New measures mean EU member states could grant more state aid with less European Commission scrutiny

Out-Law News | 23 May 2014 | 3:11 pm | 4 min. read

New measures published by the European Commission will enable firms to benefit from more and different kinds of aid without the aid having to be notified to the Commission in advance for approval. 

Under the new General Block Exemption Regulation (GBER), public bodies in Europe will now be able to grant state aid for a broader range of activities and higher amounts without their plans being subject to prior European Commission scrutiny. These include new categories of block-exemptable aid in the areas of research, development and innovation (RDI), innovation clusters, regional urban development funds, culture and heritage conservation and infrastructures for broadband, energy and sports and recreational projects. The new rules will enter into force on 1 July.

Revisions to the Commission's Framework for aid for research, development and innovation (RDI) will also provide significantly more flexibility and make it easier to demonstrate that the criteria for approval are met. The new rules will also enter into force on 1 July.

The Commission has also introduced new transparency requirement which says that a full and timely publication of all state aid above €500,000 will be a condition to their validity. Member states will have two years to put in place websites and appropriate systems to collect information.

The reforms are primarily designed to relieve the administrative burden on both the Commission and member states and to "increase legal certainty of aid for beneficiaries" said the Commission.

In the area of RDI large companies will be eligible for grants of up to 70% while smaller companies can apply for up to 90% of their applied research costs to be met under the revised rules which will also apply to the costs of prototyping and demonstration. Under the old rules, public bodies could fund only a maximum of 60% of such projects. Under the reforms, the level of funding which public bodies can give to experimental development projects without advance Commission approval will also double to €15 million per project and per beneficiary.

These new RDI measures are being introduced in revisions to the General Block Exemption Regulation (GBER) and the RDI Framework. While the GBER sets out the conditions under which RDI aid may be granted without prior notification to the Commission, the framework sets out the criteria the Commission will use to assess RDI aid subject to prior notification requirements. The measures   aim to "limit distortions of competition" due to RDI aid as well as boost Europe's RDI spending from its current 2% of gross domestic product (GDP) to 3% of GDP by the year 2020.

Announcing the new measures Commission vice president Joaquín Almunia, said: "These new rules will cut red tape for member states and encourage them to put in place smart aid measures which contribute to economic growth and do not harm fair competition. If Member States make full use of the possibilities for granting aid under the extended exemptions from notification, most aid measures could be immediately implemented, without prior approval from the Commission".

"Research and innovation are key for growth and the competitiveness of our European economy. However, highly innovative projects often carry high risks and may not be implemented due to funding gaps. The new framework will help to overcome such market failures and foster a smart use of public resources for research, development and innovation activities, in complement to private funding." said Almunia.

"In my view this constitutes an excellent example of what we might consider good state aid - state aid which contributes to a sustainable growth path by providing what the market fails to deliver on its own to improve competitiveness and productivity," said Alumunia. "With these new rules it will become easier for our EU governments to invest more, and more efficiently, in RDI. It will become easier to use state aid as a tool to mobilise private investment and this will mean that we will be able to unlock Europe's potential in this crucial area."

Competition law expert Jenny Block of Pinsent Masons, the law firm behind Out-Law.com, said: "Extending the categories of aid that can benefit from the general block exemption and simplifying the rules will be welcomed by industry. The applicability of the GBER is increasingly crucial to fit within a wide range of Government schemes and it is now generally the responsibility of the beneficiary company to self-assess and demonstrate to the awarding body that the GBER criteria are met."

"On the other hand, the greater transparency requirements may heighten the risks of challenge in certain cases," she said. "Also, despite the Commission's aim to bring greater clarity, there are still a number of grey areas."

Almunia said that increasing EU levels of RDI to 3% of GDP would bring it in line with the US and Japan. He attributed the EU's relatively low level of investment in these areas to "lower levels of private investment".

"Therefore these new guidelines will try to ensure that state aid is used to cover these financing gaps," Almunia said. "This way tax-payers money can be used in a more efficient way. They will mobilise with these resources private investment in projects that would otherwise not be implemented."

The new RDI Framework also provides more details on how member states can demonstrate the existence of a market failure, which is a condition for granting RDI aid, said the Commission. For example, the new text provides that "any available sectoral comparisons and other studies" can be employed by member states to prove a market failure.

In addition, the Commission said that there is "now a legal presumption of the necessity of aid for projects that are also EU co-financed".

According to the Commission, approximately 75% of today's state aid measures and approximately 66% of aid amounts will now be exempt from Commission notification under the revised GBER.

In a move the Commission said is designed to increase transparency of the process, member states will be required to set up a dedicated web-site on which they must details of each state aid award above €500,000. This should include the identity of the beneficiary, the amount and objective of the aid and the legal basis for the aid.

Almunia said: "Transparency promotes accountability and more effective policies. Member states will have to set up a dedicated website so that citizens and stakeholders can see which companies have received state aid, how much and for what purpose. This will help promote the good use of taxpayers' money".