2.3.3 Criterion 3: The aid must confer an advantage to the recipients

Naturally, State aid implies that the aid measure confers an advantage to the recipient. However, the real question is: what exactly is an “advantage”?

First of all, the notion of State aid covers much more than only subsidies. This clarification came when the Court rendered its judgment in the case 30/59. The Court held that the concept of aid is wider than that of a subsidy.1 The reason is that the notion of aid embraces not only positive benefits, but also interventions which mitigate the charges which are normally included in the budget of an undertaking. These interventions are not subsidies in the strict meaning of the word, but they are similar in character and have the same effect.

The form of the aid measure is irrelevant.2 Also the aim, objectives or intentions of the aid measure are irrelevant. The only issue that matters is whether the aid measure has the effect of favouring certain undertakings. This is the case when the undertaking enjoys an advantage that it would not have obtained in normal market conditions.

For instance, if a public authority purchases goods from an undertaking at a price that is above the market price, then the difference between the market price and the actual price may constitute an advantage to the undertaking. Similarly, if a public authority sells goods to an undertaking at a price that is below the market price, then the difference between the market price and the actual price may constitute an advantage. By the same token, a loan granted to an undertaking at an interest rate below the market rate of interest may confer an advantage to the undertaking.

To conclude, an advantage within the meaning of Article 107(1) TFEU does not refer to any advantage; it only refers to a gratuitous advantage.3 In other words: it refers to an advantage that an undertaking would not have obtained in normal market conditions. Undertakings are allowed to make profit, so a transaction with a public authority that is advantageous to an undertaking does not necessarily confer an ‘advantage’, since a lucrative transaction may be in line with normal market conditions. However, any transaction that deviates from normal market conditions may constitute an advantage.

In order to be able to assess whether a transaction deviates from normal market conditions, the Commission applies the Market Economy Investor Principle.4 Originally, this test was applied to public undertakings that were recapitalised by the Member states.5 But it has become a general criterion that is applied to all kinds of transactions between a member state and its undertakings. Depending on the type of transaction, one could speak of a “private investor test”6, “private creditor test”, “private purchaser test” or “private vendor test”.7 In the Notice, the Commission introduced the term “Market Economy Operator” to capture the different types of transaction.8

The essence of the private investor test is that the behaviour of the public authority is compared to that of a hypothetical private investor. If the public authority acts like a private investor would do (under similar circumstances), then the transaction contains no aid-element. Comparing the behaviour of the public authority and that of a hypothetical private investor makes it necessary to determine the behaviour of the hypothetical private investor. In the case-law from the Court, several factors and indicators were developed.

The most essential characteristic of a private investor is that he is solely moti vated in making a profit. In T-228/99, the Court specified that the private investor would, when calculating the appropriate return to be expected for his investment, in principle require a minimum return equivalent to the average return for the sector concerned.9

The private investor does not pursue other objectives than making a profit. All social, regional-policy and sector considerations should be left aside; they cannot be taken into account when applying the private investor test.10

However, the fact that a private investor is motivated in making a profit does not mean that he is only interested in short-term profits. There are situations in which a private investor would tolerate short-term losses. The Court has given the following clarification:

The Court has also recognised that a parent company may be willing to temporarily bear the losses of one of its subsidiaries, in order to protect the group’s image.12

The Court has stressed repeatedly that assessment by the Commission of the question whether an investment satisfies the private investor test involves a complex economic appraisal.13

The burden of proof is on the Member State. It has to prove that its behaviour is comparable to that of a private investor. This can be a difficult task. How ever, with respect to some transactions, it is easier to establish that the public authority is acting in line with market conditions. This is the case when private investors invest in the undertaking concerned at the same time and under the same conditions as the public authority. Such a transaction is called a “pari passu transaction”.14 The capital that the State has injected in that undertaking is then presumed not to constitute State aid. There is a “pari passu transaction” when:

It is for the Member State to prove that these pari passu conditions are fulfilled.

The private investor test is not always easy to apply in practice, since it can be a difficult task to determine how a private investor would behave. Besides this practical concern, there are also some conceptual concerns raised in the literature.16 The most prominent concern is that the State can never be fully comparable to a private investor. Notwithstanding these concerns, the private investor test has become a general criterion that is applied to all kinds of transactions between a Member State and its undertakings.