EU Commissioner Margrethe Vestager, in charge of competition policy, said: "It is a good thing if public investment fosters economic growth in Member States. However, we need to avoid harmful subsidy races between Member States. The Commission will carefully investigate if Slovakia's planned support is really necessary for Jaguar Land Rover to locate its investment in Nitra and is kept to the minimum needed, if it distorts competition or harms cohesion in the EU".
Jaguar Land Rover is a large car manufacturing company owned by Tata Motors Limited India. Jaguar Land Rover is investing €1.4 billion in a car manufacturing facility in the region of Nitra (Slovakia), an area eligible for regional aid under EU state aid rules. The plant would have a production capacity of 150,000 cars per year. In May 2016, Slovakia notified the Commission of its plans to grant €125 million of public support for the project, representing the maximum aid that can be granted for such a project.
EU state aid rules, in particular the Commission's 2014 Regional State Aid Guidelines, enable Member States to support economic development and employment in the EU's less developed regions and to foster regional cohesion in the Single Market. In order to be approved, the measures need to fulfil certain conditions to make sure that they have the intended positive effect. This includes that the support must incentivise private investment, be kept to a minimum necessary and must not lure away investment from a region in another Member State, which is as or less economically developed ("anti-cohesion effect").
The Commission has doubts at this stage that the planned aid support of €125 million in Nitra measure complies with all criteria of the Regional Aid Guidelines.
In particular, the Commission has doubts at this stage whether the measure incentivises private investment. It will need to further investigate whether Jaguar Land Rover's investment decision was triggered by considerations other than the conditional public subsidy of €125 million.
Furthermore, Slovakia claims that without the aid the investment would have taken place outside the European Union, in Mexico. However, the Commission will have to investigate further indications that the €125 million subsidy incentivised Jaguar Land Rover to invest in Slovakia rather than in another Member State. If proven, the measure may have an anti-cohesion effect in the EU, which would not be permitted under the Guidelines.
Finally, the Commission has doubts at this stage whether additional measures planned by Slovakia are free from state aid. In particular, Slovakia will transfer to Jaguar Land Rover land for the new car plant from a large industrial estate under development and has granted an exemption from a fee payable under Slovakian law when converting agricultural land into industrial land. Should these additional measures turn out to qualify as state aid in favour of Jaguar Land Rover, the total aid amount would exceed the maximum that can be granted for this investment project in Nitra under the Regional Aid Guidelines.
The Commission will now investigate further to determine whether or not these initial concerns are confirmed. The opening of an in-depth investigation provides all interested parties with an opportunity to comment on the measure. It does not prejudge in any way the outcome of the investigation.
Evidence shows that large companies take decisions to invest in a given region not just by state aid but based on numerous factors, including the cost and availability of labour and land, tax legislation, their existing operations in the given region and the business environment. Granting aid in a context where a large company would have invested in any event would merely reduce the company's ordinary operating costs, which its (local) competitors have to meet without aid. This leads to competition distortions at the expense of taxpayers.
The Commission's 2014 Guidelines on Regional State Aid allow Member States to support regional investment to support economic development and employment in the EU's less developed regions and to foster cohesion in the Single Market, if the measure respects a number of conditions:
- The aid must have a real "incentive effect", in other words it must effectively encourage the beneficiary to invest in a specific region.
- The aid must be kept to the minimum necessary to trigger the company's investment decision.
- The aid cannot have undue negative effects. Examples of such undue negative effects are the creation of excess capacity by the aided investment in a declining market, or the granting of a level of aid that would exceed the regional aid ceiling applicable to the region in question.
- The aid must not lure away investment from a region, which has the same or a lower level of economic development than the region where the aided investment takes place (so-called 'anti-cohesion effect').
The non-confidential version of the decision will be made available under the case number SA.45359 in the state aid register on the Commission's competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.