Rules just adopted by the European Commission (EC) will make it easier for EU member state governments to provide funding for research, development and innovation (R&D&I) in their countries. This set of rules forms part of the EC’s push to increase R&D&I spending in the EU to 3 percent of gross domestic product by 2020, so as to match that of the United States and Japan.

The sums involved are significant. In total, R&D&I state aid awarded under the old rules (from 2007) amounted to over €62.4 billion. This does not include funds provided by the EU itself (now addressed principally under the Horizon 2020 programme). Companies involved in or considering R&D&I investments of any nature in the EU should make themselves aware of the new state aid rules and Horizon 2020 so as to take advantage of the funding that is available.

The background to the new rules is the basic principle of EU law, which provides that, unless a private investor would have acted in the same way and subject to a number of exemptions, any type of aid that is provided by member states and that favours particular companies is banned.

The rules (adopted on 21 May 2014 and coming into force on 1 July 2014) set out how these exemptions will operate in relation to R&D&I aid provided by member states. The member states still have to provide the funding, and the rules set out the circumstances in which such funding is allowed.

Compared with the previous rules, the new rules allow for greater flexibility. There is an expanded list of types of aid that are automatically allowed, now including pilot projects and prototypes, innovation clusters, and aid for process and organisational innovation. Ad hoc aid to large enterprises also is allowed now. In addition, the thresholds up to which aid can be granted without prior EC scrutiny (and approval) have increased significantly.

For example, the threshold for fundamental research is now set at €40 million, that for industrial research at €20 million, and that for feasibility studies at €7.5 million. Member states also can grant aid for experimental development of up to €15 million per project and per beneficiary without EC approval. This will mean quicker deployment of aid by member states to beneficiaries.

A further change is that, for aid above these threshold levels, aid intensities (the percentages of project costs, up to which aid can be granted) have increased significantly for various types of aid. For example, the permitted aid intensity for industrial research aid grants above the €20 million threshold level now ranges up to 70 percent for large businesses and 90 percent for small businesses. The higher aid levels will be available if there is a genuine financing gap (the part of the project that cannot obtain private funding), which the EC will need to approve. This is expressly to “take into account the global dimension of competition.”

The EC also has put in place a number of measures intended to simplify the rules and to ensure legal certainty. R&D&I aid above the thresholds can be granted only where there is a market failure, and it must have an incentive effect (i.e., change the behaviour of the company that receives it, not just subsidise activities that would have taken place anyway). It also must not exceed the minimum amount necessary for the project to proceed and not produce negative effects of such a level as to rule out the grant of the aid. The new rules change how these requirements are assessed, which should give rise to greater legal certainty and speed up the process.

Where an R&D&I project is co-financed by the EU (such as under Horizon 2020), there will be a presumption that there is market failure and that the aid is appropriate, thereby speeding up these cases.

Public funding of noneconomic activities is not aid, and, so as to simplify the issues in this area, the new rules provide expanded guidance to distinguish between economic and noneconomic activities. This includes examples concerning the distinction between economic and noneconomic activities of universities and other research organisations.

Finally, in relation to simplification, the rules deal with two issues to clarify the analysis of potential indirect state aid. There is expanded guidance on how to ensure that R&D&I contracts and R&D&I collaboration between publicly funded research organisations and private companies are carried out on market terms, in order to avoid indirect state aid to companies. Guidance also is provided on how to avoid giving an undue advantage to a private research company (and thus indirect state aid) through the public procurement of R&D&I, and in particular, precommercial R&D&I procurement, which is not subject to the EU public procurement directives.

The rules remain complex; however, for companies interested in obtaining funding for R&D&I, they are important. Funding for your activity may be available, and it is important to be able to identify whether this is the case and, if so, how to access the funds.