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Brussels, 22nd June 2006

State aid: Commission authorises extension of urban tax-free zones scheme in France

Under the state aid rules in the EC Treaty, the European Commission has authorised France to continue the existing urban tax-free zones scheme until 31 December 2011, to include 15 new zones under the scheme and to extend the area covered by the 29 existing zones. Small and micro businesses created or opened after 1 January 2006 in the 100 areas classed as urban tax-free zones will be eligible for exemption from employers' social security contributions, profits tax, business tax and real-estate tax.

The Commissioner responsible for competition, Ms Neelie Kroes, said, "I am happy to authorise an aid scheme which is compatible with the common market and is designed to relieve the social and economic problems facing the French suburbs without unduly affecting competition".

The Commission regards the economic and social regeneration of depressed urban areas as a driving force behind economic and social cohesion. Such regeneration comes under the URBAN Community Initiative, which advocates a dual approach: rehabilitation of obsolete infrastructure and measures to combat social exclusion and promote sustainable urban development. In its Communication of 14 June 2002 on an initial assessment of the URBAN Initiative, the Commission defined neighbourhoods in crisis as "small areas of severe deprivation".

The first urban tax-free zones started to operate on 1 January 1997 and were relaunched by the Town Planning Act of 1 August 2003. Figures provided by the French authorities show that the results have been encouraging: for the period 2000-05, all the urban tax-free zones recorded a drop in unemployment twice that of the reference area and ten sites showed a drop of between 30% and 40% in the number of jobseekers.

Despite these encouraging results, the unemployment rate remains very high in these tax-free zones: in 2004 it was still more than double the rate for mainland France. Long-term unemployment also remains high, affecting almost one unemployed person in three, and levels of education are still relatively low (40% have reached a level equivalent to or below the primary leaving certificate, compared with 22% in the rest of the urban area).

The Commission therefore took the view that the measures would not cause a distortion of competition contrary to the common interest and that the effect on trade would be very limited, primarily for the following reasons:

  • the main aim of the measures is to combat social exclusion in particularly difficult areas;
  • the scheme covers only small and micro businesses (of the 40 922 businesses benefiting from the tax exemptions, 40 020 are micro businesses);
  • the geographical scope of the measures is limited (they cover only 2.6% of the population);
  • the measures are restricted to tightly defined areas selected on the basis of objective criteria such as the unemployment rate, the percentage of the population under 25, the proportion with no formal qualifications and the tax potential per inhabitant;
  • the French authorities are making a special effort to ensure transparency in the precise evaluation of the projects carried out, in that the National Monitoring Centre for Sensitive Urban Areas publishes reports on the urban tax-free zones every

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