
Article 1 
This Decision sets out the conditions under which State aid in the form of public service compensation granted to certain undertakings entrusted with the operation of services of general economic interest is to be regarded as compatible with the common market and exempt from the requirement of notification laid down in Article 88(3) of the Treaty.
Article 2 

1. This Decision applies to State aid in the form of public service compensation granted to undertakings in connection with services of general economic interest as referred to in Article 86(2) of the Treaty which falls within one of the following categories:
(a) public service compensation granted to undertakings with an average annual turnover before tax, all activities included, of less than EUR 100 million during the two financial years preceding that in which the service of general economic interest was assigned, which receive annual compensation for the service in question of less than EUR 30 million;
(b) public service compensation granted to hospitals and social housing undertakings carrying out activities qualified as services of general economic interest by the Member State concerned;
(c) public service compensation for air or maritime links to islands on which average annual traffic during the two financial years preceding that in which the service of general economic interest was assigned does not exceed 300 000 passengers;
(d) public service compensation for airports and ports for which average annual traffic during the two financial years preceding that in which the service of general economic interest was assigned does not exceed 1 000 000 passengers, in the case of airports, and 300 000 passengers, in the case of ports.The threshold of EUR 30 million in point (a) of the first subparagraph may be determined by taking an annual average representing the value of compensation granted during the contract period or over a period of five years. For credit institutions, the threshold of EUR 100 million of turnover shall be replaced by a threshold of EUR 800 million in terms of balance sheet total.
2. In the field of air and maritime transport, this Decision shall only apply to State aid in the form of public service compensation granted to undertakings in connection with services of general economic interest as referred to in Article 86(2) of the Treaty which complies with Regulation (EEC) No 2408/92 and Regulation (EEC) No 3577/92, when applicable.This Decision shall not apply to State aid in the form of public service compensation granted to undertakings in the field of land transport.
Article 3 
State aid in the form of public service compensation that meets the conditions laid down in this Decision shall be compatible with the common market and shall be exempt from the obligation of prior notification provided for in Article 88(3) of the Treaty, without prejudice to the application of stricter provisions relating to public service obligations contained in sectoral Community legislation.
Article 4 
In order for this Decision to apply, responsibility for operation of the service of general economic interest shall be entrusted to the undertaking concerned by way of one or more official acts, the form of which may be determined by each Member State. The act or acts shall specify, in particular:

((a)) the nature and the duration of the public service obligations;
((b)) the undertaking and territory concerned;
((c)) the nature of any exclusive or special rights assigned to the undertaking;
((d)) the parameters for calculating, controlling and reviewing the compensation;
((e)) the arrangements for avoiding and repaying any overcompensation.
Article 5 

1. The amount of compensation shall not exceed what is necessary to cover the costs incurred in discharging the public service obligations, taking into account the relevant receipts and a reasonable profit on any own capital necessary for discharging those obligations. The compensation must be actually used for the operation of the service of general economic interest concerned, without prejudice to the undertaking’s ability to enjoy a reasonable profit.The amount of compensation shall include all the advantages granted by the State or through State resources in any form whatsoever. The reasonable profit shall take account of all or some of the productivity gains achieved by the undertakings concerned during an agreed limited period without reducing the level of quality of the services entrusted to the undertaking by the State.
2. The costs to be taken into consideration shall comprise all the costs incurred in the operation of the service of general economic interest. They shall be calculated, on the basis of generally accepted cost accounting principles, as follows:
(a) where the activities of the undertaking in question are confined to the service of general economic interest, all its costs may be taken into consideration;
(b) where the undertaking also carries out activities falling outside the scope of the service of general economic interest, only the costs associated with the service of general economic interest shall be taken into consideration;
(c) the costs allocated to the service of general economic interest may cover all the variable costs incurred in providing the service of general economic interest, a proportionate contribution to fixed costs common to both service of general economic interest and other activities and a reasonable profit;
(d) the costs linked with investments, notably concerning infrastructure, may be taken into account when necessary for the operation of the service of general economic interest.
3. The revenue to be taken into account shall include at least the entire revenue earned from the service of general economic interest. If the undertaking in question holds special or exclusive rights linked to another service of general economic interest that generates profit in excess of the reasonable profit, or benefits from other advantages granted by the State, these shall be included in its revenue, irrespective of their classification for the purposes of Article 87. The Member State concerned may decide that the profits accruing from other activities outside the scope of the service of general economic interest are to be assigned in whole or in part to the financing of the service of general economic interest.
4. For the purposes of this Decision ‘reasonable profit’ means a rate of return on own capital that takes account of the risk, or absence of risk, incurred by the undertaking by virtue of the intervention by the Member State, particularly if the latter grants exclusive or special rights. This rate shall not normally exceed the average rate for the sector concerned in recent years. In sectors where there is no undertaking comparable to the undertaking entrusted with the operation of the service of general economic interest, a comparison may be made with undertakings situated in other Member States, or if necessary, in other sectors, provided that the particular characteristics of each sector are taken into account. In determining what constitutes a reasonable profit, the Member States may introduce incentive criteria relating, in particular, to the quality of service provided and gains in productive efficiency.
5. When a company carries out activities falling both inside and outside the scope of services of general economic interest, the internal accounts shall show separately the costs and receipts associated with the service of general economic interest and those of other services, as well as the parameters for allocating costs and revenues.The costs linked to any activities outside the scope of the service of general economic interest shall cover all the variable costs, an appropriate contribution to common fixed costs and an adequate return on capital. No compensation shall be granted in respect of those costs.
Article 6 
Member States shall carry out regular checks, or ensure that such checks are carried out, to ensure that undertakings are not receiving compensation in excess of the amount determined in accordance with Article 5.
Member States shall require the undertaking concerned to repay any overcompensation paid, and the parameters for the calculation of the compensation shall be updated for the future. Where the amount of overcompensation does not exceed 10 % of the amount of the annual compensation, such overcompensation may be carried forward to the next annual period and deducted from the amount of compensation payable in respect of that period.
In the sector of social housing, Member States shall carry out regular checks, or ensure that such checks are carried out, at the level of each undertaking, to ensure that the undertaking concerned is not receiving compensation in excess of the amount determined in accordance with Article 5. Any overcompensation may be carried forward to the next period up to 20 % of the annual compensation, provided that the undertaking concerned only operates services of general economic interest.
Article 7 
The Member States shall keep available for a period of at least 10 years, all the elements necessary to determine whether the compensation granted is compatible with this Decision.
Upon a written request from the Commission, Member States shall provide the Commission with all the information that the latter considers necessary to determine whether the systems of compensation in force are compatible with this Decision.
Article 8 
Periodic reports on the implementation of this Decision, comprising a detailed description of the conditions of application in all sectors, including the social housing and the hospital sectors, shall be submitted to the Commission by each Member State every three years.
The first report shall be submitted by 19 December 2008.
Article 9 
By 19 December 2009 at the latest, the Commission will undertake an impact assessment based on factual information and the results of wide consultations conducted by the Commission on the basis, notably, of data provided by the Member States in accordance with Article 8.
The results of the impact assessment will be made available to the European Parliament, the Committee of Regions, the European Economic and Social Committee and the Member States.
Article 10 
This Decision shall enter into force on 19 December 2005.
Points (c), (d) and (e) of Article 4, and Article 6 shall apply from 29 November 2006.
Article 11 
This Decision is addressed to the Member States.
Done at Brussels, 28 November 2005.
For the Commission
Neelie KROES
Member of the Commission