A. Introduction

1

Under Art. 107 para. 1 TFEU, state aid in any form whatsoever which distorts or threatens to distort competition is incompatible with the internal market in so far as it affects trade between Member States. This means that only an aid which distorts or threatens to distort competition is incompaltible with the internal market.

B. Definition

2

The TFEU does not provide a definition of what “distorts or threatens to distort competition” actually involves. But the ECJ has interpreted the element in its case law.

3

One of the earlier examples of the Court’s interpretation of Art. 107 para. 1, and more particularly, a better explanation as to the purpose of Art. 107, is given by the court in Italy v. Commission.  The Court there states, “The aim of [Article 107] is to prevent trade between Member State from being affected by benefits granted by the public authorities which, in various forms, distort or threaten to distort competition by favouring certain undertakings or the production of goods. Accordingly, [Article 107] does not distinguish between the measures of state intervention concerned by reference to their causes or aims but defines them in relation to their effect." This decision places emphasis on the effect of the measure (rather) than its form or the intention of those who grant or receive the aid in question. This effect needs to be evaluated: This is to be done by applying a “before and after test” to the market, “by carrying out critical analysis of the relevant market both prior to and following the grant of aid.”
According to the ECJ in Phillip Morris v. Commission, there is a distortion of competition if “the aid strengthens the position of an undertaking compared with other undertakings competing in intra-Community trade.”

outgoing links

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