On 18 May 2016, the day the first part
of this blog was published, the Commission said in response
to the Hungarian MEP Péter Niedermüller’s question, that it
had “not specifically monitored the tax relief (…) but would consider doing so.
The Commission cannot prejudge the steps that it might take following such
monitoring. However, the Commission thanks (Niedermüller) for drawing its
attention to the report of Transparency International.”
With the actual implementation in Hungary appearing to
deviate from the original objectives and conditions of the aid scheme, as discussed
in part 1 of this blog, a possible monitoring exercise by the Commission of the
Hungarian tax benefit scheme seems appropriate. The question remains, however,
whether the Commission follows up on the intent of monitoring, or whether the
intent should be regarded as empty words. This second part of the blog will outline
the rules on reviewing and monitoring (existing) aid, both substantively and
procedurally. It will determine,
alia, whether the State aid rules impose an obligation upon the Commission
to act and, if so, in what way.
In order to correctly decipher the potential consequences
of Hungary’s behavior under EU State aid law, it is necessary to make a
distinction between the part of the aid scheme declared compatible in the
tax benefit scheme in
the Hungarian sport sector
decision, i.e. the
donations for the sport infrastructures used by the professional sport
organizations, and the donations used to cover personnel costs. Due to the fact
that these two types of donation destinations were allowed based on two
different exception procedures (the general exception found in Article 107(3)c)
TFEU for the aid to sport infrastructure, and the General Block Exemption Regulation or the
for the aid to cover personnel costs), the rules on reviewing and monitoring aid differ slightly. This blog
will only focus on the review and monitoring rules of the tax
benefit scheme in the Hungarian sport
Reviewing and monitoring State aid schemes
– a Commission obligation?
A decision to approve an aid scheme (also known as a “positive decision”
under Article 9(3) of the Procedural Regulation 2015/1589), should not fully
release the Commission from any obligations regarding ex post control of that
scheme. As can be read from Article 108(1) TFEU,
“(t)he Commission shall, in cooperation with Member States, keep under
constant review all systems of aid existing in those States. It shall
propose to the latter any appropriate measure required by the progressive
development or by the functioning of the internal market.”
The Commission’s responsibilities appear
straightforward. After declaring the Hungarian tax benefit scheme compatible
with EU law, it is obliged to review the implementation and usage of the aid by
the Member State and the beneficiary, or beneficiaries. The CJEU settled as far back as 1974 that the Commission’s
obligation to review existing aid is binding and that the Member States in
question the obligation to cooperate with the Commission. In
fact, as Advocate General Lenz stated in his opinion in the
case, the Commission’s task to constantly
review aid is even more necessary for aid schemes, like the Hungarian tax
benefit scheme, as compared to individually authorized aid measures. Pursuant
to Article 108(1) TFEU and Article 21 of the Procedural Regulation, where the
Commission considers that an existing aid scheme is not, or is no longer,
compatible with the internal market instead of immediately launching a formal
investigation, the Commission must issue a recommendation to the Member State
concerned. The recommendation may propose, in particular:
- Substantive amendment of the aid scheme;
Introduction of procedural requirements;
- Abolition of the aid scheme.
It is important to note that in accordance with Article 288 TFEU, fifth
sentence, recommendations have no binding force. Therefore, the proposed
measure itself is not binding for the Member State. Only where the Member State
accepts the proposed measure, shall it be bound by its acceptance to implement
the appropriate measure.
However, if the Member State refuses to accept and implement the
recommendations, the Commission could launch a formal investigation in
accordance with Article 108(2).
Article 108 (1) TFEU and Article 21 of the Procedural Regulation also
require the Member States to cooperate with the Commission for the purpose of
reviewing aid schemes. This cooperation is further specified in Article 26 of
the Procedural Regulation, which obliges Member States to submit annual reports
on existing aid schemes to the Commission.
The reports allow the Commission to monitor the compliance with the
positive decision by the Member State. As was already discussed in part 1 of
this blog, Hungary too is required to submit a yearly monitoring report containing information on the total aid amount
allocated, the sport infrastructure projects funded, their beneficiaries, etc. A failure by Hungary to submit an annual report, would allow the Commission
to propose an appropriate measure as listed above.
Whether Hungary actually submits annual reports to the Commission is currently
Monitoring the tax benefit scheme in the
Hungarian sport sector – not as straightforward as it appears
The Commission has repeatedly expressed its ambition for more and better
monitoring of State aid schemes. This ambition follows from its primary
objective to increase Commission enforcement focus on cases with the biggest
impact on the internal market, as can be read from, inter alia, the State Aid Modernisation (SAM) Communication of 2012. Better targeted State aid control means an “increased
responsibility of Member States in designing and implementing aid measures” for
cases of a more local nature and with little effect on trade, as well as
“enhanced ex post monitoring by the
Commission to ensure adequate compliance” with the State aid rules. In
2006, the Commission introduced a regular, ex post, monitoring exercise of existing aid
schemes. The monitoring exercise gradually increased from 20 different schemes
in 2006, to 75 schemes in 2014, covering all Member States, all main types of
aid approved as well as block-exempted schemes. The
monitoring exercises conducted in 2014 led to the openings of four formal
The willingness to increase monitoring seems logical when taking into account
EU case law, which imposes, in practice, an obligation for the Commission to
review previously approved aid schemes. Yet, only a very small amount of
existing aid schemes is monitored, nor is it realistically possible to do
monitor all the schemes. As can be read in the recently published DG Competition Management Plan 2016, over the last 10 years the Commission declared over 3000 aid schemes
or measures compatible with EU law after a the preliminary phase (“decisions
not to raise objections”) alone.
This amount does not take into account positive decisions or block exempted aid
schemes and measures, all of which should, strictly speaking, be monitored. Exact
numbers on the amount of existing aid schemes currently running throughout the
EU are not available, but one could safely say that the overwhelming majority
of existing aid schemes are not monitored. Unless the State aid department of
the Commission dramatically increases its resources, both in terms of finances
and staff, monitoring all existing State aid schemes will remain utopic.
The “specificity” of State aid to the
professional sport sector and why extra monitoring in the sector should be
The Hungarian tax benefit scheme is not functioning in
accordance with its original objectives: many of the sport infrastructure projects
funded with public money do not seem strictly necessary and selected
professional football clubs benefitted disproportionately. Under these
circumstances, a monitoring exercise conducted by the Commission could be needed.
If a monitoring exercise confirms disproportionate spreading of subsidies, a
consequent set of appropriate measures taken by Hungary could bring the scheme
in line with its original objectives. However, given that the majority of
schemes are not monitored, there is a very big chance that the Hungarian tax
benefit scheme is not one of the “lucky ones” selected. It is also unclear
whether the Commission’s answer to the Parliamentary question of 18 May in any way
increases that probability.
The State aid
complaint procedure as an alternative
Another way to force the Commission to look into the
aid scheme, not yet discussed above, is through a State aid complaint
procedure. Although the tax benefit scheme was already approved by the
Commission in 2011, this should not rule out the possibility of an interested
party submitting a complaint
to inform the Commission of any alleged unlawful aid.
Pursuant to Article 12(1), the Commission is obliged to examine without undue
delay a complaint by an interested party, thereby automatically triggering the
preliminary State aid investigation of Article 108(3) TFEU. Although ‘unlawful
aid’ refers to new aid put into effect in contravention of Article
and not existing aid, such as aid schemes authorized by the Commission,
‘new aid’ also refers to existing aid that has been altered by the
Member State. In
accordance with the Commission’s State Aid Manual of Procedures, for an aid scheme to be altered, the complainant
would need to demonstrate that a change has taken place that affects “the
evaluation of the compatibility of the aid with the common market”.
In addition to this, the complaint would need to include, inter alia, information on the (functioning of) the scheme, the
amount of aid granted, and why the scheme is no longer compatible under Article
A further highly important criterion is for the interested party to demonstrate
to the Commission that the complainant is directly affected in its “competitive
position” by the aid scheme.
This criterion empowers the Commission to separate formal complaints from the
complaints that are “not motivated by genuine competition concerns”, thereby
reducing considerably its workload of having to launch a (preliminary)
investigation based on every single complaint it receives.
Complaints submitted by complainants, who the Commission does not consider to
be interested parties, will be regarded as “general market information”
and do not oblige the Commission to investigate.
The “specificity” of
State aid to professional sport – no complaints by other clubs
The “interested party” criterion was only added after
the reform of the Procedural Regulation in 2013,
and has affected the professional sport sector considerably. The two years
prior saw great activity by the Commission in the sector, including the opening
of four formal investigations into alleged State aid to professional football
clubs like Real Madrid
and Valencia CF.
The investigations into alleged aid granted to Real Madrid and Valencia CF were
not launched after the submission of a complaint by an interested party, but
after “the attention of the Commission was drawn by press reports and
information sent by citizens in 2012-2013”.
The end of formal investigations into alleged aid granted to professional sport
clubs coincided with the introduction of the “interested party” criterion:
since citizens are not considered interested parties, the Commission does not
have an obligation anymore to investigate complaints, or any form of
information, submitted by them. At this moment, only complaints submitted by
interested parties, i.e. a party directly affected in its competitive position,
have the potential of triggering fresh State aid investigations in the
professional sport sector.
Which persons or undertakings fulfill the “interested
party” criterion? The answer to this question requires a case by case analysis and
depends on the aid measure or scheme chosen by the public authorities.
Nonetheless, where aid is granted to a professional sport club, the clearest
example of an interested party would be another professional sport club. Getting
professional sport clubs to submit State aid complaints is, however, easier
said than done. Contrary to other economic sectors where competitors would
complain if they feel that they are directly affected in their competitive
position, no professional sport club has ever submitted a State aid complaint,
nor is it likely to happen anytime soon. As is confirmed by Dutch professional
football club FC Groningen’s director Hans Nijland in an article published
on 18 May by the Dutch magazine
, “if (another football club) manages to sign a deal with its
municipality, I will not complain. In fact, I would say congratulations, well done”.
The same mentality probably prevails in Hungary, making it very unlikely that a
Hungarian professional football club, or any other professional sport club,
decides to submit a complaint alleging unlawful aid to, say, Puskás Akadémia FC
due to the disproportionate distribution of subsidies under the tax benefit
Why extra monitoring in the sport sector
should be considered
The advantages of EU State aid control include
efficient government spending in the economy as well as better accountability
and transparency of aid measures.
Nonetheless, with the chances of the Commission monitoring existing aid in
professional sport, such as the Hungarian tax benefit scheme, being very slim,
and given the unlikeliness of a submission of a complaint by a competing
professional sport club, how useful are the State aid rules to achieve better
accountability and transparency in (professional) sport? Local governments will
continue spending large amounts of public money on projects that distort
competition and are contrary to the general public interest, without a
meaningful risk of being called back. Furthermore, as long as the Commission
does not prioritize State aid enforcement to the professional sport sector,
similar to how it enforces the State aid rules regarding fiscal aid to
it is also unlikely that it will investigate ex officio.
From the “efficient use of Commission resources”
viewpoint, it is, in a way, understandable that the Commission has decided not
to prioritize State aid to professional sport. They are, after all, not the
most distortive State aid cases. However, this lack of prioritization is not
being compensated with the submission of complaints by interested parties,
meaning that public authorities have less to fear from State aid control in the
professional sport factor, as compared to other market sectors.
To prevent a complete carte blanche for the public authorities, I would argue that the
Commission should impose upon itself stricter conditions as regards monitoring
State aid measures and scheme to the benefit of professional sport clubs. The
current monitoring system, where the chance of being monitored is smaller than
not being monitored, is inefficient in a sector where competitors do not serve
as watchdogs. Only by radically increasing the monitoring chance in the
professional sport sector can better accountability and transparency of aid
measures be achieved.
 Case 173/73, Italy v Commission,  ECLI:EU:C:1974:71,
 Opinion of Advocate
General Lenz in Case C-44/93,
Namur-Les Assurances du Crédit SA v Office
Nationale du Ducroire
,  ECLI:EU:C:1994:262, para 86.
 Procedural Regulation 2015/1589, Article 22. Contrary
to the decision options of formal investigations, a decision to order a
recovery of the aid from the beneficiary or beneficiaries, as listed in
Procedural Regulation, Articles 9(5) and 16, is not an option for the “review
 Ibid., Article 23(1).
 The Enterprise Capital Funds (ECF) decision is a good
example of a formal investigation based on
review and monitoring. Following a “selected” monitoring exercise in
2011, it was discovered that the UK had failed to take the appropriate measures
to bring an aid scheme in line with the
Guidelines on Risk Capital
, even though it had
promised to do so. This led to the Commission opening a formal investigation
in November 2011.
 Pursuant to
Procedural Regulation, Article 26(1), the obligation to submit annual reports
applies to decisions “to which no specific reporting obligations have been
imposed in a conditional decision”. Under a conditional decision, the
Commission attaches to a decision conditions subject to which aid may be
considered compatible with the internal market. The tax benefit scheme in the Hungarian sport sector decision has no
specific conditions attached to it, apart from the usual obligation for the Member
State concerned to submit an annual report to the Commission.
 Commission Decision
of 9 November 2011, SA.31722 – Hungary -
the Hungarian sport sector via tax benefit scheme
, para 57.
 Procedural Regulation 2015/1589, Article 26(2).
EU State Aid Modernisation
Communication of 8 May 2012
, para 19.
 Commission Staff Working Document of 4 June
Report from the Commission to the European Parliament,
the Council, the European Economic and Social Committee and the Committee of
the Regions on Competition Policy 2014
”, page 10.
 Ibid. One of the investigations involved the
Enterprise Capital Funds scheme – Supra n5.
 DG Competition
document of 18 March 2016 REF. Ares(2016)1370536 “
”, page 15.
 Procedural Regulation 2015/1589, Article 24(2).
 Ibid., Article 1(f).
 Ibid., Article 1(b)(ii).
 Ibid., Article 1(c).
DG Competition working documents on procedures for the application of Articles
107 and 108 TFEU of 10 July 2013, State Aid Manual of Procedures
, Section 5, para
 A complaint that
does not comply with the compulsory complaint form, or if the complainant does
not provide sufficient grounds to show the existence of unlawful aid can be
withdrawn by the Commission. See Procedural
Regulation 2015/1589, Article 24(2).
the Submission of Complaints Concerning Alleged Unlawful State Aid or Misuse of
, point 3.
Report by the European Parliament of 19 March 2013 on the proposal for a
Council Regulation amending Regulation (EC) No 659/1999 laying down detailed
rules for the application of Article 93 of the EC Treaty (COM (2012) 725 final)
, page 17.
 Supra., No 19.
Regulation (EU) No 734/2013 of 22 July 20-13 amending Regulation (EC) No
659/1999 laying down detailed rules for the application of Article 93 of the EC
Treaty  OJ L204/14.
 An explanation on
why the public financing of sports infrastructure and professional sports clubs
only started to attract State aid scrutiny in recent years can be read in: Ben
Van Rompuy and Oskar van Maren,
Control of State Aid to Professional Sport: Why Now?”
In: “The Legacy of Bosman. Revisiting the relationship between EU law
and sport”, T.M.C. Asser Press, 2016.
 See, for example Commission
decision of 18 December 2013, SA.36387 Spain – Alleged aid in favour of three Valencia football clubs, para 3. The other
formal investigations to professional football clubs (i.e.
Dutch football clubs
Spanish football clubs
), were also launched after the Commission
received information through citizens and/or the press.
 Or the Commission
decides to open an investigation
pursuant to Procedural Regulation 2015/1589,
12(1). However, this is very unlikely, given the lack of priority given by the
Commission to sport.
 For example, in the
case of the Hungarian tax benefit scheme, clubs or associations not active in
the sport sector (e.g. theatre clubs, art clubs, etc.), could potentially argue
that they have been placed in a disadvantageous position, since they cannot
receive donations under the scheme. An aid measure provided in the form of
advantageous land transactions, such as the
case, could directly affect any undertaking interested in purchasing
the same land, or any other plot of land against other market conditions.
 Hester den Boer and Bram Logger,
Een spits van belastinggeld; Onderzoek –
Lokale overheden blijven profvoetbal massaal steunen
”, De Groene Amsterdammer, 18 May 2016, page 5.
 See for example
Oskar van Maren,
“EU State Aid Law and
Professional Football: A threat or a Blessing?”
, European State Aid Law Quarterly,
Volume 15 1/2016, pages 31-46.
 High profile formal
State aid investigations into alleged aid granted by means of selective tax
agreements between Member State governments and multinationals like Starbucks,
have launched in the last few years.