Serbian state aid watchdog issues its first recovery order

The first recovery order since the enactment of the Serbian State Aid Control Act was issued on 1 November 2021. It directs the Ministry of Finance to recover from the Serbian subsidiary of the Italian shoe-maker Geox a total of approximately RSD 414 million (approx. EUR 3.5 million), with default interest running from two different dates in 2016.

The proceedings were initiated on 5 August 2021, after Geox announced the closure of its manufacturing site in Serbia and commenced voluntary liquidation of the Serbian subsidiary.

The state aid concerned was granted to the Geox’ subsidiary as regional aid, for the greenfield development of the manufacturing site.

The aid was found to be incompatible with the state aid rules because it exceeded the maximum permissible intensity for regional state aid. The State Aid Commission determined that the total aid received amounted to 68.95% of total eligible costs, whereas the maximum aid intensity permitted at the time was 50%, given that Geox is a large entity in accounting terms.

The local municipality claimed in the proceedings that its aid in the form land development (roads, sewage etc.), in the total amount of RSD 38.7 million (approx. EUR 330,000), should not be fully attributed to Geox given that it benefited other companies as well. However, the State Aid Commission noted in its recovery order that no evidence has been offered in that respect and therefore treated the relevant infrastructure as bespoke.

Geox also received state aid in the form of 10-year tax holiday under the Serbian Corporate Income Tax Act. The State Aid Commission, however, did not include this aid into the account, because it is a scheme that pre-dates the State Aid Control Act. The order makes a nod to the fact that Serbia has undertaken under the Stabilisation and Association Agreement to align this tax holiday with the state aid rules (but has not yet done so).

The recovery order is immediately enforceable. The manufacturing site in Serbia is an obvious asset against which at least a partial recovery can be conducted. It is to be seen whether the recovery claim of the state will result in the conversion of the pending liquidation proceedings into insolvency proceedings.

The first recovery order in Serbia is a warning to the recipients of regional aid within the framework of the Serbian Investment Act, to carefully balance eligible costs against the total aid received. The decision also emphasizes the importance of a proper state aid compliance due diligence when analysing these types of companies as potential acquisition targets.