The Path of Change: Why AMCU Proposes to Change the Rules for State Aid for Aircraft Construction
The Antimonopoly Committee is changing the conditions for providing state aid to companies in the field of aircraft construction, because the current schemes do not comply with the rules of Ukraine and the European Union on the provision of state aid.
Why AMCU proposes to change the rules?
This time, the committee took up state aid in the field of aircraft construction through the Association Agreement with the European Union, which obliges Ukraine to control the provision of state resources in the form of tax benefits, budget guarantees, subsidies, etc., the receipt of which improves the affairs of individual companies against competitors who are left without budgetary support and find themselves therefore in unequal competitive conditions.
Recommendations appeared to change state aid programs, as required by the Association Agreement, to reduce the negative impact of state intervention on competition and "to obtain the status of a candidate for EU membership, further work on the integration of Ukraine into the EU."
State support programs for companies in the field of aircraft construction are any regulatory acts that promise state guarantees, subsidies, tax benefits, the possibility of debt cancellation, budgetary compensation of interest on bank loans and other forms of transfer or loss of state resources.
In Ukraine, there is a law "On the development of the aircraft industry", which takes care of its development and prosperity, the competitiveness of aircraft, engines for them and aviation equipment of Ukrainian production. In order for prosperity to become a reality, the state came up with several forms of budget support for companies listed in the government list . It changes from time to time based on the proposals of the Ministry of Strategic Industries (formerly Minek).
The Tax Code exempts companies engaged in aircraft construction from income taxation until January 1, 2025. The Customs Code exempts goods defined by the Code and imported into the customs territory of Ukraine by companies in the aircraft industry from payment of import duty and value added tax.
Why does AMKU consider state aid in aircraft construction harmful?
In previous years, in separate decisions , the Antimonopoly Committee already called state aid to companies (exemptions from paying taxes and duties) in the field of aircraft construction harmful to competition (with signs of inadmissibility) and obliged the Ministry of Economy at that time to harmonize the conditions for providing budgetary aid with the legislation on state help I did not find any information about whether the ministries have complied with the changes in the conditions for providing state aid in accordance with the adopted decisions on state aid and within the terms established by the Committee.
The committee also outlined that when the budget is solely concerned with the production of weapons, military equipment, and aircraft for the needs of the Ministry of Defense of Ukraine and the Armed Forces of Ukraine (Air Force of Ukraine), such state support is not aid and is not controlled by state aid rules. But, according to the committee, such work for the benefit of the country's defense should be noted in the acts of the authorities. Further here, only budgetary assistance to companies that are not involved in the production of weapons, military equipment, and aviation equipment for the needs of the Ministry of Defense and the Armed Forces of Ukraine.
The committee reiterated the conclusions of the decisions in its recommendations, saying that state aid in the form of exemption from paying taxes on the company's profit, paying value added tax when importing goods into the customs territory of Ukraine, paying import duties when importing goods into the customs territory of Ukraine, which is provided on the basis of of the Law on the Development of the Aircraft Industry, the Customs and Tax Codes for the period from June 9, 2010 to January 1, 2025, is valid state aid in accordance with the law on state aid that has signs of inadmissibility (that harms competition).
In general, recognition of aid as inadmissible usually means that the recipient must return the entire amount of aid received to the budget. In the event that the Committee calls the aid valid (effective), as in the case of the exemption of the aircraft industry from taxation, the authority (the donor) has a chance to correct everything so that the return does not occur.
Therefore, in order for the Ministry, together with the companies in the field of aircraft construction, to avoid the risks of the future return of the budget received by the account, it is necessary to fulfill the obligations contained in the decisions on state aid and recommendations of the AMCU.
The committee says that today's scheme of using the funds received thanks to the exemption from paying taxes on the company's income, paying value added tax when importing goods into the customs territory of Ukraine, paying import duties when importing goods into the customs territory of Ukraine, etc., does not comply with the rules of Ukraine and the European Union on the provision of state aid.
According to what rules should state aid be provided?
State aid rules require its providers (authorities) and aircraft manufacturing companies to write an investment project from the beginning.
The investment project must include all costs, for example, research and development work on aircraft construction, creation and re-equipment of the material and technical base, increase in production volume, introduction of the latest technologies, creation of new jobs, etc.
AMCU says that without an investment project and scheduled costs, it is impossible to calculate the state's participation in the project, while according to the rules of state aid, the state is allowed to invest its resources up to 50% of the costs of implementing the investment project. And the recipient of state aid must make a financial contribution in the amount of at least 25% of the costs for the implementation of the investment project with his own funds or by attracting external financing without any state support.
Such lack of transparency in government spending, in the view of the competition agency, improves the position of individual aircraft manufacturers against competitors, due to which the probability of distortion of competition increases, which became a cause for concern of AMCU.
According to the committee's expectations, the Ministry of Strategic Industries - the provider of assistance in the field of aircraft construction will present for approval the project(s) of the act(s) taking into account all mandatory recommendations one month after the termination/revocation of martial law.
In case of theoretical non-fulfilment of the persistent requests of the Antimonopoly Committee to reconcile the conditions of the provision of current state aid with the requirements of the legislation on state aid, AMCU may open a case on state aid, upon completion of which the budget funds will have to be returned.
Today, the decisions and recommendations of the Antimonopoly Committee in the field of state aid are the European integration steps of Ukraine to the EU, therefore the announced intentions to join the European community must be supported by real actions, such as the harmonization of Ukrainian legislation with EU rules.