EU State aid solutions and the new GBER
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May 2014
Jay Mehta
Associate
DWF LLP
[email protected]
Private & Confidential. Not for distribution.
©DWF LLP 2012 www.dwf.co.uk
Basics of State aid & Funding applications
• Good State aid solution does not make a funding application necessarily successful
• Bad or no State aid solution usually does ruin a funding application
• Solutions can be same across funding streams – eg. RGF/AMSCI – or ERDF/Employer
Ownership/Growing Places/RGF programmes etc.
• Best solution - no State aid at all – see new draft notice on the notion of State aid
(January 2014)
• Obtaining approval when State aid is present – need European Commission approval:
– Block Exemption (General Block Exemption Regulation 800/2008 “GBER” or De
Minimis Regulation 1407/2013 – see following slides); or
– Part of notified national framework scheme (eg. Derelict Land, HERS); or
– Individual Notification
• Sanctions and enforcement – why it matters?
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©DWF LLP 2012 www.dwf.co.uk
2
How to spot a State aid
Identifying a State aid is not always straight-forward. Companies receiving aid without prior approval risk
having to repay it with interest. The brief flow chart below addresses the questions, which must be asked,
when first assessing a potential State aid. It is not a substitute for legal advice, which must be applied
subjectively to each individual.
1. ECONOMIC ADVANTAGE: Does the aid confer a financial advantage, in any form whatsoever, on the business in a gratuitous form (ie.
where the aid includes an element of gift rather than being a normal commercial contract available on the market?
YES
2. TRANSFER OF STATE RESOURCES: Does the aid involve a transfer of state resources (including ERDF, Lottery, ROCs/FiTs, Tax
rebates and exemptions, loans and asset transfers at below market values).
YES
3. SELECTIVITY: Is the aid selective (i.e. only available to a limited number of enterprises or specific group of enterprises). This distinguishes
State aid from general measures which affect all (like a public road or a general tax exemption for the benefit of all).
YES
4. EFFECT ON COMPETITION AND TRADE: State aid must have a potential effect on competition and trade between Member States. It is
sufficient to show that the beneficiary is involved in an economic activity in which there is trade between Member States.
YES
5. IS THE AID COVERED BY A BLOCK EXEMPTION REGULATION: If the aid is covered by GBER or the De Minimis Regulation, it will be
exempt from notification requirements provided all relevant terms are respected.
NO
6. HAS THE AID ALREADY BEEN CLEARED BY THE COMMISSION AS PART OF AN EXISTING NATIONAL AID SCHEME? For
example Land Remediation Scheme.
NO
7. THE AID MAY NEED TO BE INDIVIDUALLY NOTIFIED TO THE EUROPEAN COMMISSION FOR APPROVAL.
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NOTIFY
What is not State aid?
• Some common examples:
– Sale, lease or purchase of property at open market value
– Funding non-undertakings carrying on non-economic activity
– Services of general economic interest (Altmark) - procuring a public service
via open competitive process
– Infrastructure of benefit to the general public (non commercially exploitable
– but see also Leipzig Halle)
– Market investor behaviour
– Flow throughs (German Incubators)
If no aid, aid management techniques not required
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©DWF LLP 2012 www.dwf.co.uk
Managing State aid
• Render aid “compatible with the Common Market”
• Block Exemption Regulations (de minimis, GBER)
– GBER includes SMEs, training, employment, regional, environmental, R&D,
risk capital and female entrepreneurs
– GBER extended to 30-6-2014, version 2 to be published June1 effect July1
• Individual notification of national schemes
– eg. Derelict Land, Housing Gap Funding, Historic Environment
Regeneration etc.
• Individual notification to the European Commission followed by approval
decisions
– Stick to one of Commission’s series of guidelines if possible
– Phases I (2 months?) and II (18-20 months?)
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GBER issues - general
• Eligibility
– Project – eg. is it a genuine research project or simply an investment project?
– Applicant – insolvent or for regional investment aid purposes in an excluded sector?
– Costs – are the costs as set out in relevant GBER provision eg. personnel, tangible and
intangible assets, contract research, direct expenses/overheads for R&D?
• Intensity
– Different aid intensities per type of aid, eg. R&D experimental development 25% and
industrial research 50%, or training - specific (25%) and general (60%)
– uplifts available for SMEs of 10% for medium and 20% small enterprises
– R&D uplifts also available for genuine collaborations/dissemination activity (15%)
• Incentive effect
– Basic (all applicants & all programmes) – don’t start the project before filing the
application!
– Large applicants – evidence to demonstrate change in project activity
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GBER basics (2) – other points
• Notification thresholds
– Need to notify individually to European Commission and get approval before
proceeding if aid intensity/amount too high, even if other GBER requirements met
– Translate to sterling at European Commission published exchange rate for the
month of the unconditional contract
– Applies per applicant per project
–
–
–
–
Research & Development Industrial research (EUR 10m)
Research & Development Experimental development (EUR 7.5m)
Training (EUR 2m)
Regional Investment aid – costs and aid amount restrictions but less likely to apply for AMSCI where most
projects proceed under R&D
• Cumulation rules
– Watch out where several aid applications are made by one undertaking (eg. grants
& R&D tax credits, investment aid and RoCs)!
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©DWF LLP 2012 www.dwf.co.uk
GBER specifics
Regional investment and employment aid
• Regional aid limited to 75% of maximum amount a project with EUR100m of eligible
costs would allow (eg. EUR11.25m in 15% area).
• Regionally assisted areas: http://stats1.bis.gov.uk/regional-aa/aa2007.asp
• Regional aid eligible costs are investment in tangible and intangible assets, or wage
costs (maintained at least 5 years/3 years if SME)
Training aid
• Training aid given at 25% or 60% - specific or general training (+ uplift for SMEs)
• Eligible training costs are trainer and training costs, plus wage costs of personnel to
be trained (while training)
• Maximum EUR 2m per undertaking per training project
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GBER specifics - continued
Research and Development aid
• Not just routine improvements to products and processes
• Maximum aid at 25%,50% or 100% - experimental development, industrial research or
fundamental research
• Eligible costs are personnel costs, instruments and equipment, contractual research
and IPRs, land & buildings and other directly related costs to R&D project
• Maximum amounts per undertaking per R&D project EUR 7.5m, 10m, 15m
SME investment and employment aid
• Maximum amount EUR 7.5m per undertaking per investment project
• Aid limited to 10% (medium SME) or 20% (small SME)
• See Annex I GBER for SME definitions
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New GBER (1) – Some overall changes proposed
• Basic incentive effect (SMEs and large undertakings) – definition of application for aid
• Additional incentive effect (large undertakings only) - in scheme aid may not have
additional incentive effect requirements.
• More detailed provisions for repayable advances which are now recognised in GBER
outside of R&D. Repayable advances attract 10% higher maximum intensity limits
across GBER.
• Procedurally there are more detailed submission forms, there is now an express right
to veto GBER application by the Commission ex post and there are clawback
provisions for net revenues generated in some cases where investment and operating
aid are allowed.
• Ad hoc (out of scheme) aid can be granted to large enterprises outside of a GBER
scheme.
• Cumulation restrictions with risk capital have been removed.
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©DWF LLP 2012 www.dwf.co.uk
New GBER summary (2) – Some important new aids
Aid
Intensity/description
Notification threshold
R&D Infrastructure
50% of Construction or upgrade
of facilities provided access to
several users at market price
E 20m per
infrastructure
Innovation Clusters
50% investment and operating
E 7.5m per cluster
costs for entity running the cluster
provided access to several users
at cost or market price
Broadband infrastructure
100% of installation works
E 70m cost per project
Regional aid for urban
development projects
70% of project costs of JESSICA
type projects (urban development
funds – compliance with ERDF?)
E 20m per project
Sports & Multifunctional
recreation infrastructure
75% of capital and incremental
running costs
E 15m aid or costs over
E 50m per project
Cultural & Heritage
conservation
100% of refurbishment/new build
and asset need not be listed.
Also operating costs are eligible
E 100m investment aid
per project; E 50m
operating aid per
undertaking per annum
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©DWF LLP 2012 www.dwf.co.uk
New GBER summary (3) - Some changes R&D &
Training
• R&D
• Training aid
• Notification thresholds doubled (E 20m for
industrial research and E 15m for experimental
development)
• No separation between general
and specific training
• Dissemination bonus now applicable to
experimental development
• Flat 50% intensity and E 7.5m threshold for
feasibility studies
• All training has an aid intensity
of 50%
• Personnel costs and general
indirect costs only eligible for
SMEs
• Research Organisation need not be “not for profit” • Personnel/overheads no longer
restricted to 50% of costs
and profit re-investment no longer necessary
• Aid for process and organisational innovation (15% • Maximum intervention rate now
70% including bonuses (SME,
for large companies and 50% SMEs) up to a
disadvantaged and disabled
threshold of E 7.5m per undertaking per project.
workers)
Eligible costs same as R&D. Large enterprises
can only claim if they collaborate with SMEs who
bear at least 30% of the eligible costs
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New GBER summary (4) – Some changes
Regional/SME
• Regional aid
• SME aid
• Separate incentive effect requirement
• No SME consultancy aid any more
• Large enterprises must demonstrate
“new economic activities” in tier 2 areas
• Innovation aid for SMEs (50% of
costs of personnel, innovation
advisory and support services and
IP (E 5m per SME per project)
• SME bonuses for regional investment aid
not expressed in body of regulation –
only in notification form!
• New Regional Aid Map and guidelines to
come out at same time.
• New Regional Aid Map (draft) now covers
areas in Cheshire but basic intensity
drops to 10% (20% for Medium sized
enterprises and 30% for Small
enterprises)
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• Start up aid schemes for small
innovative enterprises comprising
risk finance and grant
• Aid for SME trading markets
New GBER summary (5) – Some change Environment
• Some Changes in existing aid
measures
• Eligible regional aid investments may be
new installations only in some cases
• 10 year limit for tax reductions removed
• New intensities for anticipating
community standards depending on
how early they are anticipated
• Some New aids
• Remediation of contaminated sites.
Similar to (UK) land remediation
scheme but only restricted to depollution. 100% intensity minus
increase in site values
• Energy efficient projects - Green deal
style loan (E 10m max) to a fund to be
passed on to building owners for
retrofits. At least 30% private
investment needed for fund
• Operating aid for small scale
installations – 100% of difference
between market price and “levelised
cost” (Net Present Cost of connection to
the grid).
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New GBER summary (6)
Current draft of the proposed new GBER which will come into effect from 1st July 2014 (subject to change)
Rates in draft of proposed new GBER
Capital Investment Aid
Assisted ‘C’
Area (tier 2)
%
NonAssisted
Area %
Small
30
20
Medium
20
10
Large
10
0
Business
Size:
Training
R&D
Industrial
R&D %
Experimental R&D %
70
70 (*80)
45 (*60)
60
60 (*75)
35 (*50)
50
50 (*65)
25 (*40)
For reference and comparison, the current rates are below:
Current rates
Capital Investment Aid
Training
R&D
Assisted
‘C’ Area
(tier 2) %
Non-Assisted
Area %
General
Training
%
Specialist
Training %
Industrial
R&D %
Experimental
R&D %
Small
35
20
80
45
70 (*80)
45 (*60)
Medium
25
10
70
35
60 (*75)
35 (*50)
Large
15
0
60
25
50 (*65)
25 (*40)
Business
Size:
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Conclusions on State aid
• Aid there to be taken advantage of, new GBER should offer additional flexibilities
• Risk assessments – law, practicalities and politics
• Interaction with other areas (procurement, ERDF)
• State aid problems may be serious if ignored
• State aid issues may usually be avoided by attention to detail
• Unwillingness to consider may lose inward investment opportunities to other markets
• State aid can be steered through by individual notification if absolutely necessary
• State aid can rectify market failures and make things possible that otherwise would not
happen
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State Aid Slides JM 16.05.14