State aid

Does the funding of public service missions fall within the scope of State aid rules?

Under EU law, the notion of Service of general interest (SGI) covers services that public authorities of the Member States at national, regional, or local level classify as being of general interest and, therefore, subject to specific public service obligations (PSO).

The term of SGI includes both economic activities and non-economic services. SGI related to economic activities are called Services of general economic interest (SGEI) and are subject to a specific regime under State aid rules. Indeed, SGEI have special characteristics as compared with those of other economic activities. Thus, the legal framework applying to SGEI is based on a balance between Member States’ prerogatives in the design of public services and the protection of the level playing field in the EU.

What is a SGEI?

SGEI is an evolving notion that depends, among other things, on the needs of citizens, technological and market developments and social and political preferences in the Member State concerned.

The concept of SGEI appears in Articles 14 and 106.2 TFEU and in Protocol No 26 to the TFEU, but it is not defined in the TFEU or in secondary legislation.

The Commission has clarified this concept in its Quality Framework for Services of General interest in Europe. According to the general definition given by the Commission, SGEI are economic activities which deliver outcomes in the overall public good that would not be supplied (or would be supplied under different conditions in terms of quality, safety, affordability, equal treatment or universal access) by the market without public intervention. A PSO is imposed on the provider by way of an entrustment and on the basis of a general interest criterion which ensures that the service is provided under conditions allowing it to fulfil its mission.  

How is a SGEI and its scope defined?

The SGEI concept may apply to different situations and terms, depending on the Member State. Besides, EU law does not create any obligation to designate formally a task or a service as being of general economic interest, except when such obligation is laid down in Union legislation.

In the absence of specific EU rules, Member States have a wide margin of discretion in defining a given service as a SGEI and in granting compensation to the service provider. However, the freedom of the Member States to define SGEI is subject to review by the Commission and the Union’s courts to check for manifest errors of assessment.

For examples, the Commission may identify a manifest error:

• if the PSO is already provided or can be provided satisfactorily and under conditions, such as price, objective quality characteristics, continuity and access to the service, consistent with the public interest, as defined by the Member State, by undertakings operating under normal market conditions; or
• when a sector is harmonized at Union level and Member States’ discretion contradicts the rules governing such harmonization.

Consequently, the existence of a SGEI is assessed on a case-by-case basis, taking into account the Commission’s decision-making practice and the CJEU’s case-law. The correct definition of a SGEI also depends on the sector and the degree of harmonization in this field (e.g., telecommunications, postal and energy sectors). For instance, specific guidance published by the Commission must be taken into account for the definition of SGEI in sectors such as broadband networks and broadcast services.

Is a State measure compensating a SGEI always a State aid?

In its judgement in Altmark, the CJEU held that public service compensation did not constitute State aid within the meaning of Article 107 TFEU provided that four cumulative criteria are met [1] :

• First, the recipient undertaking must actually have PSOs to discharge, and the obligations must be clearly defined.
• Second, the parameters on the basis of which the compensation is calculated must be established in advance in an objective and transparent manner to avoid giving the recipient undertaking an economic advantage over its competitors.
• Third, the compensation cannot exceed what is necessary to cover all or part of the costs incurred in the discharge of PSOs, taking into account the relevant receipts and a reasonable profit.
• Fourth, where the undertaking which is to discharge PSOs is not chosen pursuant to a public procurement procedure (which would allow for the selection of the bidder capable of providing those services at the least cost to the community), the level of compensation needed must be determined on the basis of an analysis of the costs that a typical undertaking (if well-run and adequately equipped) would have incurred to perform those obligations, taking into account related revenues and a reasonable profit.

The “least cost to the community” requirement (see the fourth criterion) is the most difficult to meet. Compensation not fulfilling the Altmark criteria, and thus constituting State aid, may still be compatible with the TFEU and exempted from notification under the SGEI exemption rules or approved by the Commission upon notification (see below).

Which specific regime under State aid rules apply to SGEI?

In 2012, the Commission adopted the Almunia package to support Member States in funding SGEIs while preserving the key aspects of State aid control. This package consists of four instruments:

• The SGEI Communication, which explains key principles for the application of State aid rules to SGEIs, such as the notions of aid, SGEI, economic activity, the relation between public procurement and State aid rules, etc. In particular, the SGEI Communication addresses the different requirements established in the Altmark case-law.
• The SGEI Decision, which provides the conditions under which State aid in the form of public service compensation granted to certain undertakings entrusted with the operation of SGEI are compatible with the internal market and exempt from the requirement of notification laid down in Article 108.3 of the Treaty. The SGEI Decision has since December 2025 been revised to update State aid rules to facilitate investments in affordable housing. The revision also aims to update, simplify and clarify the previous SGEI Decision. Notably, the general cap on aid amounts has been increased to €20 million and modifications regarding several sectors (critical medicines, aviation, maritime, ports) have been introduced.
• The SGEI Framework, which sets out the conditions for assessing compensation for SGEIs not covered by the SGEI Decision. Such compensation must be notified to the Commission and may be declared compatible with Article 106.2 TFEU if they meet the criteria of the SGEI Framework. The compatibility conditions under the Framework are stricter than under the Decision.

The SGEI de minimis Regulation, revised in 2023, which provides that Member States can grant support of up to €750,000 per SGEI provider over a period of 3 years (‘SGEI de minimis threshold') without prior notification to the Commission for approval. Such amount is deemed not to have an impact on competition and trade in the EU Single Market, and therefore is not considered State aid.  

Public authorities and SGEI providers shall conduct a self-assessment to comply with State aid rules related to the funding of public service missions.

Taking this into account, CMS lawyers can help you by:

• Legally assessing whether a service could be considered as a SGEI, on the basis of the Commission’s decision-making practice and the case-law of the Union courts;
• Explaining and applying to each case the conditions and methodology to be used under the SGEI rules (Altmark criteria, Decision, Framework and de minimis Regulation);
• Providing advice on the best options to calculate the cost of PSOs and avoid any overcompensation;
• Assisting public authorities or undertakings entrusted with the provision of SGEI with the implementation of the SGEI package rules (e.g., audit of the existing situation, participation in negotiations, advice within the context of the notification of State aid to the European Commission);
• Assisting undertakings facing recovery measures for illegal State aid due to the infringement to the SGEI rules.