STATE AID and the ERDF Investment for Growth &

Jobs Programme, 2014-20

(Roles, Responsibilities and Risks)

Stephen Moore

DETI European Support Unit

Objectives• What is State aid?

• Why is it important?

• Roles & Responsibilities.

• How do you assess whether State aid is present?

• What do you need to do if State aid is present?

Objectives

• What are the options?

• What can happen in cases of non compliance?

• Who will be responsible for checking State Aid compliance and what will they be checking?

• What support will be available to Councils?

What is State aid?Treaty on the Functioning of the European Union

Article 107(1)

“Save as otherwise provided in this Treaty, any aid granted by a Member State, or through State resources in any form whatsoever, which distorts, or threatens to distort competition, by favouring certain undertakings or production of certain goods, shall, in so far as it affects trade between Member States, be incompatible with the common market.”

Obvious State aid

• Grants

• Loans below a market rate of interest

• Loan guarantees

• Tax exemptions

• Sale of land or buildings below market prices

Less Obvious State aid

• Rent on public workspace at less than market rates

• Investments on terms private sector would not replicate

• Secondment of Civil Service or Public Authority staff

• Consultancy / Technical services paid for or subsidised by the State

Is State aid present?

• Is the beneficiary an undertaking?

– The Court of Justice has defined undertakings as ....

entities that are engaged in an economic activity,

.... regardless of their legal status and the way in which they are financed.

– Usually answered – yes

– If yes, State aid is present if the following 5 questions are all answered ‘yes’

Is State aid present?

1. Is there an intervention by the State or through State resources?

– Grants, loans, services for free, subsidised rents etc.

– Usually answered – yes

2. Does the intervention give the recipient an advantage?

– Is there any economic benefit which would not have been obtained under normal market conditions without the State intervention?

– Whenever the financial situation of an undertaking is improved as a result of State intervention, an advantage is present.

– Usually answered – yes

Is State aid present?

3. Is the intervention selective?– Usually answered – yes

– General measures, which are effectively open to all undertakings operating within a Member State on an equal basis are not selective.

– Material selectivity - the measure applies only to certain (groups of) undertakings or certain sectors of the economy in a given Member State.

– Regional selectivity – only measures whose scope encompasses the entire territory of the State escape the selectivity criterion. However, the reference system need not necessarily be defined within the limits of the Member State concerned and a measure favouring undertakings active in a part of the national territory should therefore not automatically be considered selective. The Azores Criteria

Is State aid present?

4. Is competition distorted or potentially distorted?– A measure granted by the State is considered to distort or threaten to

distort competition when it is liable to improve the competitive position of the recipient compared to other undertakings with which it competes.

– A distortion of competition is assumed as soon as the State grants a financial advantage to an undertaking in a liberalised sector where there is, or could be, competition.

– The fact that the local authorities assign a public service to an in-house provider does not as such exclude a possible distortion of competition.

– Usually answered – yes

Is State aid present?

5. Potential to affect trade between Member States? – Almost always answered yes – “post Leipzig Halle the bar is on the floor”

– An advantage granted to an undertaking operating in a market which is open to competition will normally be assumed to distort competition and also be liable to affect trade between Member States.

– Local support measures (Notion of aid paras 196 & 197) - if State support is granted to an activity which has a purely local impact, there may not be an effect on intra-EU trade, e.g. where the beneficiary supplies goods or services to a limited area within a Member State and is unlikely to attract customers from other Member States. The measure should have no - or at most marginal – foreseeable effects on cross-border investments in the sector or the establishment of firms within the EU's Single Market.

Local support measures?

• Germany - Städtische Projektgesellschaft "Wirtschaftsbüro Gaarden - Kiel" (SA.33149) – no aid – "Projektgesellschaft Kiel-Gaarden GmbH" is owned and run by

the City of Kiel. It provides, on a very small scale, free information, advisory and consultancy services to interested individuals, newly created firms and SMEs in order to increase the attractiveness and economic activity in Kiel-Gaarden. Its services are exclusively provided locally, in Kiel-Gaarden, which is a disadvantaged part of Kiel benefitting from urban development measures. In addition, the Commission found that there was no evidence of relevant cross-border investments for such services which provide basic advice to very small businesses in socially disadvantaged urban areas.

Local support measures?

• Germany - Städtische Projektgesellschaft "Wirtschaftsbüro Gaarden - Kiel" (SA.33149) – no aid – Wirtschaftsbüro Gaarden = Economy Office Gaarden– Gaarden is a District of the City of Kiel– Location of Kiel’s three shipyards - just one remains– High unemployment– Low incomes– Extreme social problems– 42% of population receive benefits– 44.4% with a ‘migration background’– 20% turnout in Mayoral elections

Local support measures?

If State aid is present

• Can scheme be redesigned so State aid isn’t present?

– Important to seek advice from your legal advisors

– Local support measure?

• Does scheme fit within one of the General Block Exemption Regulation exemptions?

• Is the amount of State aid small? (i.e. Is the de minimis regulation is an option?)

• If a full notification has to be submitted – don’t waste time.

What is the GBER?

• GBER – General Block Exemption Regulation

• COMMISSION REGULATION (EU) No 651/2014 of 17 June 2014

• Exempts State aid from the full notification procedure

• GBER aid still has to be notified, but the process is straightforward and quick as EC does not assess the aid

• 2013, 60% of NI State aid falls under the GBER

• 2015, est. 80% of NI State aid will fall under the GBER

What is the GBER?

• Main exemption regulation

• Section 1 — Regional aid (i.e. Aid for Assisted Areas)

• Section 2 — Aid to SMEs

• Section 3 — Aid for access to finance for SMEs

• Section 4 — Aid for R&D&I

• Section 5 — Training aid

• Section 6 — Disadvantaged and disabled workers

• Section 7 — Aid for environmental protection

What is the GBER?

• Main exemption regulation

• Section 8 — Aid for certain natural disasters

• Section 9 — Transport for residents of remote regions

• Section 10 — Aid for broadband infrastructures

• Section 11 — Aid for culture and heritage conservation

• Section 12 — Aid for sport & multifunctional recreational infrastructures

• Section 13 — Aid for local infrastructures

What is the de minimis regulation?

• Very small amounts of aid have only negligible effects on competition and trade between Member States.

• EC concluded such very small amounts of aid to a single undertaking (below a specified cumulative ceiling) do not have to be notified for approval.

• Current ‘industrial’ de minimis regulation - Commission Regulation (EC) No 1407/2013 of 18 December 2013

• Ceiling €200k, per single undertaking, over any period of 3 years

What if I have to fully notify?

• Start as soon as you can and don’t waste time.

• SA.36290 – NI gas pipeline extension (DETI)pre-notified 6 March 2013, EC decision 10 July 2014

• SA.37342 – Regional Stadia - Windsor, Casement and Ravenhill (DCAL)pre-notified 5 September 2013, EC decision 9 April 2014

• SA 34140 – NI Renewable Heat Initiative (DETI)pre-notified 10 May 2012, EC decision 12 June 2012

Notification processes• Procedural Regulation

• SANI – State Aid Notification Interactive

• Pre-notification

• Formal notification

• Standstill

• Commission decision

• Simplified procedure (time extensions, budget increases)

Non-compliance• Any irregular State aid may be ruled ineligible for ERDF

co-financing

– De minimis declarations

– GBER conditions (incentive effect assessed correctly, aid intensities correct for size of company, eligible costs as per GBER articles, definitions correctly understood etc)

• Annual monitoring by EC – Koopman letter

• All illegal State aid has to be recovered from the beneficiary by the Member State

Non-compliance• Gdynia airport – funding granted by the municipalities of Gdynia and

Kosakowo gave Gdynia airport an undue economic advantage over its competitors – “To re-establish the situation that existed in the market prior to the granting of the aid, Gdynia airport has to pay back this undue advantage amounting to EUR 21.8 million .”

• 27 March 2015 - British Aggregates Levy - exemption for shale and spoil for shale extraction not justified - “As a result, the beneficiaries of the exemption for shale and spoil for shale have received an undue advantage that they now have to pay back.”

Non-complianceMargrethe VestagerJob – DG Comp Commissioner Nickname - The Enforcer

State aid - Roles and Responsibilities• DETI

– Advice & awareness– Monitor & report– 2nd level Article 125 checks (Managing Authority)

• Invest NI– 1st level Article 125 checks

• Councils– Assess whether State aid present– Decide best means of State aid cover (de minimis, GBER etc.)– Prepare notification documentation (if necessary)– Adhere to requirements of EC Regs (de minimis declarations)– Maintain records - for 10 years in case of State aid

State aid support & training

• DETI will provide advice on first project

• Training providers

– European Institute of Public Administration (Maastricht)• http://seminars.eipa.eu/

– Lexxion Training (Brussels)• http://www.lexxion.eu/training/state-aid

– European Academy (Berlin)• http://www.euroacad.eu/events/range/state-aid.html

State aid support & training

http://ec.europa.eu/competition/state_aid/overview/index_en.html

Further Information

DETI European Support Unit

Stephen Moore

Tel: 028 9052 9415

email: stephen.moore@detini.gov.uk