The New Rules on De minimis Aid for 2014-2020: Regulation 1407/2013

EU comission

Introduction[1]

It is appropriate to start this year’s articles on State aid with an appraisal of one of the most important new legislative items for the period 2014-2020: the new de minimis rules. The European Commission adopted the new de minimis Regulation in mid-December and the formal text was published just before Christmas in the Official Journal of 24 December 2013.[2] The new Regulation elaborates a few points of the old Regulation [Regulation 1998/2006] but mostly maintains current rules and practice. This is probably the right approach to the treatment of de minimis aid. Member States and the Commission have gained experience in granting and controlling de minimis aid so there is no need for any significant deviation from present policy.

In previous drafts of the new de minimis Regulation there were two controversial issues: i) the maximum allowable amount of de minimis aid and ii) the establishment of a central register of de minimis aid in each Member State.

Member States wanted the maximum amount to be increased to EUR 300,000 or even EUR 500,000. They were also dead against a central register. I always thought that the Commission played a shrewd game in this respect. The Commission was well aware that the idea of a central register would be strongly opposed. I suspected that the Commission introduced it in the first drafts so that it could drop it in exchange for sticking to the threshold of EUR 200,000. I also thought that, in the end, the Commission would be willing to raise the threshold to about EUR 250,000, but I was proven wrong on this point. However, this is not an unwelcome development. Some public authorities tend to grant de minimis aid too readily. I am sure the Commission did not want to make it easier for these authorities to provide even larger subsidies of questionable need and dubious effectiveness.

In this connection, it should be noted that the new de minimis Regulation in agriculture [Regulation 1408/2013] was published in the same issue of the Official Journal. Unlike in the case of the normal de minimis threshold, the agricultural de minimis threshold has been raised from EUR 7,500 to EUR 15,000.

All in all, the new de minimis Regulation offers continuity without expanding the role of de minimis aid. However, as explained later on, there are at least a couple of points that are likely to prove more problematic than the Commission believes or hopes.

The main provisions of the Regulation

Article 1 defines the scope of the Regulation. It applies to all sectors and activities with the following exceptions:

  1. Fishery and aquaculture sector
  2. Primary production of agricultural products
  3. Export-related activities [aid directly linked to the quantities exported, to the establishment and operation of a distribution network or other current expenditure linked to the export activity]
  4. Activities for which the aid is contingent upon the use of domestic products
  5. Acquisition of road freight vehicles.

Where an undertaking is active in the fishery or agricultural sector and at the same time has other activities, de minimis aid may be granted to those other activities provided there is separation of costs.


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Article 2 defines the meaning of agricultural products [included in Annex I of the TFEU], processing of agricultural products [the result is an agricultural product], marketing of agricultural products [any sale after the first sale by the producer] and “single undertaking”. The latter includes all enterprises having at least one of the following relationships:

  1. Majority shareholding or control of majority voting rights
  2. The right to appoint or remove a majority of the members of the board
  3. The exercise of dominant influence [e.g. through a contract or a provision in the articles of association]

Article 3 lays down thresholds for de minimis aid. The total amount of de minimis aid granted per Member State to any single undertaking may not exceed EUR 200,000 over a period of three fiscal years [EUR 100,000 in the case of road freight transport]. No de minimis aid may be granted for the acquisition of road freight transport vehicles.

Article 4 explains how to calculate the gross grant equivalent of aid. This is because de minimis aid must be transparent in the sense that the amount of aid should not depend on the risk profile of the beneficiary. Transparent aid falls in the following categories:

  1. Grants or interest rate subsidies.
  2. Loans for which the borrower is not subject to collective insolvency [large undertakings must have credit rating of at least B-] and which are secured by collateral covering at least 50% of the loan. The loan may not exceed EUR 1 million [EUR 0.5 million for road freight transport] over five years or EUR 0.5 million [EUR 0.25 million for road freight transport] over ten years.
  3. Guarantees for which the beneficiary is not subject to collective insolvency proceedings [large undertakings must have credit rating of at least B-] and which do not exceed 80% of the underlying loan and either the amount guaranteed is EUR 1.5 million [EUR 0.75 million for road freight transport] and the duration of the guarantee is five years or the amount guaranteed is EUR 0.75 million [EUR 0.375 million for road freight transport] and the duration of the guarantee is ten years.
  4. Capital injections or risk finance measures not exceeding the de minimis ceiling.

Article 5 concerns cumulation. De minimis aid may be cumulated with SGEI de minimis aid up to EUR 500,000. However, de minimis aid may not be cumulated with State aid in relation to the same eligible costs if the relevant ceilings defined in a block exemption regulation or any guidelines are exceeded. De minimis aid which is not granted for or attributable to specific eligible costs may be cumulated with other State aid.

Article 6 lays down requirements on monitoring. Member State must inform undertakings that the aid they receive is de minimis aid and must check before providing it that a new grant will not breach the limit of EUR 200,000 per undertaking. These checks are not required whenever Member States set up a central register of de minimis aid. Member States must keep records for 10 fiscal years.

Article 7 defines certain transitional provisions and Article 8 lays down the period of application of the Regulation which commences on 1 January 2014 and ends on 31 December 2020

What is new and noteworthy?

As mentioned in the Introduction, the new de minimis Regulation largely elaborates current practice. There are, however, five new provisions or clarifications worth mentioning. There is also an omission to which attention must be drawn.

First, it is now clear that undertakings active in primary agriculture and other sectors may receive normal de minimis aid for their non-agricultural activities [i.e. non-agricultural de minimis aid] if they maintain accounts which can distinguish between agriculture costs and non-agricultural costs.

Second, the regulation defines the concept of “single undertaking”. In fact, the definition very much follows established case law which makes “control” the decisive element in linking separate legal entities.

Third, it is now also clearer that de minimis aid may be granted to an undertaking that has received other State aid as long as the de minimis aid is not used to top up that other aid beyond the allowable ceiling for the same attributable costs. Regulation 1998/2006 uses language that prohibits what is not allowed. The new Regulation also explains what is allowed.

Fourth, awards of de minimis aid received by a single undertaking are cumulated with other awards of de minimis aid from any public authority in the same Member State. The previous Regulation did not specify that the threshold of EUR 200,000 was per Member State. That made it difficult for public authorities to know how to treat de minimis aid awarded by other Member States. In principle, the specification “per Member State” is contrary to the concept of single undertaking [because the latter includes subsidiaries that may be in other Member States], but it is a good working compromise because it is hardly possible for public authorities to check what happens in other Member States. Had the initial idea of central register been retained, then perhaps the task of checking abroad would not be too difficult, although I doubt that it would easy either given that subsidiaries can be controlled through a web of controlling interests.

Fifth, in addition to guarantees, the Regulation sets a threshold for loans and offers some guidance on how to calculate the GGE of aid in loans. Perhaps it is worth mentioning that,  despite the fact that Article 4 states that de minimis aid must be transparent [i.e. without any assessment of risk profile of the beneficiary], the calculation for the GGE of aid in loans must take into account at some point the credit worthiness of the beneficiary. But aside from this minor criticism, the main problem in relation to the provision on loans is that it is not clear how Member States should calculate the amount of de minimis aid in loans. From Recital 16 of the Regulation which supposedly offers a “clear rule”, one gets the impression that a loan of up to EUR 1 million for 5 years can be granted at zero interest rate. However, my calculation for such a loan when the prevailing interest rate is, for example, just 5%, leads to a GGE that exceeds EUR 200,000.

Lastly, it must be mentioned that the new Regulation, unlike the one it replaces, does not exclude from the scope of its application firms which are in financial difficulty [as long as de minimis aid is not in the form of a loan or guarantee]. This is puzzling because such firms are excluded from all other State aid regulations and guidelines with the exception, of course, of the rescue and restructuring guidelines. Certainly the strict conditionality of rescue and restructuring aid is contrary to the largely unconditional nature of de minimis aid. If one retorts that, strictly speaking, de minimis aid is not State aid, then why do the current and the future Regulations have rules on cumulation? It is because to the beneficiary a euro is a euro irrespective of its legal classification. In the end, whatever formal ceiling the Commission will fix in the forthcoming guidelines on rescue and restructuring aid, the actual ceiling will be EUR 200,000 higher.

The Impact Assessment that was carried out by the Commission before it revised the de minimis Regulation indicated that Member States found it problematic to determine whether a firm was in difficulty. Therefore, the Commission decided to make it easier for Member States to comply with the de minimis Regulation by removing the exclusion of firms in difficulty. This, however, places the convenience of compliance above the effectiveness of State aid rules. The vast majority of firms which are rescued or restructured have very low liquidity and/or very high indebtedness. A hand-out of EUR 200,000 will be like manna from heaven for illiquid or indebted firms. For sure Member States will top up rescue and restructuring aid with de minimis aid. What is worse is that the high rate of failure of firms that receive rescue and/or restructuring aid implies that the Commission may have inadvertently made is possible for Member States to waste more public money.

However, despite my qualms about the treatment of loans and my misgivings about the inclusion of firms in financial difficulty, the five new provisions/clarifications should make it easier for Member States to grant de minimis aid but at the same time the definition of single undertaking demonstrates that granting de minimis aid is not as simple as commonly and mistakenly thought. The granting authority must go beyond the façade of the legal entity and identify controlling interests. This can be a complex task, especially if the beneficiaries intend to obtain de minimis aid under false pretences.

 


[1] I am grateful to Mihalis Kekelekis and a Commission official who wishes to remain anonymous for comments on an earlier draft. Naturally, I alone am responsible for the views expressed here.

[2] The text of the Regulation as it is published in the Official Journal can be accessed at:

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2013:352:0001:0008:EN:PDF

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Phedon Nicolaides

Dr. Nicolaides was educated in the United States, the Netherlands and the United Kingdom. He has a PhD in Economics and a PhD in Law. He presently holds positions at the College of Europe and the University of Maastricht. He has published extensively on European integration, competition policy and State aid. He is also on the editorial boards of several journals. Dr. Nicolaides has organised seminars and workshops in many different Member States, and has acted as consultant to several public authorities.

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