EUROPEAN COMMISSION STATE AID RULES
GUIDANCE FOR LOCAL AUTHORITIES
Contents & Page Number
What is State Aid ? 3
5 Key Questions 3
Some examples of State aid 4
Support which is NOT State aid 4
The 'sensitive sectors' 4
Getting it wrong 5
If it is State aid 5
Approved schemes in Scotland 6
Is State aid involved ? 6
What if State aid is involved ? 7
Scope to Award State aid 7
Cumulation of aid 7
Guidelines & Frameworks 8
Block Exemptions 8
Notification and approval procedure 9
Property Support Scheme 10
Historic Environment Regeneration Scheme 12
Partnership Support for Regeneration 13
Support for Land Remediation 14
Block Exemptions Support for SMEs 15
Block Exemptions Support for Training 17
Block Exemptions Support for Consultancy and R&D 18
De minimis aid 19
Annual Reporting 20
Social Enterprises 20
Annexes
A. Definition of micro, small and medium sized enterprises
B. Assisted Areas Map 2007 – 2013
C. Annex 1 agricultural products
What is State aid?
State aid is a European Commission term which refers to forms of assistance from a public body, or publicly-funded body, given to undertakings on a discretionary basis, with the potential to distort competition and affect trade between member states of the European Union.
The 'State aid rules' are set out by the European Commission and comprise various articles of the EC Treaty, regulations, frameworks and guidelines - which set out what aid can be given. The European Commission governs member states' compliance with these rules and must be notified of all schemes involving State aid. State aid granted without Commission approval is viewed as unlawful and may be subject to repayment - by the aid recipient.
5 key questions
There are 5 criteria or questions which need to be considered in order to establish whether a measure constitutes State aid. Where all 5 criteria are met, State aid is involved and the State aid rules apply. Where 1 or more of the criteria appears not to be met, then funding is unlikely to constitute State aid. We recommend that you check with the State Aid Unit where any doubt exists.
1. Is the measure granted by the state or through state resources? As well as central government departments, this includes regional or local authorities and other public, or private sector bodies designated or controlled by the state. State resources include tax exemptions and also funds not permanently belonging to the state but under state control, e.g. lottery funding.
2. Does it confer an advantage to an undertaking? A benefit to an undertaking, granted for free or on favourable (non-commercial) terms, could be State aid. This includes the direct transfer of resources, such as grants and soft loans, and also indirect assistance - for example, relief from charges that an undertaking normally has to bear, such as a tax exemption or the provision of services, loans, at a favourable rate. An undertaking is any body involved economic activity including charitable trusts.
3. Is it selective, favouring certain undertakings? Aid that targets particular businesses, locations, types of firm e.g. SMEs or sectors is considered selective. A general measure affecting the whole of the state's economy e.g. nation-wide fiscal measures are not considered State aid. It should be noted that Scotland wide measures are still considered selective.
4. Does the measure distort or have the potential to distort competition? If it strengthens the position of the beneficiary relative to other competitors then this criteria is likely to be met. The potential to distort competition does not have to be substantial or significant, and this criterion may apply to small amounts of aid and firms with little market share. Most interventions have the potential to distort competition.
5. Is the activity tradable between member states? The Commission's interpretation of this is broad - it is sufficient that a product or service is subject to trade between member states, even if the aid beneficiary itself does not export to the EU. Consequently most activities are viewed as tradable.
Some examples of State aid
Support which is NOT State aid -
The 'sensitive sectors'
There are various guidelines relating to granting aid in some sectors which may be in overcapacity. These take precedence over any other State aid rules.
The State Aid Unit is the first point of contact for State aid enquiries relating to the following sectors:
Scottish Government State aid contacts
For State aid issues and advice on the following three sectors, there are specific contacts within the Scottish Government that can help you.
· Agriculture Lawrence Rosie 0131 244 6244
· Fisheries Gordon Hart 0131 244 6089
· Transport Diane McLafferty 0131 244 7268
· Maritime Transport Graeme Laidlaw 0131 244 0843
Getting it wrong
The European Commission allows State aid in specific circumstances; for example to promote Community investment in research and development, environmental protection and investment in training. However, in general, it considers State aid to be incompatible with the common market and to have a damaging effect on competition and trade across the Community area. Consequently, the Commission takes a serious view of aid provided without its approval and a particularly serious view of aid given in contravention of the State aid rules.
In these circumstances, there can be serious repercussions:
In recent years the Commission has given increasing priority to applying State aid rules more rigorously. It is, therefore, extremely important to establish whether your project or policy proposal constitutes State aid and, if so, how they be taken forward in compliance with the State aid rules - whether they require notification to the Commission, or do they fit with an existing approved State aid scheme or block exemption.
If it is State aid
Having established that State aid may well be an issue for you (by answering the 5 key questions above), you need to know whether the aid you want to provide is covered under an existing approved scheme.
Has the European Commission approved the aid you wish to give? There are various approved schemes in Scotland - and UK wide - which may be applicable to you. If the aid you wish to give does not fall under an existing approval you need to obtain approval, contacting the State Aid Unit in the first instance.
Approved schemes in Scotland
All State aid is unlawful unless it has been approved by the European Commission or falls under a block exemption.
Commission approval is likely to be gained for proposed aid schemes, if the scheme complies with the guidelines the Commission uses.
Scottish Local Authorities have Commission approved schemes in place to award aid in various areas of activity at their discretion. Some are UK based run by DBERR (formerly DTI) & DCLG. These are listed below:
Local Authorities - Scottish Schemes
Highland Prospect Limited
N28/1995
Highland Opportunity
N85/1995
Broadband Aggregated Procurement
(Pathfinder - Dumfries & Galloway and Highland Councils)
N117/2005
Block Exemptions Support for SMEs
XS/44/2001
Block Exemptions Support for Training
XT/10/2006
Block Exemptions Support for Consultancy and R&D
XS/18/2006
Scottish Property Support Scheme
XS/51/2007
UK Schemes
Support for Land Remediation
N221/2006
Partnership Support for Regeneration
N293/2006
Historic Environment Regeneration Scheme
N356//2006
Structural Funds & State aid
Structural funds projects must be fully compliant with State aid rules, as set out below:-
Is State aid involved?
When dealing with a structural funds project you must determine whether funding is State aid. Where the funding is State aid both the European structural funds money and any national monies being granted to match that funding must comply with the State aid rules, as below. For example, where structural funds are used to assist businesses, or projects with a specific end beneficiary, there will probably be State aid implications. If there are private sector partners involved in a project, the terms of the partnership need to be examined to determine whether they are receiving any benefits that constitute State aid. In some cases, structural funds projects may have a general benefit e.g. to support a road building project that has been competitively tendered, and do not fall within the scope of the State aid rules.
What if State aid is involved?
If the funding element constitutes State aid, it must be provided under an approved scheme, block exemption, be given as de minimis funding, or be notified to the Commission for approval. Both the match funding and the structural funds money must be cumulated - to comply with the limits under the State aid rules, not the structural funds limits. Structural funds maximum intervention limits only apply to projects where the funding is not State aid.
For example, structural funds are to be provided to an investment project to be undertaken by a small company. The public authority granting the match funding determines that this constitutes State aid and decides to provide it under the SME Block Exemption. This means that the maximum amount of aid that can be given, outwith an Assisted Area, will be 15% of eligible costs. This percentage must also include the ESF money. Private funding should not be included in this percentage.
Scope to award State aid
The European Commission recognises that in certain circumstances the provision of State aid can play an important role in promoting economic and social development. It has, therefore, laid down guidelines and frameworks which it uses to assess the compatability of proposed aid measures with the common market.
The guidelines and frameworks are listed below, and more information is available on the Commission's Competition website. The Commission's texts can be lengthy and complex and you may prefer to contact the State Aid Unit for assistance in the first instance or visit our website at www.stateaidscotland.gov.uk
Even if proposed aid schemes are in line with the Commissions's guidelines and frameworks, all schemes must still be notified to the Commission for approval - unless they comply with one of the block exemptions below, when only summary information needs to be submitted.
Cumulation of aid
If an enterprise is receiving aid from several sources, this aid must be cumulated. The total amount of aid received by a recipient in respect of a single project must not breach the appropriate aid ceilings listed below.
Where expenditure eligible for funding under one approved scheme is also eligible for aid for other purposes, the most favourable ceiling will apply, but cannot exceed the maximum limit.
The various guidelines and frameworks contain the same basic rule on cumulation. No aid from 2 or more sources may be received for the same underlying costs or expenditure (i.e. no double assisting).
Guidelines & Frameworks
The Guidelines on National Regional Aid lay down what the Commission see as permissible aid for projects in Assisted Areas.
http://eur-lex.europa.eu/LexUriServ/site/en/oj/2006/c_054/c_05420060304en00130044.pdf
Services of General Economic Interest (SGEI) Framework - for notifying aid which does not comply with the conditions in the SGEI Block Exemption
http://eur-lex.europa.eu/LexUriServ/site/en/oj/2005/l_312/l_31220051129en00670073.pdf
Framework for Research and Development and Innovation.
http://eur-lex.europa.eu/LexUriServ/site/en/oj/2006/c_323/c_32320061230en00010026.pdf
Guidelines for Environmental Protection.
http://eur-lex.europa.eu/LexUriServ/site/en/oj/2001/c_037/c_03720010203en00030015.pdf
Guidelines for Rescue and Restructuring firms in difficulty.
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52004XC1001(01):EN:HTML
Guidelines to promote risk capital investment in SMEs.
http://eur-lex.europa.eu/LexUriServ/site/en/oj/2006/c_194/c_19420060818en00020021.pdf
State aid rules for measures relating to direct business taxation.
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31998Y1210(01):EN:HTML
Sale of land and buildings by public authorities.
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31997Y0710(01):EN:HTML
Block Exemptions
Block exemptions make it easier to grant certain types of State aid which the EC considers to have an overridingly positive effect within the common market. The block exemptions enable aid for training, aid to SMEs and aid for employment. The Commission has also a SGEI Block Exemption and Regional Aid block exemption.
The State Aid Unit can give you information on the block exemptions, or you can visit the Commission website at http://ec.europa.eu/comm/competition/state_aid/legislation/legislation.html
When awarding aid under a block exemption, there is no need to go through the formal notification process, as long as the aid scheme fully complies with the conditions in the relevant block exemption. Instead, summary information about a new scheme should be submitted to the Commission via the State Aid Unit. There are already some schemes running in Scotland under the block exemptions which are detailed earlier in this document.
Notification and approval procedure:
STEP 1
Consider whether a policy or project proposal involves State aid
STEP 2
Where no appropriate approved scheme, or block exemption exists, make early contact with the State Aid Unit - or the State aid contacts for transport, agriculture or fisheries- to discuss the way forward. Notification of a new State aid scheme or amendments to an existing scheme may be possible
STEP 3
Prepare the formal notification (standard format) in liaison with the State Aid Unit
STEP 4
Notification is submitted from the State Aid Unit to DBERR (State aid is a reserved matter), onto UK Permanent Representation to the European Union, and then to the Commission
STEP 5
Commission considers the proposals - in virtually all cases they will seek further information
STEP 6
The aid scheme is approved or rejected. The Commission may have imposed conditions where a scheme is approved
Key points to remember:
Local Authority Approved Schemes in Scotland
Property Support Scheme
(XS/51/2007) & (XR/05/2007)
Scope:
The purpose of this scheme is to support the development of premises and buildings for commercial purposes by the private sector. This support can be provided in situations where there is, in the view of the granting authorities, a “market failure”.
Within Assisted Areas, the scheme will provide scope for firms of all sizes to undertake both speculative and bespoke property developments.
When operating outside the areas covered by the Assisted Areas Map, aid will be limited to speculative development projects, in which the developers are SMEs and to bespoke development projects by all sizes of firms, where the end-users are SMEs. In the specific situation in non-assisted areas where the grant exceeds the gap funding amount established by a Chartered Surveyor, both the developer and the final user shall be an SME.
Eligible Costs:
Eligible costs under this scheme will be the price of the land, the cost of construction and infrastructure, the finance charges, the development fee and professional fees (such as legal expenses, design fees) when directly and exclusively related to the project. A development fee is not permitted where the developer is the owner or occupier of the property or land.
Maximum Aid Intensities:
Each award will respect the relevant aid intensity ceilings stipulated in either of the following, depending on the location and status of the aid recipient. The aid will be calculated as a percentage of eligible expenditure. The aid intensities shall not exceed the following limits.
|
|
|
Size of Enterprise: | ||
|
|
Area |
Large |
Medium |
Small
|
|
1. |
Statistical Effect Areas (Highlands and Islands) |
30% |
40% |
50% |
|
2. |
Article 87 (3) (c) areas – Group (a) below |
15% |
25% |
35% |
|
3. |
Article 87 (3) (c) areas – group (b) below |
10% |
20% |
30% |
|
4. |
Non Assisted Areas |
- |
7.5% |
15% |
|
(a). |
Wards designated as Assisted Areas within Clackmannanshire, Dundee City, East Ayrshire, East Dunbartonshire, Falkirk, Fife, Glasgow City, Inverclyde, North Ayrshire, North Lanarkshire, Renfrewshire, South Lanarkshire, Stirling and West Dunbartonshire.
|
|
(b) |
Wards designated as Assisted Areas within South Ayrshire. |
See ANNEX B for Assisted Areas Map.
Other Conditions:
Sectoral Restrictions
The scheme will primarily be aimed at the property development sector, but may be used to aid bespoke property developments for companies in other sectors. The scheme will not apply to the following sectors:
Fisheries and aquaculture
Shipbuilding
The coal industry
The steel industry
Synthetic fibres
Activities linked to the primary production of agricultural products as listed in Annex 1 of the Treaty.
See ANNEX C for list of Annex 1 goods.
Aid should be the minimum necessary for the selected property development projects to go ahead.
Prior to any offer of aid, an appraisal of the estimated costs will be made on behalf of the granting authorities by a Chartered Surveyor who is independent of the beneficiary.
Historic Environment Regeneration Scheme
(N/356/2006)
Scope:
The scheme aims at promoting heritage conservation. Eligible projects are ancient scheduled monuments, registered historic parks and gardens, listed historic buildings and designated conservation areas.
Eligible Costs:
Costs relating to the repair, restoration and rehabilitation of an eligible project.
Maximum Aid Intensities:
There are no restrictions on who could be the recipient under the scheme, except that the beneficiary must be the owner of the aided structure. The aid takes the form of a direct grant for the repair, restoration and rehabilitation of an eligible project of up to 100% of the eligible costs.
Other Conditions:
The grant under this scheme may be cumulated with other forms of public financing, but never more than the total relevant costs of the work and is limited to the minimum amount necessary to complete the works.
Partnership Support for Regeneration
(N293/2006)
Scope:
The scheme aims at increasing the stock of housing available for owner-occupation in areas where this is useful from a social and regeneration perspective.
Maximum Aid Intensities:
The maximum amount of grant will not exceed 60% of project costs.
Other Conditions:
Cumulation of aid with any other form of public support towards the same eligible costs is ruled out under the scheme.
All projects proposed for grant funding must be shown to contribute to the regeneration bodies’ regional economic strategies. The projects chosen will widen the choice of housing available to those who wish to become owner-occupiers/rental occupation, either in areas dominated by public sector housing areas or in areas where individuals on low incomes are excluded from owner occupation.
Support for Land Remediation
(N221/2006)
Scope:
The objective of the Scheme is to bring contaminated land, brownfield land and derelict land back into productive use by addressing the detrimental effects of previous usage.
Eligible Costs:
Two types of aid instruments are possible: “Dereliction Aid Grants” and “Relocation Aid Grants”.
The eligible costs for Dereliction Aid Grant will be equal to the cost of the work less the increase in the value of the land. In the case of submeasure (b) for land on which there are buildings, structures or works that are derelict or otherwise unsuitable for any new use and submeasure (c) for land damaged from or suffering risk of subsidence, eligible costs will be deemed to include a reasonable level of profit.
In calculating the eligible costs, for Relocation Aid Grant the following will be included:
– The market or actual value of the new site;
– The construction or purchase of a new plant which has the same capacity as the abandoned plant;
– Any penalties imposed on the undertaking as a result of early termination of a contract for the renting of land or buildings.
The following will be deducted when calculating the eligible costs:
– The yield from the sale or renting of the plant or land abandoned;
– The compensation paid in the event of expropriation;
- Any other gains which result from the transfer of the plant such as an improvement of the technology used or accounting gains associated with better use of the land.
Maximum Aid Intensities:
For Dereliction Aid Grants the applicable aid intensity will be up to 100% of the eligible costs. In the case of sub-measure (a) for polluted industrial sites, a bonus of 15% of the cost of the work may be added. The total amount of aid will in no case exceed the actual expenditure incurred in the remediation
For Relocation Aid Grants the applicable aid intensity will be up to 30% gross of the eligible costs. Where the relocation is carried out by small or medium-sized enterprises, an increase of 10 percentage points may be authorised.
Other Conditions:
All valuations of land or property will be undertaken by an independent Chartered Surveyor and in accordance with the standards of the Royal Institution of Chartered Surveyors.
Relocation Aid Grants – this is complementary to the Dereliction Aid Grant and it will support the relocation of businesses established in an urban area or in a Natura 2000 designated area which lawfully carry out an activity that creates major pollution and must move to a more suitable area.
Block Exemptions Support for SMEs
(XS/44/2001)
Scope:
Support for new investment by SMEs (Definition of small and medium-sized enterprises is detailed at Annex A).
Investment in tangible and intangible assets relating to:
Eligible Costs:
The ceilings shall apply to intensity of the aid calculated either as a percentage of the investment's eligible costs or as a percentage of the wage costs of employment created by the carrying-out of an investment (aid to job creation) or a combination thereof, provided the aid does not exceed the most favourable amount resulting from the application of either calculation.
In cases where the aid is calculated on the basis of the investment's costs, the eligible costs of tangible investment shall be the costs relating to investment in land, buildings, machinery and equipment. In the transport sector, except for railway rolling stock, transport means and transport equipment shall not be included in the eligible costs. The eligible costs of intangible investment shall be the costs of acquisition of the technology.
In cases where the aid is calculated on the basis of jobs created, the amount of the aid shall be expressed as a percentage of the wage costs over a period of two years relating to the employment created under the following conditions:
Based on Assisted Areas Map which can be seen at Annex B.
Maximum Aid Intensities:
Eligible costs are the regional aid limit + 10%.
Assisted Areas
The regional aid limit for large companies plus a 10% top up for SMEs (up to 30% maximum)
Non Assisted Areas
15 % for small companies.
7.5% for medium sized companies.
Highlands and Islands is a statistical effect area with RA limit of 30% until 2010.
Large individual aid grants
This scheme does not exempt an individual aid grant where one of the following thresholds is met:
(i) the total eligible costs of the whole project are at least €25,000,000 and in areas which do not qualify for regional aid, the gross aid intensity is at least 50 % of the ceilings.
(ii) in areas which qualify for regional aid, the net aid intensity is at least 50 % of the net aid ceiling as determined in the regional aid map for the area concerned; or
(iii) the total gross aid amount is at least €15,000,000.
Other Conditions:
It does not apply to activities linked to the production, processing or marketing of products listed in Annex I to the Treaty, or aid to export-related activities, namely aid directly linked to the quantities exported, to the establishment and operation of a distribution network or to other current expenditure linked to the export activity; or to aid contingent upon the use of domestic over imported goods.
Job creation shall be linked to the carrying-out of a project of investment in tangible or intangible assets. Jobs shall be created within three years of the investment's completion;
The investment project shall lead to a net increase in the number of employees in the establishment concerned, compared with the average over the previous twelve months; and
The employment created shall be maintained during a minimum period of five years.
Block Exemptions Support for Training
(XT/10/2006)
Scope:
Support for SMEs for training in all sectors,
Eligible Costs:
Eligible costs include trainer and trainee personnel costs, supplies, travel expenses, depreciation of equipment etc
Maximum Aid Intensities:
Non Assisted Areas Assisted Areas
Specific Training 35% 40%
General Training 70% 75%
The maximum intensities referred to above shall be increased by 10 percentage points if the training is given to disadvantaged workers.
Other Conditions:
‘Specific training’ means training involving tuition directly and principally applicable to the employee's present or future position in the assisted firm and providing qualifications which are not, or only to a limited extent, transferable to other firms or fields of work;
‘General training’ means training involving tuition which is not applicable only or principally to the employee's present or future position in the assisted firm, but which provides qualifications that are largely transferable to other firms or fields of work and thereby substantially improve the employability of the employee.
Block Exemptions Support for Consultancy and R&D
(XS/18/2006)
Scope:
Support for SMEs for consultancy and research and development
Eligible Costs:
Eligible costs for R&D comprise of personnel costs, costs of instruments, equipment, land and premises used solely and on a continual basis for the research activity, consultancy and equivalent services used exclusively for the research project, the purchase of patents and technical knowledge from outside sources.
Maximum Aid Intensities:
For Research and Development, aid can be loans, grants and guarantees; maximum rates are:
Fundamental Research 100%
Industrial Research 60%
Pre-competitive Development 35%
For services provided by outside consultants, aid shall not exceed 50 % of the costs.
Other Conditions:
The consultancy services concerned shall not be a continuous or periodic activity nor relate to the enterprises usual operating expenditure, such as routine tax consultancy services, regular legal services, or advertising.
De minimis aid
The European Commission considers that public funding to a single recipient of up to €200,000 (approx £130,000) over a 3 year fiscal period has a negligible impact on trade and competition, and does not require notification. This aid can be given for most purposes, including operating aid, and is not project-related.
This does not mean that all funding under the €200,000 ceiling should be counted as De minimis. It is strongly recommended to give even small amounts of aid under a specific approved scheme, or a block exemption, if possible, and to keep the De minimis cover as a back-up for when there are no other options.
Exclusions:
Administration:
Under EC regulation 1998/2006 (De minimis aid regulation) this is a De minimis aid. There is a ceiling of €200,000 (approximately £130,000) for all De minimis aid provided to any one firm over a 3-year period. Any De minimis aid awarded to you under this offer letter will be relevant if you wish to apply, or have applied, for any other De minimis aid. For the purposes of the De minimis regulation, you must retain this letter for 3 years from the date on this letter and produce it on any request by the UK public authorities or the European Commission. (You may need to keep this letter for longer than three years for other purposes.)
Annual Reporting
The European Commission requests, for State aid purposes, annual returns to monitor UK annual expenditure under State aid schemes for both Block Exemption (BE) and approved schemes.
Your responsibilities:
The SAU will collate the Scottish data from the stakeholders and pass this info on to DBERR, who collate data from the whole of UK and subsequently provides the UK Member State returns.
Social Enterprises
A social aim does not exclude a body from the State aid rules and therefore consideration must be given to State aid when aid is going to such bodies. It does not matter if the enterprise has a charitable status – it is what they do that counts.
There is no formal definition of undertaking. Both public and private bodies can be an undertaking. General definition "any entity involved in economic activity, irrespective of legal status" Charities, trusts, credit unions, housing associations etc. can all be caught by State aid rules.