Net-additional-cost test

State aid may be legal if it passes the requirements of Article 106 (2), the so-called “net-additional-cost test”. The EU Commission considers that such State aid may be declared compatible with the Treaty if the State aid is necessary to the operation of the Services of General Economic Interest (SGEIs).

The main principle of this test is that the amount of compensation may not exceed what is necessary to cover the costs incurred in discharging the public service obligations, taking into account the relevant receipts and reasonable profit for discharging those obligations. The costs to be taken into consideration are all the costs associated with operation of the SGEI.

The EU Commission already applied this approach in its RAI Decision (OJ (L) 119/1, 23.4.2004) which involved detailed calculations including multiple regression analyses. The Commission’s conclusion was that measures do not constitute State aid if “[they] compensate RAI for the net additional cost of performing the general service task entrusted to […].”

The difficulty lies in the identification of activities which contribute to the provision of public services and which do not. An enterprise as large as RAI obviously not only provides public services but also runs some businesses that are comparable to the ones performed by private competitors. Calculations are especially complicated by the need to breakdown costs incurred and support received by the other activities. Various approaches of cost allocation may yield substantially different results (the adequate allocation of fixed costs may suffice here as an example). Therefore, any evaluation, allocation, and calculation according to the concept of the net additional cost test must be backed up by thorough and reasonable economic interpretations.