Bernhard VON WENDLANDEuropean CommissionDG COMPETITIONR&D, innovation and risk capital

State aid for R&D and InnovationBelgrade, 19 March 2012

State aid for R&D and Innovation

• EU-objectives• EU State-aid rules• Concept of State aid• State-aid control in the EU• State-aid rules with an R&D and innovation objective State-aid rules

and SME's• Focus on EU-Framework for State aid for R&D&I – eligible activities,

eligible costs• R&D&I-aid and the General Block Exemption Regulation• Decision practice

EU-objectives

• Objective "The establishment of an internal market" - Art. 3 (3) of the Treaty on European Union.

• To that end, the EU shall “work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment. It shall promote scientific and technological advance.”

EU-objectives

• Objective "Promotion of Research and Development and Innovation " - Article 179 (1) of the TFEU:

• "The Union shall have the objective of strengthening its scientific and technological bases by achieving a European research area in which researchers, scientific knowledge and technology circulate freely, and encouraging it to become more competitive, including in its industry, while promoting all the research activities deemed necessary by virtue of other Chapters of the Treaties.”

EU-objectives

• EU-2020 objective: Smart, sustainable and inclusive growth; R&D-expenditure to reach 3 % of EU-GDP by 2020.

• Innovation Union Flagship Initiative: Strategic and integrated approach to research and innovation.

• Member State and EU-funding should contribute to these objectives.

• Important topics: Societal challenges, Key Enabling Technologies, collaborative and industry-driven R&D, reduce time to market, strengthen excellence.

EU State-aid rules

• Competition - an exclusive EU-competence

The EU has exclusive competence in the establishing of the competition rules necessary for the functioning of the internal market; Art. 3 (1) lit b of the TFEU.

Concept of State aid

Art. 107 (1) TFEU: General prohibition of State aid:"Save as otherwise provided in the Treaties, 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 the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market."

Concept of State aid

That prohibition however is not total:•The TFEU leaves room for a number of policy objectives for which State aid "may" be considered compatible with the Internal Market. •State-aid rules are implemented through secondary legislative acts that provide for criteria and rules that the Commission shall use to assess the compatibility of State aid with the Internal Market.

Concept of State aid

• General rule: EU Funds are not considered as State aid - no "State" resources and not under State control.

• Notabene! Structural Funds and Cohesion Fund monies pass through Member-State control –fall under State aid rules if all criteria of Art. 107 (1) TFEU are met.

State-aid control in the EU

Member States must notify State aid to the Commission, prior to its implementation - Art. 108 (3) TFEU: "The Commission shall be informed, in sufficient time to enable it to submit its comments, of any plans to grant or alter aid. If it considers that any such plan is not compatible with the internal market having regard to Article 107, it shall without delay initiate the procedure provided for in paragraph 2. The Member State concerned shall not put its proposed measures into effect until this procedure has resulted in a final decision."

State-aid control in the EU

• Procedure and implementing rules:• Procedural regulation: Council Regulation (EC) N°

659/1999 of 22.3.1999 laying down detailed rules for the application of Article 93 of the EC Treaty [now read Art. 108 of the TFEU]

• Commission Regulation (EC) N° 794/2004 of 21.4.2004 implementing Council Regulation (EC)No 659/1999

State-aid control in the EU

• Commission approves aid measures by a Decision.• Commission may exempt certain categories of aid

from the notification obligation.• The General block exemption Regulation of 2008

(GBER) is the current legal basis for such exemption: Commission Regulation (EC) N° 800/2008 of 6.8.2008 declaring certain categories of aid compatible with the common market in application of Articles 87 and 88 of the Treaty [now read Articles 107 and 108 of the TFEU]

State-aid control in the EU

• Notification procedure – simplified overview:• Formal notification (electronic format): Art . 108 (3) TFEU; Art. 2 Reg.

659/99; Art. 3 Reg. 794/94• Legal deadline to take a decision: 2 months from the date when a

notification is "complete": Art. 4 (5) Reg. 659/99• Preliminary assessment by the Commission, Art. 4 Reg. 659/99; if

necessary Commission sends information request(s) to Member State, Art. 5 Reg. 659/99

• If serious doubts about the aid's compatibility: Formal investigation, Art. 6 Reg 659/99 (consulting interested parties)

• Commission Decision, Artt. 4 and 7 Reg 659/99: Approval "compatible aid"; "no State aid"; conditional approval; negative decision

State-aid control in the EU

• Notification procedure – simplified overview:• A notification may be withdrawn by the Member State,

Art. 8 Reg 659/99.• A Member State may "pre-notify" aid measures. This is

an informal procedure. In that process, Commission and Member State discuss the legal and economic aspects of an aid prior to notification. The objective is to enhance the quality and completeness of notifications.

State-aid rules with an R&D and innovation objective

• First and foremost: Community framework for state aid for research and development and innovation – R&D&I-Framework

• Targeting in particular innovative SME's in their start-up and early phase: Community guidelines on state aid to promote risk capital investments in small and medium-sized enterprises – Risk-Capital Guidelines

• Exemption of, i.a., certain R&D&I-aids and risk-capital measures from the obligation to notify aid: Commission Regulation (EC) No 800/2008 of 6.8.2008 - General block exemption Regulation

State-aid rules and SME's

• SME-definition for State-aid purposes is based on the

• Commission Recommendation of 6.5.2003 concerning the definition of micro, small and medium-sized enterprises

• See also Annex to the General Block Exemption Regulation (GBER)

State-aid rules and SME's

SME's benefit from dedicated aid objectives and from more generous rules, compared to rules applicable to large enterprises.

• Aid during the entire life-cycle of an SME,• to a large extent withot prior notification to the

Commission or,• if notifiable, subject to a less detailed summary

assessment.

The Community Framework for State Aid for R&D&I (R&D&I-Framework)

• Overall objective: Enhance economic efficiency and thereby contribute to sustainable growth and jobs.

• State aid for R&D&I therefore must lead to additional R&D&I (“incentive effect”!) whereas the distortion of competition must not be contrary to the common interest.

• The R&D&I-Framework is designed to ensure this objective and, in particular, to make it easier for Member States to better target the aid to market failures that affect R&D&I-activities.

R&D&I-Framework

• Scope: All sectors (“horizontal” Framework); including Agriculture and Fisheries (specific rules for agri-R&D aid of up to 100% of costs in Chap. 9); excluding undertakings in difficulty within the meaning of the Community Guidelines on State aid for rescue and restructuring undertakings in difficulty

• Applies both to aid schemes and ad-hoc aid• Duration: valid until 31 December 2013• Legal status: non-binding secondary legal act; binding the

Commission when exercising its discretion = R&D&I-aid that meets all the criteria of the R&D&I-Framework must be approved.

R&D&I-Framework

• Structure – the most essential points:• Guidance on State aid in R&D&I-situations: public funding to

research organisations and innovation intermediaries; indirect aid through public research organisations to undertakings in service contracts or collaboration (Chap. 3)

• R&D&I-State aid: Criteria for the standard assessment (Chap. 5)• Incentive effect of R&D&I-aid: Basic formal and material criteria

(Chap. 6)• R&D&I-State aid: Criteria for the detailed assessment (Chap. 7)• Rules for cumulation with other aid (Chap. 8)

R&D&I-Framework• Chapter 3 - Guidance on State aid in typical R&D&I-

situations:• Public funding to research organisations and innovation

intermediaries could constitute State aid if the funding is for economic activities (= offering goods or services on the market) -Section 3.1

• Enterprises could receive indirect aid if a publicly funded research organisation delivers an R&D-service at conditions more favourable than market conditions (contract research, services) - point 3.2.1

• Enterprises could receive indirect aid when collaborating with publicly funded research organisations: Criteria for the exclusion of State aid in point 3.2.2

R&D&I-Framework• Chapter 5 - Standard criteria for certain

R&D&I-objectives that may be supported with aid:

• Eligible beneficiaries; maximum aid-intensities (percentage of eligible costs) or aid amounts; eligible costs; criteria for aid instruments such as repayable advances and fiscal aid; other criteria (e.g. maximum duration of a measure; certificates).

R&D&I-Framework

• Chapter 5 - Eligible R&D&I-objectives/activities:• R&D projects: fundamental, industrial research;

experimental development: the larger the beneficiary and/or the closer the activity is to a practical application, the lower is the allowed aid intensity (point 5.1)

• Aid for technical feasibility studies preparatory to industrial research or experimental development (point 5.2)

• Aid for industrial property rights costs for SMEs: costs associated with obtaining and validating patents and other industrial property rights (point 5.3)

R&D&I-Framework

• Chapter 5 - Eligible R&D&I-objectives/activities:• (continued)

• Aid for young innovative small enterprises: not older than 6 years at the time when the aid is granted; innovativeness can be evidenced either by an expert evaluation or with R&D-costs - at least 15 % of total operating costs (point 5.4)

• Aid for process and organisational innovation in services (point 5.5): new and substantial improvements; must involve ICT; project-based; must entail a clear degree of risk; must develop standards, models, concepts

R&D&I-Framework

• Chapter 5 - Eligible R&D&I-objectives/activities:• (continued)

• Aid for innovation advisory services and for innovation support services for SMEs; services must be bought at market price or aid must be granted in the form of a reduced price (point 5.6)

• Aid to SME's for the loan of highly qualified personnel: personnel and recruiting costs for the loan of highly qualified personnel seconded from a research organisation or a large enterprise to an SME (point 5.7)

• Aid for innovation clusters: Investment and operating aid to the legal entity operating the innovation cluster (point 5.8)

R&D&I-Framework• Eligible costs:

• Are set out for each eligible activity (cf. points 5.1 – 5.8)• Aid for Young Innovative enterprises: Not linked to any eligible costs• Example ("classic") R&D-project aid (point 5.1.4)- to the extent and for

the duration as used for the research project:• personnel;• instruments and equipment;• building and land;• contractual research, technical knowledge, patents bought or licensed from

outside sources at market prices;• additional overheads• other operating expenses, including costs of materials, supplies and similar

products

R&D&I-Framework

Incentive effect (Chap. 6)• Formal criterion: The aided R&D&I-project must not have

commenced prior to the aid application by the beneficiary to the national authorities. This criterion must be met in any case. (decision practice document 3, (114), (115))

• Material criteria: If a significant positive effect on at least one of the elements below can be demonstrated, an incentive effect of R&D&I-aid can be presumed:• increase in project size• increase in scope• increase in speed• increase in total amount spent on R&D&I

R&D&I-Framework

• Chapter 6 - Legal presumption of an incentive effect of• project aid and feasibility studies where the aid

beneficiary is an SME and where the aid amount is below EUR 7,5 million for a project per SME,

• aid for industrial property rights costs for SMEs,• aid for young innovative small enterprises,• aid for innovation advisory services and innovation

support services,• Aid to SME's for the loan of highly qualified personnel.

R&D&I-Framework

• Incentive effect and aid schemes:• Member State must verify for each individual aid under

an approved scheme that an incentive effect is present; must demonstrate how it has assessed the incentive effect of the aid in annual reports to the Commission (cf. document 4, (40)-(44); (75)-(77)).

• Incentive effect and the detailed assessment under Chap. 7:• Chap. 6-indicators are not sufficient - complementary

evidence is needed, pursuant to specific criteria set out in Chap. 7

R&D&I-Framework

• Chapter 7 - Subject to the detailed assessment is:• R&D&I-aid that must be notified individually

pursuant to the GBER - Art. 6 lit. e) and f) GBER• R&D&I-aid that is to be assessed in detail

pursuant to the R&D&I-Framework - point 7.1 of the R&D&I-Framework.

> Aid above certain thresholds

R&D&I-Framework

Chapter 7 Detailed assessment – methodology and criteria

• Balancing test: The Commission balances the positive impact of the aid measure in reaching an objective of common interest against its potentially negative side effects by distortion of trade and competition.

• Positive Effects of R&D&I-aid (Point 7.3): aid addresses a market failure; aid is appropriate; incentive effect; aid is proportional

• Negative effects - distortion of competition and trade (point 7.4): aid distorts the dynamic incentives of market players to invest (crowding out effect); aid creates or maintain positions of market power; aid maintains an inefficient market structure

• Balancing: case-by-case; overall assessment based on the proportionality principle

R&D&I-aid and the General Block Exemption Regulation

• Most R&D&I-objectives that meet the "standard criteria" of Chapter 5 of the R&D&I-Framework are also caught by the GBER!

• > Such aid is exempt from the obligation to notify the aid to the Commission.

• > Such aid must be in line with all GBER-provisions• > most critical rules:

• No ad-hoc aid to large enterprises (Art. 1 (5) GBER);• Aid must be "transparent" (Art. 5 GBER)

R&D&I-aid and the General Block Exemption Regulation

• Exempted R&D&I-aid - Section 7 of the GBER (Artt. 30-37)

• However: Aid to Innovation Clusters; Aid for innovation advisory services and for innovation support services are outside the scope of the GBER = not block-exempted.

• Aid to young innovative enterprises is inside the scope of the GBER but the innovative character must be demonstrated only with R&D-costs - not with an expert evaluation

R&D&I-Framework – Decision practice

• Background - State-aid for R&D&I:• +/- 0.09 % of EU-GDP• 10.9 billion EUR in 2010, in the EU• large disparities: Around 54% of total R&D&I-state

aid in 2010 was granted by three Member States: Germany (€ 2.8 billion), France (€ 1.8 billion) and Spain (€ 1.1 billion).

R&D&I-Framework – Decision practice

• Since the R&D&I-Framework's entry into force on 1.1.2007 and until today:• The Commission has approved approx. 220 aid

schemes• and approx. 50 large individual aid measures. Most

of these large aids were subject to a detailed economic assessment on the basis of Chapter 7 of the R&D&I-Framework.

R&D&I-Framework – Decision practice – Individual aid > EUR 3 million -

by Sector Nb. of casesDiscounted aid amount

Automotive 30 302.333.857Aeronautics 68 822.513.487Transport 4 30.873.496

Microelectronics 17 613.476.059Energy 48 402.439.458

Biotechnology 41 322.555.614ICT 36 265.058.100Food 4 21.085.982Other 11 85.973.255

TOTAL 259 2.866.309.308

R&D&I-Framework – Decision practice – Individual aid > EUR 3 million -

R&D&I-Framework – Decision practice – Individual aid > EUR 3 million -

R&D&I-Framework – Decision practice – Individual aid > EUR 3 million -

R&D&I-Framework – Decision practiceExamples

• Large Framework schemes: N 112/2007 THESEUS; N 726a/2007 Omnibus

• Individual detailed assessment of aid to an innovative SME: NN 39/2010 Mapper

• Individual detailed assessment of aid to a large enterprise: N 357/2009 GKN, N 4 and 7/2010 ALESTIS

• R&D-infrastructures: N 301/2010 GreenLabs• Issue of economic activities of research organisations: C 35/2008

IFP• Aid for pilot/demonstration plants: N 193/2010 LignoBoost; N

521/2008 Alpha Ventus• Aid for technology-transfer activities: N 617/2008 Technology-

Transfer Institutes

State aid for R&D and Innovation

• Thank you for your attention!