Original publication: February 2018
Author: NICOLAIDES Phedon, College of Europe and University of Maastricht
Short link to this post: http://bit.ly/2F60Zb9
This study explains how the concept of state aid applies to operations co-financed by European
Structural and Investment Funds (ESIF), considers how state aid rules interact with the ESIF rules which are laid down in the Common Provisions Regulation (CPR) and proposes adjustments to facilitate the implementation of ESIF-supported projects in compliance with state aid rules. In addition, the study examines the differences and the related challenges and difficulties in the application of state aid and ESIF rules to projects for research, development and innovation (RDI) and financial instruments.
State aid is not normally allowed in the European Union because it distorts competition in the internal market. State aid is only exceptionally allowed when it supports well-defined public policy objectives.
A public measure constitutes state aid when it uses state resources to confer a selective advantage to enterprises in a manner that affects cross-border trade. Resources from ESIF are considered to be state resources when they are managed by a Member State public authority. ESIF rules require compliance with EU state aid law.
When support from ESIF contains state aid, managing authorities have only two options: grant it in conformity with the provisions of a “block exemption regulation”, or grant it after they notify it to the Commission and obtain its authorisation. Managing authorities also have the possibility of granting small amounts of aid – the so-called “de minimis” aid – which, legally, does not constitute state aid in the meaning of Article 107(1) TFEU.
Among others, ESIF provide support to RDI and risk finance for SMEs. Member State measures co-financed by ESIF can be designed to be free of state aid:
- Public funding of RDI is free of state aid when it supports universities in their normal educational and research missions which do not constitute economic activities.
- Public funding of financial instruments is free of state aid when investments are made on market terms.
However, public funding that supports RDI which is economic in nature or supports investment in SMEs in order to remedy market failure must be provided in conformity with state aid rules and procedures. Managing authorities need to distinguish between funding that may or may not constitute state aid.
Although the Common Provisions Regulation explicitly requires compliance with state aid law, it is not always easy for managing authorities to determine whether ESIF operations contain state aid and, if they do, how compliance may be achieved. For this reason, it is proposed that the future Common Provisions Regulation establishes a rebuttable presumption that direct or indirect ESIF support for enterprises constitutes state aid that must, in principle, conform with the “General Block Exemption Regulation”. The effect of such changes would be to make managing authorities and other implementing bodies more aware of the need to establish whether state aid is present in their operations and how to deal with it.
In addition, this study makes a number of proposals to facilitate the granting of state aid to projects supported by ESIF and/or to ensure compliance with what is required or prohibited by state aid rules. In particular, the study proposes that the revision of the Common Provisions Regulation in the future should consider the following:
- The definition of undertakings in difficulty (undertakings in difficulty are undertakings that have lost a significant amount of their capital and are likely to go out of business in the absence of state intervention). It would be easier for managing authorities to understand the concept of “undertakings in difficulty, if the definition currently used by the state aid rules was inserted in the revised CPR or a reference to the Commission Guidelines on Rescue & Restructuring Aid was cited.
- The definition of beneficiaries. A distinction should be made between beneficiaries which are public authorities or implementing bodies and beneficiaries which are undertakings that are the final recipients of aid. However, it is understood that this issue will be addressed in the forthcoming “omnibus” regulation.
- The lumping together of de minimis aid and state aid (Member States are asked to consider that de minimis aid is state aid for the purposes of the CPR). De minimis aid is legally not state aid and a clear distinction should be made to that effect. If managing authorities must report all aid they grant with public money, including de minimis aid, the revised regulation should make it explicit.
- The definition of economic operators. It should be made more explicit that an economic operator is an undertaking or any entity that carries out economic activities. A revised CPR may define “economic operator” as “any natural or legal person who receives assistance from the ESI Funds that constitutes state aid”.
- The categories of enterprises which may be supported by financial instruments. This categorisation is obsolete and should be deleted. It unnecessarily constrains managing authorities and bodies implementing financial instruments.
- The direct granting by managing authorities of loans and guarantees. State aid rules require that financial instruments which contain state aid must be implemented via financial intermediaries. If in the future ESI Funds are to be allowed to be used for loans and guarantees granted directly by managing authorities, the revised regulation should require that they are free of state aid.
- The use of state aid methods for the calculation of the maximum ESIF and Member State support. It should be made explicit that when ESIF support contains state aid, the ceilings imposed by state aid rules may not be exceeded. This restriction concerns in particularly revenue generating projects where special methods can be used only if public funding does not constitute state aid.
- Simplified cost options for state aid granted on the basis of block exemption regulations. Reference may be made to the recent adoption of corresponding simplified options in revisions of the block exemption regulations for state aid.
- The 10-year rule. It should be explicitly mentioned that documents concerning projects that have benefited from state aid must be kept for a minimum period of 10 years and that the period for recovery of incompatible state extends beyond that for financial corrections. Incompatible aid is recovered up to 10 years after the moment it was granted. Interest must always be charged on recovered state aid.
Although compliance with state aid rules is occasionally perceived as an obstacle to achieving the objectives of territorial and social cohesion, applying state aid principles to projects supported by ESIF can strengthen the assessment of the need for state intervention, minimise market distortions, prevent waste of public resources and, therefore, make cohesion policy more effective.
Link to the full study: http://bit.ly/602_011
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