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Judgment By Formula: Regulatory Form and the Differentiation of Fiscal Measures and Non-Fiscal Measures in EU State Aid Law journal article

Christopher McMahon

European State Aid Law Quarterly, Volume 23 (2024), Issue 1, Page 4 - 14

The State aid rules apply to a wide range of interventions on the internal market that take a variety of different forms. This poses challenges for the case law on the identification of aid within the meaning of Article 107(1) TFEU as it seeks to adapt the standards it applies to different circumstances while avoiding formalism. Criticisms in the academic literature of the application of the prohibition on aid to fiscal measures are frequently premised on the assumption that the rules should apply in a different way to such measures on account of their relationship with the sovereignty of Member States in the field of taxation. The manner in which the law on the application of the State aid rules to fiscal measures remains unsettled. This article examines a substantial doctrinal obstacle to any form of differentiation in the standards used to identify fiscal and non-fiscal measures in the form of two related maxims which recur throughout the case law. The first holds that aid is defined in relation to its effects. The second is that regulatory technique is irrelevant to the classification of a measure as aid. This article will chart the development of these established formulae in the case law and explain their relationship to one another, arguing that they represent a significant, but not absolute impediment to the articulation of distinct standards to identify aid in the form of fiscal measures. Keywords: Effects; Objectives; Selectivity; Fiscal Measures; Taxation; Article 107(1) TFEU; Formalism


The 'Incentive Effect' and 'Start of Works' – Court of Justice Creates Confusion journal article

Ulrich Soltész

European State Aid Law Quarterly, Volume 23 (2024), Issue 1, Page 35 - 39

The "incentive effect" is a rather technical issue under the State aid rules which is of huge practical importance. In a nutshell, this principle states that aid cannot be granted if the recipient had already started with the project before the application for aid was submitted. As this can lead to the complete refusal of funding, and because the recent case law - in particular the Eesti Pagar judgment (C-349/17) - is extremely harsh in defining the “start of works”, the “incentive effect” requirement has the potential to cause sleepless nights for aid recipients. Unfortunately, the most recent judgment in Est Wind Power (C-11/22) has not helped matters, but instead added to the confusion. Keywords: Incentive Effect; Aid Application; Start of Works; Early Project Start; Investment Aid


Incentive Effect of State Aid: journal article

Necessity and Counterfactual

Phedon Nicolaides

European State Aid Law Quarterly, Volume 22 (2023), Issue 2, Page 132 - 149

A fundamental criterion of the compatibility of State aid with the internal market is the presence of incentive effect. State aid must be able to change the behaviour of the recipient undertakings. The purpose of this article is threefold. First, it reviews recent case law and Commission decisions on the presence or absence of incentive effect. Second, it argues that this simple, yet fundamental criterion of compatibility suffers from a serious weakness. Third, it proposes an alternative method for establishing the existence of an incentive effect. Even when the aid is granted before the start of work, it does not necessarily follow that it induces the recipient to do something extra. A savvy company that knows how State aid rules work can adjust its investment plans in such a way as to qualify for aid, even when it does not really need it. Therefore, the new approach proposed in this article goes beyond the current test of the existence of incentive effect, asking not just whether a specific investment or project would not be carried out without the aid, but also whether the project is ‘discretionary’, in the sense that it is not indispensable for the continued operation of the recipient company. Keywords: incentive effect; necessity of State aid; indispensable expenditure; discretionary expenditure


The Art of Change Management – How To Deal with the Incentive Effect in Turbulent Times journal article

Stefan Akira Jarecki, Kamil Ciupak

European State Aid Law Quarterly, Volume 22 (2023), Issue 4, Page 389 - 403

The incentive effect is one of the most critical conditions for the compatibility of State aid with the EU internal market. The incentive effect means that State aid should not be granted for activities in which the beneficiary would, in any case, engage even in the absence of the State aid. If a beneficiary has decided to start a given activity receiving State aid under certain conditions, these conditions should not be changed - especially the amount of the State aid. However, we are living in turbulent times. Europe's economy was hit by the COVID pandemic outbreak, then by the war in Ukraine. All European countries have experienced a drastic price increase and are struggling with high inflation. The policy of the European Green Deal had led to drastic technological change. Many beneficiaries must buy energy and products from sources that were note initially planned. In this situation, the prohibition of changing the conditions of State aid that has already been granted may turn the incentive effect into the ‘disincentive effect’. In this article, we consider how this problem can be avoided. Keywords: incentive effect, GBER, de minimis


How Much Could the US Inflation Reduction Act Cost Europe? journal article

Eszter Hargita, Filip Puzder, Péter Staviczky

European State Aid Law Quarterly, Volume 22 (2023), Issue 3, Page 242 - 266

The Inflation Reduction Act (IRA) was introduced in the US in August 2022, aiming to promote investments into clean energy production. The IRA provides huge amount of aid, which can have a draining effect of green investments vital for the green transition of the European economy. In response, the Commission adopted Temporary Crisis and Transition Framework (TCTF) in March 2023. As well as explaining the historical context and content of these subsidy-rules, this article makes an attempt to compare the subsidies available under the IRA and the TCTF, considering the maximum aid amount available under the regional aid guidelines. Keywords: Inflation Reduction Act; IRA; subsidy competition; incentive effect; operating aid; battery manufacturing; tax credit


Big on Big, Small on Small: A Never Ending Promise? journal article

A Critical Assessment of the Commission Decision Practice with Regard to the Effect on Trade Criterion

Sebastiaan Cnossen, Georges Dictus

European State Aid Law Quarterly, Volume 20 (2021), Issue 1, Page 30 - 40

More than five years ago, the European Commission provided further guidance on local support measures by establishing three criteria in order to exclude an effect on trade. As authors explain in this article, this approach fits well within the existing case law of the CJEU and has also been recently endorsed by the General Court. At the same time, authors critically assess the decision practice of the Commission which often lacks a solid assessment of the three criteria. This detracts from the Commission's self-proclaimed goal to be 'big on big, small on small' and further reduce the administrative burden for public authorities and companies. This articles therefore calls upon the Commission to provide more legal certainty on the effect on trade criterion by taking the assessment of this criterion more seriously and create more precedents that stakeholders can rely on. Keywords: effect on trade; local aid; cross-border; marginal effect; notion of aid



Eesti Pagar: A Formalistic Approach to Incentive Effect and Recovery Procedures journal article

Caroline Buts, Péter Staviczky

European State Aid Law Quarterly, Volume 20 (2021), Issue 4, Page 546 - 559

Eesti Pagar constitutes a milestone in State aid law. This article provides an overview of the judgment and discusses, in chronological order, the topics of the five questions dealt with by the Court. First, we review the importance of the criterium incentive effect and more specifically the timing of the aid application in relation to the start of the project. Second, we analyse the obligation of a national authority to recover unlawful aid, also in the absence of a Commission decision. Third, we investigate whether actions by national authorities (in breach of EU law) can cause legitimate expectations for an aid beneficiary. Fourth, regarding recovery procedures without a Commission decision, we reflect on the pertinent limitation period. Finally, we examine the applicable recovery interest rate. Keywords: incentive effect; complaints; recovery; (recovery) interest rate/reference rate; limitation period, GBER, illegal aid, obligation of national granting entities Milestones Preview: this article is based on a chapter of the upcoming second edition of the book 'Milestones in State Aid Case Law' (Lexxion 2022).


Green Deal and Incentive Effect: journal article

What Is Truly Environmental Aid?

Vittoria Musardo

European State Aid Law Quarterly, Volume 20 (2021), Issue 2, Page 217 - 228

The current revision of the Energy and Environmental State aid guidelines (EEAG) represents a unique opportunity to update and adapt the current regime to reflect the latest EU regulatory and policy developments on climate change and environmental protection and especially the new goals of the European Green Deal. In this context, it becomes paramount to develop a clear and consistent approach for singling out aid measures which are truly capable of bringing about a further level of environmental protection, necessary for attaining such bold and farsighted objectives. The present article will seek to develop a consistent evaluation model for identifying aids which are truly environmental in nature, ensuring that the advantages allocated are targeted and limited to what is strictly necessary. This standard will build on the potential for a strategic use of the Incentive Effect criteria in the assessment of the compatibility of aid measures, aimed at making sure that the behavioural shifts induced by the latter are capable of attaining a level of environmental benefit consistent with the heightened environmental objectives introduced by the Green Deal. Keywords: Green Deal; EEAG; Incentive Effect; renewable energy; environmental aid.


Legal Status and Legal Effects of the Commission’s State Aid Guidelines: journal article

The Case of the Guidelines on State Aid for Environmental Protection and Energy (EEAG) (2014-2020)

Catherine Banet

European State Aid Law Quarterly, Volume 19 (2020), Issue 2, Page 172 - 184

Looking at the practical case of the Guidelines on State aid for environmental protection and energy (EEAG) (2014-2020) and implementation of them, this article intends to re-open the debate on the legal status of soft law instruments in EU State aid policy. It analyses the recent case law of the Court of Justice of the European Union and the manner the latter distinguishes between the legal force and the legal effects of the State aid guidelines, not only on the Commission, but also on third parties like Member States. The article puts in perspective the careful approach of the Court in not recognising the possible indirect effects of the guidelines on Member States or individuals with the procedural and structural changes in the adoption of the guidelines. With the implementation of the State Aid Modernisation, a circular process in three steps has been established between the adoption of the General Block Exemption Regulation (GBER), the new State aid guidelines and the proposals for new secondary legislation. In this process, the guidelines assume the function of a bridge, building on the binding principles enshrined in the GBER and preparing the revision of sectoral EU directives and regulations. With the upcoming revision of the GBER and the EEAG which is now scheduled for adoption in 2021, the same dynamic will most probably apply. The revision of the GBER and the EEAG will need to reflect the content of the newly adopted Clean Energy Package for All Europeans, but will also play a crucial role in preparing the grounds for amending relevant secondary legislation in line with the Commission’s European Green Deal Strategy. Keywords: EEAG 2014-2020, renewable energy, support schemes, GBER, legal force, legal effects