Eszter Hargita State Aid Monitoring Office Ministry of National Development, Hungary Belgrad, 22 March 2013

 Small and Medium-sized Enterprises (SMEs) are the backbone of Europe's economy  Generally they represent more than 95% of undertakings  Access to appropriate finance is one of the largest problems facing SMEs  Bigger market failure

 Definition entered into force on 1 January 2005  Member States must apply the Community SME ceilings for the purposes of applying competition rules  SME definition taken over in the General Block Exemption Regulation

Commission Recommendation 361/2003: ◦ Undertaking & 2 cumulative criteria ◦ staff headcount ◦ turnover and/or balance sheet SME retain its status provided no change in the celings occurs in two consecutive years

CategoryEmploye es Turnover (mEUR) Balance sheet (mEUR) Micro< 1022 Small< 5010 Medium<

Employees Turnover (M EUR) Balance sheet (M EUR)

 Is the aid applicant an autonomous enterprise? OR  Does it form an economic group with any other company (‘linked’ or ‘partner’ enterprise)?

 Autonomous: <25% of capital or voting rights  Partner relationship: >25 of capital or voting rights  Linked relationship: >50% of voting rights (or equivalent control)

Αutonomous: >25% and up to 50% is controlled by:  public investment corporations, business angels provided investment is < €  universities, non-profit research centers, institutional investors  autonomous local authorities with an annual budget < EUR 10mn and <5000 inhabitants

But not SME if >25% is controlled by the State But not SME if >25% is controlled by the State!

 Autonomous: Calculation of data using only employees and financial data from my annual accounts  Partner enterprise: Calculation of data adding the proportion of the other enterprises’ employees and financial data to my data  Linked enterprise: Calculation of data adding 100% of all linked enterprises to the employees and financial data of my enterprise

Employees Turnover Balance sh. A 6m 7m 30 MyB 30m18m 40m 20m My total = My 40% A 25% B

Examples – Partner relation 14 Employees Turnover Balance sh. A 6m 7m 30 MyB 30m18m 40m 20m My total 30x0, *0,25=182 7x0, *0,25=47,8 = My 40% A 25% B My total is: 40% of A + 100% of My + 25% of B 6x0, *0,25=36,9

Examples – Partner relation 15 Employees Turnover Balance sh. A 6m 7m 30 MyB 30m 18m 40m20m My total = My 40% A 25% BD 30% D 9m9m 60 18m

Examples – Partner relation 16 Employees Turnover Balance sh. A 6m 7m 30 MyB 30m 18m 40m20m My total 7x0, *0,25=47,8 6x0, *0,25=36,9 = My 40% A 25% BD 30% D 9m9m 60 18m My total is: 40% of A + 100% of My + 25% of C 30x0, *0,25=182

Examples – Partner relation 17 Employees Turnover Balance sh. A 6m 7m 30 MyB 30m 18m 40m20m My total = My 40% A 25% BD 60% D 9m9m 60 18m

Examples – Partner relation 18 Employees Turnover Balance sh. A 6m 7m 30 MyB 30m 18m 40m20m My total (60+30)x0, x0,25=206 (9+7)x0, x0,25=51,4 (18+6)x0, *0,25=44,1 = My 40% A 25% BD 60% D 9m9m 60 18m My total is: 100% of My + 40% of [A +100% of D] + 25% of C

Examples – Linked relation 19 Employees Turnover Balance sh. A 6m 7m 30 MyB 30m 18m 40m20m My total = My 60% A 55% BD 40% D 9m9m 60 18m

Examples –Linked relation 20 Employees Turnover Balance sh. A 6m 7m 30 MyB 30m 18m 40m20m My total 60x0, =260 9x0, =67 18x0, =54 = My 60% A 55% BD 40% D 9m9m 60 18m My total is: 40% of D + 100% A +100% of My + 100% of C

My 60% A 55% B Employees Turnover Balance sh. A 6m 7m 30 MyB 30m18m 40m20m My total = D 40%

Α[SME] CD B 20% 20% Is Α an autonomous SME?

Example – Joint participation 23 Α[SME] CD B 20% 20% Is Α an autonomous SME? 70% 70% 60% 60%

 Preferential treatment (larger market failure)  More possibilities  Bonuses  Less requirements (incentive effect, maintenance, compensatory measure, etc.)

 De minimis aid  State guarantees  Risk capital  Horizontal rules (special categories)

 To help the process of regional development  To overcome a structural handicap  Giving „advantages” for less developed regions to compensate disadvantages

Two exemption grounds for regional state aid  Art 107 (3)(a) Aid to promote the economic development of areas where the standart of living is abnormally low or where there is serious underemployment  Art 107(3)(c): Aid to facilitate the development of certain economic areas where such aid does not adversely affect trading conditions to an extent contrary to the common interest

 Guidelines on national regional aid (OJ C/54, )  Commission Regulation (EC) No 800/ General Block Exemption Regulation  (Communication from the Commission concerning the criteria for an in-depth assessment of regional aid to large investment projects (2009))

GBER: ◦ Aids granted under multi sectorial scheme, or scheme in tourism sector ◦ Ad hoc aid which is only used to supplement aid granted on the basis of regional investment and employment aid schemes and which does not exceed 50 % of the total aid to be granted for the investment ◦ total amount of aid from all sources exceeds 75 % of the maximum amount of aid an investment with eligible costs of EUR 100 million could receive RAG: ◦ All non-blocked exempted aid

 Sectors excluded from regional aid / subject to specific rules: ◦ Fisheries and aquaculture ◦ Primary production of agricultural products ◦ Coal ◦ Steel ◦ Shipbuilding ◦ Synthetic fibres (except operating aid) ◦ Transport + Firms in difficulty

 Comparison of all regions on a NUTS II level in the Union  NUTS II regions with GDP/cap <75% of EU average

 Unfavourable situation compared to EU&national average  Commission defines population ceiling for (c)-regions for each MS  Definition of eligible (c)-areas on the basis of national criteria (options for MS)

 Based on the rules set by the RAG (aid intensities and national coverage), the regional aid map has to be set up by each MS  Establishment of a regional aid map is a pre- condition for the granting of regional aid in each MS (Commission approves)

50 %  ‘a’ regions with less than 45 % of EU GDP per capita 40 %  ‘a’ regions with less than 60 % of EU GDP per capita 30 %  ‘a’ regions with less than 75 % of EU GDP per capita  Statistical effect regions until %  Low population density regions  Standard ‘c’ regions 10 %  ‘c’ regions with both more than 100 % of average EU GDP per capita and unemployment rate below EU average

1) 20% GGE for aid granted to small enterprises 2) 10% GGE for aid granted to medium-sized enterprises ! These bonuses do not apply to aid granted in the transport sector and for large investment project

 Regional investment aid ◦ Material/Immaterial ◦ Job creation  Operating aid  Aid for newly created enterpises

Can be calculated on the basis of 1. material and immaterial investment costs resulting from the initial investment project or 2. wage costs for jobs directly created by the investment project

 Maintenance of the investment or jobs created for a minimum of 5 years (for SMEs – 3 years), rapid technological change  Contribution of the aid recipient to the project of at least 25% (“unaided” no de minimis)  Application for aid and written confirmation by the aid grantor before work is started (incentive effect)

 Bonuses for SMEs 1) Costs of preparatory studies and consultancy linked to the investment – up to 50% of the costs 2) Assets acquired should not be new (market price) 3) Full costs of investments in intangible assets are eligible

 Wage costs of the person hired, calculated over a period of two years, for employment directly created by the investment project.  Job creation – a net increase in the number of employees compared to the last 12 months  Amount of aid = gross wage cost x 2 years (up to certain percentage)  Jobs have to be maintained for 5 (SMEs 3) years

Ensure that aid is necessary.  Without State support, beneficiaries should not have undertaken aided projects at all (in the same location) or should have carried out a similar project but at a lower scale.  In case of SME – submission the application before starting the investment

 Intended to compensate for market failures in assisted areas (endogenous development)  Operating aid to small enterprises for various start-up costs incurred during the first 5 years  General entrepreneurship support measure, differentiated according to regional aid status

 Aid amount: ◦ EUR 2 M in ‘a’ regions ◦ EUR 1 M in ‘c’ regions ◦ Annual aid payment cannot exceed 33% of these amounts

 Aid intensity: ◦ In ‘a’ regions: 35% in years 1-3; 25% in years 4-5 ◦ In ‘c’ regions: 25% in years 1-3; 15% in years 4-5 ◦ 5% bonus in ‘a’ regions below 60% of EU-25 GDP/inh., low population density regions, small islands (under inh.) and other isolated communities

 Eligible costs (incurred in first 5 years): ◦ Legal, advisory, consultancy and administrative costs ◦ Interest on external finance, dividend on own capital employed, depreciation ◦ Energy, water, heating, taxes, administrative charges ◦ Renting or leasing production facilities/equipment ◦ Wage costs

 SME benefits from different schemes (regional aid scheme or de minimis aid scheme)  The form of aid is different (cash grant, soft loan, guarantee, etc)  Cumulation rules are to be respected

 Eligible cost of the project = 100  Cash grant = 50  Soft loan = 50 (aid element 10)  Beneficiary is a small undertaking  Max. aid intensity 70%

 Eligible cost of the project = 100  Cash grant = 50  Soft loan = 25 (aid element 5)  Guarantee for 20 soft loan (aid element 2)  Beneficiary is a small undertaking  Max. aid intensity 70%