The market economy operator principle (also known as the ‘private investor test’) is an analytical tool the European Commission uses to prevent companies from obtaining advantages through the State intervening in a particular market. This requires a complex economic analysis and legal justification to assess whether a hypothetical private investor would make a comparable intervention in the particular market on the same conditions as the State. If the answer is yes and the transaction is consistent with the market, this is unlikely to be considered state aid because the other party (company) has not obtained an economic benefit it would not have obtained under normal market conditions.
The Commission (and the State – the provider of aid) should put itself in the recipient company’s shoes and assess whether the advantage obtained (e.g. credit guarantee, capital injection or debt write-off) could also be offered by other companies in this market. If the answer is yes, the market economy operator principle should be applied and a further assessment carried out.
It’s especially important to consider whether a transaction is economically, commercially and financially sound at the time of being carried out, given its short-term or long-term prospects of profitability and other commercial or economic interests concerned. According to the CJEU case law, any ex post economic assessments retrospectively demonstrating the profitability of an investment are not sufficient.1
Any costs and benefits of the State as a government agency that are related, for instance, to employment levels or an increase in national revenue, social or regional development and other policy considerations, should be ignored in applying this principle. This is because a hypothetical market operator being used for comparison would ignore such considerations at the time of making an investment.
Each separate case warrants the use of different tests aimed at comparing the State measure in question in the most appropriate manner, especially considering its nature, with a measure that a private market operator could take in a similar situation and under normal market conditions.2
The CJEU settled case law offers four tests3 (see the image below):
According to the CJEU case law and the European Commission’s decisions, there are several ways to determine whether a transaction is consistent with normal market conditions, divided into two main categories.
PwC experts have vast experience in representing government agencies and private companies across all aspects of applying the state aid rules, including the market economy operator principle. If you need any help with these matters, our experts are happy to advise and support you.
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