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State aid: Revised ‘de minimis’ Regulation – frequently asked questions
Commission Européenne - MEMO/06/482 12/12/2006
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Brussels, 12th December 2006
(see also IP/06/1765)
What is the “de minimis” rule?
The “de minimis” policy, begun by the Commission in 1992, is designed to benefit small and medium sized enterprises (SMEs). The current “de minimis” rule, laid down in Commission Regulation No 69/2001, provides that subsidies of less than €100,000 granted to an undertaking over a period of 3 years do not constitute “State Aid” within the meaning of the EC Treaty’s ban on aid liable to distort competition (Article 87). Subsidies below that amount are presumed to have only negligible effects on competition and trade between Member States. Therefore such measures do not need to be notified to the Commission for approval. Regulation 69/2001 does not apply to a number of sectors of the industry, including most prominently, the agricultural sector and the transport sector.
In the State Aid Action Plan (see IP/05/680), the Commission announced that it would adapt the “de minimis” ceiling to the “evolution of the economy”. This adaptation is limited by the case-law of the European Court of Justice and the Court of First Instance, which allow the Commission only a limited margin of discretion with regard to determining which support measures are to be regarded as prohibited “state aid”.
What changes under the new Commission Regulation?
1. Doubling of the “de minimis” amount
The main change contained in the regulation is the increase in the ceiling from €100,000 to €200,000, to take account of inflation and GDP growth in the EU since the ceiling was last increased, as well as the foreseeable inflation until the Regulation expires. The text also extends the scope of the “de minimis” rule, under certain conditions, to the marketing and processing of agricultural products, and to the transport sector. The coal sector continues to be excluded. As regards the road transport sector, a specific ceiling of €100,000 is foreseen. In addition, the overcapacity in the sector requires that aid designed to allow the beneficiaries to acquire road freight transport vehicles can never be considered to be de minimis.
2. Condition of “transparency”
In line with earlier Commission documents and, more particularly, Commission block exemption Regulation n° 1628/2006 covering certain types of regional aid (see IP/06/1453), the scope of the de minimis rule will be limited to transparent types of aid, ie. those measures where it is possible to determine in advance the precise aid amount. In the case of risk capital measures or capital injections, it is generally difficult to determine the precise aid amount in advance, since this amount depends on the risk associated with the transaction. Such types of state aid will therefore only be covered by the de minimis rule if the overall value of the transaction – the overall capital injection or the overall financial tranche provided by a risk capital investment fund into a target company - does not exceed the de minimis ceiling.
3. Treatment of guarantees and loans
Given the economic importance of guarantees, the Regulation creates a safe harbour covering guarantee schemes as long as the total amount of the guaranteed part of a loan is not higher than €1.5 million (or €750,000 in the road transport sector). This will allow Member States to implement guarantee schemes in favour of SMEs without red tape and under legally secure conditions. Member States will, as an alternative, be able to use methodologies for assessing the state aid element contained in guarantees, when such methodology has been approved by the Commission in the context of another state aid Regulation, like the block exemption on regional aid (Regulation 1628/2006). The cap on the total amount of the guaranteed part of a loan ensures that the system will not be abused.
Loans can be provided by Member States under the de minimis Regulation as long as Member States respect the reference rate methodology adopted by the Commission.
4. Prohibition of cumulation with State aid
Member States will not be allowed to cumulate de minimis aid with State aid if the cumulation would lead to aid intensities higher than those provided under block exemptions (see below for a list of those block exemptions) or approved by the Commission in the context of individual state aid Decisions. The rationale for this rule is to avoid circumvention of maximum aid intensities provided under other state aid instruments. The regulation also clarifies that Member States cannot divide an aid measure having an aid element higher than € 200,000 into smaller parts in order to try and bring part of the measure under the de minimis regulation. This rule will apply most prominently in cases where Member States are confronted with an order of the Commission to recover illegally granted state aid.
5. Changes with respect to monitoring
Finally, the Commission Regulation clarifies the applicable monitoring requirements. For instance, in order to facilitate monitoring by Member States, the three year period will no longer be determined by reference to calendar years, but on the basis of the fiscal years applicable in each Member State.
In view of the specific situation of the European Investment Fund (EIF), an optional alternative monitoring system has been devised for this organisation. This alternative system allows the EIF to establish the list of beneficiaries after the aid is granted and to require from Member States that they inform the beneficiaries of the aid received. This allows avoiding the standard monitoring obligations to be passed on through the long chain of financial institutions in the context of guarantees provided by the EIF.
What can state aid policy do in favour of SMEs?
State aid policy has traditionally been very favourable towards SMEs. Under the existing block exemptions and guidelines, SMEs generally benefit from higher aid intensities than large firms. After full implementation of the State Aid Action Plan, state aid policy will become even more favourable for SMEs.
A new aid possibility was introduced for the creation of small enterprises in the context of the recently published Guidelines on Regional Aid, to apply as from 2007 (see IP/05/1653). The new rules on Research & Development & Innovation (R&D&I) (see IP/06/1600), also include a series of measures specifically targeted at SMEs: aid for R&D&I projects, aid for patenting costs, aid for young innovative enterprises, aid for innovation support services, aid for the loan of highly qualified personnel. In addition, the risk capital guidelines (see IP/06/1015) have been revised in order to stimulate investment in innovative SMEs through more flexible assessment rules. Finally and most importantly, the Commission is working on the consolidation and extension of all existing block exemptions – including the current block exemption on SMEs and the block exemption on R&D aid for SMEs – into a single general block exemption. This wide-ranging block exemption should, in particular, include a simplified overview of the different possibilities for supporting SMEs.
The revised “de minimis” regulation should be seen in this context. As “de minimis” support constitutes a “blind” instrument, which does not allow the subsidies concerned to be targeted at any particular objective, it is not appropriate for promoting specific Lisbon objectives or to tackle particular market failures affecting SMEs. The Commission’s intention is therefore not to promote “de minimis”, but rather the block exemptions and guidelines to foster the development of SMEs.
Will the Commission relax state aid discipline?
No - the aim of the State Aid Action Plan is to improve the state aid rules, not to relax them. As repeatedly called for by the European Council, the objective of state aid reform is “less and better targeted aid”. This objective remains valid for all kinds of state aid, including “de minimis” support. The State Aid Action Plan does not aim to increase state aid, but rather to reduce overall aid levels, while facilitating a better targeting of state aid towards measures that really contribute to the Lisbon objectives of boosting economic growth and creating jobs. This is also one of the reasons for not increasing the “de minimis” ceiling significantly, since such an increase could lead to random spending by Member States, rather than to targeted subsidising of crucial activities. Contrary to block exemptions, the de minimis aid does not distinguish between small and large companies. Large companies could therefore benefit from windfall aid, the amount of which is unlikely to give them an incentive to resolve market failures they are confronted with. Moreover, allowing substantial amounts of subsidies without any Commission control could have a significant impact on the EU's cohesion policy, as the richest Member States could support their companies much more generously than the others.
What are the basic rules of state aid policy?
State aid policy is an important part of EU competition policy. State aid control comes from the need to maintain a level playing field for all undertakings active in the Single European Market, irrespective of the Member State in which they are established, and to avoid Member States getting locked into subsidy races where they would try to outbid each other to attract investments. Preserving competitive markets is the best way for European citizens to get the products they want at low prices, and to foster innovation and growth in the EU.
This is why the EC Treaty (Article 87) prohibits any aid granted by a Member State or through state resources in any form whatsoever which distorts or threatens to distort competition by favouring certain firms or the production of certain goods in so far as this affects trade between Member States. A number of exceptions are however allowed. The Commission has the exclusive power to declare state aid compatible with the Treaty, provided the aid fulfils clearly defined objectives of common interest and does not distort intra-EU competition and trade to an extent contrary to the common interest.
What are ex-ante rules in the field of state aid?
State aid policy is based on the EC Treaty (notably Articles 87 and 88). The Commission can authorise state aid on the basis of notifications from Member States. In recent years, the Commission has also developed a series of ex-ante rules (guidelines, frameworks, block exemptions) to clarify its practice. Aid granted in conformity with the conditions set out in these rules is automatically considered to be compatible with the EC Treaty rules.
The Commission has adopted a number of "block exemption" Regulations, which authorise state aid without requiring formal notification, in the following areas:
The Commission has also adopted a number of "guidelines" or "frameworks” in the following areas:
In the context of implementing the State Aid Action Plan, these documents will be reviewed in the course of 2006-2007 (except the Regional Aid Guidelines and Services of General Economic Interest, already adopted in 2005: see respectively IP/05/1653 and IP/05/937).
What is the calendar for changing the de minimis rule?
It will also be published in the Official Journal before the end of the year, so that it can enter into force on 1/1/2007. It will then apply until 31/12/2013.