The European Commission adopted new Guidelines for regional aid for the period 2014–2020.  The new legal framework will have significant impact on the possibility of public support for investments of public and private undertakings in the European Union.  Major policy changes include the limitation of the possibility for large undertakings to benefit from regional aid and a more restrictive method of calculating the acceptable aid amount.  Public authorities granting regional aid as well as companies benefitting from regional aid should be aware that the new Guidelines will enter into force on 1 July 2014, but that all existing aid schemes as well as the current regional maps will already expire on 31 December 2013.

On 19 June 2013, the European Commission adopted Guidelines for regional aid for 2014–2020 (Future Regional Guidelines).  These will enter into force on 1 July 2014.  The new legal framework will have significant impact on the possibility of public support for all investments of public and private undertakings in less advantaged regions in the European Union.

In the European Union, public authorities are prohibited to grant State aid to public or private undertakings, unless it is approved by the Commission.  State aid can be authorized, inter alia, if it is directed at fostering regional development.  The underlying idea is that in highly developed regions, such as Paris or London, undertakings per se may not benefit from regional investment aid.  These regions do not qualify as assisted regions.  Public support of investments may only be granted in the less developed assisted regions, such as isolated islands without tourism, as well as more developed assisted regions.  The classification of the regions falling in each of these three categories from 1 July 2014 is currently ongoing.

The Regional Guidelines set out the rules under which public authorities may participate in the financing of investments of public or private undertakings in the less advantaged regions in the European Union.  The assessment of the compatibility of regional aid is based on the following criteria: incentive effect, proportionality, contribution to regional development and effects on competition.

The extensive document of 50 pages introduces numerous changes compared to the currently applicable Guidelines for regional aid for 2007–2013 (Current Regional Guidelines).  Some major policy changes are highlighted hereafter.

Less Regional Investment Aid for Large Undertakings in More Developed Assisted Regions

One of the major changes relates to the possibility for large undertakings to receive aid in more developed assisted regions.  While the Current Regional Guidelines do not differentiate based on the size of the beneficiary, large undertakings will in principle not be able to receive aid for investments in more developed assisted regions under the provisions of the Future Regional Guidelines.  Only in exceptional cases will such aid be authorized, namely if a large undertaking demonstrates that it receives the aid for a completely new activity (not for the simple extension of an existing activity).

These changes are without effect on regional aid for large undertakings in less developed assisted regions, which can also in the future be authorized.

Methodology for Calculating the Aid Amount

For projects which are eligible for aid, the calculation of the aid amount is based on the eligible costs.  The Commission applies maximum aid intensities (indicated in per cent of the eligible costs), which depend on the assisted region and may not be exceeded.

The Future Regional Guidelines also introduce the “net-extra cost approach”, which creates a supplementary cap for the total aid amount that can be given for a concrete project.  As a general rule, aid will be considered to be limited to the minimum, if the aid amount does not exceed the net extra costs of implementing the investment in the assisted area concerned, compared to the counterfactual situation in case of the absence of aid.  If the net extra costs are below the maximum aid intensities, the aid amount may only reflect the net extra costs.  In any event, the amount of aid may not exceed the maximum aid intensities.  Small and medium-sized enterprises receiving aid under a notified scheme do not have to calculate their net extra costs.  For them the maximum aid intensities serve as safe harbour; i.e., as long as the aid intensity remains below the maximum permissible, the criterion of “aid limited to the minimum” is deemed to be fulfilled.

Application of the Regional Guidelines 2014–2020

The Current Regional Guidelines expire on 31 December 2013.  The Future Regional Guidelines, however, will only enter into force on 1 July 2014.  Consequently, a gap of six months is created.  The Commission intends to extend the Current Regional Guidelines until 30 June 2014.  This approach raises a number of issues for public authorities granting regional aid as well as companies benefitting from regional aid.

All existing aid schemes as well as the current regional maps (classifying the regions in the three categories mentioned above) will expire on 31 December 2013.  These must be notified to the Commission under the Current Regional Guidelines, and must be approved by the Commission for the gap period of six months.  The compatibility of all regional aid intended to be awarded after 30 June 2014 will be assessed under the provisions of the Future Regional Guidelines.

For companies that plan investments in less advantaged regions, it is recommended to urgently consider what impact the new legal framework will have on their projects and to what extent they may still benefit from the provisions of the Current Regional Guidelines, which are less strict.

Katharina Dietz, a Paralegal in the Brussels office, contributed to this article.