State Aid guidance

State aid is being granted when one or more companies receives public funding and gain an advantage in relation to its competitors. State aid has an impact on the economy. There are rules governing the possibilities for the state, regions and municipalities to provide such public funding. The National Agency for Public Procurement has been tasked by the Swedish government with providing guidance to municipalities and regions in matters of state aid, and contributing to improving their ability to assess when and how to apply state aid rules.

What is state aid?

State aid is an objective legal concept regulated by EU law. State aid rules apply when the public sector supports economic activity using public funds, by favouring certain undertakings or certain forms of production. Aid may take different forms. The public sector refers to the state, municipalities or regions.

State aid may only be granted if it has been approved by the European Commission or been designed in accordance with certain exemptions. When state aid is allowed it can contribute to political goals such as sustainable development, finance important infrastructure, finance the provision of welfare services or to make European companies more competitive. Under certain conditions, a municipality may, for example, provide state aid to a regional airport. 

The state aid rules are designed to ensure that the political objectives with granting the aid are reached in a way that ensures that tax payers´ money is used effectively. If state aid is designed in the right way the distortion of competition caused by the aid will be kept to a minimum. State aid rules ensure that companies within the European Union are given the opportunity to compete on a level playing field.

The notion of state aid is regulated in Article 107.1 of the Treaty on the Functioning of the European Union (TFEU) and the interpretation of this notion has evolved through the case law of the European Court of Justice. The article contains several legal criteria (requirements) that must all be met in order for a measure to constitute state aid. Some criteria in the article are linked to each other, and the number of criteria as well as the boundaries between them can be described in different ways.

Article 107.1 TFEU 

Save as otherwise provided in the Treaties, 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 shall, in so far as it affects trade between Member States, be incompatible with the internal market.

What determines whether a measure constitutes state aid is the consequences it may have for competition in the internal market. What the politicians deciding on the measure wish to achieve by it (for example to ensure housing policy) is of no importance in determining whether the measure constitutes state aid. However, the purpose of the measure is important when the Commission assesses whether state aid can be approved. 

In order for a measure to constitute state aid, the following five criteria must be met (more information regarding the different criteria is available in Swedish or in English in the Commission notice on the Notion of state aid):

  1. It must be imputable to the public sector and it shall be financed using public resources (public resources)(SV).
  2. The measure must be aimed at certain activities or production (selectivity)(SV).
  3. The beneficiary must be an undertaking carrying out an economic activity (undertaking)(SV).
  4. The measure must give the recipient an advantage (advantage)(SV).
  5. The measure must distort or threaten to distort competition and affect trade between EU member states (competition and trade)(SV)

The Commission notice on the Notion of state aid

The state, municipality and region must not implement or change an aid measure until the Commission has approved it. All state aid must be reported to and approved by the Commission (Article 108.3 TFEU) before it is granted, unless it is designed in accordance with certain exemption rules adopted by the Commission. This is called the standstill obligation. State aid that is granted in violation of the standstill obligation constitutes unlawful aid.

The Swedish Act on the Application of the European Union's State Aid Rules (in Swedish)(SV)

What is a Service of General Interest?

A Service of General Interest is a service that is aimed at citizens and where public funding is necessary. It may for example involve the provision of pharmacy services in sparsely populated areas, or other services that the market is unable to provide in a manner that meets the needs of society.

The financing of Services of General Interest can be subject to the rules governing state aid if the businesses receiving the public funding offer the services on a market.

When can de minimis aid be provided?

De minimis aid is aid of low value, which under certain circumstances does not constitute state aid. If all the provisions in one of the regulations on de minimis aid are met, the criteria for state aid in Article 107.1 TFEU are not met. De minimis aid is therefore not subject to the prohibition on state aid.

Commission regulation on de minimis aid

When is it possible to grant state aid?

It is possible for municipalities and regions to grant state aid when national regulations permit it. In Sweden, it is normally parliament, the government or state agencies that decide on state aid, and apply the state aid rules.  

It is prohibited to grant new state aid (the standstill obligation) unless the Commission has approved it, or if the aid has been designed in accordance with certain exemptions. Approved state aid is called existing aid. 

If all state aid criteria have been met, and it is a matter of state aid that cannot be granted in accordance with the rules in one of the different regulations on de minimis aid, state aid can only be granted if:

  • the aid is subject to a block exemption
  • the aid is subject to the SGEI decision
  • the aid has been approved by the Commission

What is the consequence of breaking the state aid rules?

If the public sector (state, municipality, or region) gives unlawful and incompatible state aid, the Commission can decide that the member state shall recover the aid from the recipient, with interest. This applies even if it results in the recipient ending up in a situation where they must file for bankruptcy. 

If the Commission decides that the aid shall be recovered and the member state fails to comply with this decision, the Commission can institute proceedings before the European Court of Justice. In such instances, the member state risks considerable fines, if the member state does not comply with its obligations under EU-law. 

Granting authorities are obligated to recover any state aid that was granted in breach of the standstill obligation, as per the Act on the Application of the European Union State Aid Rules (2013:388). A Swedish court is also able to assess whether a certain measure constitutes state aid that should have been notified to the Commission.

Targeted guidance

We offer guidance on state aid questions that arise during specific activities typical for regions and municipalities. Targeted guidance comprise information that is customised for specific target groups, situations or issues. The guidance can be read independently but do not contain information about all parts of the regulatory framework for state aid. In our guidance we also deal with other rules that apply to a municipality or region in the situation described. The guidance are only available in Swedish.