply in this case.
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[1] The full text of the Commission decision can be accessed at:
http://ec.europa.eu/competition/state_aid/cases/255742/255742_1654058_82_2.pdf.
[2] The full text of the Commission decision can be accessed at:
http://ec.europa.eu/competition/state_aid/cases/255736/255736_1654238_57_2.pdf.
[3] The full text of the Commission decision can be accessed at:
http://ec.europa.eu/competition/state_aid/cases/257187/257187_1653215_83_2.pdf.
[4] The full text of the Commission decision can be accessed at:
http://ec.europa.eu/competition/state_aid/cases/257188/257188_1653409_55_2.pdf.
[5] The full text of the Commission decision can be accessed at:
http://ec.europa.eu/competition/state_aid/cases/256221/256221_1657697_67_2.pdf.
[6] The full text of the Commission decision can be accessed at:
http://ec.europa.eu/competition/state_aid/cases/256220/256220_1657664_57_2.pdf.
[Photo by GotCredit from flickr.com]
