Bill on State Aid Control

The government of the Republic of Serbia has introduced a Bill on State Aid Control to the Parliament on 16^th September 2019 (hereinafter “Law”), which adoption is expected in upcoming Parliament sessions.

Reasons behind the adoption of the entirely new law on state aid control are refinement and complement of provisions of the current law on state aid control adopted in 2009 in favor of more effective implementation in practice. Through establishing new legal concepts in this field the government wants to introduce and ensure transparency in the process of granting state aid through implementation of plain rules and strict supervision provided with capacity increase of Commission for State Aid Control (hereinafter “Commission”) all in the purpose of stimulating economic development in the Republic of Serbia. Also, another reason is the harmonization of domestic legislation with the legislation of the European Union in this field through the establishment of a legal and institutional framework for faster accession of the Republic of Serbia in EU.

This Law shall regulate the general terms and procedure for the state aid control to ensure the protection of free competition on the market, through the implementation of the principles of the market economy and encouraging the economic development, transparency, as well as establishment, jurisdiction, organization, and competencies of the Commission.

 Also, provisions of this Law shall not apply to agricultural and fisheries products which are consistent with Stabilisation and Association Agreement between the European Communities and their Member States and the Republic of Serbia.

 The Law provides new definition of state aid which is now defined as any actual or potential public expenditure or realized decrease in public revenue which is given by state aid grantor in any form, which confers to state aid beneficiary a more favorable market position in respect to the competitors or it favors production of certain goods/services, and as a result causes or threatens to cause distortion of the market competition or it affects trade between the Republic of Serbia and state members of EU.

Public expenditure would represent any spending of budget funds, while the potential reduction of public revenues would entail the issuing of state guarantees, whether they will be activated or not. State aid would also exist when the state, through various tax reliefs, collects less tax revenue than it would have done in the ordinary circumstances if these tax reliefs did not exist.

The Law also provides for two types of special state aid, such as “Harmonized State Aid”, which may be granted in specific situations to eliminate the consequences of natural disasters and other extraordinary circumstances or in the case where it is intended as social assistance to consumers without discrimination in relation to the origin of goods / products, which constitute specific aid, as well as “Small amounts aid” (de minimis aid) which has no significant effect on the distortion of competition, which will to be granted under the conditions prescribed by the Government.

The novelty is also that the Law explicitly stipulates what measures do not constitute state aid, including, inter alia, 1) fees for services of general interest in case when they meet statutory requirements, 2) transactions carried out by a public authority or a public entity who has public resources on his disposal, if they are carried out under usual market circumstances in the particular situation and in the way that a typical private participant would behave on the market, 3) the aid granted to perform non-economic activities as well as 4) the guarantees given by the State in accordance with fair market conditions.

In accordance with the decision-making process, great attention has been paid to the supervision of the procedure for granting state aid, thus the Law stipulates that the Commission monitors the situation on the market through previous or subsequent supervision of the procedure, and evaluates the compliance of the state aid with the rules for granting that aid.

The Law proscribes previous and subsequent supervision. Previous supervision is carried out through mandatory notification of the Commission on State Aid, while subsequent supervision represents the possibility of any person having a legal interest in initiating a subsequent supervision procedure. This person who has a legal interest may be a state aid grantor or any third party as a market participant whose interests may be affected by granting state aid, also it may be a state aid beneficiary or his competitors if they can prove their legal interest in supervision. Subsequent supervision procedures may be initiated ex officio by the Commission when, based on its information, already submitted initiatives and other available information, it may reasonably assume that the State Aid is issued contrary to the provisions of this Law or it is used on the contrary to the provisions of this Law.

To ensure transparency of the procedure, the Law provides an obligation for Commission to keep Register of reported and granted state aid and de minimis aid, and also to carry out a sectoral analysis of the granted state aid, as well as to adopt annual reports on the granted state aid.

The Commission also has broad powers to exercise supervision over the procedure, therefore the Commission can order return of the given state aid, than to impose periodic penalties on the aid beneficiary if it fails to comply with the order of the Commission, the amount of these penalties ranges from 5000 – 200000 dinars for each day of conduct contrary to the order of the Commission.

Finally, it is important to note that after the expiry of a period of 10 years from the granting of state aid, the Commission cannot order the return of state aid.

Establishing adequate control over state aid granting and transparency in the process, prevents certain economic entities from being placed in a privileged position, ie creating an equal playing field for all market participants. In this way, free competition is strengthened and better conditions for business activities are ensured, which encourages entry and stay of economic entities on the market of the Republic of Serbia and enables its economic development, of which the consumers or citizens of the Republic of Serbia benefit the most.