In the first part I presented the problem, now I will give you the solution.
To provide you with a swift answer I would like to chop it into the following 5 points.
- Identify the issue
As obvious as it may seem to be, you would not believe how many cases were shreddered just because a manager responsible for the project supported by public funds did not put sufficient attention towards state aid issues. In some cases the management is not aware that the capital injection constitutes the state aid. Having no knowledge of that, it is impossible to undertake effective actions.
- Work with your team on the issue
You need to present the problem to your team and work out some scenarios, even if the risk of a failure (state aid turning out to be the illegal one) is in the time being between dram and World of Ice and Fire. You never know, if in the not too distant future it might turn out that the whole process of granting state aid would be assessed as an illegal one. According to EU regulations, if a case is investigated towards illegality and it is settled in that way, you are not penalized by any means, you are just obliged to return all the advantage that you have received plus an interest. This threat plays a significant role, as you can imagine the business of yours exploited by an order to pay a significant amount of money in cash due to a simple fact that some years before, you were allowed to lease a parcel of land for free. Just one obligation was set – you needed to establish a factory, and you did it. The picture is not that nice, is it?
- Always quantify the advantage delivered by state aid
In case you did not see it coming, I can tell you that if you want to sleep well, you need to be prepared for the worst possible scenario. What scenario might it be? Even though the local authority is ensuring you, that there is no need to deal with state aid issues, you should always make your own calculations. Once you have this knowledge, you have arguments that can be provided during proceedings before the Commission. If it is possible, you need to quantify and monitor the advantage that you were supplied with. In such a case, you will be prepared for the battle and eventually you will be ready to return all the state aid which turned out to be illegal.
- Scenarios
Speaking of scenarios, one must realize that state aid is just one brick in the construction of your investment. As you have realized that, there will be no further questions whether there is a need to build scenarios. Always ask yourself a question “what if” and try to provide the answer, that will reveal the very problem of the case. If you see local authority holding the ground of “no state aid is involved”, you need to be skeptical and do part of their job – prepare for a notification. In the cases to come we will examine large companies struggling with EC, just to clarify the incentives received years ago about which the Commission has doubts in terms of their legality. If you do want to have a clear mind in this aspect, you need to have scenarios at your hand.
- Annual reporting
In the organization, there should always be a person who stitches all the state aid issues together. The knowledge of the state aid officially granted to the company plus where there could be some issues, gives a wide picture of the company's status. The members of the board should be aware and report on, at least, yearly basis. A very important point is if the person responsible for state aid issues shall acquire the information that the next fiscal case is to be launched by the Commission, and knows what to do about it. It might turn out that nothing will be happening within several years, but in case of problems, the company must be prepared to have: (1) the procedure of managing such an issue, (2) gathered information and data and (3) awareness that there might be an issue.
Once you have implemented the above five points, you will have knowledge that will allow you to quantify and manage your economic risk – risk of generating cash flow that will give granted support (not a state aid back then). Plus a given interest, of course.
Please remember that:
- If you do business where public funds are involved there is always a potential risk of state aid;
- Even if your public business partner ensures you that there is no state aid issue, you need to remember that it is not him that orders the recovery of it later on;
- The investor needs to quantify (at least assess) the support received from a public partner;
- The Preparation of scenarios and constant monitoring of the jurisprudence/regulator’s activity that will stipulate the awareness of the Board is essential
Verified by Małgorzata Rogala - MiG School of English