Grant

A subsidy is the delivery of money or goods and services by a public administration to an individual, natural or legal person, without the obligation to repay it. They are usually used in activities considered to be of public interest, or in circumstances of social interest. As an administrative intervention technique, it belongs to the set of instruments typical of development activity.

The grant creates a legal relationship that binds the Administration and the beneficiary. The beneficiary has, once the legal conditions have been met, a right to receive the subsidy, thus obliging himself to carry out the benefited activity.

The Administration, which is obliged to deliver the relevant sums, reserves for itself a bundle of powers.

• Control and inspection of the activity benefited.
• of Revocation against the failure of the beneficiary.
• of Disciplinary of such activity, by virtue of which it may impose penalties for the offence.

Many economic activities are subsidized today. Thus, for example, concerted education, transport, agriculture, film productions, R+D+I activities of companies, NGO development cooperation programs, the production of "renewable& energy. #34; etc

Numerous social, personal and family circumstances are also subsidized. It is always necessary to differentiate between subsidy, aid and benefits for acquired rights.

Nature of the subsidies

The subsidy is an important part of the financial activity of the public sector, with which it is intended to respond to social and economic demands of people and public or private entities.

From the point of view of economic theory, the subsidy phenomenon finds its justification in the reallocation function that the financial activity of the public treasury must fulfill, and in the theory of market failures. According to this theory, subsidies are justified by the need to internalize the benefits of certain behaviors, productions and activities, which generate positive externalities for society, benefits that the market, due to its failures, does not attribute directly to its executors, promoters or participants..

From the administrative perspective, subsidies are one of the most important tools used by Administrations to promote their public policies of general interest and even a collaboration procedure between the Public Administration and the individuals for the management of activities of public interest. From the financial perspective, they constitute a modality of public spending that must be subject to the rules for the execution of the credits of the spending budget earmarked for subsidies. From the accounting point of view, the non-reimbursable subsidies received are classified as income recorded, in general, as net worth that will subsequently be allocated to the economic equity result account on a systematic and rational basis of correlated with the expenses derived from the subsidy, while reimbursable subsidies received are recorded as a liability until they acquire non-reimbursable status.

The Dictionary of the Spanish language, in its 23rd edition, defines “subsidy” as “the action and effect of subsidizing or subsidizing” or “the economic aid given to a person or institution to carry out an activity considered of general interest", and "subvenir" as "come to the aid of someone or attend to the needs of something".

According to the Economic and Financial Dictionary (Bernard-Colli) a subsidy is "the expense granted definitively to a public or private person in order to lighten or compensate a burden or promote a specific activity ” and, more specifically, they are “transfers made by a public authority for the benefit of other public authorities, social institutions or companies”.

International conventions

At the supranational level, there are multiple definitions of the subsidy concept.

The World Trade Organization Agreement on Subsidies and Countervailing Measures disciplines the use of subsidies, and regulates the measures that countries can adopt to counteract the effects of subsidies. The aforementioned Agreement, in its article 1, includes a definition of the term "subsidy", which includes:

• "Financial contribution of a government or any public agency” to grant a benefit. Direct transfers of funds, including potentials, public revenues that were otherwise perceived and the goods or services provided by public authorities, which are not of general infrastructure, or when a government makes payments to a financing mechanism, or assigns or orders a private entity one or more of these functions.
• Government support of income or prices that are directly or indirectly due to the effect of increasing exports of any product from the territory of a Member or reducing imports of that product in its territory.

Regulation (EU, Euratom 966/2012, of October 25, 2012, on the financial regulations applicable to the general budget of the Union and repealing Council Regulation (EC, Euratom) 1605/2002 defines grants as direct financial contributions from the budget that are granted as a gift in order to finance any of the following activities:

• An action to promote the realization of a goal of any of the Union's policies.
• The functioning of an agency that pursues an overall objective of the Union or an objective that is part of and supports any of the Union's policies.

This definition is completed by a list of cases excluded from the nature of subsidies included in its article 121.

For its part, the European System of National and Regional Accounts of the European Union, regulated by Regulation (EU) 549/2013 of the European Parliament and of the Council, of May 21, 2013, defines subsidies as current payments without compensation that the public administrations or the institutions of the European Union make to the resident producers, citing as objectives of these subsidies:

• Influencing production levels;
• Influencing product prices, or
• Influencing the remuneration of production factors.

Likewise, the aforementioned Regulation excludes from the concept of subsidies a series of payments without counterpart (4.38) such as current transfers from public administrations to households in their capacity as consumers or current transfers between different public administrations in their capacity of producers of non-market goods and services.

The doctrine coincides in pointing out three characteristic notes of the subsidies:

1. The Consignee Administration carries out an act of provision of public expenditure from which a benefit is derived for the recipient.
2. The beneficiary receives the grant without counterpart.
3. The funds subject to the grant are provided for a public purpose.