Commission Notice on the application of Articles 87 and 88 of the EC Treaty to State aid in the form of guarantees
Date: 2000-03-11
Institutions: European Commission
Subjects: EU Member State, European Commission, State aid, application of EU law, control of State aid, credit guarantee

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no estÆn destinadas a reparar los perjuicios causados por desas-
tres naturales o por otros acontecimientos de carÆcter excep-
cional segœn lo dispuesto en la letra b) del apartado 2 del
art(cid:237)culo 87 y no estÆn sujetas a las disposiciones de la letra
c) del apartado 2 del art(cid:237)culo 87 acerca de (cid:147)las ayudas desti-
nadas a facilitar el desarrollo de determinadas actividades [. . .](cid:148).
AdemÆs, no tienen por objeto promover la realizaci(cid:243)n de un
proyecto importante de interØs europeo comœn o poner reme-
dio a una grave perturbaci(cid:243)n en la econom(cid:237)a de un Estado
miembro segœn lo dispuesto en la letra b) del apartado 3 del
art(cid:237)culo 87. Por œltimo, no estÆn destinadas a promover la
cultura ni la conservaci(cid:243)n del patrimonio segœn lo dispuesto
en la letra d) del apartado 3 del art(cid:237)culo 87.

la Comisi(cid:243)n
Habida cuenta de las consideraciones expuestas,
insta a las autoridades espaæolas, en el marco del procedi-
miento del apartado 2 del art(cid:237)culo 88 del Tratado CE, a que
presente sus observaciones y facilite toda la informaci(cid:243)n perti-
nente para la evaluaci(cid:243)n de las ayudas fiscales en forma de
crØdito fiscal del 45 % al Territorio Hist(cid:243)rico de `lava en un
plazo de un mes a partir de la fecha de recepci(cid:243)n de la pre-
sente carta. En este caso, la informaci(cid:243)n pertinente se refiere
especialmente a las posibles ayudas fiscales en forma de crØdito
fiscal a las inversiones vigente durante todos o algunos de los
aæos del per(cid:237)odo 1986-1994, copias de las decisiones de con-
cesi(cid:243)n de la ayuda para el per(cid:237)odo 1995-1997 y copias, en

modelo oficial, de las comunicaciones de los interesados a la
Diputaci(cid:243)n Foral para el per(cid:237)odo 1998-1999, en las que figu-
ren, como m(cid:237)nimo, la naturaleza de los costes de inversi(cid:243)n que
pueden acogerse a las ayudas, el importe del crØdito fiscal de
cada beneficiario, las ayudas pagadas a cada beneficiario y el
saldo de las que quedan por pagar, la posible situaci(cid:243)n de crisis
de la empresa de los beneficiarios sujeta a las citadas Direc-
trices comunitarias sobre ayudas estatales de salvamento y de
reestructuraci(cid:243)n de empresas en crisis, los detalles en caso de
acumulaci(cid:243)n (importe, costes elegibles, reg(cid:237)menes de ayudas
aplicados, si procede, etc.), la definici(cid:243)n precisa y detallada de
los tØrminos (cid:147)inversi(cid:243)n(cid:148) e (cid:147)inversiones en la fase de prepara-
ci(cid:243)n(cid:148) contenidos en las disposiciones por las que se crearon las
ayudas fiscales en cuesti(cid:243)n a partir del 1 de enero de 1998. Por
la Comisi(cid:243)n insta a las autoridades espaæolas a que
œltimo,
transmitan inmediatamente una copia de la presente carta a
los beneficiarios potenciales de la ayuda.

Conviene precisar que la presente Decisi(cid:243)n s(cid:243)lo afecta a las
medidas fiscales que son examinadas expl(cid:237)citamente, y no se
pronuncia sobre las otras medidas contenidas en el rØgimen
fiscal espec(cid:237)fico del Territorio Hist(cid:243)rico de `lava. La Comisi(cid:243)n
se reserva la posibilidad de examinar, sea en cuanto rØgimen
general, como en su posible aplicaci(cid:243)n a una empresa espec(cid:237)-
fica, aquellas medidas que pudieran constituir ayudas.».

Commission Notice on the application of Articles 87 and 88 of the EC Treaty to State aid in the
form of guarantees

(2000/C 71/07)

1.

1.1.

1.2.

1.3.

INTRODUCTION

this notice covers all

This notice outlines the Commission’s approach to State
aid granted in the form of guarantees. Guarantees are
usually associated with a loan or other financial obli-
gation to be contracted by a borrower with a lender.
However,
forms of guarantees,
irrespective of
their legal basis and the transaction
covered. Guarantees may be granted as individual guar-
antees or within guarantee schemes. If aid is involved,
this aid in most cases benefits the borrower. However, in
certain circumstances, there may also be an aid to the
lender.

This notice applies without prejudice to Article 295 and
thus does not prejudice the rules in Member States
governing the system of property ownership. The
Commission is neutral as regards public or private
ownership. This notice does not apply to export credit
guarantees.

In 1989 the Commission addresed two letters on State
guarantees to the Member States. In the first letter (1) it
pointed out that it regards all guarantees given by a
falling within the scope of Article 87(1).
State as
the Commission must
According

to this

letter,

(1) Commission letter to the Member States, SG(89) D/4328 of 5 April

1989.

1.4.

therefore be notified of any plans to give or alter such
guarantees in sufficient time to enable it to submit its
comments. In the second letter (2) the Commission made
it clear that it intended to examine the establishment of
State guarantee schemes, and that individual guarantees
given under an approved scheme would not need to be
notified. In 1993 the Commission adopted a communi-
cation (3) which addressed the subject of guarantees as
well.

Experience gained in the meantime suggests that the
Commission’s policy in this area should be reviewed.
This notice replaces the two Commission letters of
1989 and paragraph 38 of the Commission communi-
cation of 1993. Its purpose is to give Member States
more detailed explanations about
the principles on
which the Commission intends to base its interpretation
of Articles 87 and 88 and their application to State
guarantees. The Commission intends in this way to
make its policy in this area as transparent as possible,
thereby ensuring that its decisions are predictable and
that equal treatment is guaranteed.

(2) Commission letter to the Member States, SG(89) D/12772 of 12

October 1989.

(3) Commission Communication to the Member States on the
application of Articles 92 and 93 of
the EEC Treaty and of
Article 5 of Commission Directive 80/723/EEC to public under-
takings in the manufacturing sector (OJ C 307, 13.11.1993, p. 3).

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2.

APPLICABILITY OF ARTICLE 87(1)

2.2. Aid to the lender

2.1. Aid to the borrower

a

for

the borrower

enables
terms

the State guarantee,

2.1.1. Usually, the aid beneficiary is the borrower. The State
to obtain better
guarantee
financial
loan than those normally
available on the financial markets. Typically, with the
benefit of
the borrower can
obtain lower rates and/or offer less security. In some
cases, the borrower would not, without a State guar-
antee, find a financial institution prepared to lend on
any terms. State guarantees may thus facilitate the
creation of new businesses and enable certain under-
takings to raise money in order to pursue new activities
or simply remain active instead of being eliminated or
restructured, thereby creating distortions of competition.
State guarantees thus generally fall within the scope of
Article 87(1), if trade between Member States is affected
and no market premium is paid.

2.1.2. The benefit of a State guarantee is

for

that

the risk
associated with the guarantee is carried by the State.
This carrying of a risk by the State should normally
be remunerated by an apporpriate premium. Where
the State forgoes such a premium,
there is both a
benefit
the undertaking and a drain on the
resources of the State. Thus, even if no payments are
ever made by the State under a guarantee, there may
nevertheless be a State aid under Article 87(1). The aid
is granted at the moment when the guarantee is given,
not the moment at which the guarantee is invoked or
the moment at which payments are made under the
terms of the guarantee. Whether or not a guarantee
if so, what the amount of
constitutes State aid, and,
that State aid may be, must be assessed at
the
moment the guarantee is given.

2.1.3. The Commission also regards as aid in the form of a
guarantee, the more favourable funding terms obtained
by enterprises whose legal form rules out bankruptcy or
other insolvency procedures or provides an explicit State
guarantee or coverage of losses by the State. The same
applies to the acquisition by a State of a holding in an
entreprise if unlimited liability is accepted instead of the
usual limited liability (4).

2.2.1. Even if usually the aid beneficiary is the borrower it
cannot be ruled out that under certain circumstances
the lender, too, will benefit from the aid.
In such a
case the Commission will certainly pursue the matter
accordingly.

2.2.2. In particular, for example, if a State guarantee is given ex
post in respect of a loan or other financial obligation
already entered into without the terms of this loan or
financial obligation being adjusted, or if one guaranteed
loan is used to pay back another, non-guaranteed loan
to the same credit institution, then there may also be an
aid to the lender, in so far as the security of the loans is
increased. Such aid is capable of favouring the lender
and distorting competition, and genrally falls within the
scope of Article 87(1), if trade between Member States is
affected.

3.

3.1.

AMOUNT OF THE AID

the guarantee and loan,

In the case of an individual State guarantee, the aid
element must be assessed by reference to the details of
the guarantee and loan (or other financial obligation).
The relevant factors include in particular the duration
and amount of
the risk of
default by the borrower,
the price paid by the
borrower for the guarantee, the nature of any security
given, how and when the State could be called upon to
pay a debt and the means (e.g. declaration of bank-
ruptcy) to be used by the State to recover amounts
owed by the borrower once the guarantee has been
invoked.

3.2.

The cash grant equivalent of a loan guarantee in a given
year can be:

loan,

(cid:151) calculated in the same way as the grant equivalent of
a soft
the interest subsidy representing the
difference between the market rate and the rate
obtained thanks to the State guarantee after any
premiums paid have been deducted, or

(cid:151) taken to be

the difference between (a)

the
outstanding sum guaranteed, multiplied by the risk
(the probability of defalut) and (b) any
factor
premium paid,
sulm (cid:215) risk)
(cid:150) premium, or

(guaranteed

i.e.

2.1.4. Article 87(1) covers aid granted by a Member State or
thourgh State resources. Therefore, in the same way as
other forms of potential aid, guarantees given by the
State directly, namely by central, regional or local auth-
orities, as well as guarantees given by undertakings
under the dominant
influence of public authorities,
may constitute State aid.

(4) See footnote 3, paragraph 38.1 and 38.2.

(cid:151) calculated by any other objectively justifiable and

generally accepted method.

For individual guarantees, the first method should in
principle be the standard form of calculation,
for
guarantee schemes the second one.

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The risk factor should be based on the past experience
of defaults on loans given in similar circumstances
(sector, size of firm, level of general economic activity).
The yearly grant equivalents should be discounted to
then
their present value using the reference rate,
added up to obtain the total grant equivalent.

Where, at the time the loan is granted, there is a strong
probability that the borrower will default, e.g. because
he is in financial difficulty, the value of the guarantee
may be as high as the amount effectively covered by
that guarantee.

less

the lender has

If a financial obligation is wholly covered by a State
guarantee,
incentive to assess
properly, secure and minimise the risk arising from
the lending operation, and in particular
to assess
properly the borrower’s creditworthiness. Such risk
assessment might also not always be taken over by
the guarantor, for lack of means. This lack of incentive
to minimise the risk of non-repayment of
the loan
might encourage lenders
loans with a
greater than normal commercial risk and could thus
increase the amount of higher-risk guarantees in the
State’s portfolio.

to contract

the creditworthiness of

The Commission suggests that a precentage of at least
20 % not covered by a State guarantee will serve as an
appropriate limit for inducing the lender to properly
to
assess
properly secure its loans and to minimise the risk
associated with the transaction (6). The Commission
will therefore,
in general, examine critically any guar-
antees covering the entirety (or nearly the entirety) of
a financial transaction.

the borrower (5),

the specific
In the case of State guarantee schemes,
features of the individual cases may not be known at
the time when the scheme is to be assessed. In these
circumstances,
the aid element must be assessed by
reference to the provisions of the scheme concerning
amongst others the maximum amount and duration of
loans, the category of enterprise and type of project
eligible, the security required from the borrowers, the
premium to be paid and the interest rates obtained by
them.

3.3.

3.4.

3.5.

(5) This is under the assumption that the same level of security is
provided by the company to the State and the credit institution.
(6) From the answers to the questionnaire on State guarantees it can be
seen that
rule. The
several Member States alredy apply this
percentage covered varies widely from 20 % to 100 %. Nevertheless,
a multitude of guarantees cover the full amount of the underlying
financial operation, thereby exempting the lending institution from
the necessity to assess properly the creditworthiness of the bene-
ficiary in its own interest.

4.

CONDITIONS EXCLUDING THE EXISTENCE OF AID

4.1. An individual guarantee or a guarantee scheme entered
into by the State will be outside the scope of Article
87(1) when there is no aid which favours certain under-
In such
takings or the production of certain goods.
cases, notification by the Member State is not necessary.
Also, a guarantee does not constitute State aid under
Article 87(1) when the measure does not affect trade
between Member States.

4.2.

The Commission considers that the fulfilment of all the
following conditions ensures that an individual State
guarantee does not constitute State aid under Article
87(1):

(a) the borrower is not in financial difficulty;

(b) the borrower would in principle be able to obatin a
financial
conditions

loan on market
markets without any intervention by the State;

from the

(c) the guarantee is linked to a specific financial trans-
action,
is for a fixed maximum amount, does not
cover more than 80 % of the outstanding loan or
other financial obligation (except
for bonds and
similar instruments) and is not open-ended;

the guarantee,

(d) the market price for the guarantee is paid (which
reflects, amongst others, the amount and duration
security given by the
of
the
borrower,
the borrower’s
the rates of
sector of activity and the prospects,
default, and other economic conditions).

financial position,

the

4.3.

The Commission considers that the fulfilment of all the
following conditions ensures that a State guarantee
scheme does not constitute State aid under Article 87(1):

(a) the scheme does not allow guarantees to be granted

to borrowers who are in financial difficulty;

(b) the borrowers would in principle be able to obtain a
financial
conditions

loan on market
markets without any intervention by the State;

from the

(c) the guarantees are linked to a specific financial trans-
action, are for a fixed maximum amount, do not
cover more than 80 % of each outstanding loan or
other financial obligation (except
for bonds and
similar instruments) and are not open-ended;

(d) the terms of the scheme are based on a realistic
assessment of the risk so that the premiums paid
by the beneficiary entreprises make it, in all prob-
ability, self-financing;

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(e) the scheme provides for the terms on which future
guarantees are granted and the overall financing of
the scheme to be reviewed at least once a year;

regional and sectoral aid (7). The examination will take
into account, in particular, the aid intensity, the charac-
teristics of the beneficiaries and the objectives pursued.

(f)

the premiums cover both the normal risks associated
with granting the guarantee and the administrative
including, where the State
costs of
the
for the start-up of
provides the intial capital
scheme, a normal return on that capital.

the scheme,

5.3.

Failure to comply with any one of the above conditions
set out in points 4.2 and 4.3 does not mean that such
guarantee or guarantee scheme is automatically regarded
as State aid.
there is any doubt as to whether a
planned guarantee or scheme does constitute State aid,
it should be notified.

If

is

to

linked

their
The Commission will accept guarantees only if
mobilisation
specific
contractually
conditions which may go as far as the complusory
the beneficiary under-
declaration of bankruptcy of
taking, or any similar procedure. These conditions will
have to be agreed at the initial examination by the
Commission of
the proposed guarantee within the
normal procedures of Article 88(3), at the stage when
it is granted. In the event that a Member State wants to
mobilise the guarantee under conditions other than
those initially agreed at the granting stage, then the
Commission will
the
guarantee as creating a new aid which has to be
notified under Article 88(3).

regard the mobilisation of

small

and medium-sized enterprises,

There may be circumstances in which it is planned to
to enable enterprises, and in
use State gurantees
particular
to
obtain loans that the marekt would not supply. The
enterprises may be starting up, expanding fast or be
small and hence unable to furnish the necessary
security to secure a loan or obtain a guarantee. They
may fall
into the category of high-risk enterprises
(expected to move into profitability only in the long
term and/or having a particularly high failure rate).
This may be the case,
for example, with projects
concerning new, innovative products or processes. The
Commission considers
such circumstances will
that
generally not take State guarantees outside the scope
of Article 87(1). State guarantees given in such circum-
stances should therefore be notified to the Commission
in sufficient time, in the same way as State guarantees
given in other circumstances.

COMPATIBILITY OF STATE AID IN THE FORM OF
GUARANTEES WITH THE COMMON MARKET

State guarantees within the scope of Article 87(1) must
be examined by the Commission with a view to deter-
mining whether or not they are compatible with the
common market. Before such assessment of compati-
bility can be made, the beneficiary of the aid must be
identified. As has been explained under point 2, this can
be either the borrower, or the lender, or both.

(point 2.1). Whether or not

the guarantee contains aid to the
In most cases
borrower
this aid is
compatible with the common market will be examined
by the Commission according to the same rules as are
applied to aid measures
forms. The
concrete criteria for the compatibility assessment have
been clarified and detailed by the Commission in
concerning horizontal,
frameworks

and guidelines

taking other

5.4. Where the guarantee contains aid to the lender (point
2.2), attention should be drawn to the fact that such aid
might, in principle, constitute operating aid.

6.

CONSEQUENCES OF THE INFRINGEMENT OF ARTICLE
88(3)

6.1. Where Member States do not observe the obligations of
prior notification and suspension laid down in Article
88(3), the aid element of the guarantee is to be qualified
as unlawful in accordance with Article 1(f) of Council
Regulation (EC) No 659/1999 of 22 March 1999 laying
down detailed rules for the application of Article 93 of
of
to
the
infringement of
the third sentence of Article 88(3),
various distinctions should be drawn. In the following
the position of the aid beneficiary and that of lenders
not being a beneficiary will be examined in turn.

EC Treaty (8). As

consequences

the

6.2.

First, where aid has been illegally granted, the bene-
ficiaries of the aid contained in the guarantee will run
a risk. The Commission may take interim measures in
accordance with Article 11 of Regulation (EC) No
659/1999 pending the outcome of the examination as
to the compatibility of the aid. If, after this examination,
the Commission finds that the State aid is incompatible
with the common market, it shall be recovered from the
beneficiary in accordance with Article 14 of Regulation
(EC) No 659/1999, even if this means the declaration of
bankruptcy of the enterprise.

(7) See Competition law in the European Community, Volume IIA,
Rules applicable to State aid, published by the Office for Official
Publications of the European Communities. Certain texts have also
been published in the Official Journal of the European Communities
and are available on the Internet.

(8) OJ L 83, 27.3.1999, p. 1.

4.4.

4.5.

5.

5.1.

5.2.

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the Commission for an individual case or a scheme
and eventually a non-confidential copy of the Commis-
sion’s decision together with the relevant reference to
the Official
the European Communities. The
Commission for its part will do its utmost to make
available in a transparent manner information on cases
and schemes approved by it.

Journal of

REPORTS TO BE PRESENTED TO THE COMMISSION BY
THE MEMBER STATES

to assess,

the value of State guarantees
review pursuant

As there may be new developments on the financial
markets and as
is
to
the constant
difficult
Article 88(1) of State guarantee schemes approved by
the Commission is of particular importance. In addition
to the usual data on expenditure,
the reports to be
presented annually to the Commission should give (for
schemes and individual guarantees as well) data on the
total amount of State guarantees outstanding, the total
amount paid in the preceding year by the State to
defualting debtors (net
fo any funds recovered), and
the premiums paid for State guarantees in the same
year. This information will help in calculating the rate
of default and will be used to reassess the value of future
guarantees and, if necessary, the premium to be paid in
the future.

7.2.

abovementioned reports

The Commission does not intend to use information
supplied in the
and not
known or foreseeable when it took an earlier decision,
in order to revise its initial conclusions concerning the
existence or scale of aid contained in State guarantee
schemes. The Commission may, however, use such
information to propose appropriate measures
to a
Member State under Article 88(1) in order to alter an
existing State guarantee scheme.

6.3. Moreover, aid beneficiaries also run a risk at national
level,
inasmuch as the third sentence of Article 88(3)
has direct effect. The Court of Justice of the European
Communities has repeatedly confirmed that it is the
duty of national courts to safeguard the rights of the
firms
individuals concerned, such as competitors of
receiving illegal aid, against breaches of
the third
sentence of Article 88(3). National courts have to
draw all the appropriate conclusions from the illegality
of State aid granted in breach of the procedural rules of
the Treaty.
is requested to order
recovery of the unlawful aid,
it must normally grant
that application (9).

If a national court

7.

7.1.

6.4.

6.5.

aid

from other State

aid
Secondly, guarantees differ
measures, such as grants or tax exemptions,
in the
sense that in the case of a guarantee the State also
enters into a legal relation with the lender. Therefore,
consideration has to be given to whether the fact that a
State
has
consequences for third parties. In the case of State guar-
this concerns mainly the financial
antees for loans,
lending institutions.
for
In the case of guarantees
bonds issued to obtain financing for undertakings, this
concerns
involved in the
issuance of the bonds.

the financial

institutions

illegally

granted

been

also

has

the guarantee

The question whether the illegality of the aid affects the
legal relations between the State and third parties is a
matter which has to be examined under national
law.
National courts may have to examine whether national
from being
law prevents
honoured, and in that assessment
the Commission
considers that they should take account of the breach
of Community law. Accordingly,
lenders may have an
interest in verifying, as a standard precaution, that the
Community rules on State aid have been observed,
whenever guarantees are granted. The Member State
should be able to provide a case number issued by

contracts

(9) See Case C-39/94 Syndicat Fran(cid:231)ais de l’Express International (SFEI)

and Others v La Poste and Others [1996] ECR I-3547.