Competition and Antitrust

Contact: Att. Nilsun Gursoy; Erdem & Erdem (Turkey)

The period for the entry into force of the regulations on notification and monitoring of state aid is extended to 31.12.2016 by the Resolution of Council of Ministers[1]. By doing so, the Council of Ministers extended the relevant period for the fourth time. On 22 December 1995, with Decision No. 1/95 of the EC-Turkey Association Council[2] (“Decision No. 1/95”), Turkey undertook to harmonize its legislation on competition law and state aid with the European Union’s legislation in accordance with its duties arising from Customs Unions and the negotiations for full accession to the European Union. Turkey has aligned most of its legislation with European Union antitrust law with the adoption of Law No. 4054 on the Protection of Competition; however, a state aid monitoring system was not introduced for some time. Law No. 6015 on the Monitoring and Control of State Aid (“Law No. 6015”) entered into force through its publication in the Official Gazette on 13.10.2010, yet entry into force of the secondary legislation was regularly postponed.

European Commission’s Progress Reports on Turkey regularly underline, under the Competition Policy section, that Turkey does not align its legislation with the European state aid legislation. The 2015 Progress Report states that the entry into force of the regulation implementing the state aid law was again postponed, delaying the requirement to notify state aid schemes and measures, and a number of aid schemes breach Turkey’s obligations under the Customs Union[3]. Additionally, it indicated that a comprehensive state aid inventory is yet to be set up, and an action plan for aligning all state aid schemes with the acquis is yet to be adopted[4]. This newsletter will assess the state aid in general and the relevant Turkish legislation.

Features of the State Aid Measures

Law No. 6015 defines the state aid as “any aid providing a financial benefit to its beneficiary granted by the State or through State resources in any form whatsoever which distorts or threatens to distort competition by favoring certain undertakings or the production of certain goods, in so far as it affects trade between European Union and Turkey.” The definition is parallel with Art. 107 of the Treaty on the Functioning of the European Union (“TFEU”). Accordingly, the measure needs to have five features to be state aid: the measure should be granted by the State or through State resources; the measure should grant an advantage to the beneficiary or beneficiaries, the advantage should be on a selective basis, the measure should distort or threaten to distort competition, and the measure should be likely to affect trade between the European Union and Turkey (affect trade between Member States, according to the European Union legislation).

The aid granted by the State or through State resources does not need to be monetary aid; the Commission interprets this concept broadly. The concept of state aid not only includes the aid actively granted by the State or through State resources, but also aid through release of the undertakings from a financial obligation that they normally should have born, and thereby, decreasing the State revenues[5]. State aid may take a variety of forms, such as grants, incentive payments, low-interest loans, providing goods in preferential prices, and providing sureties for loans, etc. Granting tax relief or other tax related benefits also fall within the scope of state aid. The Commission ruled in its recent Fiat and Starbucks decisions that tax rulings violating the arm’s length principle in relation to the validation of transfer pricing arrangements, and thus, reducing the tax burden of company groups are illegal, as it allows group companies to allocate their profits by intra-group transactions in countries where the tax burden is lower[6].

The aid granted by the State, or through state resources, should also grant an advantage to the beneficiary of the aid as compared to its competitors. Additionally, the advantage should be granted on a selective basis; therefore, general economic and financial measures concerning all undertakings without any selective bases are not considered as state aid in accordance with Art. 3/4 of Law No. 6015.

With regard to the competition and trade between Member States, the Commission consistently confirmed that trade between Member States is affected if the relevant sector is open to competition, and two or more Member States are operating in the relevant sector, and the position of the beneficiary is strengthen, when compared with other firms[7]. Additionally, the Commission is concerned with the effects of the measure; therefore, the objective pursued by the relevant measure does not prevent the measure to be considered as state aid[8].

Art. 35 of Decision No. 1/95 provides that any practices contrary to state aid rules shall be assessed on the basis of criteria arising from the application of the European Union’s legislation. Therefore, the practice of the Commission should be taken into account in the application of Turkish state aid rules.

Exemptions and Illegal Aid

Both Art. 107 of the TFEU, and Art. 3 of Law No. 6015 provides that the aid be compatible, or may be considered compatible, with state aid legislation. Accordingly, aid having a social character, granted to individual consumers, provided that such aid is granted without discrimination related to the origin of the products concerned, and aid to make good damages caused by natural disasters or exceptional occurrences, are compatible for the purposes of Law No. 6015.

Aid to promote the economic development of areas where the standard of living is abnormally low as compared to the European Union, or where there is serious underemployment; aid aiming to accomplish structural adjustments between Turkey and the European Union; aid to facilitate the development of certain economic activities or of certain economic areas; aid to promote culture and heritage conservation; aid to promote the execution of an important project of common interest of Turkey and the European Union, or to remedy a serious disturbance in the economy of Turkey, and such other categories of aid as may be specified by the Association Council may be considered compatible for the purposes of Law No. 6015.

Pursuant to Art. 3/3, the regulation may further provide for the granting of a block exemption to certain types of state aid, or declare compatible state aid granted to an enterprise for a certain period up to a certain limit, provided that it does not significantly distort the competition, and exempt them from notification to the State Aid Monitoring and Supervision Board.

State aid that does not fall within the scope of these exemptions is deemed illegal, and such aid should be recovered with its accrued interest if it is already granted to the enterprise. Art. 10 of Law No. 6015 sets forth the principles regarding the recovery of the illegal state aid, and the illegal aid should be recovered in ten years as of the date of receiving of the aid by the beneficiary in accordance with Art. 11.

Certain Problematic Provisions of Law No. 6015

Besides the delays regarding the implementation of the secondary regulation on the monitoring of state aid, Law No. 6015, is also criticized for certain issues. Art. 4 of Law No. 6015 confers the duty to monitor the state aid to the State Aid Monitoring and Supervision Board rather than the Competition Board. Compared to the Competition Board, the State Aid Monitoring and Supervision Board has less guarantees in terms of administrative and financial independence, and does not enjoy legal personality. In accordance with the opinions published during the consultation period for adoption of Law No. 6015, it was concluded that the state aid granted by the State should not be monitored by a governmental body, and the Competition Board has the required expertise for monitoring state aid; however, no amendment has been adopted[9]. Thus, compatibility of Turkish state aid monitoring structure with the European Union law may raise certain concerns.

Another issue is that the scope of application of Law No. 6015 does not include aid in agriculture, fisheries, and service sectors. Exclusion of the totality of the service sector does not appear to be an appropriate solution. This was also pointed out during the consultation period, and it was suggested to limit the scope to agriculture, fishery and livestock sectors[10].

Conclusion

Turkey should adopt a state aid monitoring legislation in accordance with its duties arising from the Customs Union and the negotiations for full accession to the European Union. Although Law No. 6015 was adopted in 13.10.2010, the regulation for implementation of the monitoring and control process has not yet entered into force. Law No. 6015 is generally in conformity with the European Union state aid legislation, and the Commission’s practice may be taken into account in the implementation phase. However, the 2015 Progress Report for Turkey underlines that certain aid granted by Turkey does not comply with the European Union legislation, and Turkey, once again, postponed the entry into force of secondary regulation. For the time being, the regulations implementing the requirement to notify state aid schemes and measures will enter into force on 31 December 2016.