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Brussels, 3 rd June 2009
State aid: Commission adopts guidance on training aid and aid to disadvantaged and disabled workers - frequently asked questions
What is the purpose of the guidance?
The Commission Communication provides guidance on the methodology for the detailed compatibility assessment of individually notifiable training aid measures. It is intended to explain the reasoning that underlies Commission decisions on the compatibility of training aid measures and thereby increase transparency.
Which measures are covered by the guidance?
Pursuant to the recently adopted General Block Exemption Regulation (GBER – (see and ) any individual aid, whether granted ad hoc or on the basis of a scheme, with a grant equivalent exceeding €2 million per training project will be subject to individual notification to the Commission and will therefore be assessed under the guidance For ad-hoc training aid to a large firm below that threshold, the Commission will, other things being equal, apply the same principles.
What is the purpose of the Communication "Criteria for the compatibility analysis of state aid to disadvantaged and disabled workers"?
The Commission Communication provides guidance on the methodology for the detailed compatibility assessment of individually notifiable state aid in the form of wage subsidies. It is intended to explain the reasoning underlying Commission decisions on the compatibility of these aid measures and thereby increasing transparency.
To what kind of measures does the Communication apply?
The guidance applies to measures on the recruitment of workers considered to be disadvantaged or disabled as defined in Article 2.18 to 20 of the General Block Exemption Regulation (GBER). Individual measures, where the grant equivalent exceeds €5 million per undertaking per year for disadvantaged workers and €10 million per undertaking per year for disabled workers, will be assessed under the guidance. For ad-hoc aid for the employment of disadvantaged workers below €5 million and ad-hoc aid to large firms for the employment of disabled workers below €10 million, the Commission will, other things being equal, apply the same principles.
What are the main principles of the compatibility assessment?
The fundamental principles are set out in the Commission's State Aid Action Plan and have already been translated into guidelines for other types of aid, e.g. research, development and innovation, risk capital, environmental aid (see ). The core element of these principles is the balancing test.
The idea behind this test is to disentangle the positive and negative effects resulting from an aid, evaluate them and then balance them. That means first to look at the purpose of state aid: Is there a market failure that needs to be corrected? Furthermore the test looks at the design of the aid measure: Is state aid the appropriate instrument to remedy the problem? Does it induce a change of behaviour in the aid recipient? Is it proportionate? These positive effects have to be balanced against negative effects the aid might bring about.
What information is required by the Commission?
Member States should provide information on the existence of a positive effect of the aid as well as on appropriateness, proportionality and incentive effect of the aid (see questions above).
The criteria laid down in the guidance only apply to state aid measures above certain thresholds. Due to the amounts of these projects, the detailed assessment requires sufficient information delivered by Member States. In addition, the level of the Commission's assessment and the kind of information it will require will be proportional to the risk of distortion of competition.
Specific features of the training guidance
How can Member States demonstrate the existence of an incentive effect and the necessity of aid?
Member States should provide information demonstrating that a company's training activity has increased, either in quantity or in quality, as a consequence of the aid (incentive effect).
What kind of market failure can be addressed by training aid?
Training aid must addresses market failures that arise from an underinvestment in training. Underinvestment in training may occur for a number of reasons. Firms may refrain from training their workforce because they are risk averse or suffer from financial constraints. Furthermore, firms may be concerned that training provided to their workers will not pay off because employees will leave before the firm has recouped its investment. If employees are free to change firms and the new employer will actually benefit from the training dispensed by the old one, firms may provide less than a socially optimal level of training. This affects in particular training targeted at skills that are transferable between firms.
How will the Commission assess the proportionality of the aid?
The Commission will take into account the calculation method to determine the costs eligible for state support and whether it is in line with Article 39 of the General Block Exemption Regulation. Eligible costs need to be limited to the costs arising from training activities which would not be undertaken without the aid.
Member States should also provide evidence that the aid amount does not exceed the part of the eligible costs that cannot be appropriated by the company (i.e. the part of the extra costs of the training that the company cannot recover by benefiting directly from the skills acquired by its employees during the training). In any case, aid intensities must never exceed those defined in Article 39 of the General Block Exemption Regulation and will be applied to the above-mentioned eligible costs. Relevant examples include the following cases: C 35/2007, Training aid to Volvo Cars in Gent (OJ C 265, 07.11.2007), N 227/2006 – DHL Leipzig Halle, (OJ C 48, 02.03.2007), C 14/2006, Training aid to General Motors Antwerp, (OJ C 210, 01.09.2006).
How may training aid measures lead to distortions of competition?
In spite of the existence of positive effects of training aid, measures involving high aid amounts bear a higher risk of distorting competition. The extent of distortions of competition can vary depending on the aid design and the characteristic of the markets affected.
In some cases, reduced production costs resulting from the aid could affect a firm's decision to enter a market or not. State aid could also enable a product to stay in the market for longer – with possible negative effects on non-aided rivals.
Specific features of the employment guidance
What is the objective of common interest that can be addressed by state aid in the form of wage subsidies?
Certain categories of workers are considered to be less productive. This perceived or real lower productivity can be due to a lack of recent experience or to a permanent disability and discourages companies from hiring these categories of workers. As a consequence, disadvantaged or disabled workers are likely to be excluded from the labour market unless employers are offered compensation for their employment. State aid in form of wage subsidies might help such workers to enter the labour market or to remain in their post by covering extra costs induced by their perceived or real lower productivity.
How should Member States demonstrate the existence of an incentive effect and the necessity of the aid?
Member States have to demonstrate that the aid leads to a net increase in the number of disadvantaged or disabled employees in the undertaking concerned. State aid cannot be used to replace subsidised workers whose subsidies have ended and who have consequently been dismissed. In order to demonstrate that there is an incentive effect, Member States should demonstrate that the wage subsidy is paid for a disadvantaged or disabled worker in a firm, where the recruitment would have not occurred without the aid.
In which way will the Commission assess the proportionality of the aid?
Member States should provide evidence that the aid amount does not exceed net additional costs of employing the targeted categories of disadvantaged or disabled workers compared to the costs of employing not disadvantaged or not disabled workers.
In any case, aid intensities must never exceed those defined in Article 40 and 41 of the General Block Exemption Regulation. Eligible costs, to which aid intensities are to be applied, must be calculated following Articles 40 and 41 of the General Block Exemption Regulation.
How may state aid to disadvantaged and disabled workers lead to distortions of competition?
In spite of the existence of positive effects of the aid, large aid measures bear a higher risk of distorting competition. The extent of distortions of competition can vary depending on the aid design and the characteristic of the markets affected.
Aid in the form of wage subsidies may lead to a substitution effect, where jobs given to one category of workers merely reduce the jobs available for other categories.
Furthermore, wage subsidies may enable firms with otherwise poor commercial prospects to enter a market or introduce new products to the detriment of more efficient rivals. The availability of wage subsidies will also affect a firm's decision to leave a market where it is already operating. Subsidised wages could reduce the size of losses and enable a firm to stay in the market for longer – with possible negative effects on more efficient rivals.