BAA warning on recovery of state aid

Association issues warning to companies with partial or full exemptions from the Aggregates Levy

HAVING obtained legal advice from Herbert Smith Freehills regarding HM Treasury’s (HMT) claims that it will not seek to recover state aid given to companies with Aggregates Levy exemptions prior to April 2014, the British Aggregates Association (BAA) has taken the view that HMT has adopted this position for the sole purpose of avoiding high-profile protest from companies at risk of bankruptcy.

The Association says that if this is the case, it is both ‘cynical and dangerous’, and that while it is up to individual companies to look after their own interests, they can only do so if they have the correct information.

According to the BAA, if the Phase II investigation finds that exemptions to the Aggregates Levy are illegal, the UK will be asked to collect payment of the illegal state aid from those companies with exemptions. If the UK resists, the European Commission will initiate proceedings against the UK in the European Court of Justice, and if its decision requires the recovery of aid, this cannot be ignored by the UK.

The BAA says state aid is currently a hot subject within the European Union, with a number of large German companies having been given rebates on the cost of their electricity to avoid them relocating to countries outside the EU where power is cheaper. This is being challenged by other EU companies.

Likewise, the UK needs to give state aid to the builder of a new nuclear power station at Hinkley Point, but this is being opposed by member states, such as Germany, who have decided to abandon nuclear power.

The BAA says these issues are much bigger than the Aggregates Levy and, as such, there is no prospect of the EU weakening its authority by allowing exempt UK aggregates producers to escape enforcement.

It adds that if a non-exempt complainant puts pressure on the Commission to ensure that the aid is recovered, to remove the advantage gained by an exempt competitor, the Commission is likely to take an even tougher line. The BAA says a number of aggrieved companies have already made representations to the EU, so this remains a distinct possibility.

According to the BAA, a number of smaller companies that received such aid may be able to avoid having to repay the aid under the ‘de minimis’ exception, ie amounts less than €100,000 per three-year period prior to 1 January 2007 and less than €200,000 per three-year period since 1 January 2007. However, this must be applied at group level and companies must not have received any other form of aid or grant.

Nevertheless, the BAA remains firm in its conviction that the best and most sensible outcome now is for the UK to scrap the Levy altogether. It says that while this would not resolve any breach of state aid law entirely, it would provide a way out for all concerned, with the onus shifted to the UK Government to cure its transgression by repaying the companies that paid the Levy.

Potentially, this would expose the Government to a liability in excess of £3 billion. However, the Treasury has already said it would resist any such claims for repayment on the grounds that aggregates producers have ‘passed on’ the cost of the Levy to their customers and would be ‘unduly enriched’ if repaid.

The BAA disputes that the Levy has always been passed on but says a number of companies, including majors, did put the levy on their invoices, which was something the Association had advised against.

BAA director Robert Durward commented: ‘It is now clear that ultimate power in this matter resides with the EU and not the UK. Operators who are concerned about the possibility of having to repay up to 12 years’ Levy are advised to seek expert legal advice without delay. They could, of course, ask HM Revenue & Customs for a written undertaking, specific to their company, that back Levy will not be collected. The response will tell them all they need to know.’

A copy of the legal opinion from Herbert Smith Freehills on the recovery of aid and the UK’s obligations is attached.