State Aid Oversight Eased

EU Member States will have more discretion when it comes to granting state aid to companies. The new EU rules – due to enter into force on 1 July 2014 – are designed to speed up the decision making process and encourage innovation.
The rules will also enable the Commission to focus its enforcement activities on major state aid cases that have the largest impact on the internal market.

Block Exemptions

Member States have to notify the Commission when they wish to grant state aid. A system of exemptions from this requirement, the General Block Exemption Regulation (GBER I), was adopted in 2008 to exempt certain categories of state aid from the requirements.
These exemptions have now been extended by the new Regulation on General Block Exemption (GBER II) which saw final adoption last week.
The main changes introduced by the new Regulation are:
• Increased thresholds: the amount of state aid above which notification to the Commission is required had been raised.
• Broadened scope: More categories of aid now qualify for block exemption
• Simplification: the criteria for state aid exemption have been simplified
According to the Commission, the revised GBER will exempt 75% of current state aid measures. Measures not covered by GBER II will continue to be assessed by the Commission.

Scope and Definitions

Under the previous GBER, the following nine categories were eligible to be exempted from prior notification:
• Regional aid
• SME investment and employment aid
• Aid for the creation of small enterprises by women
• Aid for the protection of the environment
• Aid in favour of SMEs
• Risk capital aid
• Aid for research, development and innovation
• Training aid
• Aid for disadvantage or disabled workers
GBER II extends exemptions in the following previous categories:
• Risk finance aid: the new GBER includes SMEs in their later growth stages. It covers any form of risk finance
• Aid for research, notably investment aid for research infrastructure
• Start-up aid: regional aid, aid to female or young entrepreneurs and aid to innovative enterprises have been gathered into a broad new category that targets the issue of access to finance among start-ups. This measure covers small enterprises in their first five years
• Environmental aid: aid for the remediation of contaminated sites, district heating and cooling, waste management, renewable sources, energy infrastructures
• Disadvantaged workers: this category now includes young people aged between 15 and 24
• Assistance costs provided to disadvantaged workers
• Regional operating aid for outermost regions and sparsely populated areas and for urban development schemes
The new Regulation also adds seven new categories to the previous list:
• Aid to innovation clusters
• Aid schemes following natural disasters
• Social aid for transport in remote regions
• Aid for broadband infrastructure
• Aid for culture, heritage and conservation
• Aid for sport and recreational infrastructures
• Investment aid for local infrastructure
Schemes will not be eligible for exemption if the average annual state aid budget exceeds €150 million. The Regulation also lists other excluded categories:
• Aid to the fishery and aquaculture sector
• Aid to export-related activities towards third countries or EU Member States
• Aid to undertakings subject to an outstanding recovery order following a Commission decision declaring state aid illegal
• Aid in favour of an undertaking in difficulty, except in the case of damage caused by certain natural disasters

Notification Thresholds

Article 4 of the new GBER provides higher notification thresholds i.e. the amount at which the Commission must be notified of state aid. These thresholds vary according to the category of state aid being granted.
Research and Development (R&D) project notification thresholds have been doubled (€40 million for fundamental research, €20 million for industrial research and €15 million for experimental development). For risk finance, the total limit that an eligible undertaking can receive is €15 million. Regional urban development aid cannot exceed €20 million, and investment aid for energy efficiency projects has been set at €10 million. Meanwhile, aid for broadband infrastructure projects has been capped at €70 million.
The Regulation also introduces an important condition; that the exemption will only apply to aid which has an “incentive effect”. This means that the beneficiary must submit a written application to Member States before work on a project or activity begins. Applications must include the following information: the undertaking’s name and size; the description and location of the project; the lists of project costs; the type of aid and the amount of public funding needed for the project.
However, eight categories of aid will not be required to have an “incentive effect”, including regional operating aid, aid for access to finance for SMEs, aid to repair the damage caused by certain natural disasters and social aid for transport for residents of remote regions.

Transparency, Monitoring and Evaluation

The extension of notification exemptions is balanced by several safeguard mechanisms. For example, Member States are required to set up a comprehensive state aid website, at national or regional level. These national or regional websites will be required to provide summary information and the full text of each aid measure.
For state aid awards that exceed €500,000, the identity of the beneficiary, the amount and objective of the aid and the legal basis must be published on the website. This must happen within six months of the state aid being granted. Full and timely publication is also a condition for the validity of the granting of the aid.
The new Regulation also aims to strengthen compliance controls. Member State are required to maintain detailed records of the information and supporting documentation necessary to establish that all conditions have been fulfilled. Such records must be kept for ten years from the granting of the aid.
Member States are also required to provide the Commission (within 20 working days) with all the information and documentation it considers necessary to monitor the application of the Regulation.

Next Steps

The new Regulation was adopted by the Commission according to the special procedure laid down by Article 108(4) of the TFEU, which required approval from Advisory Committee on State Aid (composed of Member States representatives). However, legislative approval involving the European Parliament or the Council is not required.
The new Regulation will be published in the EU Official Journal and enter into force on 1 July 2014 and will apply until 31 December 2020.