A company which receives government support obtains an advantage over its competitors. Therefore, the TFEU prohibits State Aid unless it is justified by reasons of general economic development. To ensure that this prohibition is respected and exemptions are applied equally across the European Union, the European Commission is in charge of watching over the compliance of State aid with the EU rules.
As a first step, it has to be determined whether a company has received State Aid, which is the case if the support meets the following criteria:
- there has been an intervention by the State or through State resources which can take a variety of forms (e.g. grants, interest and tax reliefs, guarantees, government holdings of all or part of a company, or the provision of goods and services on preferential terms, etc.);
- the intervention confers an advantage to the recipient on a selective basis, for example to specific companies or sectors of the industry, or to companies located in specific regions;
- competition has been or may be distorted;
- the intervention is likely to affect trade between Member States.
By contrast, general measures are not regarded as state aid because they are not selective and apply to all companies regardless of their size, location or sector. Examples include general taxation measures or employment legislation.
In accordance with the more economics based approach the EU reformed its state aid provisions in the recent years. Today, the State Aid provisions are fully coherent with the economic principles developed in EU competition law.