Henry Britton DG Competition – Regional aid* Training seminar on State aid Warsaw 25 September 2009 Regional aid Henry Britton DG Competition – Regional aid* *The views expressed are purely those of the speaker and may not in any circumstances be regarded as stating an official position of the European Commission Please edit the Master Layout to include information specific to the presentation. For slides for the DG/DeputyDG, delete “[Directorate], [Unit]”. (1) Slides (i) View… Master… Slide Master, (ii) On the first slide, add the Conference, Venue and Date in the box in the top left corner, (iii) On both the first and second slides, in the bottom left text box, add the Directorate and Unit information, (iv) Close Master View (2) Handout pages (i) View… Master… Handout Master, (ii) In the bottom left text box, add the Directorate and Unit information, (iii) Close Master View (3) Notes pages (i) View… Master… Notes Master, (ii) In the bottom left text box, add the Directorate and Unit information, (iii) Close Master View

Outline General notions on regional aid The regional aid guidelines (RAG) Regional aid in the GBER Practical issues Questions & answers

1. General notions on regional aid

Regional aid: General notions Horizontal aid Cohesion objective (redress disparities) Link to regional development policy Systemic (endogenous) or FDI-oriented Evolutions in EC regional aid approach Also in other regions of the globe

2. The regional aid guidelines (RAG)

Structure of the RAG 2007-2013 Introduction Scope Demarcation of regions Regional investment aid Operating aid Aid for newly created enterprises Transitional arrangements Regional aid maps and declaration of compatibility Entry into force, implementation, transparency and review Annexes

Regional map For Poland, covers entire territory (100 % of population) Defines: the areas eligible for regional aid the maximum aid intensity in each area Art. 87(3)(a): GDP per capita <75 % (in PPS) of Community level For each NUTS level 2 region

Aid intensities Large enterprises: SME bonuses: GDP below 45 %: 50 % GGE (10 voivodeships) GDP below 60 %: 40 % GGE (5 voivodeships) GDP below 75 %: 30 % GGE (Mazowieckie) SME bonuses: Small enterprises: +20 pp GGE Medium enterprises: +10 pp GGE (except for transport sector)

Sectoral scope: Exclusions RAG, points 8 and 9: Sectors not covered by the RAG: Fisheries, coal industry No regional (investment) aid for: Steel industry, synthetic fibres Types of company excluded: Firms in difficulty

Sectoral scope: Special rules RAG, point 8: Agricultural sector: only for processing and marketing of agricultural products conditions of the AGRI guidelines must apply Specific rules (even if applied under the RAG): Transport, shipbuilding

Sectoral scope: Schemes RAG, point 10: In principle, regional aid schemes should be multisectoral Should form part of a regional development strategy with clearly defined objectives If ad hoc aid, to one firm, or to one sector: need to prove contribution to such strategy

Incentive effect RAG, point 39: Before start of works on the investment project: Beneficiary must submit an application for aid Granting authority must confirm in writing that project, in principle, meets scheme conditions Aid schemes must mention these conditions (except automatic tax schemes)

Initial investment Setting-up of a new establishment Extension of an existing establishment Diversification of the output of an establishment into new, additional products Fundamental change in the overall production process of an existing establishment

Initial investment (2) No replacement investment If establishment has closed or would have closed (without the acquisition): Assets directly linked to the investment Participation in company (acquisition of shares/equity) not sufficient

Eligible costs Material assets: Land, buildings, plant/machinery Immaterial assets (technology transfer): Patent rights, licences, know-how, unpatented technical knowledge For large entreprises: max. 50 % of total eligible costs; for SMEs: no ceiling Acquired assets should be new

Eligible costs: Existing establishment Acquisition of existing establishment: only assets bought from third parties (under market conditions) If accompanied with new investment: both have to be treated as single investment Takeover: Existing (old) assets can be included Exclude assets for which aid was already granted (before purchase)

Eligible costs: Leasing Land and buildings: any form of leasing, but lease must continue for 5 years after expected date of completion of investment project (3 years for SMEs) Other assets: only financial leasing + obligation to purchase assets (or transfer of property) at expery of term of leasing contract

Eligible costs: SMEs Preparatory studies and consultancy (aid intensity of up to 50 % of costs) Existing (old) assets can be included

Eligible costs: intangible assets Must be purchased from third parties under market conditions Can only be used in the establishment receiving the aid + must remain in the establishment receiving the aid for at least 5 years (3 years for SMEs) Must be amortizable assets + be included in the assets of the firm

Maintenance conditions The investment must be kept in the region for at least 5 years after the completion of the project (3 years for SMEs) Wage costs: posts must be filled within 3 years of completion of the works Jobs must be kept in the region for 5 years from when the post was first filled (3 years for SMEs)

Cumulation Source of aid not relevant: Local, regional, national, Community Regional aid can be cumulated with: Aid under other schemes Ad hoc aid De minimis aid

Cumulation (2) Most favourable ceiling can be used for: Regional aid based on combination of capital costs + wage costs Common portion of same eligible costs for which other aid is applicable But regional aid ceiling must be respected For schemes, need to specify how cumulation conditions will be ensured

Large investment projects (LIPs) Investments projects with eligible costs > € 50 mio Ex post monitoring of projects: > € 50 mio Rules on single investment project (SIP): Geographical proximity Technical, function and strategic links

Adjusted aid ceilings Eligible expenditure Adjusted aid ceilings Up to € 50 mio 100 % of regional ceiling For the part between € 50 mio and € 100 mio 50 % of regional ceiling For the part exceeding € 100 mio 34 % of regional ceiling

Notification of LIPs Must be notified if the aid exceeds the maximum aid that a project of € 100 mio could receive (adjusted aid) If below notification threshold: can be implemented directly (EC informed within 20 wd)

In-depth assessment of LIPs For projects with aid > notification threshold If: Market share of beneficiary > 25 % (before or after the investment) Production capacity increase > 5 % if in a market in decline Opening of the formal investigation procedure

LIPs guidance communication Positive effects: Contribution to regional economic development (objective of the aid), appropriateness of the aid instrument (necessity), incentive effect, proportionality Negative effects: Market power, inefficient market structures, negative effect on trade Balancing test: effects on trade

3. Regional aid in the GBER

Założenie Zwolnienie z obowiązku zgłoszenia do Komisji środków, które spełniają wszystkie warunki Wyłączenia dot. pomocy regionalnej

Przepisy przejściowe Pkt 66 Rozporządzenia: Wraz z uchyleniem rozporządzenia (WE) nr 1628/2006 możliwa będzie dalsza realizacja istniejących wyłączonych programów regionalnej pomocy inwestycyjnej na warunkach przewidzianych w rozporządzeniu 1628.

Zakres Stosuje się do przejrzystych programów pomocy regionalnej Pomocy ad hoc wykorzystywanej jako uzupełnienie pomocy przyznanej w oparciu o przejrzysty program regionalnej pomocy (do 50% całkowitej kwoty pomocy)

Pomoc nieprzejrzysta Programy regionalnej pomocy inwestycyjnej, w przypadku których, nie jest możliwe dokładne wyliczenie ex ante ekwiwalentu dotacji brutto jako odsetka wydatków kwalifikowanych bez potrzeby przeprowadzania oceny ryzyka ALE: Jeżeli Komisja zatwierdzi metodologię użytą do obliczenia intensywności pomocy możliwe będzie stosowanie Wyłączenia także do takich instrumentów

Pomoc przejrzysta - zmiany dla MŚP: możliwość zastosowania obwieszczenia Komisji w sprawie zastosowania art. 87 i 88 TWE do pomocy państwowej w formie gwarancji; pożyczki niezabezpieczone – odniesienie do stopy referencyjnej obowiązującej w dniu przyznania pomocy Zaliczki zwrotne – jeżeli całkowita kwota zaliczki nie przekracza dopuszczalnego pułapu pomocy Wyjątki od „nieprzejrzystości” pomocy w formie dokapitalizacji oraz kapitału podwyższonego ryzyka

RSWG – część regionalna Nie stosuje się do: Innego rodzaju pomocy ad hoc aid Programów nieprzejrzystych Programów sektorowych – [turystyka] Dużych projektów inwestycyjnych, które podlegają obowiązkowi indywidualnego zgłoszenia Programów pomocy operacyjnej

Warunki udzielania pomocy Bliskie warunkom określonym w Wytycznych 2007 -2013 i poprzedniego Rozporządzenia 1628/2006; ALE: Rozszerzenie zakresu środków nieprzejrzystych Włączenie pomocy dla nowoutworzonych przedsiębiorstw (+ zasada 12 miesięcy) Uproszczona definicja „zagrożonego” przedsiębiorstwa – (dla MŚP) Rozszerzenie kosztów kwalifikowanych w przypadku pomocy na utworzenie nowych miejsc pracy (świadczenia dodatkowe) oraz warunki dotyczące kosztów niematerialnych Rozszerzenie pojęcia inwestycji początkowej na „przekazanie” przedsiębiorstwa w rodzinie lub pracownikom Definicja sektora turystycznego EFEKT BODŹCA (dla dużych oraz małych przedsiębiorstw)

Obowiązek monitorowania W ciągu 20 dni roboczych przesyłanie Komisji informacji zbiorczej dotyczącej tego rodzaju pomocy w standardowej formie określonej w załączniku I do Wyłączenia. M.in. programy powinny zawierać bezpośrednie odwołanie do Wyłączenia, informacja zbiorcza musi zawierać adres internetowy publikacji Prowadzenie szczegółowej dokumentacji przez 10 lat Obowiązek monitorowania dla dużych projektów inwestycyjnych, które nie podlegają obowiązkowi indywidualnego zgłoszenia Obowiązek składania dorocznych raportów SUROWE KONSEKWENCJE braku współpracy (Art. 12 ust. 3)

4. Practical issues

Steps YES NO Does the measure contain State aid? Does it fit under an existing approved scheme? YES: ensure that individual aid complies with existing scheme Can it be applied under a block exemption regulation (incl. de minimis)? No need to notify the measure to the Commission Notify to the Commission De minimis: implement under de minimis conditions GBER/(BER): implement + send summary information to the Commission

Procedures Granting authority prepares notification forms Relevant ministry sends notification electronically via SANI system Perm. Rep. in Brussels = main contact point for the Commission Commission examines notification and has 2 months to reach formal decision: No aid No objections Opening of formal investigation procedure Negative decision (with or without recovery)

Procedures (2) Duration: in practice 4-6 months in average, due to need for additional info / questions Other possibilities: Notification for legal certainty Pre-notification New procedures Best Practices Code Simplified Notification

Documents to be notified Regional aid schemes or individual aid below notification threshold: Parts I & II Form III.4 Large investment projects above notification threshold: Form III.5 (+ relevant documents)

5. Questions & answers

Q1. How to calculate the total planned yearly budget of the aid program in case the duration of the program exceeds 1 year and the amounts spent on the basis of the program each year differ?

Q2. Which of the following types of costs constitute eligible cost for the purposes of application of Article 13 in case of investment in tangible assets (land, buildings, machines and other equipment): Cost of supervision (including construction supervision, author's supervision) Cost of plans and projects (eg. construction plan, executive plan)

Cost of technical concepts Cost of applying for administrative decisions, of obtaining these Cost of report on environmental effects Cost of feasibility study In case of projects financed through EU funds – the cost of information and promotion of the project (information boards) Cost of preparation of the post-execution documentation

Cost of measurements and laboratory tests confirming the correct functioning of the installation Cost of choosing the contractor/builder (cost of carrying out a tender) Cost of substitute investor. Cost of purchase and installation of IT systems supporting the management and monitoring of execution of the new investment,

Administrative expenditure, rent, energy, heating cost for the period of preparation or execution of a new investment project Other expenditure relating to the implementation of new investment project, in particular – to the employees' training, accountancy of the project, the adaptation of office space to the needs of employees participating in preparation or implementation of the new investment project,

Disassembling, preparation of construction area, construction and installation works, start-up of machines and of the whole new investment project Production of capital assets by and for the beneficiary of the aid. Connection to water supply system, sewage system, gas, electricity, heating, fencing and lighting the site of investment Supply of gas, electricity, water, heating and draining sewage – necessary for the implementation of the new investment project Geodesy and maintenance works

Cost of opening and managing a bank account for the needs of carrying out an investment Cost of insurance and guarantees relating to carrying out new investment Interest on credit taken in order to finance the investment for which the aid is granted

Q3. If there is an investment project foreseen for two sites – how should we calculate eligible costs/ the amount of aid – if these sites are situated in regions for which there are different regional aid thresholds?

Q4. Which EUR exchange rate should be applied in calculation of the amount of aid and investment costs – for which date and how to calculate if there is a long term investment at stake?

Q5. Which of the regional aid thresholds applies – standard or adjusted one (for large investment projects) – in order to calculate the admissible aid in case of project, where the eligible cost is the cost of two year employment exceeding 50 000 000 EUR?

Q6. On the basis of Regulation 800/2008 do the eligible costs cover the expenses incurred in order to secure the execution of the financing contract and the costs of opening and managing the bank account for the needs of the project if such expenses are incurred in order to fulfil the obligations stemming from national or Community law?

Q7. Do the assets covered by the aid have to be linked with a project only in a functional way (e.g. can be made available to the co-operators within the framework the so-called tooling agreement) or do they have to be linked functionally and physically present in the establishment receiving the aid?

Q8. Art. 13.2 of GBER – what does it mean that the investment must be maintained: does this obligation relate to keeping assets or to carrying out economic activity within the period required?  Q9. Art. 12.1.b) – on the basis of this provision can aid cover the acquisition of assets like single machines and organised production line?

Q10. The investment project will consist in creating a new permanent establishment. At the same time, the existing permanent establishment will be closed down due to the use of an outdated technology. The construction of the new permanent establishment will allow maintaining the employment of people currently working in the permanent establishment which is due to be closed down. Can aid covered by the GBER support such an investment?

Q11. Can new investment relate to the renovation of a historical building?

Q12. An undertaking received financing to buy hydrofoils, which were supposed to be used in the region of a given voivodship. The undertaking would now like to widen its scope of activity (using the hydrofoils for the purchase of which the aid was granted) to cover other voivodships. The aid beneficiary can no longer carry out his activity in the region indicated in the application for aid for reasons independent of him - because the waterways in this region have been closed. In such a case will the condition to maintain the investment in the region for which the aid has been granted be fulfilled?

Q13. Article 2.15.b) of GBER provides that wage cost comprises "the compulsory contributions, such as social security charges". At the same time footnote 51 to point 57 of the Guidelines on national regional aid for 2007-2013 states that the wage cost means the total amount actually payable by the beneficiary of the aid in respect of the employment concerned, comprising (…) the compulsory social security contributions. In light of incoherence between these two phrasings the question is whether social security charges are: The only type of charges which constitutes a part of wage cost or Only an example of charges which qualify as wage cost and there are other compulsory contributions that qualify as wage cost – in Poland these would include: health insurance, contributions to the Labour Fund, to the Fund of Guaranteed Employees' Benefits, to the Public Fund for Rehabilitation of Disabled Persons?

Q14. Art. 13.7 of GBER: Do costs related to acquisition of assets under financial lease, other than land and buildings, cover all the leasing instalments, insurance and the price of acquisition of these assets at the expiry of the term of lease? What are the eligible costs in case of leasing of land and buildings? Do they cover all the leasing instalments and insurance for all the term of leasing? In case of leasing contract concluded for indeterminate time what are the eligible costs?

Q15. Entrepreneur A received regional aid for newly created small enterprises. He plans to sell it to B independent of him on market conditions. In case of general succession, where all the rights and obligations of A relating to the aid are passed to B, is A obliged to pay back the aid? The opinion of Polish authorities is that no, under the condition that indeed all the obligations relating to grant of regional aid are passed to B.

Q16a. Is a purchase of land with buildings treated as starting work on a project? Q16b. If such a purchase is done before the application for regional aid, can the cost of such a land with buildings qualify as eligible costs?

Q17. Should wage costs be discounted if they serve as the basis to calculate the maximum intensity of regional aid? It seems to stem from several Commission decisions that in such cases both the amount of aid and the wage costs are expressed in nominal values, however it is not clear whether such a calculation is obligatory or merely recommended. From the wording of the Regional guidelines and Regulation 1628/2006 it stems that discounting relates only to investment costs and not to wage cost. In the opinion of Polish authorities there are two possibilities: Either to discount the aid and the wage cost or Not discounting either of them – using nominal value of both.

Q18. Art. 13.9 of the GBER – in case of aid for investments in the processing and marketing of agricultural products – which thresholds apply – the ones set in regional aid maps or the ones set in Art. 13.9 of the GBER? In other words – do the thresholds set in Art. 13.9 apply always (even if the ones set in regional aid maps are higher) or do they apply only when the thresholds set in regional aid maps are lower?

Q19. As regards regional aid – please confirm that conclusion of a contract of lease of land does not constitute the start of an investment.

Q20. Should the notion of "start of work" for the purposes of application of the GBER be interpreted in the same way as on the basis of the Guidelines on national regional aid for 2007-2013 and as it is set in Regulation 1628/2006?

Q21. If preliminary feasibility studies are performed before the aid program is published, can such a project still benefit from regional aid covered by the GBER?

Q22. Regional employment aid – a company will create new posts and plans to recruit externally and internally – plans to employ people who are currently working at the mother company. Will posts newly created for employees coming from the mother company count as “newly created employment” and consequently – can they be covered by aid?

Q23. Art. 13.4 of GBER – the exception relating to transport sector – can a company active in a transport sector get an SME bonus if the investment does not relate to transport activity?

Useful documents Wytyczne w sprawie krajowej pomocy regionalnej na lata 2007-2013, Dz. Urz. C 54, 4.3.06, str. 13 Mapy regionalne: http://ec.europa.eu/comm/competition/state_aid/regional_aid/regional_aid.html Rozporządzenie Komisji (WE) nr 800/2008 z dnia 6 sierpnia 2008 r. uznające niektóre rodzaje pomocy za zgodne ze wspólnym rynkiem w zastosowaniu art. 87 i 88 Traktatu (ogólne rozporządzenie w sprawie wyłączeń blokowych); Dz. Urz. L 214 z 9.8.2008 r. Rozporządzenie Komisji (WE) nr 1627/2006 z dnia 24 października 2006 r. zmieniające rozporządzenie Komisji (WE) nr 794/2004 w odniesieniu do standardowych formularzy służących do zgłaszania pomocy, Dz. Urz. L 302 z 01.11.2006, str. 29

Further info State aid weekly e-news DG Competition website: http://ec.europa.eu/comm/competition/state_aid/overview/sar.html Vademecum on State aid rules: http://ec.europa.eu/comm/competition/state_aid/studies_reports/vademecum_on_rules_09_2008_en.pdf European State aid network – contact points