Introduction
Before any state aid granted, the granting authority must establish at a bare minimum that the application satisfies the formal incentive effect: that the project has not already started. The start of works is normally signified by the start of construction or the order of equipment or any other decision that indicates the commitment of the aid applicant to the project.
Feasibility studies are not considered to indicate the start of works. In a recent case, the question arose as to whether a pilot installation could also be considered as a feasibility study. Commission decision 2025/2522 provided valuable guidance and criteria to determine when such a pilot installation does not indicate a firm commitment to the project for which aid has been requested. The decision also highlights that when things go wrong with state aid, procedures can drag on for a long time.
Commission decision 2025/2522 that was published in the Official Journal of 19 December 2025, approved state aid granted by Poland to a large investment project [LIP] implemented by PCC.[1] The project consisted of a new establishment for the production of monochloroacetic acid [MCAA] in Lower Silesia.
The Commission investigated the project after receiving a complaint in 2014 alleging that the state aid was incompatible with the internal market. Following several contacts with the Polish authorities and the complainant over the course of five years, the formal investigation was launched in 2019. The Commission received 26 submissions from interested parties. The investigation was concluded six years later, in 2025, with a positive decision.
The essence of the case is the Commission’s assessment of whether a pilot installation proved that the project had started or not. The Commission concluded that the project had not started when PCC applied for state aid on the following grounds:
- The pilot installation was necessary to test the feasibility of the MCAA project.
- The pilot installation was separable from the project and was not an integral part of it. That is, it was not needed for the operation of the plant.
- The cost of the pilot installation was very small compared to the costs of the overall project.
- The pilot installation came before the firm commitment by PCC to proceed with the entire investment, on condition that it received state aid.
It should also be pointed out at the outset that the case law is clear that past Commission decisions are not binding on it. Therefore, the findings in decision 2025/2522 do not pre-determine future Commission assessment or decisions. Nonetheless, they provide useful guidance to public authorities.
Aid recipient and project costs
The aid recipient is PCC, a large enterprise, with 3300 employees and sites in 17 countries. In 2010 it set up its Polish operations for the purpose of investing in the construction of a plant to produce ultra-pure MCAA [UP MCAA]. The plant is located in the Wałbrzych Special Economic Zone in Lower Silesia. The eligible costs of the project are the costs of the acquisition of land and equipment, and construction of buildings.
Aid measures
In 2012 and 2013, the Polish authorities awarded PCC two separate aid measures for the project: a direct grant and a tax exemption. The area where the project is located is eligible for regional aid under Article 107(3)(a) TFEU. The regional aid map at the time allowed a maximum aid intensity rate of 40% for large enterprises.
The grant amounted to PLN 66,995,312 [EUR 16,124 798], in discounted value, for an investment project with eligible costs of PLN 223,317,705 [EUR 53,749,327], in discounted value. The grant was awarded on the basis of an existing scheme that had been implemented allegedly in compliance with the then GBER Reg 800/2008.
As explained in the decision, “(32) with eligible costs in excess of EUR 50 million, the Project constitutes a large investment project within the meaning of Article 2(12) of Regulation 800/2008. Under Article 9(4) of that Regulation, Member States were required to provide the Commission with summary information on regional aid to large investment projects, granted on the basis of a scheme, within 20 working days from the day on which the aid was granted. The Polish authorities submitted summary information in respect of the grant to the Commission on 25 June 2012.”
“(33) In 2014, as part of its annual ex post monitoring exercise of a sample of aid measures implemented by Member States under Regulation 800/2008, the Commission reviewed the amended grant scheme, and its application in respect of several beneficiaries. At that time, the Commission did not identify any concerns as regards the compliance of the amended grant scheme with Regulation 800/2008.”
In addition, “(34) on 25 September 2014, the Commission approved a financial contribution to the Project from the European Regional Development Fund (‘ERDF’) (the ‘Major Project decision’).”
The tax exemption was discovered by the Commission during the examination of the complaint. It was granted on the basis of a tax exemption scheme for operators in special economic zones. As explained in the decision, “(37) the tax exemption scheme was put into effect as a regional investment aid measure under Article 13 of Regulation 800/2008. The Polish authorities submitted the summary information on the scheme to the Commission, as required by Article 9(1) of Regulation 800/2008, by letter of the Ministry of Economy dated 12 February 2009.” “(38) The tax exemption scheme was registered at the Commission on 12 February 2009, under number SA.27752 (X 193/2009), for the period 1 January 2007 to 31 December 2013.”
It is further explained that “(40) on 11 February 2013, PCC applied to the SEZ Manager for a permit to carry out the Project in the SEZ, which would entitle it to the tax exemption. In the application form, PCC indicated that the Project’s eligible costs would be PLN 200 000 000, …, and that the maximum eligible costs would be PLN 300 000 000. A financial analysis submitted along with the application indicated investment costs of PLN 301 478 910. … In the application, PCC declared that it had received the grant, of a maximum amount of PLN 66.9 million.”
“(42) On 19 February 2013, the SEZ Manager issued a permit to PCC to carry out economic activity in the Wałbrzych Special Economic Zone (the ‘SEZ permit’). This entitled PCC to a corporate tax exemption in connection with the Project. The SEZ permit specified that, to obtain the tax exemption, the Project must, inter alia, incur eligible costs of a minimum of PLN 200 000 000 (EUR 47 985 796) (nominal value) and a maximum of PLN 300 000 000 (EUR 71 978 694) (nominal value). The Polish authorities informed the Commission that the maximum eligible costs of the Project in discounted value as of the date of the SEZ permit were PLN 271 513 408 (EUR 65 143 935).”
“(43) The SEZ permit did not specify the amount of aid to which PCC would be entitled as a result of the tax exemption, nor did it note that PCC had received the grant, or its amount.”
“(44) As the Project constitutes a large investment project within the meaning of Regulation 800/2008, the Polish authorities were required, under Article 9(4) of that Regulation, to submit summary information to the Commission within 20 days from the day on which the aid was granted. Poland submitted the summary information on 16 July 2015, that is, more than two years after the SEZ permit was issued.”
“(45) In that summary information, the Polish authorities indicated that the maximum amount of aid for the Project would be PLN 95 797 682 (EUR 23 086 560), in discounted value. They also indicated that the amount of PLN 66 995 311,50 (EUR 16 124 798,18) of aid already provided to the Project should be taken into account, meaning that the tax exemption would amount to a maximum of PLN 28 802 370 (EUR 6 910 523), in discounted value – that is, the difference between those two amounts.”
“(46) During the Commission’s preliminary investigation, the Polish authorities formed the opinion that the tax exemption had been awarded in breach of Article 8(2) of Regulation 800/2008, which requires the beneficiary to apply for aid before starting works on the aided project. Poland considered that PCC started works on the Project on 14 September 2012, despite only applying for the tax exemption on 11 February 2013. Consequently, on 31 March 2016, the Polish Minister for Development and Finance initiated an investigation regarding the unlawfulness of the tax exemption, and, later, began ex-officio proceedings for the annulment of the SEZ permit. By Decision No 290/DI/16 of 30 December 2016, the Minister for Development and Finance annulled the SEZ permit, on the ground that the aid lacked incentive effect.”
Subsequently, PCC successfully appealed before a Polish court against the Polish decision. Of course, judgments of national courts are not binding on the Commission.
Assessment of the compatibility of the aid
Since there was no doubt that the public funding constituted state aid, the Commission proceeded immediately to the assessment of the compatibility of the aid with the internal market.
Start of work
The Commission considered, first, possible compatibility with the 2007 Regional Aid Guidelines [RAG] and especially with paragraph 38 on the formal incentive effect of state aid.
“(230) Paragraph 38 of the 2007 Guidelines provides that, in the case of ad hoc aid, the competent authority must have issued a letter of intent, conditional upon Commission approval of the measure, to award aid before work starts on the project. If work begins before the conditions laid down in this paragraph are fulfilled, the whole project will not be eligible for aid.”
“(233) For the purposes of paragraph 38 of the 2007 Guidelines, ‘start of work’ means either the start of construction work or the first firm commitment to order equipment, excluding preliminary feasibility studies.”
“(234) PCC claims that, prior to applying for the tax exemption, it had only undertaken preliminary feasibility studies. The Commission notes that PCC explained that, due to the innovative and complex nature of the Project, it decided to establish a pilot installation to test the feasibility of the Project, prior to committing to undertake it. That pilot installation occupied a small area, was not permanently fixed, could easily be dismantled, did not require construction works, and was, in fact, transferred to Siemens immediately upon receipt. The entire cost of the pilot project was EUR 150 000, of which EUR 5 814 (PLN 23 854,19) was incurred in October 2012. Had the results of the pilot project been unsatisfactory, PCC would have been able to withdraw from the Project and recoup its costs. During the course of its investigation, the Commission has not received any information that would call into question the veracity of PCC’s submissions.”
“(235) In those circumstances, the Commission considers that work on the pilot installation should not be considered as constituting start of works. In particular, the Commission notes the fact that, while the pilot installation was required to test the feasibility of the Project and to identify a suitable catalyst, it was not an integral part of the Project. The pilot installation occupied a small area, was not permanently fixed, and was transferred to Siemens’ premises in Germany, upon receipt. The Commission notes that PCC had a plan for disposing of the intellectual property relating to the pilot installation, should it have decided not to proceed with the Project. Moreover, the cost of the pilot installation was only marginal when compared to the costs of the overall Project. The Commission does not consider that undertaking the pilot installation committed PCC to proceed with the entire investment. The pilot installation, therefore, should be considered as constituting a preliminary feasibility study for the Project, which does not trigger the ‘start of work’ for the purposes of paragraph 38 of the 2007 Guidelines.”
The findings of the Commission in paragraph 235 are important. The regional aid guidelines do not mention pilot projects. So this is possibly the first time in the context of regional aid that the Commission found a pilot installation to be equivalent to a feasibility study. At any rate, we should note the three reasons which led the Commission to reach that conclusion: 1) the pilot was necessary to test the feasibility of the project [apparently, a mere feasibility study was not enough], 2) the installation was separable [not an integral part] from the project, 3) its cost was very small in relation to the project and 4) the installation did not signify an unequivocal commitment to the project.
“(236) The Commission notes that PCC has provided evidence that it began construction work on 5 April 2013, and made its first firm commitment to order equipment related to the Project on 16 August 2013. None of the information … indicates … any other commitments related to the Project that preceded the submission of the aid application. The Commission, therefore, considers that the ‘start of work’ for the Project occurred on 5 April 2013.”
Then the Commission examined the conditions for the award of the grant.
“(238) The Commission notes that PCC submitted its application for the grant on 15 December 2010. … on 2 March 2011, the Polish authorities wrote to PCC, informing it that they intended to award it the grant. … On 12 April 2012, the Polish authorities concluded the Grant Agreement with PCC, which indicated that for ‘large projects’ the payment of the grant would be subject to the Commission’s approval, or deemed approval, pursuant to Regulation 659/1999.”
“(239) The Commission, therefore, considers, that, prior to the start of works on the Project, the Polish authorities had not only issued a letter of intent to award the grant to PCC, but had issued the granting act, itself.” “(240) The Commission considers that the Polish authorities had indicated to PCC that the grant was awarded subject to Commission approval, insofar as that was required by Union law. The Polish authorities therefore complied with paragraph 38 of the 2007 Guidelines in that regard.”
“(241) In any event, the Commission notes that, according to Union case-law, in order to assess the existence of a letter of intent within the meaning of paragraph 38 of the 2007 Guidelines, it is for the Commission to assess the circumstances of each individual case in order to determine whether the prospect of the grant of the aid was sufficiently probable for the criterion relating to the incentive to be satisfied. In particular, the Commission must take into account the precise form and nature of the acts emanating from the competent national authorities and other relevant circumstances in order to assess the existence of the incentive element.”
“(242) Applying that reasoning, the Commission considers that the key issue for determining whether the requirements of paragraph 38 of the 2007 Guidelines are met in this case is whether it can be concluded that PCC did not start works on the Project until it believed that it was reasonably probable that it would receive the grant. In that regard, the Commission notes that PCC started works on the Project on 5 April 2013, almost a full year after it had received, not only a letter of intent, but the actual aid granting instrument, from the Polish authorities.”
“(243) The Commission, therefore, concludes that the Polish authorities had issued a letter of intent to award the grant to PCC, as required by paragraph 38, prior to start of works on 5 April 2013.” “(244) The Commission, therefore, concludes that the grant fulfils the conditions of paragraph 38 of the 2007 Guidelines.”
Then the Commission examined the presence of the formal incentive effect with respect to the tax exemption.
“(248) PCC applied for a permit to carry out economic activities in the SEZ, in order to receive the tax exemption, on 11 February 2013. On 12 February 2013, the SEZ Manager agreed to grant PCC the SEZ permit, as evidenced in the Negotiations Report. On 19 February 2013, the SEZ Manager issued the SEZ permit, which granted the tax exemption to PCC.” “(249) In those circumstances, the Polish authorities had not only issued a letter of intent (and confirmed PCC’s eligibility for the aid) to award the tax exemption to PCC before it started work on the Project, but had issued the granting act, itself.”
“(255) The Commission, therefore, concludes that the Polish authorities had issued a letter of intent the award the tax exemption to PCC, as required by paragraph 38, prior to start of works on 5 April 2013.”
Cost eligibility
Next, the Commission examined whether the costs that had been considered as eligible matched the definition of cost eligibility in the 2007 RAG.
“(260) The Commission notes the explanations provided by Poland and PCC as to why the eligible costs upon the basis of which PCC applied for the grant differed from those noted in the application for the tax exemption. Essentially, Poland and PCC submit that, between applying for the grant and applying for the tax exemption, PCC received advice from a third party that led it to increase its estimated costs. As the Project would not be sufficiently profitable for it to be undertaken in light of that increase, PCC requested more aid, in the form of the tax exemption.”
“(261) The Commission recalls that PCC started works on the Project on 5 April 2013, and applied for the tax exemption on 11 February 2013. As PCC had not started works when it applied for the tax exemption, it was available to it to request further aid for the Project.”
“(263) In that regard, the Commission agrees with Poland, that the acquisition of the right to the grant by PCC did not oblige it to carry out the Project. Moreover, the Commission does not consider that the Grant Agreement prevented PCC from seeking any other State aid at all in the case of increased costs.”
“(265) The Commission, accordingly, considers that it is the amount indicated in the SEZ permit that should be taken into account when assessing whether the combined, maximum amount of aid awarded to PCC complied with the applicable ceiling.”
Maximum permissible aid amount
Then the Commission, having established the eligible costs, it determined the maximum aid amount for the Project, using the formula laid down in paragraph 67 of the 2007 RAG. That is, the maximum aid amount = R × (50 + (0.50 × B) + (0.34 × C)), where R is the unadjusted regional aid ceiling, B is the eligible expenditure between EUR 50 million and EUR 100 million, and C is the eligible expenditure above EUR 100 million.
“(267) Taking the maximum eligible cost amount of PLN 271 513 408 (EUR 65 143 935) (discounted), the formula must be applied as follows: 40 % x (50 million + 0.5 x 15 143 935 + 0.34 x 0). This results in a maximum aid amount of EUR 23 028 787 (PLN 95 981 681). Expressed as an aid intensity, that is 35% of eligible costs.”
“(268) The Commission must establish whether the aid measures respected that ceiling. As regards the grant, it clearly remains below that ceiling. The SEZ permit, itself, does not mention the previous aid measure, and does not contain any provisions that would prevent the total amount of regional investment aid for the Project (in the form of the tax exemption and the grant) from exceeding the ceiling in question.”
“(269) The Commission notes, however, that PCC had declared that it had received the grant when it applied for the tax exemption. As a result, the Polish authorities were aware that PCC had already benefitted from the grant when they decided to award it the tax exemption.”
“(270) The Commission notes that the SEZ Regulation established maximum aid intensities, the maximum permissible aid amount for large investment projects, and requirements that the tax exemption, along with any other aid, must not exceed the maximum levels of support under regional aid. The limitations on aid in those provisions of the SEZ Regulation align with the limitations on aid set out in the 2007 Guidelines. The Commission, therefore, considers that those provisions, which are incorporated into the SEZ permit, should operate to ensure that the maximum amount of aid granted under the SEZ permit does not exceed the maximum permitted by the 2007 Guidelines.”
In the rest of the decision the Commission examined the expected benefits from the project and possible distortions to competition. It found that on balance, the benefits would outweigh the possible negative effects. Its overall conclusion was, consequently, that the aid was compatible with the internal market.
[1] The full text of the Commission decision can be accessed at:
https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L_202502522
