Regional and State aid Conference Shane Rankin

1. Regional and State aid ConferenceShane Rankin June 2014

2. What does State aid affect? What’s in? • Organisations • Economic advantage • Liberalised markets What’s not? • Individuals • Market terms • State functions

3. What’s new? • New approach • New opportunities • New procedures • New funding models

4. State Aid Modernisation Growth R & D Low carbon Human capital Tougher Faster Publication More exemptions Investigations Higher thresholds Evaluations

5. Fit with our priorities Smarter Greener Wealthier and Fairer Safer and Stronger Healthier • Key sectors • Employability • Renewables sector • Sustainable transport • Increasing housebuilding • Reducing inequalities • Home insulation scheme • Strengthening communities funding • Regeneration Capital Grant Fund • Town Centre Housing Fund • Rural development • Climate change • Zero waste • Energy efficiency • Supporting employers • National training programmes

6. What now? • Attend workshops • Speak to State Aid Unit • Read relevant rules • Consider alternatives

7. Regional aid and State aid ConferenceAna Richardson June 2014

8. Outline • What’s changed? • Why do I need to know this? • Can I continue current activities? • Can I do new things?

9. What’s changed? Adopted: • Regional Aid • de minimis • R & D & I • Environmental and Energy • Risk Finance • Broadband • Aviation • General Block Exemption • Complaint-handling • Transparency In draft: • Notion of aid • Rescue and restructuring aid • Agriculture and forestry • Fisheries

10. Why?

11. R & D & I

12. Environment and Energy • Market based mechanisms • Promoting competitiveness • Supporting cross-border infrastructure • Security of electricity generation • Exempted categories

13. Broadband • Digital agenda • Technological neutrality • Ultra-fast broadband networks • Step change to connectivity • Reinforcement of open access

14. Exempted aid Higher thresholds Exempted aid New categories Aid amount Type of aid

15. What’s new? Higher aid intensities New categories Higher thresholds 65% 55% 2007 - 2013 2014 - 2020 Fundamental research: €20m → €40m Industrial research: €10m → €20m

16. What’s next? • Ask us about your existing activities • Ask us about planned activities • Don’t be shy – we’re here to help you

17. State Aid Modernisation:Regional Aid and Assisted Areas Map 2014 – 2020

18. Regional Aid: Potted summary • Regional aid = state aid permissible due to the circumstances in certain regions • Aid aimed at cohesion between regions, so targets regions which are relatively poorer than the EU average • 2 stage process: rules for the EU; then mapping for the member state • Aid is self-funded by member states • Regional Aid in Scotland distributed via SE, HIE and SDI; LAs to SMEs; and occasionally BPRA grants for business premises

19. Basic designation • Step 1: GDP per capita <75% of EU average (3a status) (Commission decision) • Step 2: not ‘a status’, but difficult conditions (former ‘a’, low density population) (Commission decision) • Step 3: disadvantaged areas in developed member states (3c status) (Member State choice) • Based on lower GDP per capita and higher unemployment • Population allocation to member states, who then determine final coverage

20. Assisted Areas – 80 Years of Tradition?

21. New map for Scotland • Need AND opportunity – meets EU criteria, but area has to have a realistic prospect of using this particular form of aid for economic development and job creation • Reassess every area of Scotland – but accept that those designated previously are some of the most deprived and have on-going need for support

22. 2014 map • Full H&I coverage – mix of sparsely populated and ‘c’ coverage • New areas in Angus, Borders, D&G, East and Midlothian • Reframed areas around best opportunities in West, Ayrshires, Fife, Stirling and Falkirk • Targeting SME investment sites more than large companies

23. Main changes for 2014 • Stronger link to GBER– aid possible both under GBER and RAG • Aid to large enterprises restricted to new investments and new products/processes • Lower intervention rates than 2007 – down by 5% • More detailed checks for incentive effects

24. GBER scope • Regional or SME aid up to EUR7.5m • But not where a company has closed down same activity elsewhere in EEA in last 2 year, or plans to do so within next 2 years – no ‘aid-hopping’ • Usual restrictions apply! • Schemes with annual expenditure > EUR 150m • Aid to export related activities (which includes to another Member State) • Aid contingent on use of domestic over imported goods • Aid to facilitate the closure of uncompetitive coal mines • Regional aid in steel, coal, shipbuilding, synthetic fibres, transport and energy sectors, fisheries and agriculture • Schemes targeted at limited number of specific sectors • Undertakings in difficulty • Undertakings subject to an outstanding recovery order • Aid measures which violate Union law

25. RAG scope • Steel and synthetic fibres sectors can’t get regional aid • Fishery and aquaculture and transport sector subject to specific rules, not the RAG. • RAG does not apply to aid to airports or the energy sector (energy generation, distribution and infrastructure) • Does not apply to firms in difficulty • Can apply where outstanding recovery order - but will be a factor in Commission’s decision • General rule – notify regional aid under the RAG – unless you can give the aid under the New GBER • Common assessment principles – Commission uses these to decide if aid will lead to increased R&D without adversely affecting trading conditions contrary to common interest

26. Eligible costs • investment in tangible and intangible assets; • (b) estimated wage costs over 2 years OR • combination of (a) and (b) subject to cap of total (a) or (b) • Wage costs – net increase in employees compared with average over previous 12 months, jobs lost to be deducted from those created • Posts filled within 3 years of completion of works • Any investment by same beneficiary (group level) in same NUTS 3 area within 3 years of start of works part of single investment project • Aid beneficiary to contribute at least 25% of eligible costs

27. GBER: Investment aid to SMEs(new Article 17) • Investment in tangible or intangible assets or estimated wage costs for 2 years • Setting up a new establishment, extension of existing establishment, diversification of output into new products or a fundamental change to production process of existing establishment • Acquisition of assets belonging to an establishment where it would otherwise have closed under market conditions • 20% for small companies – 10% for medium

28. Different rules SME • any form of initial investment • Maintain jobs for 3 years • Assets do not need to be new • Lease must continue for 3 years • GBER options – article 14 regional aid in assisted areas; or article 17 investment aid Large enterprise • initial investment in favour of “new economic activity” in the area concerned • Maintain jobs for 5 years • Assets must be new • Lease must continue for 5 years • costs of intangible assets only up to 50% of total investment costs

29. For example… SME • SME sets up, invests, creates jobs and maintains them for three years and generally behaves… • Eligible anywhere in Scotland under GBER up to EUR 7.5 m • 10% for SME’s in non-assisted areas • Option to use Article 17 SME investment aid • 20% for SME’s, 10% for medium • Higher intervention rates in assisted areas • 30/20/10% (small, medium, large) in ‘c’ areas • 35/25/15% in sparsely populated areas

30. …and also… Large Enterprise • Applies for aid exceeding €7.5m – notified under RAG • Even if it’s for new product or process? Yes, notify under RAG Large enterprise • Launches new product category in existing location – eligibleunder GBERas ‘new economic activity’ up to EUR 7.5 m • Sets up in new NUTS 3 area without closing anything similar down in EEA – eligible under GBERup to EUR 7.5 m • Establishes new and innovative process – not clear

31. Q & A