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EUREKA / The regulation on state aid in the implementation of the Eurostars-2 Programme 1

The regulation of state aid in the implementation of the Eurostars-2

Programme

This document is designed for National funding agencies and describes the applicable rules regarding state aid in the implementation of the Eurostars-2

Programme

Brussels, 2015.


Introduction The question of state aids within the context of European Union’s programmes is complex since the EU legislator did not wish to deviate from the general rule of the prohibition of state aid (articles 107.1 of the TFEU) in the implementation of the programs and distribution of the funds of the EU to private beneficiaries. Hence, in the context of the implementation of the Eurostars-2 program, it is important to encompass the scope of the legislation and to determine in which case it is appropriate to draw attention of the relevant National funding bodies and targeted enterprises.

I. State aids a matter of concern for Eurostars-2 Under the Eurostars-2 program, a small or medium enterprise receives public aid from the state or a decentralised authority and occasionally a financial contribution from the European Union.

1. Categories of participating or partner countries to Eurostars-2 34 countries are participants or partners in the Eurostars-2 Joint Programme (article 4 of the Decision 553/2014). Based on this article, it is possible to distinguish:

- Members States of the EU that are “Participating States” (article 4.1) - Member countries of the EFTA 1 (including Iceland, Norway and

Switzerland) (article 4.1) - Turkey and Israel, being “Participating States” (article 4.1) - Any other Member State and any other country associated to Horizon

2020 which are not part of the previous groups (article 4.2) - Member or associated countries to the EUREKA Initiative which are not

part of any of the previous group (ex: South Korea) but partners to Eurostars-2 (article 4.3).

Furthermore, it is worth adding a third category outside of the 34 countries officially participating in Eurostars-2, third countries of EUREKA of which a legal entity may be associated to a consortium2.

1 European Free Trade Association

2 The enterprise will have to demonstrate its capacity to self-fund its association to the project and

will have to ensure that it meets the eligibility criteria


In the context of the implementation of the Eurostars-2 Joint Programme, the European legislation regarding state aids will not apply to every participating country. Accordingly, besides the specific rules of each country, the enterprises that are participating in Eurostars-2 programs will be subjected to different regulations depending on which state they are located in.

2. Applicable rules to Eurostars-2 and state aid

The texts to take into consideration are the following:

- The Regulation “Horizon 2020” (EU), N°1291/2013 of the European Parliament and Council of the 11 December 2013 establishing Horizon 2020 - the Framework Programme for Research and Innovation (2014-2020) and repealing Decision No 1982/2006/EC.

- The Decision “Eurostars-2” N°553/2014/EU of the European

Parliament and Council of the 15 May 2014 on the participation of the Union in a Research and Development Programme jointly undertaken by several Member States aimed at supporting research and development performed by small and medium-sized enterprises.

- The Regulation “State aid” (EU), N°651/2014 of the Commission of 17

June 2014 “declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty”3.

- It is worth adding the Communication from the Commission regarding

the “framework for state aid for research and development and innovation” C (2014) 3282. This Communication is particularly important since its principles apply “to those sectors which are subject to specific Union rules on state aid, unless such rules provide otherwise.

3. Consequences on applicable rules according to categories of states

- Category 1: all the provisions are applicable to EU Member States and the European Economic Area4.

- Category 2: A country associated to Horizon 2020 such as Israel or

Turkey is subjected to certain provisions in the Regulations of H2020, but in regards to state aid, only the national rules apply5.

3 Treaty on the Functioning of the European Union (TFEU), 2012/C 326/01 signed at Lisbon on the

13 of December 2007. Official Journal n° C306 of 17th of December 2007

4 Some EU texts are integrated to the agreement on the EEA. It is the case for instance of

Regulation “Horizon 2020” on the basis of the Council Decision 2014/267/EU and of Regulation “State aid” according to the Decision of the EEA Joint Committee 152/2014 5 Regulation (EU), N°1291/2013 of 11 December 2013 establishing Horizon 2020 - the Framework

Programme for Research and Innovation (2014-2020) and repealing Decision No 1982/2006/EC


- Category 3: Non-EU Member States which are not associated to Horizon 2020 whether or not a member or associated to EUREKA, are not subjected to any specific regulations, apart from their national rules.

In practice, consortia can be formed between all of the existing categories:

1. Consortium between SME established in states belonging to category 1

2. Consortium between SME established in states belonging to category 1 and 2


4. Consortium between SME established in states belonging to category 1, 2 and 3

5. Consortium between SME established in states belonging to category 2


7. Consortium between SME established in states belonging to category 3 Regarding funding, in accordance with article 8.4 of the Decision 553/2014, each country or national funding body will implement the rules applicable to its country, whether the rules are national or EU rules and regardless of the composition of the Consortium (national origin of the companies participating to the consortium).

Concerning states of category n°1, the accumulation of EU rules (Eurostars-2 and state aid rules) is a specific issue due to the conditions provided by the Regulation on state aid6. For this reason, such rules are further explained below.

Applicable rules7

6 Regulation 651/2014

7 Concerning Switzerland: Following the results of the referendum on the 9th of February 2014, the

European Union decided on the 17th of February 2014 to suspend the negotiations of the participation to the “Horizon 2020” Programme. Therefore, even if Switzerland is a part of category n°1 according to article 4.1 of the Decision 553/2014, they are temporarily subjected to the treatment applied to the countries in category n°3

Category 1

Decision « Eurostars-2 »

Regulation « Horizon 2020 »

Regulation « State aid »

Communication « Framework for state aid »

National rules

Category 3

National rules

Category 2

Some provisions of Regulation « Horizon

2020 »

National rules


Regarding the funding of Eurostars-2 projects, European rules provided by the Decision “Eurostars-2” and the national rules should not be mistaken with the rules regarding state aid and the exemption of notification to the European Commission which are contained in the Regulation “State aid”.

II. EU Member States and member countries to the European Economic Area

1. General legal framework

- Principle: state aids are banned “in any form whatsoever which distorts or

threatens to distort competition by favouring certain undertakings or the production of certain goods” (article 107 of the TFEU).

- Exception: state aids can be authorised in case of compatibility with the

internal market (article 107.2 and 107.3 of the TFEU) subject to notifying the European Commission “any plans to grant or alter aid” (article 108.3 of the TFEU).

- However, there is an exemption to the exception of notification to the

European Commission. Such conditions are ruled under Chapter 1 and article 25 (as concerns research and development projects) of the Regulation 651/2014 of the Commission of 17 June 2014 whereby certain categories of aid are a priori compatible with the internal market in application of Articles 107 and 108 of the Treaty, and therefore are not subjected to the notification procedure.

The following part of the note will explain the conditions under which an exemption of notification to the Commission is possible.

2. The specific case of research, development and innovation The Regulation 651/2014 is applicable in particular to aids granted by EU Member States and in particular to aids for research and development projects. In order for a State to be exempted from the notification obligation concerning a certain aid measure, it has to meet the general exemption conditions (Chapter 1 of the Regulation 651/2014) which are applicable to state aids in general, as well as the conditions provided by article 25 which are applicable to aids for research and development projects in particular.


a) The general conditions of Chapter 1

To be exempted, the country or the national funding body has to ensure that the aids or the projects fill the general conditions regarding the:

- “scope” (article 1) - “definitions” (article 2) - “conditions for exemption” (article 3) - “notification thresholds” (article 4) - “transparency of aid” (article 5) - “incentive effect” (article 6)

- “aid intensity and eligible costs” (article 7) - “cumulation” (article 8) - “publication and information” (article 9)

Conditions related to accumulation (i) and notification thresholds (ii) are particularly important because they indicate until which amount, transferred by the Member State8, the exemption of notification is applicable and which amount has to be taken into account when calculating the aid intensity and thresholds.

i. “Cumulation” (article 8 R651/2014 and the Communication from the Commission C(2014) 3282))

Eurostars-2 projects are in a situation of accumulated aid: national public funding + EU funds (“top-up”). Concerning the “top-up” of the European Commission, it is part of the Union financial contribution which rises from minimum 33% to maximum 50% of national funding9. This contribution covers operational costs, including the costs of the evaluation of proposal and the “top-up”, and administrative costs10. In parallel to the accumulation of aids, there is a superposition/overlapping of rules on state aid and Eurostars-2 which can be illustrated as follows:

8

The amount transferred by the Member State/National Funding Body includes the national funding plus the “top-up”. The latter being an advance transferred by the NFB to the beneficiaries. The NFB is then reimbursed by the EUREKA Secretariat later on. 9 Regulation 553/2014, article 5.2

10 Regulation 553/2014, article 5.2


If State’s aid does not exceed 60% of the eligible costs of the SME in the project (75% of 80% of the diagram above) nor exceeds the amounts mentioned on pages 8 and 9 in this document (under “Notification thresholds”), the aid is supposed to be declared compatible with the general prohibition principle of state aid and shall be therefore exempted from the notification requirement.

Which amount has to be taken into account to verify that they do not exceed the 60% of public funding exonerated from notification?

According to article 8.2 of Regulation “State aid” 651/2014, “where Union funding centrally managed by the institutions, agencies, joint undertakings or other bodies of the Union that is not directly or indirectly under the control of the Member State is combined with State aid, only the latter shall be considered for determining whether notification thresholds and maximum aid intensities or maximum aid amounts are respected, provided that the total amount of public funding granted in relation to the same eligible costs does not exceed the most favourable funding rate laid down in the applicable rules of Union law”, i.e. to either 75% as provided by Regulation 651/2014 or any higher percentage laid down in the Horizon 2020 regulations11

11

This latter explanation was provided by the European Commission (DG Competition)


This rule is also stated in the Communication of the European Commission on the “Framework for State aid for research and development and innovation” (2014/C 198/01). Part of the Union’s financial contribution (“top-up”) is therefore excluded from the calculation of public aid intensity and the notification thresholds.

ii. Notification thresholds (article 4 R651/2014)

In order to determine if an aid is exempted from the notification obligation to the Commission, the country or the national funding body will have to examine the nature of the aid and its amount:

1. If the project is predominantly fundamental research12 and if the amount of aid is less or equal to EUR 80 million per undertaking and per project: the notification of the aid is not necessary.

2. If the project is predominantly industrial research13 and if the amount of the aid is less or equal to EUR 40 million per undertaking and per project: the notification of the aid is not necessary.

3. If the project is predominantly experimental development 14 and if the amount of the aid is less or equal to EUR 30 million per undertaking and per project: the notification of the aid is not necessary.

4. If the aid for feasibilities studies in preparation for research activities is less or equal to EUR 7.5 million per study: the notification of the aid is not necessary.

The amounts referred to in points 1 to 3 can be increased by 50% if the aid for research and development projects is granted in the form of repayable advances which, in the absence of an accepted methodology to calculate their gross grant equivalent, are expressed as a percentage of the eligible costs and the measure provides that in case of a successful outcome of the project, as defined on the basis of a reasonable and prudent hypothesis, the advances will be repaid with an interest rate at least equal to the discount rate applicable at the time of grant.

b) Special conditions of article 25 Regarding aid for research and development projects, the state is exempted from the notification obligation if the project fulfils the six following conditions:

12

That is the case where more than half of the eligible costs of the project are incurred through activities which fall within the category of fundamental research (Regulation 651/2014) 13

That is the case where more than half of the eligible costs of the project are incurred through activities which fall within the category of industrial research or within the categories of industrial research and fundamental research taken together (Regulation 651/2014) 14

That is the case where more than half of the eligible costs of the project are incurred through activities which fall within the category of experimental development (Regulation 651/2014)


1. The aided part of the research and development project should completely

fall within one or more of the following four categories:

a) Fundamental research b) Industrial research c) Experimental development d) Feasibility studies

2. The eligible costs of research and development projects should be

allocated to a specific category of research and development and should be the following:

a) personnel costs b) costs of instruments and equipment c) Costs for of buildings and land d) costs of contractual research e) additional overheads and other operating expenses

3. The eligible costs for feasibility studies shall be the costs of the study.

4. The aid intensity15

for each beneficiary shall not exceed:

a) 100 % of the eligible costs for fundamental research b) 50 % of the eligible costs for industrial research c) 25 % of the eligible costs for experimental development d) 50 % of the eligible costs for feasibility studies

5. The aid intensities for industrial research and experimental development

may be increased up to a maximum aid intensity of 80 % of the eligible costs as follows:

a) by 10% for medium-sized enterprises16 and by 20% for small enterprises17

b) by 15% if one of the following conditions is fulfilled: i. The project involves effective collaboration:

- between undertakings among which at least one is an SME, or is carried out in at least two Member States,

15

“Aid intensity” means the gross aid amount expressed as a percentage of the eligible costs, before any deduction of tax or other charge (Regulation 651/2014, article 2§26) 16

Definition of a medium-sized enterprise: A medium-sized enterprise is made up of enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding EUR 50 million, and/or an annual balance sheet total not exceeding EUR 43 million (Recommendation of the European Commission of the 6

th of May 2003, 2003/361/EC)

17 Definition of a small enterprise : a small enterprise is defined as an enterprise which employs

fewer than 50 persons and whose annual turnover and/or annual balance sheet total does not exceed EUR 10 million (Recommendation of the European Commission of the 6th of May 2003, 2003/361/EC)


or in a Member State and in a Contracting Party of the EEA Agreement, and no single undertaking bears more than 70 % of the eligible costs, or

- between an undertaking and one or more research and knowledge-dissemination organisations, where the latter bear at least 10 % of the eligible costs and have the right to publish their own research results;

ii. The results of the project are widely disseminated through conferences, publication, open access repositories, or free or open source software.

6. The aid intensities for feasibility studies may be increased by 10% for medium-sized enterprises and by 20% for small enterprises.

Intensity of

the aid

(art. 25.5)

Medium enterprises

(+10%)

(art. 25.6 a))

Small enterprises

(+20%)

(art. 25.6 a))

Effective collaboration or

results are disseminated

(+15%)

(art. 25.6 b))

Fundamental

research

(art. 25.5.a))

100% of the

eligible costs / / /

Industrial

research

(art. 25.5.b))

50% of the

eligible costs = 60% = 70% 75% or 85% (80%)

18

Experimental

development

(art. 25.5.c))

25% of the

eligible costs =35% = 45% 50% or 60%

Feasibility

studies

(art. 25.5.d))

50% of the

eligible costs = 60% =70% /

18

In order to be exempted from the notification requirements, the total aid intensity should not exceed 80% of the eligible costs.


Conclusion

Eurostars-2’s eligible projects are subjected to different rules according to the country where the enterprise is established. The enterprises established in an EU Member State, Iceland or Norway, benefit from national public funds and “top-up” from the European Commission and are therefore in principle subjected to the obligation of notification of state aid. However, they may be exempted from such an obligation on the condition that they fulfil the requirements of Regulation 651/2014. In practice, the majority of Eurostars-2’s eligible projects fall under industrial research and experimental development. Moreover, as the “top-up” is excluded from the calculation of aid intensity (article 8 of Regulation 651/2014), public aid may therefore exceed with difficulty the thresholds and the authorized amounts of the aid of the total cost of the participant. Hence, SMEs that participate to Eurostars-2 cannot – except in exceptional cases – fall within the scope of the notification obligation.


Annex: Summary table of the applicable rules

Article

4.1

Article

4.2

Articl

e 4.3

EU

Member

State

Associated

to H2020

Membe

r of the

EFTA

Party

to the

EEA

Austria X X X

Belgium X X X

Bulgaria X X X

Croatia X X X

Cyprus X X X

Czech

Republic X X X

Denmark X X X

Estonia X X X

Finland X X X

France X X X

Germany X X X

Greece X X X

Hungary X X X

Iceland X X X X

Ireland X X X

Israel X X

Italy X X X


Article

4.1

Article

4.2

Article

4.3

EU

Member

State

Associate

d to

H2020

Member

of the

EFTA

Party

to the

EEA

Latvia X X X

Lithuania X X X

Luxembourg X X X

Malta X X X

Norway X X X X

Poland X X X

Portugal X X X

Romania X X X

Slovakia X X X

Slovenia X X X

South Korea X

Spain X X X

Sweden X X X

Switzerland (X) (X) (X) X

The

Netherlands X X X

Turkey X X

United-

Kingdom X X X

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