Summary Under the proposed Cloud and AI Development Act (CADA), sharing cloud capacity within the EuroCloud Federation avoids state aid concerns by being strictly structured as public-to-public cooperation governed solely by public interest, not commercial profit. Article 35(5) mandates that any fees charged for shared services are limited exclusively to the additional costs incurred by the sharing entity, ensuring there is no "pecuniary interest." Because the arrangement generates no profit margin and excludes private market competition, it does not confer an economic advantage on the recipient. Consequently, as proposed, the sharing mechanism falls outside the scope of EU state aid rules and public procurement obligations.

Detail

The Cloud and AI Development Act (CADA), as proposed in COM(2026) 502 final, establishes the European public sector cloud federation (β€˜EuroCloud Federation’) to facilitate the sharing of data centre services and cloud computing services between Union entities and public sector bodies. A primary legal hurdle for such cross-border public cooperation is the risk of the arrangement being classified as state aid under Article 107(1) TFEU. State aid generally requires that a public body confers an economic advantage to an undertaking that it would not have obtained under normal market conditions. CADA addresses this by explicitly framing the sharing mechanism as a non-commercial, cost-recovery exercise rather than a market transaction.

Public-to-Public Cooperation Without Pecuniary Interest The legal foundation for avoiding state aid lies in the nature of the cooperation. Recital 73 of the CADA proposal states that the sharing of services within the EuroCloud Federation is anchored in public-sector cooperation. This cooperation must be governed solely by considerations of public interest and should not entail any form of consideration in exchange for another service. Crucially, the proposal specifies that the sharing of services should be free of charge, except where charges are strictly necessary and proportionate to recover the costs incurred by the sharing entity.

Article 35(5) codifies this limitation, stating that a sharing entity may charge a fee to a using entity, but the amount must be "limited to the costs that the sharing entity incurs in relation to the sharing of the service." The proposal explicitly clarifies that these fees "shall not constitute a pecuniary interest within the meaning of Article 2 of Directive 2014/24/EU and Regulation (EU, Euratom) 2024/2509." In EU law, the absence of a pecuniary interest is a primary indicator that an arrangement is not an economic activity subject to state aid or public procurement rules. By removing the profit element, the transaction ceases to be a commercial exchange and becomes an internal administrative cost allocation.

Cost Recovery vs. Economic Advantage State aid typically exists when a public body confers an economic advantage to an undertaking. By restricting fees to the exact additional costs incurred, CADA ensures no profit margin is generated. Recital 73 details that these costs are strictly limited to:

  • Allocating and isolating resources.
  • Managing access.
  • Enabling the integration and interoperability of resources.
  • Ensuring compliance with applicable Union law.
  • Managing the sharing relationship.

Because the fees cover only these specific, incremental operational costs, the using entity does not receive a subsidy, nor does the sharing entity gain a competitive financial advantage. This cost-recovery model prevents the distortion of competition that state aid rules are designed to prevent. The fees are not set by market forces but by the actual expenditure required to facilitate the sharing.

Exclusion of Private Participation To further insulate the EuroCloud Federation from state aid scrutiny, CADA restricts participation to the public sector. Recital 71 states that participation is limited to public entities, without direct participation of a private party. Direct private participation is excluded where the sharing entity owns the hardware (directly or indirectly through a controlled intermediate entity) and provides the service. Recital 72 reinforces that members must put in place appropriate technical, operational, and organisational measures to ensure secure provision, but the fundamental structure remains a closed loop of public cooperation. By excluding private undertakings from the sharing mechanism, the proposal ensures that no private entity receives an advantage that could distort the internal market.

Legal Distinction from Market Activities The proposal distinguishes this framework from commercial cloud provisioning. Recital 73 concludes that under these conditionsβ€”public interest governance, cost-only recovery, and no pecuniary interestβ€”the sharing of public-sector data centre and cloud computing services "should not fall under Union public procurement rules." By extension, because the activity is not economic in nature, it avoids the state aid implications associated with commercial market activities. The fees are viewed as an internal administrative cost allocation rather than a market price, ensuring the arrangement remains within the realm of public administration rather than market competition.

What this means for you

For in-house counsel and compliance officers in public sector bodies or Union entities, the EuroCloud Federation offers a mechanism to leverage idle capacity without triggering complex state aid notifications or public procurement procedures. However, strict adherence to the cost-recovery model is mandatory to maintain this legal status.

Key Obligations and Compliance Steps:

  1. Accurate Cost Calculation: You must develop robust accounting mechanisms to isolate the "additional costs" of sharing. As per Recital 73, these include resource isolation, access management, and interoperability integration. General overheads that are not directly attributable to the shared service cannot be passed on. Overcharging could reclassify the activity as commercial, triggering state aid and procurement rules.
  2. Documentation of Public Interest: Ensure that the decision to share or use services is documented as serving a public interest objective. The arrangement must not be structured to generate revenue for the sharing entity.
  3. Verification of Counterparty Status: Verify that the counterparty is a qualifying Union entity or public sector body. Engaging with private entities in this specific sharing framework is prohibited under the proposed rules (Recital 71).
  4. Monitoring Fee Structures: Regularly audit the fees charged to ensure they remain strictly proportional to the actual costs incurred. Any deviation towards a profit model risks violating Article 35(5) and exposing the entities to state aid investigations.
  5. Transition Planning: If your organisation currently engages in cloud sharing with other public bodies under informal arrangements, review these against the new criteria. Formalizing these under the EuroCloud Federation framework provides legal certainty, provided the cost-recovery limits are respected.

Common misconceptions

  • "EuroCloud sharing is free of charge." While Recital 73 states sharing "should be free of charge," Article 35(5) explicitly allows for fees. The misconception lies in thinking no money changes hands. In reality, money does change hands to cover specific costs, but it is not consideration for a service in a commercial sense. It is cost recovery.

  • "Any public body can join and share with anyone." Participation is voluntary but restricted. Recital 71 excludes direct private participation. Furthermore, the sharing entity must own the hardware (directly or indirectly through a controlled intermediate entity) to qualify as a "sharing entity" under Article 35(1). You cannot share services you do not control.

  • "This replaces public procurement for cloud services." EuroCloud sharing is an alternative to procurement only when the specific conditions of Article 35 and Recital 73 are met. If a public body needs a service that cannot be provided by the federation, or if the cost-recovery model is not applicable, standard public procurement rules under Directive 2014/24/EU still apply.

  • "State aid rules are completely irrelevant." While the specific EuroCloud sharing mechanism is designed to avoid state aid, the broader procurement of cloud services by public bodies remains subject to state aid considerations if public funds are used to favor specific providers. The EuroCloud exemption is narrow and applies only to the inter-public sharing of capacity under the strict cost-recovery model.

Related

This is general information about a draft EU regulation, not legal advice.