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Private & Confidential. Not for distribution. ©DWF LLP 2012 Go further Title needs degree sign (°) added from the “Insert/Symbol” menu. This.

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Presentation on theme: "Private & Confidential. Not for distribution. ©DWF LLP 2012 Go further Title needs degree sign (°) added from the “Insert/Symbol” menu. This."— Presentation transcript:

1 Private & Confidential. Not for distribution. ©DWF LLP Go further Title needs degree sign (°) added from the “Insert/Symbol” menu. This needs to be added at 28pt compared to the 24pt title. EU State aid solutions and the new GBER May 2014 Jay Mehta Associate DWF LLP

2 Private & Confidential. Not for distribution. ©DWF LLP 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? 2 Basics of State aid & Funding applications

3 Private & Confidential. Not for distribution. ©DWF LLP 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? 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). 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). 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. 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. 6.HAS THE AID ALREADY BEEN CLEARED BY THE COMMISSION AS PART OF AN EXISTING NATIONAL AID SCHEME? For example Land Remediation Scheme. 7.THE AID MAY NEED TO BE INDIVIDUALLY NOTIFIED TO THE EUROPEAN COMMISSION FOR APPROVAL. YES NO NOTIFY

4 Private & Confidential. Not for distribution. ©DWF LLP 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

5 Private & Confidential. Not for distribution. ©DWF LLP 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?)

6 Private & Confidential. Not for distribution. ©DWF LLP 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

7 Private & Confidential. Not for distribution. ©DWF LLP 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)! GBER basics (2) – other points

8 Private & Confidential. Not for distribution. ©DWF LLP 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

9 Private & Confidential. Not for distribution. ©DWF LLP 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

10 Private & Confidential. Not for distribution. ©DWF LLP 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. New GBER (1) – Some overall changes proposed

11 Private & Confidential. Not for distribution. ©DWF LLP AidIntensity/descriptionNotification threshold R&D Infrastructure50% of Construction or upgrade of facilities provided access to several users at market price E 20m per infrastructure Innovation Clusters50% 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 infrastructure100% of installation worksE 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 New GBER summary (2) – Some important new aids

12 Private & Confidential. Not for distribution. ©DWF LLP 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) New GBER summary (3) - Some changes R&D & Training

13 Private & Confidential. Not for distribution. ©DWF LLP 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) 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 New GBER summary (4) – Some changes Regional/SME

14 Private & Confidential. Not for distribution. ©DWF LLP 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 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). New GBER summary (5) – Some change Environment

15 Private & Confidential. Not for distribution. ©DWF LLP Current draft of the proposed new GBER which will come into effect from 1st July 2014 (subject to change) New GBER summary (6) Rates in draft of proposed new GBER Capital Investment AidTrainingR&D Business Size: Assisted ‘C’ Area (tier 2) % Non- Assisted Area % Industrial R&D % Experimental R&D % Small (*80)45 (*60) Medium (*75)35 (*50) Large (*65)25 (*40) For reference and comparison, the current rates are below: Current rates Capital Investment AidTrainingR&D Business Size: Assisted ‘C’ Area (tier 2) % Non-Assisted Area % General Training % Specialist Training % Industrial R&D % Experimental R&D % Small (*80)45 (*60) Medium (*75)35 (*50) Large (*65)25 (*40)

16 Private & Confidential. Not for distribution. ©DWF LLP 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

17 DWF is the business law firm with industry insight. Our legal experts combine real commercial understanding and deep sector knowledge to help clients anticipate issues, create opportunities and get the outcomes they need. We’ll deliver the results that help you go in the right direction – wherever you are. Birmingham Glasgow London Preston +44 (0) (0) (0) (0) Coventry Leeds Manchester Teesside +44 (0) (0) (0) (0) Edinburgh Liverpool Newcastle +44 (0) (0) (0) Go further ° ©DWF LLP 2012 DWF LLP is a limited partnership registered in England and Wales with registered number OC The content of the Regulatory and Licensing Insert does not constitute legal advice and should not be relied on as such. Specific advice should be sought about your specific circumstances.

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