EU’s watchdog delivers devastating criticism of EU control of state aid rules
Tuesday, 04 October 2016
Member States are detecting infringements of State aid rules at a very low rate, according to a new report on 4 October from the European Court of Auditors (ECA). The auditors point to a significant level of non-compliance with the rules on State aid in the area of cohesion policy and call for changes in the way projects are approved and monitored.
The audit report is based on extensive data collection and reviews of audit reports of the Commission and Member States. ECA´s report comes timely after the announcement by the European Commission last August that Ireland had breached State aid rules since 1991 by granting undue tax benefits of up to €13 billion to Apple.
Indirectly, the report also explains how this could happen. During the audited period (2010 – 2014), the Commission’s control of the application of State aid rules was insufficient and the Directorates-General concerned, responsible for competition policy and the structural funds, did neither share information or coordinate their control activities.
What was audited?
State aid is any aid granted by a Member State which distorts or could distort competition by giving certain enterprises an advantage, in so far as it affects trade between Member States. In principle, State aid is prohibited in order to ensure that the internal market functions properly.
However, in certain sectors or geographical areas, or in special circumstances, aid of up to a certain value may be compatible with the internal market. During 2010 to 2014, Member States granted an average of €76.6 billion of State aid per year, excluding aid to the financial sector, the railways and public services such as the postal service. This represents over 0.5% of EU Member States’ GDP.
Cohesion policy is one of the main spending areas in the EU budget. For 2014-2020, the total budget for the European Regional Development Fund, the Cohesion Fund and the European Social Fund amounts to €352 billion, up from €347 billion during the 2007-2013 programme period.
The Cohesion Fund aims to improve economic and social cohesion within the European Union by financing environment and transport projects in Member States whose per capita GNP is less than 90% of the EU average.
According to Commission estimates, cohesion policy spending accounted for more than one quarter of state aid granted in the EU during the 2007-2013 period.
The auditors assessed the level of non-compliance with State aid rules in cohesion policy in the years up to 2014 and the extent to which the European Commission was aware of the causes of non-compliance. They also examined whether the Commission’s new rules for 2014-2020 were likely to bring improvements.
They found a significant level of non-compliance. Almost 20% of cohesion policy projects with State aid relevance were affected by State aid errors. At the same time, audit authorities in the Member States detected infringements at a far lower rate, just 3.6%, than either the Commission or the EU auditors. The EU auditors detected more than five times as many using a similar methodology.
This seems to confirm earlier audit reports by ECA that the concept of “single audit” has not become rooted despite that the idea has been around since 2007. According to a report from 2013, ECA found that the European Commission faces challenges to its reliance on the results of audits carried out by Member States of EU regional funds.
“Single audit” aims at preventing the duplication of control work and reducing the overall cost of control and audit activities at the level of the Member States and the Commission. It also aims at decreasing the administrative burden on auditees
“Member States’ audit authorities are an important part of the control chain in cohesion policy. But our findings indicate that so far they have not focussed sufficiently on State aid in the course of their audits,” said Mr Oskar Herics, the ECA Member responsible for the report.
During the 2007-2013 programme period, the Commission’s databases did not allow it to properly analyse State aid errors; nor did its monitoring result in any significant recovery of State aid.
Particularly at the beginning of that period, say the auditors, member states rarely notified infrastructure investments to the Commission for State aid clearance and, until the end of 2012, the Commission did not systematically check whether major projects complied with State aid rules.
To reduce this risk, the Commission has introduced new rules for 2014-2020, but these do not always provide legal certainty.
The auditors noted that the Commission has simplified State aid legislation to reduce bureaucracy and increase transparency, but has at the same time placed greater responsibility on Member States for designing and implementing aid measures. This shift in responsibility therefore risks increasing the number of State aid errors and will require continuous attention.
ECA issued a number of recommendations which should be implemented “immediately”. In its reply, the Commission responded that it accepted most of the recommendations and had already started to implement them. However, it rejected proposals for considering amendments to regulations.
The Brussels Times (Source: The European Court of Auditors)