Aid is a measure which, by doing or not doing so, reduces the burden which an undertaking actually has to bear. Consequently, aid is present if a hypothetical private investor would not have granted the economic advantage in question to the company, or at best on other, less favourable terms. State aid is prohibited under European law under certain conditions. The aim of this prohibition is to ensure a level playing field across borders. It therefore applies when an undertaking is selectively favoured by the State and thus distorts competition or affects trade. The European ban on State aid is regulated by Article 107 I TFEU.

First of all, a company would have to be favored. An enterprise designates an entity that carries out an economic activity. Consequently, State aid granted to natural persons does not fall within the prohibition of State aid under Article 107 I TFEU in conjunction with Article 108 TFEU.

The company is favoured if it receives an economic advantage without market consideration. There is an advantage in any tax advantage, as the company has to pay less tax.

The advantage must confer a selective advantage on the company. Selectivity exists when the advantage benefits only certain undertakings, while the advantage is not available to other comparable undertakings. Therefore, beneficiary and non-beneficiary undertakings must be genuinely and economically comparable. This feature must be carefully examined and assessed. In practice, therefore, this is the main problem. Nevertheless, there should be no selectivity if the advantage, despite its exceptional nature, is justified by the nature and general scheme of the tax system. According to the ECJ, this is the case if the advantage develops basic or guiding principles underlying the tax system. Objectives pursued individually shall not qualify as such principles. However, guidance objectives cannot justify such guiding principles, since the aid is measured in terms of its effect and not in terms of the reason for granting it.

Furthermore, the advantage must be imputable to the state and burden the state budget. This is usually the case, since the advantage is financed by a waiver of tax revenue and therefore additional income is prevented. Thus, the state budget is burdened. However, the benefit is not attributable to the state if it is mandatory in an EU directive. Rather, it is justified by EU law.

The advantage must be abstractly capable of distorting competition. The fact that an undertaking does not owe any consideration cannot yet be used to distort competition. On the contrary, a distortion of competition only exists if it improves the position of the beneficiary compared to its competitors. However, this feature is present for any advantage granted since, after examining the abovementioned features, it selectively favours an undertaking.

Consequently, the existence of aid depends solely on its effect and not on the reason for granting it. Therefore, the aid also benefits which may be justified by certain socially appropriate reasons. Consequently, no exceptions to the general prohibition on State aid to social sectors should be recognised. Consequently, such an advantage must also be classified as prohibited aid.

Nevertheless, constitutively, certain advantages are considered always compatible with the internal market under Article 107 II TFEU and may therefore be introduced despite the fact that they can be classified as State aid. However, the provision must be interpreted restrictively in terms of equal competition. Despite the compatibility with the internal market, this aid must also be approved in accordance with Section 108 III TFEU and is therefore subject to the standstill obligation laid down in Article 108 III 3 TFEU. The following rules fall under the exception of Article 107 II TFEU. For example, aid granted to consumers or intended to repair direct damage is permitted. However, the latter exception does not apply to damages that are foreseeable and for which insurance coverage is usually possible.

Unlike in the case of authorised aid within the meaning of Article 107 II TFEU, aid within the meaning of Article 107 III TFEU is only permissible. In other words, it is at the discretion of the Commission whether it considers the aid to be admissible. Nevertheless, such aid is also subject to the standstill obligation laid down in Article 108 TFEU. The facts referred to in Article 107(3) TFEU require social and economic evaluations which therefore depend on the Commission’s interpretation. Therefore, the provision depends on the facts of the case and also opens up discretion on the legal consequences side. The Commission therefore has very broad discretion.