On July 24, 2003, the European Court of Justice laid down four conditions that must be satisfied so that financial compensation, which is intended to pay for public service obligations, is not classified as State aid. 

This decision may be of some importance in the public service broadcasting sector where such funding compensates for fulfilment of the public service remit.

Legislating on the case of a German transport company that had not, contrary to another company, obtained licences and subsidies for transporting passengers by bus, the Bundesverwaltungsgericht (Federal Administrative Court) referred to the Court of Justice to find out whether the subsidies granted to a company were considered to be State aid prohibited by the EC Treaty.

The Court pointed out that for a State measure to be classifiable as State aid within the meaning of the EC Treaty, it must be capable of being regarded as an “advantage” conferred on the recipient company that it would not have obtained under normal market conditions. 

The Court held that there is no such “advantage” where a State financial measure must be regarded as compensation for the services provided by the recipient company in order to discharge public service obligations. 

However, four conditions must be satisfied. 

• First, the recipient company must actually have public service obligations to discharge and those obligations must be clearly defined.
• Secondly, the parameters on the basis of which the compensation is calculated must be established in advance in an objective and transparent manner.
• Thirdly, the compensation cannot exceed what is necessary to cover all or part of the costs incurred in the discharge of the public service obligations, taking into account the relevant receipts and a reasonable profit.
• Fourthly, when the company is not chosen in a public procurement procedure, the level of compensation must be determined by a comparison with an analysis of the costs that a typical transport company would incur (taking into account the receipts and a reasonable profit from discharging the obligations).