A. Undertaking

1

According to Art. 107, in the internal market, there is a potential threat to competition in the “favouring certain undertakings of the production of certain goods.” In an interpretational analysis of the phrase, an undertaking is defined as any economically involved enterprise. According to Höfner v Macrotron GmbH an undertaking “encompasses every entity engaged in an economic activity, regardless of the legal status of the entity and the way in which it is financed.”

B. Selectivity

2

“Certain” refers to the concept of selectivity in competition law. If an undertaking receives an aid, competition is potentially distorted, and there lies discrimination between companies that receive assistance and others which do not. Therefore a State measure which benefits all undertakings in national territory, without distinction, cannot constitute a State aid.

This was the ruling of the ECJ in Adria-Wien Pipeline which dealt with the compatibility of a provision that provided for a rebate of the energy taxes charged on supplies of natural gas and electricity but only for only those undertakings whose activity consists primarily in the production of goods. The Austrian Court asked if such a measure would constitute state aid under the meaning of Art.107, even if it applies to all undertakings, regardless of what their activity is.

3

The ruling of of the ECJ in the case Portuguese Republic v Commission dealt with tax law, as well: The Azores region in Portugal had adopted a decree that provided for a reduction in the rate of personal income tax and a reduction in the rate of corporation tax of for taxpayers in the region. Firstly, the ECJ stated "that the reference framework need not necessarily be defined within the limits of the Member State concerned, so that a measure conferring an advantage in only one part of the national territory is not selective on that ground alone for the purposes of" Art. 107 TFEU. The ECJ ruled that the tax reduction was considered an aid because it gives advances only to the persons or undertakings located in the region. The undertakings can thus be regional, and the favouring can be based in state aid in the form of tax measures.
Here, competition was distorted, as the companies in the Azores became undertakings that were favoured.

4

In Spain v Commission, the ECJ ruled that "the fact that the number of undertakings able to claim entitlement under the measure at issue is very large, or that they belong to different sectors of activity, is not sufficient to call into question its selective nature and therefore, to rule out its classification as State aid."
 According to the rulings of this case, it becomes apparent that the benefits which are provided to a large number of undertakings from different sectors is not enough to claim the non-selectivity of the law, as many others operators are expressly excluded. Furthermore, the argumentation railed by the Spanish Government, who claimed that the distribution of benefits is ruled by objective criteria of horizontal application, is irrelevant: "it can only serve to show that the aid at issue falls within an aid scheme and is not individual aid."

5

The cases referred to show that the meaning of “favouring certain undertakings of the production of certain goods” is a controversial phrase in article 107, particularly due to the fact that “certain undertakings” potentially brings enterprise activity into question, thus affecting competition. When analysing the cases, it can be seen that any sort of undertaking may be classified as a “certain undertaking,” and that these undertakings will be brought into question if the state favours them through selectivity. 

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