EU State Aid and Funding Assistance in the Education Sector
Vaughan Jones from Burnetts Solicitors discusses EU State Aid and Funding Assistance in the Education Sector.
State aid is a key issue to consider for many organisations when receiving financial aid from state bodies.
What is state aid?
State aid is the granting of financial assistance (whether in the form of money or money equivalent) from a European Union member country to an organisation. As a result of that organisation receiving financial assistance competition may be distorted, and trade between EU member countries affected. The term ‘organisation’ includes private companies, charities & non-profit public and private bodies. Universities , research institutions and some public sector bodies will also be considered to be ‘organisations’ for the purpose of the state aid rules if they carry out some economic/commercial activity (even if not for profit).
The basic position is that state aid is illegal unless it falls within one of a number of exemptions (which are mentioned below). The reasoning behind this blanket ban on state aid is simply that if state aid were allowed it would be easy for an EU member country to favour its own economy by granting financial assistance to organisations based in it.
Common examples of state aid include grants, relief from tax, and loans and rent on favourable terms. Thus, an educational body may be occupying premises owned by the local authority; in these circumstances the payment of rent on potentially favourable terms could be classed as state aid. Unusual examples of state aid may be ‘free advertising on state owned television’ or, as considered in a recent case, ‘planning permission’.
Is state aid being given?
In assessing whether there is state aid there are generally four key characteristics to consider:
- Is the state aid granted through the country’s resources? This essentially means that the aid will use up the resources of the state concerned.
- Does the state aid favour a certain organisation? The financial aid must give an advantage to an organisation, and must be targeted at a particular organisation (so, for example, tax relief for all universities & higher education bodies would not be considered state aid as it is not targeted at a certain organisation);
- Does the state aid distort competition (or threaten to do so)? This is a very wide definition; most state aid will normally distort competition (or have potential to do so);
- Does the state aid affect trade between member countries of the EU? Again, this is interpreted widely. There only needs to be a ‘potential’ to affect cross-border trade.
If the financial aid satisfies the above characteristics it could be considered state aid and it will be necessary to consider whether it falls within one of the exemptions (and therefore may be granted lawfully).
Is the state aid exempt?
Firstly, is the aid granted less than €200,000 (‘de minimis aid’)? If the aid received by the organisation is less than this amount the aid can be granted legally. However, it is necessary to watch out for multiple payments. If the combined payments of aid to an organisation amount to more than €200,000 over a rolling 3 year period, the aid will not fall under this exemption.
Secondly, is the aid covered by the General Block Exemption Regulation (GBER)? Within this regulation areas such as aid for;
- Research, innovation and regional development;
- Technical feasibility studies;
- Lending highly qualified personnel;
- Environmental studies;
- Aid for young innovation enterprises;
- Aid for innovation advisory services and innovation support services
- Are exempted; as you will see, many will be relevant to educational institutions. There are many other exemptions under the GBER with each exemption having its own individual guidance (with relevant financial thresholds & criteria to satisfy).
If the financial aid falls within an exemption the aid may be granted lawfully. However, interpreting the exemptions is a complex exercise and you will need to be sure that the aid falls within an exemption before receiving or granting the aid (otherwise you will face severe financial penalties – below).
Notification and Penalties
If the state aid is not less than €200,000 or does not fall within the GBER, it may be granted legally if the approval of the European Commission is obtained; approval may be requested under a process of notification. The notification procedure is a time-consuming process, and it can take between 6 and 9 months for a decision to be made.
Ultimately the European Commission may not approve the state aid requested if it considers that the aid will substantially affect competition.
If state aid is granted unlawfully it will have to be repaid (with interest) by the recipient organisation. This could have very serious consequences for an organisation that has relied on the financial aid concerned.
[It is not only organisations that may suffer financial consequences: in addition, the state body granting the aid may have to pay damages to the organisation on the basis of the organisation’s ‘legitimate expectation’ that the state would act lawfully when granting the aid.]
Education Funding Applications
From a practical perspective, it is quite common in applications for funding made by educational bodies for the institution to have to answer a question, along the lines of, ‘are there any state aid issues?’ This type of question puts the burden on the recipient body to investigate whether the proposed aid will be covered by the state aid rules. Depending on the complexity of the aid; this question could be easy or difficult to answer. If the above question is not answered correctly and the state aid is found to be unlawful there could be serious financial consequences (discussed above). It may be appropriate, in light of such applications, to seek specialist legal advice.
Universities – Research and Development
Universities can rely on the GBER in relation to aid for research, development and innovation (RDI). State aid can be granted to the university provided that the university complies with what is permitted by the exemption. It is important, when relying on this exemption, to know the total cost of the project to ensure the conditions of the exemptions have been met.
In addition, universities need to be careful in areas of RDI when entering into a joint venture with a private organisation. This joint venture may help to deliver suitable and efficient RDI projects. However, the university needs to be careful to ensure that there are no state aid issues (in light of the partnership with a particular private organisation). The European Commission have published useful guidelines on RDI projects that can help universities in setting up joint ventures that comply with the state aid rules (and fall within the RDI exemption).
Educational institutions should be vigilant in considering whether any financial aid given by the state or received by an organisation amounts to state aid. If there is a hint that it might be considered state aid it is good practice to apply the following (as a start):
Step 1 – Is it state aid? Consider the 4 key characteristics above.
Step 2 – If it is (or might be) state aid consider whether it is;
a. less than €200,000;
b. exempt under one of the exemptions in the GBER.
Step 3 – If it does not fall within an exemption, seek approval by notifying the European Commission; or attempt to redesign/restructure the aid to fall within an exemption. (This process could be potentially complex and seeking legal advice is essential.)
About the author
Vaughan Jones is Partnership Chair and a specialist in Corporate Law.