1. Regional aid and Article 56 GBER
Eszter Hargita
State Aid Monitoring Office
Prime Minister’s Office, Hungary

2. Content Notion of aid – a crash course
Regional investment aid & Investment aid for SMEs
Investment aid for local infrastructures

3. When do we apply State aid rules?
The following rules are applicable if the planned measure falls under Article 107 (1) TFEU
If one of the below elements are missing, no need to comply:
The presence of an economic activity (notion of an "undertaking")
Financing through State resources
The presence of an economic advantage for the beneficiary
Selectivity
Effect on trade  ”Local-local”
Effect on competition  ”Monopoly”

4. No effect on competition
Non economic activity
No State resource
No advantage
No effect on trade
No effect on competition
Non selective measure

5. Aid under GBER Common provisions
Scope, excluded sectors
Transparent aid
Incentive effect
Cumulation
(Publication (+20 working days))
Transparency (as of 1 July 2016)
Duration (until 31 December 2020)
Compliance with other EU provisions
Specific rules related to the aid category

6. Selecting the aid category
Investment aid for SME
Regional invesment aid
Aid for local infra

7. Regional investment aid Art. 13-14 Investment aid for SMEs Art. 17

8. Specific rules related to regional investment aid
Excluded sectors+
Special rules for broadband and research infrastructure
No relocation
Initial investment
Regional aid map - maximum aid intensity
Eligible costs (new assets – except for SMEs)
Maintenance for 3/5 years
25% own resource (free of any public support)
Single Investment project (SIP)

9. Scope Excluded sectors/activities: Common provisions:
Export aid:
- Depends on export performance, or
- Is contingent on the use of domestic instead of imported goods
Scope
Excluded sectors/activities:
Common provisions:
Export, fishery, aquaculture, primary agricultural production, firm in difficulty,
Regional aid specific rules:
aid which favours activities in the steel sector, the coal sector, the shipbuilding sector, the synthetic fibres sector, the transport sector as well as the related infrastructure, energy generation, distribution and infrastructure
Stricter rules – broadband, research infrastructure
No sectoral scheme is allowed (except for tourism, broadband and processing and marketing of agricultural products)
Aid to beneficiary closed or intends to close down similar activity in EEA (potencial relocation)

10. Initial investment New establishment New location Extension
Same product, same process, more product
Fundamental change
Same product, completely different process
Diversification
New product
+ Acquisition of assets belonging to an establishment which closed or would have closed had it not have been purchased.

11. New conditions for excluding replacement investment
Initial investment
Setting up of a new establishment;
Extension of an existing establishment;
Diversification into products not previously produced in the establishment;
Fundamental change in the production process of an existing establishment
Diversification of an existing establishment:
costs must exceed by at least 200 % the book value of the assets that are reused, as registered in the fiscal year preceding the start of works
Fundamental change:
costs must exceed the depreciation of the assets linked to the activity to be modernised in the course of the preceding three fiscal years
Book value of reused = 10 million
Eligible cost > 30 million
Depreciation (last 3 years) = 50 million
Eligible cost > 50 million

12. Assisted areas Regional aid map
Regional aid can only be granted in assisted areas
Regions with abnormally low standard of living  Art. 107(3)(a)
Reference point is EU average
Criterion  GDP/cap lower than 75% EU average
 Outer Most Regions (Art. 349 TFEU)
Other disadvantaged areas  Art. 107(3)(c)
Ex-Article 107(3)(a) regions ( )
Sparsely populated areas
Other problem regions with population of at least 50,000

13. Initial investment New establishment Extension Fundamental change
Large undertaking– a) region + SME on the regional aid map
Large undertaking– c) region
New establishment
Extension
Fundamental change
Diversification
Only if the new NACE code is different

14. Regional aid maps
The regional aid map also places limits on the amount of investment aid that can be granted in each region:
Assisted area
(% EU GDP/head)
Large
firms
'a' areas (<45%)
50%
'a' areas (45%-60%)
35%
'a' areas (60%-75%)
25%
Former 'a' areas (until end ‘17)
15%
Sparsely populated areas, external border areas
Other 'c' areas
10%
SME "bonus":
10% for medium- sizes firms and
20% for small firms

15. Regional aid maps

16. Large investments No SME bonus applicable Scaling down mechanism:
For investment part 0-50 million EUR 100% aid intensity
For investment part million EUR 50% aid intensity
For investment part above 100 million EUR 34% aid intensity
Individual notification above EUR 100 million, if the part covered by the above 34% is granted (even partly)
Eligible cost = EUR 150 million, max. aid intensity 50%
Max. aid= 50*0.5+50*0. 5*0.5=EUR 37.5 million
Max. aid= 50*0.5+50*0. 5*0.5+50*0.5*0.34=46 million (with notification)

17. Eligible costs - Two ways to calculate
Costs calculated on the basis of investment costs:
Material assets (land, building, equipment, machinery)
Immaterial assets:
Transfer of technology
Patents, operating or patented and non-patented know-how licences
For large enterprises, limited to 50% of eligible costs
Costs calculated on the basis of wage costs:
Wage costs arising from job creation as a result of the initial investment (two-year wage cost)
Example:
Investment cost = 100
Wage costs =60
Max. aid intesity = 50%
For a large undertaking the max aid for this project is 50, but only 30 if it is based on the wage costs, if costs are combined in different schemes maximum 50 can be granted from different sources.

18. Single investment project
Investments which are linked functionally, technically and geographically BUT! Investments started by the same beneficiary (at a group level) within a period of three years from the date of start of works on another aided investment in the same NUTS 3 region
Investment year
Eligible costs
Aid
2016
40 million
20 million
2017
60 million ?
Example:

19. Obligatory notification
Relocations – not actual, but in case of partly closing down
Sectoral aid schemes
Aid for shipbuilding and coal
Individual notification threshold
Planned aid is more than an investment with EUR 100 million is entitled for.
Non transparent aid measures

20. Investment aid for SMEs
Initial invesment
+10/20%
Same eligible costs as in the case of regional aid
Potential beneficiaries: SMEs in transport and energy sectors, outside the regional aid map

21. Investment aid for local infrastructure Art. 56

22. Investment aid for local infrastructure
Construction or upgrade of local infrastructures
Contribution at a local level to improving the business and consumer environment and modernising and developing the industrial base
No aid for dedicated infrastructure
Available for users on an open, transparent and non- discriminatory basis for market price
Concession or other entrustment to a third party to operate  open, transparent and non-discriminatory tender
Eligible costs:
Costs of the investment (tangible and intangible)
Maximum aid amount ≤ difference between the eligible costs and the operating profit of the investment (ex ante or claw back)  How to control? Who will control?

23. Examples for aid for local infrastructure
Industrial parks, logistic centres, business incubators (if it is not R&D related)
Dwellings
Electric car charging station
P+R parking facilities
Development of railway tracks within industrial parks
Modernisation of railway stations
Hotels

24. Funding gap I Investment: Industrial park (EUR 1 million)
Discount rate: 4%
Relevant lifetime: 25 years
EUR
2018
2019
…..
2042
Revenues
200,000
Costs
199,900
Operating profit
100
Aid intensity
99.84%

25. Funding gap II Investment: Industrial park (EUR 1 million)
Discount rate: 4%
Relevant lifetime: 25 years
EUR
2018
2019
…..
2042
Revenues
200,000
Costs
150,000
Operating profit
50,000
Aid intensity
21.89%

26. Comparison Regional investment aid Investment aid for SMEs
Investment aid for local infrastructure
GBER
Chapter I and Articles 13&14
Chapter I and Article 17
Chapter I and Article 56
Size of the beneficiary
No restrictions
SME
No restrictions, however in practice state or municipality owned entities
Scope
Sectors excluded in Chapter I and energy, transport, shipbuilding, coal, steal, …
Sectors excluded in Chapter I
Sectors excluded in Chapter I + no aid for dedicated infrastructure
Eligible costs
Costs of investment (restrictions for immaterial assets)
Costs of investment

27. Comparison Regional investment aid Investment aid for SMEs
Invesment aid for local infrastructure
Max. aid intensity
Regional aid map
10/20%
Financial gap up to 100%
Upper limit
Amount of aid of an investment with EUR 100 million
(50% region – EUR 37.5 million)
Aid of EUR 7.5 million per project
Aid of EUR 10 million per project
or EUR 20 million eligible costs
Other conditions
Initial investment
Maintenance for 3/5 years
25% own resource
SIP
No relocation
Stricter rules for broadband and research infra
Operation by third parties on the basis of tender
Financial gap during the relevant lifetime of the project
Open and non-discriminatory access to users

29. Renovation of a hotel
Initial investment?

30. Regional investment aid or local infra?
Industrial park
Regional investment aid or local infra?

31. „Life, like poker, has an element of risk. It shouldn't be avoided
„Life, like poker, has an element of risk. It shouldn't be avoided. It should be faced.”
(Edward Norton)
State aid, like poker, has an element of risk. It shouldn't be avoided. It should be faced.
Bon courage!