1. EU State aid solutions and the new GBER
16/05/14
EU State aid solutions and the new GBER
May 2014
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Jay Mehta
Associate
DWF LLP

2. Basics of State aid & Funding applications
16/05/14
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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3. How to spot a State aid 16/05/14
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
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6. HAS THE AID ALREADY BEEN CLEARED BY THE COMMISSION AS PART OF AN EXISTING NATIONAL AID SCHEME? For example Land Remediation Scheme. NO
NOTIFY
7. THE AID MAY NEED TO BE INDIVIDUALLY NOTIFIED TO THE EUROPEAN COMMISSION FOR APPROVAL.

4. What is not State aid? Some common examples:
16/05/14
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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5. Managing State aid Render aid “compatible with the Common Market”
16/05/14
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 , 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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6. GBER issues - general Eligibility
16/05/14
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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7. GBER basics (2) – other points
16/05/14
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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8. GBER specifics Regional investment and employment aid
16/05/14
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:
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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9. GBER specifics - continued
16/05/14
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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10. New GBER (1) – Some overall changes proposed
16/05/14
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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11. New GBER summary (2) – Some important new aids
16/05/14
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 costs for entity running the cluster provided access to several users at cost or market price
E 7.5m per cluster
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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12. New GBER summary (3) - Some changes R&D & Training
16/05/14
New GBER summary (3) - Some changes R&D & Training
R&D
Notification thresholds doubled (E 20m for industrial research and E 15m for experimental development)
Dissemination bonus now applicable to experimental development
Flat 50% intensity and E 7.5m threshold for feasibility studies
Research Organisation need not be “not for profit” and profit re-investment no longer necessary
Aid for process and organisational innovation (15% for large companies and 50% SMEs) up to a threshold of E 7.5m per undertaking per project. 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
Training aid
No separation between general and specific training
All training has an aid intensity of 50%
Personnel costs and general indirect costs only eligible for SMEs
Personnel/overheads no longer restricted to 50% of costs
Maximum intervention rate now 70% including bonuses (SME, disadvantaged and disabled workers)
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13. New GBER summary (4) – Some changes Regional/SME
16/05/14
New GBER summary (4) – Some changes Regional/SME
SME aid
No SME consultancy aid any more
Innovation aid for SMEs (50% of costs of personnel, innovation advisory and support services and IP (E 5m per SME per project)
Start up aid schemes for small innovative enterprises comprising risk finance and grant
Aid for SME trading markets
Regional aid
Separate incentive effect requirement
Large enterprises must demonstrate “new economic activities” in tier 2 areas
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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14. New GBER summary (5) – Some change Environment
16/05/14
New GBER summary (5) – Some change Environment
Some New aids
Remediation of contaminated sites. Similar to (UK) land remediation scheme but only restricted to de- pollution. 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).
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
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15. Rates in draft of proposed new GBER
16/05/14
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
Training
R&D
Business Size:
Assisted ‘C’ Area (tier 2) %
Non-Assisted Area %
Industrial R&D %
Experimental R&D %
Small 30 20 70
70 (*80)
45 (*60)
Medium 10 60
60 (*75)
35 (*50)
Large 50
50 (*65)
25 (*40)
For reference and comparison, the current rates are below:
Current rates
Capital Investment Aid
Training
R&D
Business Size:
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
60 (*75)
35 (*50)
Large 15 60
50 (*65)
25 (*40)
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16. Conclusions on State aid
16/05/14
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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17. 16/05/14