Regulation automatically approving aid for jobs and growth - guide

07 July 2008
by eub2 -- last modified 07 July 2008

The European Commission has adopted a Regulation, which will come into force in the coming weeks, giving automatic approval for a range of state aid measures and so allowing EU Member States to grant such aid without first notifying the Commission. The Regulation authorises aid in favour of SMEs, research, innovation, regional development, training, employment and risk capital. The Regulation also authorises environmental protection aid, aid measures promoting entrepreneurship, such as aid for young innovative businesses, aid for newly created small businesses in assisted regions, and measures tackling problems, like difficulties in access to finance, faced by female entrepreneurs. As well as encouraging Member States to focus their state resources on aid that will be of real benefit to job creation and Europe's competitiveness, the Regulation reduces the administrative burden for public authorities, the beneficiaries and the Commission. This new General Block Exemption Regulation (GBER) consolidates into one text and harmonises the rules previously existing in five separate Regulations, and enlarges the categories of state aid covered by the exemption. It will take effect 20 days after publication in the Official Journal, allowing Member States to grant better targeted aid immediately.

What is the purpose of the General Block Exemption Regulation (GBER)?

The GBER simplifies the treatment of state aid measures clearly favouring job creation and boosting competitiveness, i.e. the objectives promoted by the Lisbon agenda, and measures in favour of SMEs, in line with the Small Business Act recently adopted by the Commission. In so doing, the Commission encourages Member States to shift existing aid budgets towards "better targeted" aid that is of real benefit to the European economy and society as a whole. The 26 state aid measures which fulfil the conditions laid down in the GBER are considered to be compatible with state aid rules without requiring prior notification to the Commission, as would otherwise be foreseen by the EC Treaty. This significantly reduces the administrative costs for the beneficiary, the Member State and the Commission. It should also allow the Commission to focus its attention on the most distortive types of aid.

The number of block exempted measures has nearly tripled compared to the existing regulations. There are now 26 support measures covered by the GBER, as compared to only 10 in the 4 existing regulations.

Moreover, for a series of aid measures covered by existing instruments, the Commission has substantially increased the aid intensities and the notification ceilings. This means that higher amounts of SME investment aid, training aid, and employment aid, amongst others, can be granted as compared to the past.

The GBER also contains a series of conditions which aim to ensure that the aid measures will indeed lead the beneficiary to undertake a project or activity which he would not have engaged in without the aid (incentive effect). The Regulation should also lead to increased transparency as compared to the existing block exemption Regulations (BER). This should allow third parties and other interested parties, like national judges, to have a better view whether aid has been granted and, if so, which conditions have to be fulfilled for the aid to be compatible.

What is a block exemption Regulation?

In a block exemption Regulation, the Commission declares that certain categories of state aid are compatible with the Single Market and shall not be subject to the requirement of prior notification laid down in Article 88(3) of the EC Treaty. Consequently, Member States may implement state aid measures which fulfil the conditions of the Regulation without having gone through the notification procedure.

The substantive conditions imposed by the GBER often correspond to requirements laid down in Community frameworks and guidelines: it determines eligible beneficiaries, sets maximum aid intensities, defines eligible expenses and may include additional conditions for certain aid measures. The content of these conditions is inspired from the practical experience gained by the Commission, especially through the application of pre-existing frameworks and guidelines. Relevant experience is drawn, inter alia, from the recently adopted guidelines on State aid for environmental protection, the risk capital guidelines and the Framework on R&D&I. The conditions imposed by the GBER must be as straightforward as possible because the text will be applied directly by numerous national administrations in all Member States including, in case of litigation, national judges.

The fact that a state aid measure is not covered by the GBER does not imply that it is going to be prohibited by the Commission: measures falling outside the scope of the GBER will merely remain subject to the standard obligation of prior notification to the Commission. The objectives and effects on competition of such measures will be assessed, by the Commission, on the basis of guidelines, frameworks and other instruments.

How does the GBER contribute to the Small Business Act?

The Small Business Act adopted by the Commission on 25/6/2008 states that European SMEs deserve to be better assisted to fully unlock their potential of long term sustainable growth and of more job creation. In line with the "Think Small First Principle", the GBER simplifies procedures and reduces costs most prominently for SMEs. It increases the aid intensity for SMEs and makes it easier for SMEs to benefit from aid for training, research and development, environmental protection and innovation.

Specific provisions will allow SMEs to benefit from investment aid, aid for young innovative enterprises, aid for paying consultancy services, aid contributing to industrial property costs, aid in the form of risk capital and aid for adapting to new environmental Community standards, to name just the most prominent ones.

Finally, the GBER includes a series of simplified requirements in favour of SMEs. SMEs will benefit, for instance, from more straightforward regarding the condition of incentive effect and the qualification as "undertakings in difficulty".

In what way will the GBER simplify state aid rules?

One of the main objectives of the reform of state aid rules, set out in the State Aid Action Plan in 2005 is to create a simple, user-friendly and coherent set of legislative rules applying to those types of aid which can be considered to fulfil the conditions of compatibility outlined in Article 87(3) of the EC Treaty. Simplification can best be achieved with the adoption of "block exemptions" exempting Member States from the obligation of prior notification of the aid to the Commission. The categories of aid which may be included in such a block exemption are determined in the Enabling Regulation of the Council.

In this framework, the GBER incorporates into a single text a series of existing block exemption Regulations adopted since 2001: investment aid for SMEs, research and development aid in favour of SMEs, aid favouring employment, training aid and regional aid.

In addition, the Commission integrated into the GBER five types of aid which had so far not been block exempted, but which feature highly in the Commission's agenda for growth and jobs, the revamped Lisbon agenda: aid favouring environmental protection, aid in the form of risk capital, research and development aid for large companies, innovation aid, aid for newly created small enterprises and aid for enterprises newly created by female entrepreneurs. The exemption conditions for these categories are largely inspired by the requirements of the guidelines and frameworks adopted, since 2006, by the Commission.

Moreover, in line with the Commission's "Better Regulation" agenda, the GBER harmonises a large number of horizontal aspects applying to the different aid areas concerned. A common horizontal chapter therefore contains, amongst others, common definitions of standard concepts, common requirements as regards the transparency of aid, shared provisions requiring the aid to have an incentive effect, a comprehensive overview of the sectoral exclusions applying to the different types of aid and uniform requirements as regards monitoring.

With a view to stimulating an open and transparent debate, three different draft versions of this regulation have been discussed with Member States and other stakeholders since April 2007. The results of these consultation rounds are available on the Commission website.

As announced in the State Aid Action Plan, the Commission will step up its monitoring of the compliance by Member States of conditions laid down in state aid decisions, including the respect of the provisions of the GBER.

What are the basic rules of state aid policy?

State aid policy is one of the three main pillars of EU competition policy. State aid control stems from the need to maintain a level playing field for all companies active in the Single Market, irrespective of the Member State in which they are established. State aid control also contributes to avoiding contests between Member States where they try to outbid each other to attract investment. Preserving competitive markets is the best way for European citizens to get the products they want at competitive prices, and to foster innovation and growth.

The EC Treaty (Article 87) prohibits any aid granted by a Member State in any form whatsoever which distorts competition by favouring certain firms or the production of certain goods where such aid affects trade between Member States. A number of exceptions are allowed. However, all state aid measures need to be notified by the Member States to the Commission prior to their implementation (article 88), unless they are covered by a block exemption Regulation. The Commission has the exclusive competence to declare such aid compatible with the EC Treaty.

Does the GBER constitute a relaxation of state aid rules?

No. The GBER does not alter the fundamental architecture of state aid control: Member States remain obliged to notify all state aid to the Commission prior to its implementation, unless is covered by the GBER. However, the Regulation significantly reduces the bureaucratic burden with respect to those aid measures which, upon notification, would anyhow have been approved by the Commission on an individual basis. This fits both into the Commission's "better regulation and simplification" agenda, and into the Commission's agenda to promote "Less and better targeted aid". The GBER facilitates the possibilities for Member States to grant subsidies that clearly fulfil horizontal objectives in line with the European Union's Lisbon objectives and with the Commission's Small Business Act (such as environmental protection, promotion of research and development and entrepreneurship).

B. THE AID MEASURES PROMOTED BY THE GBER

What measures are included in the GBER?

• Small and medium-sized enterprises (SME) aid: Small and medium-sized businesses are one of the main driving forces in the economy and a major source of job creation, but they often face specific difficulties, like problems of access to finance. The regulation therefore allows, beyond the categories of aid available for all enterprises, different types of aid to SMEs to help them overcome market failures: aid for setting up new companies, aid for investments in machines or for hiring additional workers, aid in the form of risk capital, innovation aid, aid contributing to intellectual property rights costs, aid for adapting to new environmental Community standards or aid for environmental studies. This should allow Member States to subsidise SMEs in their different development stages. The GBER also contains more favourable rules than its predecessors as regards business succession from current owners to family members or employees.

In this respect, the GBER constitutes an important contribution to the Small Business Act adopted by the Commission in June 2008. Indeed, all of the 26 categories of aid provided in the regulation can be provided to SMEs. To the extent such categories are also available to large companies, SMEs will benefit from a special top-up (10 % for medium-sized companies and 20 for small-sized companies).

• Social aid: Beyond aid allowing subsidising employees working on new investments in SMEs or in assisted regions, the GBER approves aid that helps disabled or otherwise disadvantaged workers to find mainstream jobs. It also allows compensating, to the extent they constitute state aid, additional costs (special facilities for employees with wheelchairs, or information technology for visually impaired workers) incurred by companies when hiring disabled workers. The Regulation also favours aid for training workers, to the benefit of both employers and employees. Last but not least, in order to ensure a better work life/family life balance, the GBER now foresees the possibility to subsidise employers for as regards child care and parent care costs incurred by their employees, including, in certain circumstances, costs relating to parental leave.
• Regional aid: The GBER also constitutes an important contribution to the Community's cohesion objective. The Regulation allows amounts up to €37 million of regional investment aid to be granted. Such aid should encourage the creation of large scale new industrial establishments in the most disadvantaged regions. In assisted regions, aid for newly created small scale start-ups is also allowed in order to stimulate local entrepreneurial initiatives.
• Environmental aid: The Regulation facilitates authorities granting an important number of aid measures favouring environmental protection or tackling climate change, in line with the Commission's Climate Action adopted in January 2008: such measures include, amongst others, investments in energy savings, investments in renewable energy sources and aid in the form of environmental tax reductions. The measures which are being promoted remain subject to a series of conditions in order to guarantee their positive environmental effect. These conditions are largely inspired by the recently adopted guidelines on state aid for environmental protection. A notable difference between the guidelines and the GBER is however that the GBER generally foresees a simplified cost calculation methodology.
• Aid for Research & Development (R&D): The Regulation includes authorisations for a range of measures including, most prominently, aid for R&D projects and aid for realising technical feasibility studies. Moreover, specific measures allowing reducing SMEs costs for industrial property rights, like patents, have been included, in line with the R&D&I Framework. These initiatives are in line with the Community's objective to become a more knowledge-based economy.
• Innovation aid: Beyond the more traditional categories of R&D aid, the GBER also includes a series of innovation measures whose conditions were considered sufficiently straightforward to be included in a Regulation with direct effect: aid for young innovative enterprises, aid for innovation advisory services and for innovation support services, as well as aid for hiring highly qualified personnel. Such aid should allow SMEs to become more competitive in the context of heightened international competition.
• Aid for promoting women entrepreneurship: The average rates of business start-ups by women are lower as compared to men. This is an obstacle to the economic development of the EU. The Regulation includes therefore, for the first time, measures in favour of child care and parent care costs. This should contribute to employees and entrepreneurs achieving a better work life / family life balance. Moreover, the GBER allows Member States to support, both in assisted and non-assisted regions, the creation of small enterprises owned and run by women. This will allow women entrepreneurs overcoming specific market failures which they face, especially when setting up a first business, thereby promoting substantive rather than formal equality between men and women in this area.

What are the major differences between the existing block exemption Regulations and the new general block exemption Regulation?

• As regards regional aid, the GBER integrates the BER or regional investment aid (Commission Regulation n° 1628/2006, with only a limited number of small-scale changes. These changes relate essentially to the condition of incentive effect and to the inclusion of child care and parent care costs in the eligible costs basis. Schemes put into place by Member States before the entry into force of the GBER, in line with BER 1628/2006, will be allowed to be implemented unaffected until 2013. In addition, the GBER now exempts aid for newly created small enterprises in assisted regions; in line with the conditions already foreseen in the national regional aid guidelines adopted by the Commission in 2006.
• For investment and employment aid for SMEs, the major change as compared to Commission Regulation n° 70/2001 lies in the increase of the applicable basic aid intensity from up to 15% for small and 7.5 % for medium-sized enterprises to 20% for small and 10% for medium-sized enterprises. Moreover, the notification ceiling has been substantially increased, now allowing Member States to grant aid up to €7.5 Million. Moreover, the Regulation contains an important number of simplifications for SMEs regarding, for instance, the condition of incentive effect and the definition of "undertakings in difficulty", which are in line with the "Think Small First Principle" promoted by the Small Business Act.

- No environmental aid was previously included in any BER. The GBER therefore constitutes a first in that it allows Member States to provide environmental aid – including certain environmental tax reductions – without the obligation of prior notification to the Commission. The conditions imposed by the GBER are based on the requirements laid down in the recently adopted guidelines on state aid for environmental protection. The GBER provides however for simplified cost calculation method as compared to the guidelines: it essentially allows disregarding operating benefits when providing environmental investment aid. This should facilitate Member States tackling environmental challenges, including the challenges of climate change by means of well-targeted subsidies.

• The GBER also includes, for the first time, aid in the form of risk capital. The conditions for this type of aid are inspired from the risk capital guidelines adopted by the Commission in 2006. This extension intends to encourage Member States to use aid in the form of risk capital more intensively.
• The GBER provisions concerning aid for research, development and innovation are inspired from the new Framework for Research, Development and Innovation which entered into force on 1.1.2007. Aid for research and development in favour of SMEs was already exempted under BER 364/2004, but is new extended also to the benefit of large companies. Moreover, the previous BERs did not include any innovation measures. The extension intends to encourage Member States to assist SMEs in becoming more competitive and to grow by means of increased emphasis on innovative products and processes.
• The GBER provisions relating to training aid largely build upon the provisions of the existing training aid BER (Commission Regulation n° 68/2001). However, the new text allows for a higher basic aid intensity to be provided in favour of general training for employees (increase from 50 % to 60%). Moreover, the applicable notification threshold has been doubled to €2 million, allowing for higher aid amounts to be granted.
• The existing rules concerning employment aid, previously contained in the so-called employment BER (Commission Regulation n° 2204/2002) have been clarified and simplified in the GBER. The Regulation includes substantially increased aid possibilities in favour of disabled workers, with higher aid intensities (increase from 60 to 75 %) and a notification ceiling which has doubled (€5 million/year to €10 million/year). The GBER also allows for the salary of severely disadvantaged workers to be subsidised for an increased period of two years. Overlaps between employment aid with other types of aid, mainly with regional aid and SME investment aid have been removed.

How does the GBER promote women in business?

The Commission has reviewed the possibility of market failures in the creation of businesses by particular categories of persons. It is, at this stage, in a position to conclude that women have lower than average rates of business start-ups as compared to men. This is confirmed both by Eurostat data^[7] and studies realised both at national and at European level. This is an obstacle to the further economic development of the EU.

The GBER therefore includes, for the first time, a specific provision for Member States' aid for helping women in setting up a business. Member States are allowed to support, both in assisted and non-assisted regions, the creation of small enterprises owned and run by women. This will allow women entrepreneurs overcoming specific market failures, including, most prominently, difficulties in accessing finance. Such positive action in favour of women entrepreneurship is a novelty at European level. It intends to promote substantive rather than formal equality between men and women in the area of self-employment. This approach is in line with the measures promoted by the Commission in the context of the Renewed Social Agenda presented on 2/7/2008.

In addition, the GBER includes, for the first time, child care and parent care costs as part of the eligible cost basis of a series of aid measures. This should allow Member States, in cooperation with employees and other social partners, to contribute to employees and entrepreneurs achieving a better work/life balance.

Which types of aid are excluded from the scope of the GBER?

Existing block exemption Regulations (BER) and state aid guidelines exclude certain industrial sectors from their scope of application. This is generally due to specific economic features of the sector, like, for instance, the declining nature of an industry, the overcapacity of the sector or the fact that certain sectors - like primary agricultural production or fisheries - remain subject to rules for a common organisation of the market at European level. The GBER contains a consolidation and simplification of all of these sectoral exceptions. Those exceptions apply essentially to the following sectors: the fishery and aquaculture sectors (subject to their own specific block exemption, the agricultural sector, the coal sector, the shipbuilding sector, the steel sector and the synthetic fibres sector.

The GBER also excludes aid to undertakings which are subject to an outstanding order from the Commission to recover incompatible aid already granted. This is in line with the case-law of the Court of Justice (Deggendorf). This limitation, in line with the State Aid Action Plan, is to ensure proper enforcement of state aid rules by reinforcing the effectiveness of recovery orders.

The GBER also completely excludes companies in difficulty from its scope of application. Indeed, according to the Commission's policy, any aid provided to such a company has the character of rescue and restructuring aid. Such aid measures should thus, as a matter of principle, be examined exclusively under the Community guidelines on state aid for rescuing and restructuring firms in difficulty.

However, in order to facilitate Member States' assessment regarding the question whether or not a beneficiary is to be considered as being in difficulty, the GBER provides for a simplified definition. This simplification applies purely for the purposes of the GBER and does not affect the interpretation to be given to the definition of "enterprises in difficulty", when applying the rescue and restructuring guidelines.

Does the GBER apply regardless of the amount of aid?

No. The GBER contains so-called ceilings for individual notification. This means that aid measures exceeding these ceilings still have to be notified to the Commission individually in order for the Commission to analyse their effects on competition and contribution to the common interest. The GBER has largely simplified the application of these ceilings, but individual notification obligations persist beyond those ceilings. For instance, aid favouring environmental investment amounting to more than €7.5 million will need to be notified to the Commission before being granted.

The increased level of these ceilings confirms the objective of the Commission to focus its attention on state aid cases implying serious risks for competition and trade. By contrast, a higher number of comparatively small cases will be exempted from notification because it is assumed that the overall balance of the effects of these subsidies is positive for the Community.

The GBER is published on the website of the Commission.

Source: European Commission