Administering State Aid for Practitioners Alan Coleman Scottish Government - State Aid Unit

Aims & Objectives: To help practitioners understand the administration and reporting of State aid measures and schemes, in particular around: De Minimis Aid General Block Exemption Schemes Aid for Services of General Economic Interest (SGEI)

Background: EC requires all public authorities in Member States to correctly administer the award of State aid. Requirement on scheme administrators to provide annual report on some types of aid Rules are laid out in the EC’s Procedural Regulation (EC) No 659/1999

De Minimis Aid The EC considers that public funding to a single recipient of up to €200,000 over a 3 year fiscal period has a negligible impact on trade and competition, and does not require notification. This is called De Minimis aid. The detailed rules for awarding and administering De Minimis aid are set out EC regulation No 1407/2013 (De Minimis aid regulation). For undertakings active in the road freight transport sector, the De Minimis ceiling is €100k over the same period. For undertakings active in the fisheries sector, the ceiling is €30k over the same period. For undertakings active in the agricultural sector, the ceiling is €15k over the same period.

De Minimis Aid De Minimis aid can be given for most purposes, including operating aid, and is not project-related. De Minimis aid cannot be used to top up awards made under approved State aid schemes, resulting in a circumvention of the aid intensities set out in the rules attached to such schemes. In these cases it can only be awarded towards separate eligible costs. De Minimis aid is very widely used but is generally not well administered. There is no reporting requirement for De Minimis aid in the UK other than for agricultural or fisheries De Minimis – however new Member States must keep a central record of all De Minimis awards.

De Minimis Aid - Administration When granting De Minimis aid the funding body must ensure that the new award does not breach the relevant ceiling over a 3 year fiscal period. You must ask the beneficiary concerned about any De Minimis aid received during the current and the previous 2 completed fiscal years and determine how much De Minimis aid can still be awarded without breaching the relevant ceiling.

De Minimis Aid - Administration You must also inform the recipient explicitly that it is De Minimis aid you are giving them, for their future reference. The offer letter should include the value of the award in Euros and the following paragraph (which can be adapted depending on the relevant regulation and ceiling being employed): “Under EC regulation No 1407/2013 (De minimis aid regulation), this is a De Minimis aid. There is a ceiling of €200,000 for all De Minimis aid provided to any one firm over a 3-year period. Any De Minimis aid awarded to you under this offer letter will be relevant if you wish to apply, or have applied, for any other De minimis aid. For the purposes of the De Minimis regulation, you must retain this letter for 3 years from the date on this letter and produce it on any request by the UK public authorities or the European Commission. (You may need to keep this letter for longer than three years for other purposes.) “ This letter wording will enable the beneficiary to retain future evidence of the de minimis funding it has received when making subsequent funding applications – thereby ensuring that the relevant threshold is not breached and no illegal State aid is present

De Minimis Aid – Case Study Organisation ‘A’ offers grants and ‘in-kind’ support for a variety of activities, some of which are economic in nature, others are community-based or non-commercial. A decision has been made to approve all awards under their scheme via the De Minimis Regulation, to minimise the risk of illegal State aid being awarded. The funder begins by asking applicants to declare how much ‘State aid’ they have received in the last three fiscal years. Can we identify any issues/problems/observations with this approach? A brief case study just to illustrate some issues that can often arise when using the De Minimis Reg to award funding

De Minimis Aid – Case Study A decision to approve all awards as De Minimis may un-necessarily restrict the applicant’s ability to receive this particular funding, or future funding from other sources if their De Minimis allowance is compromised as a result. If a simple assessment indicates that there is unlikely to be State aid present, we would recommend that the De Minimis Regulation is not used to award funding. No State aid – no State aid cover required Payment in kind can also be State aid – in such a case the ‘cash-grant equivalent’ (i.e. the cash value of that ‘in-kind’ contribution) must be calculated and reflected in any grant offer. In asking applicants to declare how much ‘State aid’ they have received in the last three fiscal years, the funder is posing the wrong question. The applicant must be asked specifically how much De Minimis aid they have had in that period.

General Block Exemption Regulation (GBER) The GBER harmonises the rules which previously existed across five separate Regulations – GBER originally introduced in 2008. From 1 July 2014 a new GBER will be adopted which will include additional categories and provisions for awarding compliant State aid. As well as encouraging Member States to focus on aid that will be of real benefit to job creation and competitiveness, the Regulation reduces the administrative burden for the public sector, the beneficiaries and the EC. Moving on now to the process involved in administering a GBER scheme – firstly some background to the GBER

General Block Exemption Regulation The new GBER will be in force from 1 July 2014 to 31 December 2020. It authorises aid in favour of:- Regional Investment Small and Medium Enterprises Access to Finance for SMEs Environmental Protection Research, Development and Innovation Training Disadvantaged and Disabled Workers Making good damages caused by certain natural disasters Social aid for residents of remote regions Broadband Infrastructure Culture and Heritage Conservation Schemes for Audio-Visual Works Sport and Multifunctional Recreational Infrastructures Local Infrastructure Each of the GBER articles which cover the activities listed above details the eligible costs which may be assisted and the aid intensities (limits) which apply to these activities.

General Block Exemption Regulation The revision of the GBER: significantly extends the possibilities for Member States to grant "good aid" to companies without prior Commission scrutiny; simplifies the award of State aid and reduces the duration of processes for aid beneficiaries; introduces ‘ex-post’ requirements for Member States such as the requirement to evaluate large aid schemes (with budgets over €150m) and introduce more transparency on aid measures.

GBER – Administration & Reporting Fund Administrators’ responsibilities: Ensure that any awards made under approved GBER schemes meet the definitions set out in the relevant Article. Any funding awarded must not exceed the relevant aid intensity (or limit) specified for the activity being supported or the agreed scheme budget. In order to observe the relevant aid intensity the total amount of public support measures for the aided activity or project must be taken into account, irrespective of whether the support is financed from local, regional, national or community sources. A record must be kept of all awards made under GBER and reported to the European Commission (via the State Aid Unit) on an annual basis. (Reports normally gathered in April/May for the previous calendar year)

GBER - Cumulation As previously noted, all public funding for the aided activity or project must be cumulated – this can include funding from such as LAs, BIG, HIE, SE, SG, LEADER, Structural Funds and any other public source. Aid exempted by the GBER can not be cumulated with any other aid exempted under this regulation or De Minimis aid or with any other community funding relating to the same - partly or fully overlapping - eligible costs if such cumulation would result in exceeding the highest aid intensity or aid amount applicable to this aid under this regulation. Aid exempted by the GBER may be cumulated with any other aid exempted under this regulation as long as those aid measures concern different identifiable eligible costs. Second bullet refers to projects with multiple strands with distinct eligible costs, each of which are funded via separate GBER Articles. This is permitted

GBER - Notification The GBER requires that some individual awards, even if made as part of an existing approved scheme, may have to be notified to the Commission for approval. Generally this applies to large individual awards where there is a greater potential for market distortion. Example – Investment Aid for SMEs – Any award exceeding €7.5m per undertaking per investment project must be individually notified for approval. Scottish Government’s State Aid Unit can assist with Notification process.

GBER – Case Study A public body operates a grant scheme offering aid for regional investment by all sizes of enterprise. This scheme has been registered with the Commission and has cover under (new) GBER Article 14 (Regional Investment Aid) A medium-sized enterprise based in an Assisted Area of North Lanarkshire applies for grant assistance towards the construction of a new factory, project costs £1m. The maximum aid intensity for a medium-sized enterprise in this area under Article 14 is 25% The maximum public assistance which can therefore be offered under this scheme is £250k – the remaining £750k must come from private sources

Services of General Economic Interest (SGEI) An SGEI is a service of an economic nature that public authorities identify as being of particular importance to citizens, but which are not supplied by market forces alone, or at least not to the extent and under the conditions required by society. Their provision may therefore require public intervention. Examples include the provision of social housing, postal services, lifeline ferry services and care for elderly or disabled people. SGEI are carried out in the public interest under conditions defined by the State, which imposes a public service obligation on the provider(s). There are three different categories of SGEI set out in separate Commission legislation; SGEI De Minimis, SGEI Decision and SGEI Framework, all with their own administration and reporting requirements. The final area I’d like to talk you though is that of administering aid awarded as a Service of General Economic Interest

Administration - SGEI De Minimis: Up to €500,000 can be granted over 3 fiscal years. The aid can only be given for the provision of an SGEI. Any form of de minimis aid granted must be cumulated and cannot exceed the €500,000 threshold. The €500,000 de minimis aid under this Regulation cannot be cumulated with any compensation in respect of the same SGEI regardless of whether it constitutes State aid. The aid can be given as a grant, a loan or a loan guarantee. There must be a form of entrustment between the beneficiary and the aid grantor. The aid grantor must inform the recipient that it is being given as de minimis aid. Records must be kept for 10 fiscal years from the date on which the aid was granted. De minimis aid cannot be cumulated with other compensation for the same service. In terms of interaction with general de minimis aid, cumulation up to an aggregate amount of €500,000 is permitted. Firstly, lets look at the SGEI De Minimis regulation. Same principles to ordinary De Minimis apply in terms of cumulation, however many more criteria must be met for funding to meet the definition set out in the Regulation

Administration - SGEI Decision: Allows unlimited spend in the area of social services. Specifically - “clearly identified services, meeting social needs as regards health and long-term care, childcare, access to and reintegration into the labour market, the care and social inclusion of vulnerable groups.” For all other SGEI activity not listed above the compensation threshold is €15 million per annum. Any funding given above this threshold would have to be notified to the EC under the SGEI Framework (next slide). The period of entrustment with an SGEI provider should be limited to 10 years. Compensation for air and maritime links can be given where average annual traffic does not exceed 300,000 passengers. Compensation to ports where average annual traffic does not exceed 300k passengers. Compensation to airports where annual average traffic does not exceed 200k passengers. Transparency - Any organisation receiving more than €15m of funding per annum which has commercial activities outwith the scope of the SGEI must annually publish details via the internet of the entrustment and the amounts of aid being granted to the undertaking. Member States are required to submit a report on the implementation of this Decision every 2 years.

Administration - SGEI Framework: To be utilised if compensation exceeds €15m per annum to undertakings operating a service outwith the field of social services. The EC will assess SGEI funding for compatibility. A more precise methodology is given for calculating the amount of compensation allowable. Member States must introduce efficiency incentives to encourage the entity providing the service to do so in the most efficient manner. Any aid granted must comply with the relevant public procurement rules. When there are multiple organisations providing an SGEI the compensation must be calculated in the same way to avoid discrimination. Transparency - Member States funding an SGEI within the scope of the Framework must publish details on the internet. As with the SGEI Decision, the EC will request a report every 2 years. SGEI – any further questions?

State Aid Modernisation – Transparency From 2016 each Member State will be required to have a national public register of individual aid awards to ensure peer review and greater accountability Details of all aid awards (not just via GBER) exceeding €500k will have to published on this register. Information to be published will include name of beneficiary, location, size and activity, regardless of the total scheme budget. Further information and guidance on this process will be provided closer to its introduction Some general points on new transparency measures introduced by the Commission

Thank you and any questions? Contact Details: Scottish Government State Aid Unit 3rd Floor 5 Atlantic Quay 150 Broomielaw Glasgow G2 8LU General Enquiries - 0300 244 1385 Website – www.stateaidscotland.gov.uk