A snapshot of Covid-19 State aid
Number of Covid-19 approved measures1, 2
[EU27 + UK, 4 September 2020]| 19-15 | 13-11 | 9-7 | 6-4 |
|
BE
CZ DK IT PL |
DE
FR HU LV NL |
BG
EL FI IE LT LU MT RO SE SK UK |
AT
CY EE ES HR PT SI |
Source: DG Competition, author’s own calculations
1: Data exclude amendments to approved measures. Some Member States have amended initial measures several times.
2: The number of approved measures does not correlate with the amount of aid. Some Member States have granted very large sums in a few measures that cover the whole economy, while others have granted very small amounts in narrow sectoral schemes.
The decisions of an entity which is not a public authority can be imputed to the state if the state can exercise a decisive influence over it through organic links, instructions or close supervision.
Update on Temporary Framework:
Number of approved and published covid-19 measures, as of 4 September 2020: 275*
Legal basis: Article 107(2)(b): 29; Article 107(3)(b): 232; Article 107(3)(c): 21
Five Member States have implemented 15 or more covid-19 measures each: Belgium, Czech Republic, Denmark, Italy & Poland.
– Average number of measures per Member State: 9.8
– Median number of measures per Member State: 12
– Mode number of measures per Member State: 6
* Excludes many amendments to previously notified measures
Introduction
Even when funds for a project do not come directly out of the budget of a public authority they can still be considered to be State aid if the funds are under the control of the state and the decision to grant the funds is attributed or imputed to the state [and, of course, the other criteria of Article 107(1) TFEU are satisfied too]. Although the concepts of “state control” and “imputation” are distinct, they are often conflated. A simple but meaningful way to express their difference is the following: Control means that the state can in principle determine how particular resources can be used or for which purpose they can be used. Imputation means that the state actually decides when such resources are actually used.
In joint cases SA.52489 [DK] & SA.52658 [SE] concerning PostNord Logistics, the Commission had to assess whether investments by state-owned postal companies could be actually imputed to the state.[1]
The Commission decision confirmed that a measure cannot be attributed or imputed to the state when a state-owned or controlled entity acts autonomously or independently of the state. In order to establish that such entity acts autonomously, despite being owned by the state, it is necessary to examine the various channels through which the state can influence its decisions. These channels are organic and administrative links with the state, instructions issued by the state or extent of supervision and scrutiny by the state.
Following a complaint, the Commission examined whether PostNord Logistics [PNL] had received State aid from Denmark and Sweden. PNL is based in Denmark and is 100% owned by PostNord Group [PNG] which is based in Sweden. PNG is, in turn, owned by PostNord AB. Although Sweden has a 60% share and Denmark a 40% share in PostNord AB, both countries have equal voting rights [50/50].
The complainant claimed that State aid had been granted to PNL in the following form:
Measure 1: Intended capital injection by PNG. This claim was based on statements in the 2017 and 2018 annual reports of PNL.
Measure 2: Actual capital injection by PNG.
Measure 3: Cross-subsidisation through the use by PNL of facilities [trucks, staff, warehouses] funded by the compensation that Post Danmark received for its universal service obligation.
After several requests for information from Denmark and Sweden and several rounds of meetings, the Commission concluded that no State aid had been granted to PNL because there was no transfer of state resources in its favour and because no cross-subsidisation could be detected. After it examined all the possible means by which the two countries could influence the decisions of PNG, the Commission could not find any evidence of the two countries interfering in the decisions of PNG.
Governance structure
The Commission decision first outlined the governance structure of PostNord. Accordingly, “(18) neither the Danish nor the Swedish State in its capacity as a public authority is formally represented in the management of PNG, nor are they directly involved in its appointment (including that of the President and Group CEO). The Board of Directors of PostNord AB (PNG’s parent company), on the other hand, is composed of eight persons, all nominated by Denmark and Sweden (and appointed by the Annual General Meeting where both States have 50% of the votes). Two out of eight directors are also employed as civil servants (one by Sweden and one by Denmark).” “(19) The Board of Directors of PostNord AB is responsible for appointing and dismissing the President and Group CEO.”
Measure 1: Intended capital injection
“(60) First, the Commission considers that due to the non-binding nature of such statements under Danish national law no capital can be deemed to be granted by way of the statement in the annual report of 2017, nor of 2018.”
“(61) Second, both annual reports refer to a capital injection that should be made “on market conditions” and therefore, if at all the statements could be considered as the granting of a capital injection in themselves, they should be considered as being made on market terms. Such a capital injection would therefore be considered to not involve an advantage. This means that the statements do not constitute State aid pursuant to Article 107(1) TFEU.”
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Measure 2: Actual capital injection
The Commission first recalled that “(66) State resources within the meaning of Article 107(1) TFEU are the resources of a Member State and of its public authorities as well as the resources of public undertakings on which the public authorities can exercise, directly or indirectly, a controlling influence.”
“(67) As pointed out by the Court of Justice [C-656/15, European Commission v TV2/Danmark], “since the resources of public undertakings are subject to the control of the State and are therefore at its disposal, those resources fall within the scope of the concept of ‘State resources’, within the meaning of Article 107(1) TFEU”.”
“(68) PNG, via its parent PostNord AB, is 100% owned by the State. The Commission therefore concludes that PNG’s financial support to PNL implied the use of State resources.”
Then the Commission examined whether the measure in question could be imputed to a decision of the state.
“(69) As regards imputability, in Stardust Marine [C-482/99, France v European Commission] the Court stated that ‘Even if the State is in a position to control a public undertaking and to exercise a dominant influence over its operations, actual exercise of that control in a particular case cannot be automatically presumed. A public undertaking may act with more or less independence, according to the degree of autonomy left to it by the State. […] Therefore, the mere fact that a public undertaking is under State control is not sufficient for measures taken by that undertaking, such as the financial support measures in question here, to be imputed to the State. It is also necessary to examine whether the public authorities must be regarded as having been involved, in one way or another, in the adoption of those measures.’ The Court repeated this in its SACE judgment [C-472/15 P, SACE v European Commission].”
“(70) It is therefore clear from the case law of the Court of Justice that the criterion of imputability to the State must be examined by the Commission on a case-by-case basis. Imputability cannot be inferred exclusively from factors of an organic nature, which link the public undertaking to the State.”
“(71) The Court of Justice indicated [in Stardust Marine] that “the imputability to the State of an aid 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 that measure was taken”.
“(72) In its case-law, the Court referred to indicators, such as: the fact that the public undertaking which granted the aid could not take that decision without taking account of the requirements of the public authorities, the fact that the undertaking was linked to the State not only by factors of an organic nature, the fact that it had to take account of directives issued by governmental bodies such as an inter-ministerial committee, the integration of the public undertaking into the structures of the public administration, the nature of its activities and the exercise of the latter on the market in normal conditions of competition with private operators, the legal status of the undertaking (in the sense of its being subject to public law or ordinary company law), the intensity of the supervision exercised by the public authorities over the management of the undertaking, or any other indicator showing, in the particular case, an involvement by the public authorities in the adoption of a measure or the unlikelihood of their not being involved, having regard also to the compass of the measure, its content or the conditions which it contains.”
Relying on the above principles, the Commission sought to verify whether the Danish and/or Swedish authorities influenced the decision of PNG to provide capital to PNL.
First, the Commission noted that “(77) PostNord AB, in line with the internal governance policy of PostNord, was involved in the decision-making process since the intended capital injection exceeded SEK […] million. While it is highly likely that Denmark and Sweden were aware of the intended capital injection (notably since two board members are also active as civil servants in Denmark and Sweden respectively), it does not appear at all that the States, nor the two civil servants that are board members, expressed any particular view regarding the capital injection for PNL. This is confirmed by the minutes of PostNord AB’s board meetings of 7 December 2018 and 11 December 2018 that the Commission was able to check.”
At this point the Commission added that “(78) Moreover […] the decision to implement a capital injection was incited by the management of PNG and not by PostNord AB.”
However, incitement is not a relevant criterion identified in the case law. Regardless of who takes the initiative to ask or to offer aid, the only issue with respect to imputation or attribution is whether the aid is granted by a decision of a public authority or a decision which is shaped by a public authority.
Then the Commission went on to examine how the various indicators of state influence identified by the Court of Justice in Stardust Marine applied in the case of PostNord AB.
a) Organic links
“(79) Since Denmark and Sweden each appoint four members of the Board of Directors of PostNord AB, this could give, hypothetically, a certain weight to the position of Denmark and/or Sweden as both public authority and shareholder on decisions taken by this board. However, considering that the measure is imputable on this basis alone would contradict the spirit of the Stardust Marine and SACE judgments (see recital (69)). Moreover, the Commission notes that in the case of PostNord AB employee representatives nominate an additional three board members, making a total of 11 board members.” [However, the presence of three non-state appointees still leaves the state appointees with a majority of 72% majority (8 out of 11)].
“(80) Besides possibly the two civil servants (one for Denmark and one for Sweden), all the other board members are independent and do not work for one of the two States. Even for the two civil servants, their position as board member does not automatically mean that they cannot act independently in their capacity as board member. Moreover, the two civil servants do not have more voting power and they do not have a veto right. For this reason they cannot by themselves impose a decision on the rest of the Board of Directors of PostNord AB.”
This is a clever but possibly wrong reasoning. Just because the eight state appointees may act independently, it does not necessarily follow that they indeed acted independently in this particular case.
b) State directives
The Commission noted that guidelines issued by the Swedish government were of general nature, that Sweden had appointed only four of the 11 directors and that there was no information that any specific instructions had been given to those directors. [paragraphs 84-85]
The Commission also noted that it had “(86) no indications that any such particular instructions were actually given either to the Board of Directors of PostNord AB […] The Commission also considers that there are no effective means to get additional useful information on the issue at stake.”
“(88) For this reason, the Commission does not consider that the Board of Directors of PostNord AB was under any obligation to take into account particular directives issues [sic] by governmental bodies to the extent it concerns the capital injection proposed by the management of PNG and, moreover, the Commission also has no indication that such directives were actually given.”
c) Integration of PostNord AB or PNG into the structures of public administration
The Commission simply noted that PostNord AB and its subsidiaries were not integrated in the public administration of Sweden or Denmark.
With respect to possible commercial links between PNL and the public service activities of Post Danmark, the Commission found none.
d) Degree of state supervision
“(93) PNG has a high level of autonomy in its operations; the supervision of its activities comes from PostNord AB and not directly from the States.” “(94) Regarding the degree of autonomy from the government, PNG operates generally, but also with regard to the capital injection at issue, independently and there is no evidence of direct supervision from Denmark and/or Sweden over the management of PNG, nor PNL. Only the Board of Directors of PostNord AB and not Denmark and/or Sweden can directly instruct the CEO.”
“(96) The Commission has not found any evidence showing that Denmark, Sweden or both were actively involved in the adoption of the Decision by PNG to inject capital into PNL, nor the agreement of PostNord AB to the proposed injection. The Commission also considers that there are no effective means to get additional useful information on the issue at stake.”
Then the Commission considered an interesting argument: that part of the submissions from Denmark and Sweden were prepared by PostNord. In this connection, (105) the Commission considers it to be standard practice that Member States’ authorities cooperate with companies accused of receiving unlawful State aid and therefore this type of cooperation can in no way be considered as a sign of imputability of PostNord decisions to the States.”
Conclusion on imputability
“(107) Considering the circumstances and context of the present case and based on the direct and indirect indicators set out above, the Commission considers that there is no evidence of any specific involvement of the Danish and Swedish authorities in the granting of the capital injection to PNL. Denmark nor Sweden initiated or approved the capital injection, nor were they informed differently from what one can usually expect in a relationship between a company and its shareholders. The Commission also considers that there are no effective means to get additional useful information on the issue at stake.”
“(108) In light of the above and in the absence of sufficient indicators – beyond the mere automatic consequences of public ownership which are according to the case law insufficient to prove imputability – of the exercise of actual influence or control by Denmark and Sweden in the capital injection at hand, the Commission concludes that the capital injection cannot be considered imputable to Denmark and/or Sweden.”
Measure 3: Cross-subsidisation
The Commission first explained that the complainant did not provide any information to corroborate the allegations that Post Danmark cross-subsidised PNL. Then it recalled that its own decision approving the compensation for the costs of Post Danmark’s public service obligations included a mechanism for preventing overcompensation. Financial cross-subsidisation would be possible only in the case of overcompensation. [This mechanism, however, cannot prevent other forms of cross-subsidisation. For example, items handled by PNL may be transported free of charge together with items distributed or collected by Post Danmark vehicles. No accounting system can catch this form of cross-subsidisation.] The Commission also pointed out that the Danish government appointed Deloitte to carry out an audit which looked at possible sharing of such things as vehicles, equipment, management services, customer services and IT services. Deloitte found that proper invoicing had always taken place.
Conclusion
In view of the above analysis, the Commission concluded that there was no evidence of State aid in favour of PNL and therefore decided that:
- the statements in PNL’s annual reports of 2017 and 2018 did not constitute aid;
- the capital injection of DKK 115 million injected by PNG into PNL did not constitute aid;
- the transactions between Post Danmark and PNL did not involve aid.
[1] The full text of the Commission decision can be accessed at:
https://ec.europa.eu/competition/state_aid/cases1/202023/277215_2161570_141_2.pdf
Photo from Wikimedia Commons.
