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11 November 2019

The new Serbian Act on State Aid Control: An overhaul of the current system

The new Serbian Act on State Aid Control ("SAA")1 has entered into force. Its implementation, apart from the provisions on organisation of the Commission on State Aid Control ("Commission"), will begin on 1 January 2020.

The SAA significantly modifies the existing system and aims to (i) harmonise the applicable legal framework with the EU acquis, and (ii) align the specifics of the state aid control procedure with the recently adopted General Administrative Procedure Act. Its proponents, i.e. the Serbian government, also hope that the SAA will resolve ambiguities in the practical application of the "old" SAA and that the new SAA will help push forward the EU accession process and the opening of Negotiation Chapter 8 – competition policy.

What will new SAA bring to the private sector?

Serbian entities, including private entities as potential aid beneficiaries and their competitors, have so far not focused on compliance with the state aid rules. Most likely, this was simply due to lack of awareness about the system and its relatively lenient enforcement. This is expected to change with the adoption of the SAA, primarily because of the Commission's operational independence from the Government. This new setup should increase the awareness of all market players and, in turn, heighten enforcement of the SAA.

For the private sector, the overhauled state aid setup above all means particular caution in each transaction with state bodies (including other entities managing or disposing with public funds) should be exercised. Such transactions should be carefully assessed for (i) any signs of potential state aid measures; and (ii) if these are detected, their compatibility with SAA. The risk of failing to do a proper assessment is now significant, as the Commission can oblige the state aid grantor to undertake measures to recover from the beneficiary any incompatible aid within 10 years from the date on which such aid was granted.

Key novelties

Unsurprisingly, the SAA largely mirrors the pertinent EU legal framework and contains several important novelties:

  • A comprehensive definition of state aid, including exemptions and de minimis aid;
  • The codification of the so-called "Altmark criteria" concerning compensation measures for services of general economic interest ("SGEI") and the introduction of the "private investor" test;
  • Overhauled position of the Commission, i.e. above all its operative independence;
  • Detailed regulation of proceedings before the Commission; and
  • Improved transparency thanks to the launch of the State Aid Registry.

Broadened definition of state aid

The SAA contains an extensive definition of state aid, modelled after Article 107 (1) of the Treaty on the Functioning of the European Union ("TFEU"). An important novelty is that, apart from fulfilling the other criteria replicated from Article 107 (1) TFEU, the measure must affect trade between Serbia and EU Member States to be considered state aid. Thus, strictly internal measures and measures potentially affecting trade with neighbouring non-EU countries, for example, may not be considered state aid. Still, this ultimately depends on how the Commission will in practice interpret the phrase "must affect trade between Serbia and EU Member States".

The SAA also provides a non-comprehensive list of state aid instruments (previously stipulated in bylaws) and exemptions from the general ban on state aid. The latter mirror Articles 107 (2) and (3) TFEU. A broad definition of de minimis aid is also included.

Transposition of "Altmark criteria"

Before the SAA, Serbian law did not recognise either the concept of SGEI or benchmarks for not considering measures concerning performance of SGEI as state aid. The SAA now closes this loophole by codifying the four "Altmark criteria" from the famous judgment of the European Court of Justice2 It also inaugurates the "private investor" test for potential state aid grantors. The practical application of the test may pose a challenge for the grantors, as adopting a private legal entity's way of thinking is generally alien to Serbian public authorities.

Overhaul of the Commission's position

Perhaps the most significant change of the Serbian state aid regime is an overhaul to the position of the Commission, which will now become operatively independent from the Government. The new setting, expected to come into effect in two months, should lead to the overall strengthening of the state aid regime and its more efficient enforcement.

In accordance with the EU's recommendations, the SAA aims to establish the operative independence of the Commission, which will also gain legal entity status (instead of being a government body) and will report directly to Parliament. The president and the members of the Commission will be elected by Parliament.

This important development is expected above all to increase the enforcement record, awareness and transparency of the state aid rules, none of which is currently high in Serbia

Updates to the procedure before the Commission

Party standing

Under the SAA, only aid grantor(s) are parties to proceedings before the Commission. Aid beneficiaries and interested parties, including parties who submit "initiatives" for the ex post review of granted aid, do not have standing.

Ex ante and ex post control

The SAA regulates in detail the procedures for ex ante and ex post state aid control and introduces the possibility for the potential grantors to submit the notification on the need to notify the state aid. This institute is aimed at clarifying for potential aid grantors whether a certain measure can be considered state aid and should be notifiable.

Other procedural updates

Somewhat similarly to the Act on Protection of Competition ("Competition Act"), the SAA thoroughly regulates the procedure and criteria for granting the confidentiality status of information collected in proceedings before the Commission. Other broad parallels to the Competition Act include: (i) possibility of carrying out a dawn raid (albeit announced) at the state aid beneficiary's premises; (ii) sectoral analyses; (iii) administrative measures (behavioural measures, aid recovery, etc.); and (iv) procedural penalties to be imposed on state aid beneficiaries or other undertakings.

The Administrative Court is the only institution competent to review the Commission's final decisions. As the Court has competence to resolve all administrative matters and generally lacks specialist knowledge and experience, its rulings on state aid matters will be particularly intriguing to follow.

Also, the statute of limitations for recovery of incompatible state aid is, for the first time, fixed at 10 years from the date of granting the state aid.

Increased transparency

Transparency is central to increasing awareness of the state aid rules in Serbia. The SAA corrects the deficiency of its predecessor by obliging the Commission to maintain a registry of (i) notifiable aid, (ii) granted aid, (iii) de minimis aid, and (iv) other data relevant for the implementation of the Commission's competencies.

1 Official Gazette of RS, no. 73/2019. The entire text of the SAA in Serbian is available here.

2 Judgment of the Court of 24 July 2003, Altmark Trans GmbH and Regierungspräsidium Magdeburg v Nahverkehrsgesellschaft Altmark GmbH, and Oberbundesanwalt beim Bundesverwaltungsgericht.

authors: Zoran Šoljaga and Jelena Obradović