Serbia Has New State Aid Control Act

Serbia Has New State Aid Control Act

Authors: Bisera Andrijasevic and Jelena Malesevic, BDK Advokati

The Serbian National Assembly enacted on 10 October 2019 the new State Aid Control Act, which will become applicable only on 1 January 2020 (with the exception of the provisions regulating the organisation of the Commission for State Aid Control (“Commission“), which are already applicable).

The new legislation was drafted with a view to harmonization with the European Union’s acquis in this field. It remedies to a significant extent the shortcomings of the existing State aid law.

Implementing regulations are expected to be adopted within one year from the beginning of the application of the new act, i.e. until 1 January 2021. Until then, the existing bylaws continue to apply:

Notion of State aid

The definition of selectivity has been extended from favouring a certain competitor to favouring a competitor or certain goods and/or services. Furthermore, in order to constitute State aid, a measure must not only affect competition, but it must also have an EU dimension reflected in the requirement that the measure must affect the trade between Serbia and the EU member states.

Before adopting a legislative act of general nature which is the basis for State aid, the body enacting it must submit to the Commission the draft of the act for an opinion as to whether the act gives rise to State aid which must be notified.

The new law introduces the notions of “compatible” and “incompatible” State aid. The Act further lists the forms of State aid that are always considered compatible, mirroring Article 107(2) of the Treaty on the Functioning of the European Union (TFEU), as well as those that may be considered compatible if they meet one of the prescribed criteria which are broadly in line with Article 107(3) TFEU. State aid which is assessed as incompatible is unallowed.

State aid instruments

State aid instruments that are currently located in a bylaw have been transposed directly into the new legislation. A non-exhaustive list of State aid instruments included in the law encompasses subsidies and subsidized interest rates on loans, fiscal reliefs, guarantees issued on more favourable terms than the market terms, waiver measures, debt write-offs, and sale or use of public property under more favourable conditions than the market conditions. The rules on cumulation of aid are also moved from the bylaw into the law.

In case aid is granted to one beneficiary from several sources, the new law imposes an obligation on each grantor to specify all related State aid grantors and all State aid instruments.

Individual aid v. scheme

State aid may be granted either as an individual aid or as an aid scheme. A conspicuous novelty brought about by the new legislation is the requirement on the grantors to notify aid granted to an individual user on the basis of a scheme if the proposed value of the aid to be granted to the individual, irrespective of the type and number of instruments through which it is granted, is at least EUR 10 million.

The Commission is required to prepare and submit to the Government an annual report on State aid schemes, with references to relevant legislation and regulations, and with a compliance assessment and recommendations. In order to facilitate this report, State aid grantors are required to submit to the Commission, by 15 December, a plan and a timeline for adoption of State aid schemes in the following year.

In line with the EU State aid law, the new Serbian State aid law lists four categories of measures which do not constitute State aid: (i) compensation for provision of services of general economic interest (SGEI), provided it meets four cumulative Altmark criteria; (ii) measures granted by the State acting under normal market conditions, and in a manner typical of a private undertaking, including the granting of guarantees in accordance with market conditions; and (iii) aid granted for performing non-economic activities within the exclusive competence of the State on all levels (e.g. military, police, pollution control, air traffic control, etc.).

MEOP (“market economy operator principle”, consisting of “market economy investor principle”, “private creditor test”, and “private vendor test”) looks to establish whether a similar private market operator would behave in the same manner as the state body under normal market conditions. The Commission is charged with the duty to lay down the conditions and criteria for the assessment of the compliance with MEOP by 1 January 2021. This is helpful given that the analysis whether a measure complies with MEOP is often a complex exercise which many grantors in Serbia are not well equipped to carry out.

Organisation of the Commission

The status of the Commission is being changed from an attachment to the Ministry of Finance to an independent agency vested with public powers. The Commission’s President and the other four members of the Council will be elected by the National Assembly for a period of five years.

The Commission will be supported by professional case handlers.

Procedural rules

Just as now, the only party to the proceedings before the Commission is the grantor. The State aid beneficiary and its competitors when they submit an initiative to the Commission do not have the status of a party but have the right to be informed of the status of the proceedings. Тhe grantor has the burden of proof with respect to compliance of State aid with the requirements of the law.

Control of existing schemes which have not been notified

The Commission will inform the Government of Serbia and the competent bodies which proposed or adopted a scheme which has not been notified to the Commission prior to its adoption of the obligation to align the scheme with the provisions of the State Aid Act. There is still a number of laws and bylaws which constitute the basis for various State aid measures although they have never been (at least not officially) assessed by the Commission.

Preliminary Proceedings

The new State Aid Act introduces preliminary proceedings, which the Commission initiates when it obtains information on potential State aid. If the Commission establishes during preliminary proceedings a reasoned assumption that State aid has been granted or is used contrary to the law, it will initiate ex officio proceedings and continue the proceedings as ex-post control.

A decision on initiation of ex-post control proceedings cannot be challenged separately but only in a lawsuit mounted against a final decision of the Commission.

Commitments

In order to avoid a decision on incompatible aid and a recovery order, the grantor may submit to the Commission a request for termination of the proceedings with the proposal of measures (with terms and conditions for their implementation) which it is prepared to voluntarily undertake. The Commission may require amendments to the proposed commitments if this is required to achieve an appropriate degree of compliance. If the Commission accepts the commitments, it will stay the proceedings. If the party fully implements the proposed measures, the Commission will terminate the proceedings.

Direct inspection of State aid beneficiary

The Commission may inspect the premises of the State aid beneficiary with prior notice only if it suspects the aid is incompatible in spite of the assurances of the State aid grantor that the aid is compatible.

Administrative measures

The following measures are available to the Commission: (i) temporary or a permanent suspension of State aid grant, and (ii) order for recovery of the granted amount of State aid, plus statutory default interest.

The Commission will also be able to impose a periodic penalty in an amount ranging between RSD 5,000 and RSD 200,000 per day for a failure to comply with a Commission’s order to submit data in ex-post control proceedings.

Statute of limitations

The statute of limitations for the recovery of incompatible State aid remains 10 years from the grant. The statute of limitations for a periodic penalty is one year from the date of breach.

Authors: Bisera Andrijasevic and Jelena Malesevic, BDK Advokati

The Serbian National Assembly enacted on 10 October 2019 the new State Aid Control Act, which will become applicable only on 1 January 2020 (with the exception of the provisions regulating the organisation of the Commission for State Aid Control (“Commission“), which are already applicable).

The new legislation was drafted with a view to harmonization with the European Union’s acquis in this field. It remedies to a significant extent the shortcomings of the existing State aid law.

Implementing regulations are expected to be adopted within one year from the beginning of the application of the new act, i.e. until 1 January 2021. Until then, the existing bylaws continue to apply:

Notion of State aid

The definition of selectivity has been extended from favouring a certain competitor to favouring a competitor or certain goods and/or services. Furthermore, in order to constitute State aid, a measure must not only affect competition, but it must also have an EU dimension reflected in the requirement that the measure must affect the trade between Serbia and the EU member states.

Before adopting a legislative act of general nature which is the basis for State aid, the body enacting it must submit to the Commission the draft of the act for an opinion as to whether the act gives rise to State aid which must be notified.

The new law introduces the notions of “compatible” and “incompatible” State aid. The Act further lists the forms of State aid that are always considered compatible, mirroring Article 107(2) of the Treaty on the Functioning of the European Union (TFEU), as well as those that may be considered compatible if they meet one of the prescribed criteria which are broadly in line with Article 107(3) TFEU. State aid which is assessed as incompatible is unallowed.

State aid instruments

State aid instruments that are currently located in a bylaw have been transposed directly into the new legislation. A non-exhaustive list of State aid instruments included in the law encompasses subsidies and subsidized interest rates on loans, fiscal reliefs, guarantees issued on more favourable terms than the market terms, waiver measures, debt write-offs, and sale or use of public property under more favourable conditions than the market conditions. The rules on cumulation of aid are also moved from the bylaw into the law.

In case aid is granted to one beneficiary from several sources, the new law imposes an obligation on each grantor to specify all related State aid grantors and all State aid instruments.

Individual aid v. scheme

State aid may be granted either as an individual aid or as an aid scheme. A conspicuous novelty brought about by the new legislation is the requirement on the grantors to notify aid granted to an individual user on the basis of a scheme if the proposed value of the aid to be granted to the individual, irrespective of the type and number of instruments through which it is granted, is at least EUR 10 million.

The Commission is required to prepare and submit to the Government an annual report on State aid schemes, with references to relevant legislation and regulations, and with a compliance assessment and recommendations. In order to facilitate this report, State aid grantors are required to submit to the Commission, by 15 December, a plan and a timeline for adoption of State aid schemes in the following year.

In line with the EU State aid law, the new Serbian State aid law lists four categories of measures which do not constitute State aid: (i) compensation for provision of services of general economic interest (SGEI), provided it meets four cumulative Altmark criteria; (ii) measures granted by the State acting under normal market conditions, and in a manner typical of a private undertaking, including the granting of guarantees in accordance with market conditions; and (iii) aid granted for performing non-economic activities within the exclusive competence of the State on all levels (e.g. military, police, pollution control, air traffic control, etc.).

MEOP (“market economy operator principle”, consisting of “market economy investor principle”, “private creditor test”, and “private vendor test”) looks to establish whether a similar private market operator would behave in the same manner as the state body under normal market conditions. The Commission is charged with the duty to lay down the conditions and criteria for the assessment of the compliance with MEOP by 1 January 2021. This is helpful given that the analysis whether a measure complies with MEOP is often a complex exercise which many grantors in Serbia are not well equipped to carry out.

Organisation of the Commission

The status of the Commission is being changed from an attachment to the Ministry of Finance to an independent agency vested with public powers. The Commission’s President and the other four members of the Council will be elected by the National Assembly for a period of five years.

The Commission will be supported by professional case handlers.

Procedural rules

Just as now, the only party to the proceedings before the Commission is the grantor. The State aid beneficiary and its competitors when they submit an initiative to the Commission do not have the status of a party but have the right to be informed of the status of the proceedings. Тhe grantor has the burden of proof with respect to compliance of State aid with the requirements of the law.

Control of existing schemes which have not been notified

The Commission will inform the Government of Serbia and the competent bodies which proposed or adopted a scheme which has not been notified to the Commission prior to its adoption of the obligation to align the scheme with the provisions of the State Aid Act. There is still a number of laws and bylaws which constitute the basis for various State aid measures although they have never been (at least not officially) assessed by the Commission.

Preliminary Proceedings

The new State Aid Act introduces preliminary proceedings, which the Commission initiates when it obtains information on potential State aid. If the Commission establishes during preliminary proceedings a reasoned assumption that State aid has been granted or is used contrary to the law, it will initiate ex officio proceedings and continue the proceedings as ex-post control.

A decision on initiation of ex-post control proceedings cannot be challenged separately but only in a lawsuit mounted against a final decision of the Commission.

Commitments

In order to avoid a decision on incompatible aid and a recovery order, the grantor may submit to the Commission a request for termination of the proceedings with the proposal of measures (with terms and conditions for their implementation) which it is prepared to voluntarily undertake. The Commission may require amendments to the proposed commitments if this is required to achieve an appropriate degree of compliance. If the Commission accepts the commitments, it will stay the proceedings. If the party fully implements the proposed measures, the Commission will terminate the proceedings.

Direct inspection of State aid beneficiary

The Commission may inspect the premises of the State aid beneficiary with prior notice only if it suspects the aid is incompatible in spite of the assurances of the State aid grantor that the aid is compatible.

Administrative measures

The following measures are available to the Commission: (i) temporary or a permanent suspension of State aid grant, and (ii) order for recovery of the granted amount of State aid, plus statutory default interest.

The Commission will also be able to impose a periodic penalty in an amount ranging between RSD 5,000 and RSD 200,000 per day for a failure to comply with a Commission’s order to submit data in ex-post control proceedings.

Statute of limitations

The statute of limitations for the recovery of incompatible State aid remains 10 years from the grant. The statute of limitations for a periodic penalty is one year from the date of breach.