State Aid Law

A little known but very important area of law

State aid law influences decisions in a wider range of legal cases than almost any other area of law – from infrastructure projects to federal tax breaks to Berlin youth hostels. Since the European Commission rediscovered it as a lever in the field of unfair competition, state aid has become even more important. As pure EU legal material, it can have a significant impact, as the European Court of Justice recently demonstrated in its judgement of a dispute between the state of Nordrhein-Westfalen and the Klausner lumber empire: it affirmed in principle that even a legally binding German decision could be trumped by European law. On the other hand, the EU Commission took a hit when the European court of first instance rejected its demand that the German federal government reclaim hundreds of millions of euros from Deutsche Post that were alleged to be unlawful aid for the financing of government-employee pensions.

Dispute over tax breaks continues

In the dispute over the calculation of tax breaks in some EU member states, the EU Commission decided in 2015 that the tax breaks enjoyed by Fiat in Luxembourg and by Starbucks in the Netherlands were illegal. Then there is the case of Apple, from which Ireland has been ordered to collect 13 billion euros in back taxes. “German companies are not affected on the whole, because the Commission is not focusing on Germany with regard to tax breaks,” said one state aid specialist. “But some US firms are considering leaving Europe.”

After a prominent case in Rheinland-Pfalz over animal rendering, Berlin saw another case in which private providers used state aid arguments to scrutinize structures in the public sector. But in this case a court decided that the transfer of a building to the Ostkreuz Youth Hostel Association was not objectionable.

In the context of transactions, demand for advice on tenders that are compliant with state aid law is increasing due to the potential for errors to nullify contracts.

Law firms rely on their strengths

The dispute over the Berlin youth hostel involved two firms that already boast experience in litigation related to the private implementation of state aid law: Redeker Sellner Dahs and WilmerHale. It was Redeker that set things in motion around the rendering case, which ended with the liquidation of the public company.

Meanwhile, it was no surprise to see Gleiss Lutz representing the federal government in the dispute with Deutsche Post. Like Freshfields Bruckhaus Deringer, this firm has an outstanding track record for litigation in Luxembourg, where the amounts in dispute often run into the millions of euros. Like Jones Day, Freshfields Bruckhaus Deringer combines its German and international practices for tax structuring.

For large infrastructure projects involving financing and the possibility of subsidies, two firms have stood out over the past year: the highly specialized team at Müller-Wrede & Partner in connection with the financing structure for Berlin airport, and PricewaterhouseCoopers Legal, the Big Four firm’s legal arm, for the planned large terminal in Bremerhaven. This also shows how much room the state aid market has for a wide range of participants.

 


 

State aid law includes many aspects of European law; therefore ?antitrust and public-law experts, as well as lawyers in Brussels, are typically active in this practice area. As state aid questions often arise in the financing, construction and operation of infrastructure facilities, further information can be found in the chapters on ?energy law and ?public procurement.