Notification or Block Exemption? Factors To Take Into Account

No Aid vs No Notification Basic principle: planned aid measures must be notified in advance Exception: measure does not qualify as aid no effect on trade MEIP Altmark (SGEI compensation) aid measure exempted from notification requirement no effect on trade: e.g. small wine museum in Sardinia MEIP: e.g. loan at market rate Altmark: 4 conditions for SGEI compensation not to count as SA clearly defined public service obligation objective and transparent parameters for compensation, established in advance compensation limited to cost of service (taking into account relevant receipts and reasonable profit) provider selected by tender or benchmarked against efficient undertaking

No Aid vs No Notification Why does distinction matter? objective notion of aid cumulation rules one-time, last-time principle Purpose of block exemption: administrative simplification no impact on classification as aid derogation from notification requirement only notion of aid: determines scope of SA control if not aid, completely outside remit of SA control cumulation: rules on combining several aid measures (cannot give aid under two headings for same purpose) applies only to measures which qualify as aid one-time-last-time principle example: MS gives loan to company (no notification) could be MEIP conform (market rate) could be rescue aid if firm in difficulty  triggers one-time-last-time

Legal Basis Enabling Regulation 994/98 Group exemptions: SME aid R&D aid environmental protection employment and training aid regional aid De minimis aid Council Regulation gives COM power to adopt regulations for certain aid types areas where COM has enough experience to determine compatibility criteria

Block Exemptions General Block Exemption Regulation (GBER) 800/2008 De Minimis Regulation 1998/2006 SGEI Decision 2012/21 SGEI De Minimis Regulation 360/2012

GBER GBER = consolidation and expansion of previous individual block exemptions 26 measures: regional aid: investment aid + newly created enterprises SME investment and employment aid aid for creation of entreprises by female entrepreneurs aid for environmental protection aid for consultancy and participation in fairs (SMEs) aid in the form of risk capital aid for research, development and innovation training aid aid for disadvantaged or disabled workers note notification thresholds: individual aid exceeding threshold not covered threshold depends in measure (€2 million - €10 million)

GBER excluded from scope of GBER: export aid all ad hoc aid to large enterprises undertakings in difficulty Aid fulfilling all criteria is deemed compatible within meaning of Art 107(3) also excluded: certain types of aid for certain sectors regional aid for steel or shipbuilding fisheries and aquaculture (except training aid, risk capital, R&D, disadvantaged and disabled workers) coal sector (except training aid, R&D, environmental) applies to schemes and ad hoc aid

De Minimis €200,000 per undertaking over 3 years Road transport sector: €100,000 per undertaking over 3 years excluded: fisheries and aquaculture primary production of agricultural products export aid coal sector undertakings in difficulty excluded also: aid for acquisition of road freight transport vehicles granted to undertakings performing road freight transport for hire or reward

De Minimis Aid fulfilling all criteria is deemed not to meet criteria of Art 107(1) no effect on trade and/or no distortion of competition Note: strictly speaking, it is no State aid! note focus on undertaking, not e.g. project (simplification!) strictly no aid, but cumulation rules apply

SGEI Decision SGEI compensation if: < €15 million per year hospitals social housing and other social services air and maritime links to islands (< 300,000 passengers) airports < 200,000 passengers ports < 300,000 passengers previous decision: €30 million per year but turnover cap of €100 million social housing and other social services: "meetingsocial needs as regards health and long term care, childcare, access to and reintegration into the labour market, social housing and the care and social inclusion of vulnerable groups" ports and airports: passenger numbers per year

SGEI Decision Compatibility requirements: SGEI entrustment act including a reference to the decision amount of compensation: net cost plus reasonable profit control of overcompensation transparency requirements for aid > EUR 15 million granted to undertakings which have activities outside the SGEI genuine SGEI: examples of manifest error??? transparency: MS must publish (on internet or by other appropriate means) entrustment and annual compensation

SGEI De Minimis < €500,000 over 3 years excluded: fisheries and aquaculture primary production of agricultural products export aid coal sector undertakings in difficulty

SGEI De Minimis Aid fulfilling all criteria is deemed not to meet criteria of Art 107(1) no effect on trade and/or no distortion of competition

Key Concepts each block exemption has ist own compatibility rules important to understand key concepts Note: not all apply to all measures

Transparent Aid Transparent aid = aid in respect of which gross grant equivalent can be precisely calculated in advance (without risk assessment) Loan: gross grant equivalent calculated on basis of market interest rate not transparent: e.g. loan with variable interest rate more detailed guidance in individual Regulations gross grant equivalent: before deduction of tax or other charge guidance in Regulations on fiscal measures, capital injections, guarantees, repayable advances etc. note: transparent aid not to be confused with transparency requirements! GBER: summary information sheet to be sent to COM + obligation to publish full measure on internet (and maintain active web link noted in summary information sheet) note: transparency of aid not issue under SGEI decision – compensation mechanism must be clearly set out in entrustment

Eligible Costs Eligible costs = cost in relation to which aid can be paid under particular measure State aid always granted for particular project, measure, activity important to be clear what eligible costs are (evidence!) not normally eligible: operating aid GBER: express provision that "eligible costs shall be supported by documentary evidence which shall be clear and itemised" de minimis can be used for operating aid

Eligible Costs depends on measure in question: aid for new created small enterprises: legal, advisory, consultancy and administrative costs directly related to creation of enterprise SME investment aid: costs of investment in tangible or intangible assets aid for environmental studies: costs of study training aid: trainer's personnel costs, travel expenses and accommodation, materials and supplies eligible cost often pretty obvious in view of objective of aid but always need to check carefully e.g. aid for SME participation in fairs: covers first participation only

Cumulation Cumulation = receipt by same undertaking of aid from different sources not a problem per se: e.g. same SME can receive training aid investment aid to buy machine aid for participation in fair but: normally not for same eligible costs if maximum aid intensity exceeded

Cumulation Specific cumulation rules in block exemption regulations Practical importance: intended beneficiary must disclose all aid applications for particular project! Special case SGEI de minimis: no cumulation with other SGEI compensation, even if not aid

Aid Intensity Aid intensity = percentage of eligible costs that can be covered by state aid Applies in addition to any maximum aid amount E.g. aid for small enterprises created by female entrepreneurs: aid cap €1 million per undertaking aid intensity: 15% of eligible costs Wide variation in aid intensities allowed (10% - 100%) 100% aid intensity rare (e.g. R&D projects: fundamental research) remember: higher aid intensity not forbidden, but has to be notified

Incentive Effect Incentive effect = aid should trigger change in behaviour of undertaking Purpose: aid should be necessary! SMEs: application for aid must precede start of work on project Large enterprises: must show material increase in size or scope of project or speed of completion

Factors to Consider true that certain elements of block exemption regulations rather technical (e.g. cumulation rules) but need to set criteria for compatibility in sufficiently detailed way (no assesment or evaluation) Information available on DG COMP state aid website: http://ec.europa.eu/competition/state_aid/overview/index_en.html

Factors to Consider Advantage of using block exemption: speed (notification takes at least 2 months, usually longer) Challenge: responsibility of MS to ensure compliance COM follow-up via complaints, monitoring, ex officio investigations

Factors to Consider Mistakes likely to occur at 2 levels: national legal basis practical implementation Important that rules are applied at all levels If not: risk of negative decision ordering recovery Remember that recovery primarily affects undertakings!

Factors to Consider 2 basic approaches: design desired aid measure (objective, scope, beneficiaries), then check whether it falls under exemption (unlikely!) decide whether measure should be notified or exempted and design it accordingly

Factors to Consider Answer will depend on: how complex is the intended measure? will measure still serve intended purpose if it is made to fit a block exemption? do all levels of administration have knowledge to implement correctly? Remember: you can notify for legal certainty! DG Competition is also available for informal guidance complexity: e.g. scheme for direct grant to SMEs for fair participation easier than guarantee scheme, aid to large enterprises etc.

Future Developments