State resources and imputability or attribution to the state are two distinct concepts. They must both be satisfied in order for a measure to constitute State aid.
Introduction
Several Member States have set up “promotional” banks or national development banks. Some of these promotional banks pursue only public policy objectives by channelling cheap funds to SMEs. Some others provide funding on market terms but in selected sectors [e.g. biotechnology] or for particular purposes [e.g. partnerships between industry and universities]. Promotional banks may benefit from state guarantees or from capital injections of public money. Some of these banks also get involved in projects co-funded by the European Fund for Strategic Investments.
Since these business models and arrangements use public resources, there arises the issue of compliance with State aid rules. It is not always easy to determine whether state resources are used, especially when the funds are contributed directly by the EU and the decisions of the banks are taken purely on commercial grounds, with the aim of achieving a market rate of return.
Then the question is whether a particular investment decisions is imputable to the state. The “state” means any public authority at any level of government. But State aid may also be granted by an “agent” of the state [the use of the term “agent” is mine] who acts on behalf of the state in order to further the policy objectives of the state. In this context, an agent is any entity over which the state exercises control through ownership or other means of influence.
However, when an entity has both commercial and non-commercial operations, it is not easy to distinguish between the two. In the case of undertakings which may act as agencies of the state, the Commission’s Notice on the Notion of State Aid provides a list of “possible indicators to establish whether a measure is imputable” to the state:
“(a) the fact that the body in question could not take the contested decision without taking account of the requirements of the public authorities;
(b) the presence of factors of an organic nature which link the public undertaking to the State;
(c) the fact that the undertaking through which aid was granted had to take account of directives issued by governmental bodies;
(d) the integration of the public undertaking into the structures of the public administration;
(e) the nature of the public undertaking’s activities and their exercise on the market in normal conditions of competition with private operators;
(f) the legal status of the undertaking (whether it is subject to public law or ordinary company law), although the mere fact that a public undertaking has been constituted in the form of a capital company under ordinary law cannot be regarded as sufficient reason to exclude imputability, having regard to the autonomy which that legal form confers on it;
(g) the degree of supervision that the public authorities exercise over the management of the undertaking;
(h) any other indicator showing the involvement of the public authorities in adopting the measure in question or the unlikelihood of their not being involved, taking account of the scope of the measure, its content or the conditions it contains.” [Paragraph 43].
All those indicators point out to the existence of a relationship between the agent and the State aid which leads the agent to pursue public policy objectives on behalf of the state. This means that the agent who happens to be an undertaking forgoes profit for the sake of general good. In other words, the actions or behaviour of the agent is an “emanation of the state”.
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An opinion on “emanation of the state”
Recently, Advocate General Sharpston delivered an opinion in case C-413/15, Farrell v Whitty, which examined, among other things, when a private body could be acting on behalf of the state in a way that it could be considered to be an “emanation of the state”.[1] [The issue at hand was whether an entity was to be considered as part of the state in order to determine whether it should bear the same liability as the state]. In drafting her opinion the Advocate General mentions that she drew inspiration from State aid law. It is worth citing here her main findings.
“80. It is often necessary to assess whether a particular measure is a State aid for the purposes of Article 107 TFEU. In that context, the test of whether a particular measure favouring an undertaking is of ‘State origin’ is used to determine whether that measure should be considered to have been ‘aid granted by a Member State or through State resources’. The State origin of a measure involves, on the one hand, the concept of imputability of the measure to the State, and, on the other hand, the concept of the use of State resources.”
“81. Where a public authority grants an advantage to a beneficiary, the measure is by definition imputable to the State, even if the authority in question enjoys legal autonomy from other public authorities. It is settled case-law that no distinction is to be drawn between cases where the aid is granted directly by the State and those where it is granted by public or private bodies which the State establishes or designates with a view to administering the aid. The same then applies if a public authority designates a private or public body to administer a measure conferring an advantage. EU law cannot permit the rules on State aid to be circumvented through the creation of autonomous institutions charged with allocating aid.”
“82. Where the advantage is granted through a public undertaking, it is less evident that the measure should be imputed to the State. In such cases, it is necessary to determine whether the public authorities can be regarded as having been involved, in one way or another, in adopting the measure. The mere fact that a measure is taken by a public undertaking is not of itself sufficient for the measure to be imputable to the State. However, it does not need to be demonstrated that, in a particular case, the public authorities specifically incited the public undertaking to take the measure in question.”
“83. Since relations between the State and public undertakings are necessarily close, there is a real risk that State aid may be granted through the intermediary of those undertakings in a non-transparent manner and in breach of the rules on State aid laid down by the Treaty. Moreover, precisely because of the privileged relations that exist between the State and public undertakings, it will as a general rule be very difficult for a third party to demonstrate in a particular case that measures taken by such an undertaking were in fact adopted on the instructions of the public authorities.”
“84. For those reasons, the imputability to the State of a measure taken by a public undertaking may be inferred from a set of indicators arising from the circumstances of the case and the context in which the measure was taken.”
“85. So far as use of State resources is concerned, in general only advantages granted directly or indirectly through State resources can constitute State aid within the meaning of Article 107(1) TFEU. However, the case-law demonstrates that resources of private bodies can also, under certain circumstances, be considered to be State resources for the purposes of Article 107(1) TFEU. The origin of the resources is not relevant provided that, before being directly or indirectly transferred to the beneficiaries, they come under public control and are therefore available to the national authorities. It is not necessary that the resources become the property of the public authority.”
Then the Advocate General turns her attention to the case law on SGEI in order to identify tests or indicators of when an undertaking could be acting on behalf of the state. Her findings are not of relevance to this article.
What is more interesting is her conclusion and the advice that she gives to the Court of Justice. “In determining whether a particular defendant is an emanation of the State …, the national court should have regard to the following criteria:
(i) the legal form of the body in question is irrelevant;
(ii) it is not necessary that the State should be in a position to exercise day to day control or direction of that body’s operations;
(iii) if the State owns or controls the body in question, that body should be considered to be an emanation of the State, without it being necessary to consider whether other criteria are fulfilled;
(iv) any municipal, regional or local authorities or equivalent body is automatically to be regarded as an emanation of the State;
(v) the body in question need not be funded by the State;
(vi) if the State has both entrusted the body in question with the task of performing a public service which the State itself might otherwise need directly to perform and has equipped that body with some form of additional powers to enable it to fulfil its mission effectively, the body in question is in any event to be regarded as an emanation of the State.”
A word of caution is in order at this point. The opinion of the Advocate General was addressing the issue of whether the liability of the state could extend to entities which were not normally public authorities but could, nonetheless, be considered to be an “emanation of the state” for purposes of being liable for failures of the state. The findings of the Advocate General are not necessarily transferrable to the field of State aid. Nonetheless, her conclusions very much correspond to the principles identified in State aid law. But points (ii) and (v) of her conclusions merit clarification which, in fact, highlights the meaning of imputability in Article 107(1) TFEU.
The conclusion that the legal form of the body is “irrelevant” is correct. Form is disregarded when applying Article 107(1).
Although it is true that “it is not necessary that the state should be in a position to exercise day to day control or direction of that body’s operations”, there must exist such a close or strong relationship between the state and that body as to lead the body in question to adopt decisions which are in line with public policy.
Ownership or control necessarily implies that the body in question can act on behalf of the state, and any public authority at any level of government represents the state.
In general, it makes no difference that the origin if the resources which are used by the body in question is private. However, this is a tricky issue. If the state can shape the decisions of that body, then presumably it can also direct the resources of the body, which implies that those resources come under its control and become state resources. But this need not be the case in all possible situations.
For example, in the landmark PreussenElektra judgment, the Court of Justice found that although PreussenElektra was compelled to buy green electricity at prices that covered the costs of producers, the measure involved only private resources. The relevant German law did not specify the resources that had to be used by PreussenElektra and therefore did not extend state control over those resources. It only imposed an obligation. Hence, there is a subtle difference between forcing an entity to pursue a public policy objective by placing at its disposal certain resources (which may be private or public), and forcing it to pursue a public policy objective without at the same time enabling it to commandeer any resources other than its own. In the latter case, there would not be transfer of resources over which the state could exercise control.
In other situations, agents of the state may be using both state and private resources. For example, a university may use state funding to offer free advisory services to SMEs while at the same time it may use its own money [e.g. from private donations or money earned from prior consultancy] to undertake a commercial activity outside its educational mission. Again, in the latter case, there would be no transfer of state resources.
The last finding of the Advocate General that bodies entrusted with tasks of the state act on behalf of the state is very much in line with State aid rules. An example may be useful here. Article 21 of the GBER refers to “entrusted” entities. The answer to question 105 in the Frequently Asked Questions on the GBER explains that “the Member State may entrust the implementation of a risk finance measure (e.g. providing the State financing or the State guarantees on behalf of the State) to an entrusted entity, which acts as the State. […] What is important to note is that the notion of an “entrusted entity” refers to its role (acting on behalf of the State) […]”.[2]
Conclusion
State resources and imputability or attribution to the state are two distinct concepts. They must both be satisfied in order for a measure to constitute State aid. Imputability to the state is not easy to prove when the entity that grants the aid also acts as an undertaking. But close links to the state can provide strong indications that that undertaking may in fact be acting as an agent of the state.
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[1] The full text of the opinion can be accessed at:
[2] The FAQ can be accessed at:
http://ec.europa.eu/competition/state_aid/legislation/practical_guide_gber_en.pdf.
