1.

Services of general economic interest (SGEIs) play a central role in promoting social and territorial cohesion. The Contracting Parties to the EEA Agreement, each within their respective powers, must take care that such services operate on the basis of principles and conditions which enable them to fulfil their missions.

2.

Certain SGEIs can be provided by public or private undertakings (2) without specific financial support from EFTA States‘�authorities. Other services can only be provided if the authority concerned offers financial compensation to the provider. In the absence of specific EEA rules, EFTA States are generally free to determine how their SGEIs should be organised and financed.

3.

The purpose of this Chapter is to clarify the key concepts underlying the application of the state aid rules to public service compensation (3). It will therefore focus on those State aid requirements that are most relevant for public service compensation.

4.

On 20 December 2011, the European Commission (the Commission) issued a Commission Decision 2012/21/EU on the application of Article 106(2) of the Treaty on the Functioning of the European Union to State aid in the form of public service compensation granted to certain undertakings entrusted with the operation of services of general economic interest (4) (Decision 2012/21/EU), which declares certain types of SGEI compensation constituting state aid to be compatible with the Treaty on the Functioning of the European Union (the Treaty) pursuant to Article 106(2) of the Treaty and exempts them from the notification obligation under Article 108(3) of the Treaty. Decision 2012/21/EU is envisaged to be incorporated into the EEA Agreement within the shortest possible time-limits. In parallel with this Chapter, the EFTA Surveillance Authority (the Authority) has adopted a Framework for state aid in the form of public service compensation (the Framework), which sets out the conditions under which state aid for SGEIs not covered by Decision 2012/21/EU can be declared compatible under Article 59(2) of the EEA Agreement. The Commission also envisages adopting an SGEI-specific de minimis Regulation clarifying that certain compensation measures do not constitute state aid within the meaning of Article 107 of the Treaty (the Regulation) (5). Once adopted, the Regulation will be incorporated into the EEA Agreement.

5.

This Chapter is without prejudice to the application of other provisions of EEA law, in particular those relating to public procurement and requirements flowing from the EEA Agreement, including from sectoral legislation incorporated into the Agreement. Where a public authority chooses to entrust a third party with the provision of a service, it is required to comply with EEA law governing public procurement, contained in Annex XVI to the EEA Agreement. Also in cases where the directives on public procurement are wholly or partially inapplicable (for example, for service concessions and service contracts listed in Annex IIB to Directive 2004/18/EC (6), including different types of social services), the award may nevertheless have to meet requirements of the EEA Agreement on transparency, equality of treatment, proportionality and mutual recognition (7).

6.

In addition to the issues addressed in this Chapter, Decision 2012/21/EU and the Framework, the Authority will answer individual questions that arise in the context of the application of the state aid rules to SGEIs (8).

7.

This Chapter is without prejudice to the relevant case-law of the Court of Justice of the European Union (the Court of Justice) and the EFTA Court.

8.

Based on Article 61(1) of the EEA Agreement, the state aid rules generally only apply where the recipient is an ‘榰ndertaking‘� Whether or not the provider of a service of general interest is to be regarded as an undertaking is therefore fundamental for the application of the state aid rules.

9.

The Court of Justice has consistently defined undertakings as entities engaged in an economic activity, regardless of their legal status and the way in which they are financed (9). The classification of a particular entity as an undertaking thus depends entirely on the nature of its activities. This general principle has three important consequences:

10.

Two separate legal entities may be considered to form one economic unit for the purposes of the application of state aid rules. That economic unit is then considered to be the relevant undertaking. In this respect, the Court of Justice looks at the existence of a controlling share or functional, economic and organic links (11). On the other hand, an entity that in itself does not provide goods or services on a market is not an undertaking for the simple fact of holding shares, even a majority shareholding, when the shareholding gives rise only to the exercise of the rights attached to the status of shareholder or member as well as, if appropriate, the receipt of dividends, which are merely the fruits of the ownership of an asset (12).

11.

To clarify the distinction between economic and non-economic activities, the Court of Justice has consistently held that any activity consisting in offering goods and services on a market is an economic activity (13).

12.

The question whether a market exists for certain services may depend on the way those services are organised in the EFTA State concerned (14). The state aid rules only apply where a certain activity is provided in a market environment. The economic nature of certain services can therefore differ from one EFTA State to another. Moreover, due to political choice or economic developments, the classification of a given service can change over time. What is not a market activity today may turn into one in the future, and vice versa.

13.

The decision of an authority not to allow third parties to provide a certain service (for example, because it wishes to provide the service in-house) does not rule out the existence of an economic activity. In spite of such market closure, an economic activity can exist where other operators would be willing and able to provide the service in the market concerned. More generally, the fact that a particular service is provided in-house (15) has no relevance for the economic nature of the activity (16).

14.

Since the distinction between economic and non-economic services depends on political and economic specificities in a given EFTA State, it is not possible to draw up an exhaustive list of activities that a priori would never be economic. Such a list would not provide genuine legal certainty and would thus be of little use. The following paragraphs instead seek to clarify the distinction with respect to a number of important areas.

15.

In the absence of a definition of economic activity in the EEA Agreement, the case-law appears to offer different criteria for the application of internal market rules and for the application of competition law (17).

16.

It follows from the Court of Justice case-law that Article 107 of the Treaty, which corresponds to Article 61 of the EEA Agreement, does not apply where the State acts ‘榖y exercising public power‘�a href="#ntr18-L_2013161EN.01001301-E0018" id="ntc18-L_2013161EN.01001301-E0018" shape="rect"> (18)