Special Infrastructure Fund and State Aid Law: Orientation for Funding Practice and Planning

The special fund “Infrastructure and Climate Neutrality” (SVIK) also entails considerable responsibility under state aid law for federal states, municipalities and recipients of funds. Anyone developing programs, forwarding or receiving funds should clarify at an early stage whether and to what extent state aid law applies.

The article shows how the requirements under state aid law can be complied with.

State aid law issues should not only be examined at the individual project approval stage, but should be included in the design of funding programs and guidelines at an early stage. Clarification at programme level creates planning security and minimizes the risk of clawback.

Funding chain and municipal funding practice

In terms of state aid law, the specific use of the funds from the special fund in the funding chain is decisive. The decision on the specific municipal quota now lies entirely with the federal states. § 3 par. 4 VV LuKIFG as the central state aid clause obliges the federal states to comply with the requirements of EU law. The responsibility is thus “passed on” to the federal states and in particular to the local authorities. Although Art. 107 TFEU is directed at the EU member states, the risk of recovery is borne by the recipient of the grant. For this reason, it is also in the interests of the recipient to ensure that the aid is lawful.

The prohibition of state aid under Art. 107 (1) TFEU as a starting point

According to Art. 107 (1) TFEU, any aid granted by a Member State or through State resources in any form whatsoever is incompatible with the internal market if and insofar as it distorts or threatens to distort competition by favoring certain undertakings or the production of certain goods and affects trade between Member States.

The facts of the case are cumulative:

• Measure in favor of a company,

• Favoring of the company,

• Financing from state funds,

• Selectivity,

• at least potential distortion of competition,

• at least potential impairment of European trade.

If state aid is present, its introduction generally requires prior notification to the European Commission and its approval (Art. 108 para. 3 TFEU; Art. 2, 3 Regulation (EU) 2015/1589). Notification can only be waived if the measure is based on an exemption, such as the GBER, an SGEI exemption decision or the De–minimis–Regulation, is permissible.

If a state measure constitutes state aid and there is neither approval nor an exemption, there is a risk of significant legal consequences:

At Union level, the Member State is obliged to recover the aid from the recipient. As a rule, interest must also be paid on the aid amount from the time it is granted. The Commission is entitled to recover the aid for a period of ten years from the date on which it was granted. At national level, the Federal Court of Justice has consistently clarified that all legal acts on which an unlawful grant of aid is based are null and void from the outset. Grant notices or guarantee declarations are invalid and must be reversed. These legal consequences make it clear that errors in state aid law entail considerable financial, time and reputational risks.

However, if at least one of the criteria of Art. 107 (1) TFEU is not met, the measure is exempt from state aid; an exemption or notification is then not required.

Key facts in municipal practice

Definition of a company and economic activity

An enterprise in the sense of state aid law is any entity, irrespective of its legal form or profit-making intention, which carries out an economic activity. The decisive factor here is not an institutional, but a functional, activity-related concept of an enterprise. The decisive factor is therefore not the legal entity as such, but the specific activity for which public funds are to be granted. A legal entity can therefore carry out both economic and non-economic activities. The status of an enterprise must be examined separately for each individual activity. For example, a municipality acts as an enterprise in the context of water supply, whereas it acts as a non-economic entity when performing sovereign tasks, such as in the public order office or registry office.

If there is already no economic activity, there is no company within the meaning of Art. 107 (1) TFEU. In this case, the aid is not eligible.

The term “economic activity” is to be interpreted broadly in state aid law. It includes any offering of goods or services on a market. The intention to make a profit is not relevant.

Typical economic activities in municipal practice are in particular

• Construction or operation of energy,
• Letting or leasing of commercial space,
• Operation of day care centers,
• Feed-in of electricity.

Consequently, the construction or renovation of infrastructure is also of an economic nature if it is inextricably linked to economic use.

In contrast, there are generally no economic activities in the case of

• the exercise of sovereign powers,
• the construction and operation of purely non-economic infrastructure,
• Activities of private households.

The case law and decision-making practice of the European Commission have also expressly qualified certain activities as non-economic, such as

• Monitoring activities to combat environmental pollution in an oil port, even if fees are charged to finance them,

• wastewater disposal by local authorities as a classic task of public services of general interest,

• Consumer information that serves exclusively to educate and protect consumers without having a sales-promoting effect,

• the collection of company data on the basis of statutory reporting obligations.

Institutions such as schools or workshops for people with disabilities were also not classified as companies by the Commission.

However, cultural institutions are not excluded per se from the definition of an enterprise. A case-by-case assessment is always required for each individual activity.

If it is not a company in the sense of state aid law due to a lack of economic activity, the requirements of Art. 107 (1) TFEU are not met and there is no aid.

Benefiting the company

An advantage for a company in the sense of an economic benefit exists if a company is placed in a better position than would be the case under normal market conditions. When distributing funds from the special fund, the concept of an advantage will regularly be fulfilled. Public welfare objectives do not exclude the benefit. The decisive factor is whether a private actor acting in a market economy would have acted in the same way.

State resources, imputability and selectivity

Funds from the special fund are state funds. Attributability regularly exists when municipalities decide on the recipients of the funds. Selectivity exists when certain companies or sectors are favored.

At least potential distortions of competition

A ban on state aid applies if a measure is at least capable of distorting competition. A potential distortion of competition is sufficient; an actual disadvantage to competitors is not required. Accordingly, the Commission and EU courts regularly affirm this requirement without in-depth examination. In completely monopolized markets where the recipient is not exposed to competition, a distortion of competition can be ruled out as an exception.

At least potential effect on trade

The final requirement for the existence of aid is that it must at least potentially affect intergovernmental trade. This criterion is to be understood broadly and is fulfilled if the grant from the special fund has more than a purely local effect on trade. The assessment is independent of the size of the beneficiary company and the amount of the benefit granted. In order to affect interstate trade, the beneficiary company does not even have to participate in cross-border trade itself.

In the case of a purely local situation, this criterion is not fulfilled.

The Commission has decided this in several decisions for local facilities without a large catchment area, such as swimming pools or small ports, primary health care facilities or municipal conference centers. A measure has a purely local impact if the beneficiary company only offers its goods or services in a geographically limited area, making it unlikely that the company will attract customers from other Member States. and if it is sufficiently likely that the measure will have more than a marginal impact on cross-border investments or the establishment of companies.

The Commission set out the above criteria in a decision from 2017 . and set out aspects for their examination in detail. The decision and the local approach pursued by the Commission in it have been recognized by the European Court of Justice(ECJ, judgment of 14 May 2019 – T-728/17). has been confirmed. In principle, the Commission assumes a local catchment area if this regularly covers no more than around 50 kilometers and there is no border proximity (regularly more than 150-200 kilometers to the national border). In such cases, a lack of supra-regional appeal for users, customers or investors is assumed.

The assumption of a local situation must always be examined on a case-by-case basis. Even locally located projects can potentially have cross-border implications. Reliable market analyses and careful documentation are therefore essential.

Exceptions and exemptions from the ban on state aid

If aid cannot be ruled out, exceptions must be examined. Of particular practical relevance is de minimis aid (up to EUR 300,000 over three years), which can be granted without approval provided that thresholds are met and declarations and documentation are ensured. For larger measures, the GBER offers an approval-free framework with clear guidelines, for example for environmental, innovation or SME funding. In addition, special aid frameworks such as the CISAF for climate and transformation projects are becoming increasingly important. Finally, funding can also be designed as SGEI compensation, for example in the health or transport sector. However, they then require formal entrustment and precise compensation mechanisms.

Conclusion: State aid law is a key prerequisite for the legally compliant use of the special fund

The special fund opens up considerable additional scope for investment for the federal states and local authorities. At the same time, it is highly sensitive in terms of state aid law. The decisive lever for legally compliant implementation lies in a systematic, early and documented state aid assessment. An assessment under state aid law should already be carried out when designing municipal programs and funding guidelines and not only in the individual case of project approval. Standardized review schemes and documentation tools, such as checklists, forms and comprehensibly documented results in funding files, have also proven their worth.