Who qualifies as an “undertaking” in EU State aid law? The concept that changes everything

In EU State aid law, the very first gateway question is deceptively simple: who is an “undertaking”?

If an entity is not an undertaking, Article 107(1) TFEU does not apply at all. If it is, even a “routine” public measure may require careful State aid scrutiny.

Key takeaways

• An undertaking is any entity engaged in an economic activity.

• Legal form (private company, municipality, public-law body) is not decisive.

• Public entities can be undertakings when they operate on a market.

• A public or social objective does not automatically remove the activity from the market sphere.

What “undertaking” means in practice

In EU law, “undertaking” is a functional concept. It is about what the entity does, not what it is called.

If the entity offers goods or services on a market, it is an undertaking for State aid purposes.

The real test: When an activity is economic?

An activity is economic when there is a market for it, actual or potential.

In practical terms, if the same service could be provided by private operators, or is already offered competitively, it is likely an economic activity.

What is typically non-economic?

Activities linked to the exercise of public authority are typically non-economic, such as:

• regulatory and supervisory powers,

• licensing and enforcement,

• taxation and coercive powers,

• core State functions.

The key is whether the body acts as a public authority or as a service provider on a market.

Public bodies, municipalities and public-law entities

This is where many misunderstandings arise.

A municipality or public-law body is usually not an undertaking when:

• it performs regulatory/administrative functions,

• it carries out non-commercial core public tasks.

When it is an undertaking?

A public body may be an undertaking when it:

• charges a price or fee,

• provides services that private operators provide (or could provide),

• operates in a market environment (even locally),

• competes, actually or potentially, with others.

The biggest pitfall: “public purpose” is not a safe harbour

A social or public-interest aim does not automatically make an activity non-economic.

For State aid purposes, the core question remains:
Is there a provision of goods/services on a market?
If yes, the entity is likely an undertaking, even if profit is not the main goal.

Where things usually go wrong?

• Assuming “public” automatically means “outside competition”.

• Confusing legal status with the market-based test.

• Ignoring potential competition and focusing only on current competitors.

Practical example

A municipally-owned operator manages paid parking facilities.

Even if its pricing is “social”, it provides a service on a market where private parking operators exist (or could exist). The operator therefore qualifies as an undertaking.

At that point, any preferential funding, guarantees, or advantages must be analysed under Article 107(1).

What this means in practice:

Once the entity qualifies as an undertaking:

• public funding may trigger an “advantage” assessment,

• “municipal support” (assets, infrastructure, rebates) must be structured and documented properly.

Correct classification upfront reduces risks such as standstill breaches, recovery, and illegality interest.

FAQ

If there is no private competitor today, am I safe?
Not necessarily. Potential market competition can be enough.

If I am a monopoly, I am not an undertaking, right?
Wrong. Monopoly status does not automatically remove the “undertaking” qualification.

If I charge at cost, does that change the classification?
Cost-based pricing affects other issues, not the undertaking gateway test.

Conclusion

“Undertaking” is the switch that turns State aid analysis on or off. Getting it right early is the most effective compliance move. If a public entity provides services with an economic character, a legal due diligence is the best risk-control choice.

This article is general information and not legal advice.