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Brussels, 28th October 2008

State aid: what is possible under EU rules – an overview

(see also MEMO/08/660)

This MEMO is designed to highlight the main possibilities given to Member States by EU state aid rules to support various parts of the economy.

Each section relates to a specific state aid topic organised either by category of aid or aid instrument, namely:

  1. The General Block Exemption Regulation (GBER)
  2. Aid for Research and Development and Innovation (R&D&I)
  3. Aid for Small and Medium-sized Enterprises (SMEs)
  4. Employment Aid
  5. Training Aid
  6. Risk Capital Measures
  7. The De Minimis Rule

Aid not falling into any of the categories covered by these rules is not necessarily incompatible but has to be notified to the Commission for clearance on a case-by-case basis to assess whether it would give rise to a distortion of competition that is disproportionate to the objective of the aid.

1. General Block Exemption Regulation (GBER)[1]

The GBER (see IP/08/1110 and MEMO/08/482) authorises the following aid types:

  • Aid for research and innovation. Companies may benefit from aid for fundamental research (up to 100%), industrial research (up to 50/70%) and for experimental development (25%/45%). Innovation aid is also possible
  • regional development aid including specific aid for the creation of small companies
  • investment aid for SMEs - this category of aid is available in all regions
  • general and specific training aid
  • employment aid for disabled workers
  • aid in the form of risk capital - this category of aid enables Member States to facilitate the financing of SMEs
  • environmental aid - Member States may notably grant important aid for investment for improving standards, for energy savings and for the production of renewable energies
  • aid promoting female entrepreneurship - this new category of aid was introduced so that Member States can help women to create and develop new businesses.

Aid is only allowed if it has an incentive effect (i.e. if it results in investment that would not take place in the absence of the aid). To this end, the GBER provides different criteria for the verification of the incentive effect, but for SMEs, the incentive effect is deemed to be present if the application for aid was submitted prior to the start of the project.

Cumulation of different measures of the GBER is possible as long as they concern different identifiable eligible costs. With respect to the same eligible costs, cumulation is not allowed for partly or fully overlapping costs if such cumulation would lead to exceeding the highest allowable aid intensity applicable under GBER.

Simplification and consolidation: the GBER is a text which specifies under which conditions a large number of categories of state aid are compatible with the EC Treaty and does not need to be notified to the Commission. It consolidates into one text and harmonises the rules previously existing in different regulations, increasing by five the areas covered. Member States are free to implement the aid covered without an additional assessment by the Commission. Other categories of state aid will still have to be notified to the Commission for assessment.

The GBER applies to transparent aid in all sectors of the economy except for fisheries and aquaculture, agriculture and coal[2], and except for regional aid in the steel, shipbuilding and synthetic fibres sector, and regional aid schemes targeted at specific sectors of economic activity. It does not apply to export-related activities or to preferred use of domestic over imported goods. It does not apply to ad hoc aid to large undertakings, with the exception of regional investment and employment aid.

2. Aid for Research and Development and Innovation (R&D&I)

Some forms of R&D&I support are not state aid and thus can be implemented without entering to any administrative procedure, for example:

  • public financing of non-economic R&D&I activities by research organisations
  • R&D commissioned from firms by public authorities on market conditions.

Member States can grant state aid to support research, development and innovation via a large number of categories of state aid defined in the Community Framework for State aid for Research and Development and Innovation[3] (see IP/06/1600 and MEMO/06/441) and the General Block Exemption Regulation of 6.08.2008[4] (see IP/08/1110 and MEMO/08/482). These possibilities are available for companies in all sectors of the economy, except for sectors subject to specific provisions[5].

The existing provisions authorise the following types of aid:

  • Aid for R&D projects. Companies may benefit from aid for fundamental research (up to 100%), industrial research (up to 50% for large companies and up to 70% if SME + bonus) and for experimental development (up to 25% for large companies and up to 45% if SME + bonus)
  • Aid for technical feasibility studies
  • Aid for industrial property rights costs for SMEs
  • Aid for the loan of highly qualified personnel
  • Aid for innovation can also be granted via different aid categories:
  • Aid for young innovative enterprises: Member States can grant up to €1 million of amount of aid and even more in the assisted regions.
  • Aid for process and organisational innovation in services
  • Aid for innovation advisory services and for innovation support services up to €200 000 per undertaking within any 3 year period.
  • Aid for innovation clusters.

Aid for R&D&I is allowed if it has an incentive effect, i.e. if it results in an increased level of the recipient's level of R&D&I activity. For certain categories of aid, in particular in favour of SMEs, the incentive effect is present if the application for aid was submitted prior to the start of the project. For large companies, the incentive effect must be demonstrated.

For more simplification, most of these categories of aid are covered by the General Block Exemption Regulation (GBER) of 6.08.2008, which means that Member States may grant such aid in accordance with the provision of the GBER without notification to the Commission.

3. Aid for Small and Medium-sized Enterprises

The GBER (General Block Exemption Regulation - see IP/08/1110 and MEMO/08/482) includes special rules for investment and employment aid given exclusively to SMEs. This aid can be granted in addition to other categories of investment aid, for example in the context of regional aid or environmental aid.

In all regions of the EU, Member States may grant aid up to 20% of eligible costs for small enterprises and up to 10% of eligible costs for medium sized enterprises.

Eligible costs are the costs of investment in tangible and intangible assets, or the estimated wages costs of employment directly created by the investment project, calculated over a period of two years.

Where the investment concerns the processing or marketing of agricultural products, the maximum aid intensity are the following:

  • 75% in the outermost regions
  • 65% in the smaller Aegean Islands
  • 50% in regions eligible under Article 87.3 (a) of the Treaty
  • 40% in all other regions.

4. Employment Aid

The GBER (see IP/08/1110 and MEMO/08/482) allows Member States to grant several types of employment aid without prior notification to the Commission.

First, employment aid can be granted in regions eligible for regional aid (as determined in the respective approved regional aid map) up to the applicable regional aid threshold. This threshold can be increased by 20% for small companies and by 10% for medium-sized companies.

Second, employment aid can be granted, up to €7.5 million per company, to SMEs. Aid intensities are at 20% of eligible costs for small companies and 10% for medium-size ones.

Third, employment aid can be granted for pure social policy considerations, i.e. for the recruitment of disadvantaged workers, and for the employment of disabled workers. Definitions are provided in the GBER. In concrete terms, up to €5 million per company and year, 50% of wage costs for disadvantaged workers and, up to €10 million per company and year, 75% of wage costs for disabled workers can be covered under certain conditions. In addition, Member States can compensate companies up to €10 million per company and per year for 100% of the additional costs of employing disabled workers excluding wages, for instance costs of adapting premises, of employing staff solely to assist the disabled workers, and of adapting or acquiring equipment for disabled workers.

5. Training Aid

Under the GBER (see IP/08/1110 and MEMO/08/482), Member States may grant training aid of up to €2 million per training project without prior notification to the Commission. This applies to training aid irrespective of whether training is provided in-house or by public or private training centres.

Two types of training can be distinguished. Training can be specific, as long as it involves tuition directly and principally applicable to the employee’s present or future position in the undertaking, or general, which provides qualifications which are largely transferable to other undertakings or fields of work and thereby substantially improve the employability of the employee. If the project involves both specific and general training components which cannot be separated or the character of the project cannot be established, the specific training aid intensities apply.

Eligible costs include: trainers’ personnel costs, trainers’ and trainees’ travel expenses including accommodation, other current expenses (materials, supplies, etc.), depreciation of tools and equipment (to the extent that they are used exclusively for the training scheme in question) or cost of guidance and counselling services with regard to the training project.

Different maximum aid intensities apply for specific (25%) and general (60%) training. Rates can be increased for medium-sized enterprises (+10%), for small enterprises (+20%) and in cases where training is given to disadvantaged or disabled workers (+10%).

6. Risk Capital Measures

The "Guidelines" (Community Guidelines on State Aid to Promote Risk Capital Investments in Small and Medium-sized Enterprises[6] - see IP/06/1015 and MEMO/06/295) set out the criteria the Commission will apply in the compatibility assessment of the risk capital measures in accordance with Article 87 (3)(c) of the Treaty.

The Guidelines cover risk capital schemes targeting only SMEs, as measures designed to provide or promote equity and/or quasi-equity financing to enterprises in their seed, start-up and expansion phases. Risk capital measures must exclude the provision of aid to enterprises in difficulties and companies in the shipbuilding, coal and steel industry. The Guidelines do not apply to aid to export-related activities.

Risk capital measures may constitute state aid at different levels:

  1. aid to the investors, as investors may receive state aid where a measure allows them to participate in a risk capital fund on terms more favourable than if they had undertaken this investment in absence of the measure
  2. aid to an investment vehicle or fund and/or its manager, as in certain cases (e.g. regarding fiscal measures or other measures involving direct transfers in favour of an investment vehicle or fund with the character of an independent enterprise) aid may be present unless the investment is made on terms which would be acceptable to a normal economic operator and
  3. aid to the enterprises invested in, as enterprises will be considered as aid recipients if the investment is made on terms which would not be acceptable to a private investor in a market economy in the absence of any state intervention.

The Commission will assess the compatibility of risk capital measures taking into account the incentive effect, necessity of aid, existence of market failure and proportionality of aid. Measures fulfilling a set of criteria established under the Guidelines (inter alia, prevalence of equity and quasi-equity investment instruments, obligatory participation by private investors, profit driven character of investment decisions and commercial management) will be assumed to be compatible with Article 87(3)(c) of the Treaty.

It is possible to deviate from some of these conditions, however, in such cases a detailed compatibility assessment based on a balancing test will be carried out. The Commission will balance characteristics regarded as positive elements (e.g. existence and evidence of market failure appropriateness of the instrument) against potential negative effects of the aid (e.g. crowding-out of private investments and other distortions of competition).

The GBER introduced new categories of aid in the form of risk capital measures which are exempted from the notification requirement. Subject to the conditions laid down in the GBER aid in the form of participation into a profit driven private equity investment fund managed on a commercial basis, which provides tranches of investment not exceeding €1.5 million per target undertaking over any period of twelve months does not need to be notified.

7. The De Minimis Rule

The "De minimis Regulation" (Commission Regulation (EC) No 1998/2006 of 15 December 2006 on the application of Articles 87 and 88 of the Treaty to de minimis aid[7] - see IP/06/1765 and MEMO/06/482) specifies under which conditions small amounts of public support does not constitute state aid in the sense of Article 87(1) of the Treaty because it does not affect trade and competition between Member States. Consequently, Member States may grant such de minimis support without notification to the Commission.

To be considered "de minimis", the aid amount cannot exceed €200 000 per company over any three year period. This maximum amount applies to the total of all public assistance irrespective of the form it takes or the objective pursued. De minimis aid cannot be cumulated with other aid in respect of the same eligible costs if it results in an aid intensity exceeding the maximum intensity specified in guidelines or that is block exempt.

The Regulation also specifies that aid provided under a guarantee schemes to undertakings which are not in difficulty constitutes de minimis aid when the underlying loan does not exceed €1 500 000 per undertaking (in the road transport sector, this amount is limited to €750 000).

Specific rules apply in the sectors of fisheries and aquaculture, agriculture and transport. In particular, the maximum amount in the road transport is €100 000 over any period of three years. De minimis aid cannot be granted for the acquisition of road freight transport vehicles.

[1] Commission Regulation (EC) No 800/2008 of 6 August 2008 declaring certain categories of aid compatible with the common market in application of Articles 87 and 88 of the Treaty (Official Journal L 214, 9.8.2008, p. 003-047).

[2] However, training aid, risk capital, R&D&I, aid for disadvantaged and disabled workers and environmental aid might be applied in certain circumstances, subject to GBER conditions.

[3] Official Journal C 323 of 30.12.2006, p. 1

[4] Official Journal L 214 of 9.8.2008; p.3

[5] For example aids for transport by rail, road and inland waterway.

[6] Official Journal C 194, 18.08.2006, p. 2.

[7] Official Journal No L 379, 28.12.2006, p. 5.

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