27.6.2014   

EN

Official Journal of the European Union

C 198/1

1.

1.1.

1.2.

1.3.

2.

2.1.

2.1.1.

2.1.2.

2.2.

2.2.1.

2.2.2.

2.3.

3.

4.

4.1.

4.1.1.

4.1.2.

4.2.

4.2.1.

4.2.2.

4.3.

4.3.1.

4.3.2.

4.4.

4.4.1.

4.4.2.

4.5.

4.5.1.

4.5.1.1.

4.5.1.2.

4.5.1.3.

4.5.1.4.

4.5.2.

4.6.

4.6.1.

4.6.1.1.

4.6.1.2.

4.6.1.3.

4.6.2.

4.6.3.

4.6.3.1.

4.6.3.2.

4.7.

5.

6.

7.

8.

1.

In order to prevent State subsidies from distorting competition in the internal market and affecting trade between Member States in a manner contrary to the common interest, Article 107(1) of the Treaty on the Functioning of the European Union (‘the Treaty’) lays down the principle that State aid is prohibited. In certain cases, however, such aid may be compatible with the internal market on the basis of Articles 107(2) and 107(3) of the Treaty.

2.

Promoting research and development and innovation (‘R&D&I’) is an important Union objective laid down in Article 179 of the Treaty, which states that ‘[t]he Union shall have the objective of strengthening the scientific and technological bases by achieving a European research area in which researchers, scientific knowledge and technology circulate freely, and encouraging it to become more competitive, including in its industry, while promoting all the research activities deemed necessary (…)’. Articles 180 to 190 of the Treaty determine the activities to be carried out in that respect and the scope and implementation of the multiannual framework programme.

3.

The Europe 2020 strategy (1) identifies research and development (‘R&D’) as a key driver for achieving the objectives of smart, sustainable and inclusive growth. To that effect, the Commission set out the headline target according to which 3 % of the Union’s gross domestic product (‘GDP’) should be invested in R&D by 2020. In order to foster progress in the field of R&D&I, the Europe 2020 strategy in particular puts forward the ‘Innovation Union’ flagship initiative (2) aiming at improving framework conditions and access to finance for research and innovation in order to ensure that innovative ideas can be turned into products and services that create growth and jobs (3). The Europe 2020 communication noted that State aid policy can ‘actively and positively contribute … by prompting and supporting initiatives for more innovative, efficient and greener technologies, while facilitating access to public support for investment, risk capital and funding for research and development’.

4.

Whereas it is generally accepted that competitive markets tend to bring about efficient results in terms of prices, output and use of resources, in the presence of market failures (4) State intervention may improve the functioning of markets and, thereby, contribute to smart, sustainable and inclusive growth. In the context of R&D&I, market failures may arise for instance because market actors do not normally take into account the (positive) externalities that ensue on other actors in the economy, and therefore engage in a level of R&D&I activities which is too low from the point of view of society. Likewise, R&D&I projects might suffer from insufficient access to finance (due to asymmetric information) or from coordination problems among firms. Therefore, State aid for R&D&I can be compatible with the internal market where it can be expected to alleviate a market failure in promoting the execution of an important project of common European interest or facilitating the development of certain economic activities, and where the ensuing distortion of competition and trade is not contrary to the common interest.

5.

Aid for R&D&I will primarily be justified on the basis of Articles 107(3)(b) and 107(3)(c) of the Treaty, according to which the Commission may consider compatible with the internal market State aid to promote the execution of an important project of common European interest or to facilitate the development of certain economic activities within the Union, where such aid does not adversely affect trading conditions to an extent which goes contrary to the common interest.

6.

In the communication on State aid modernisation (5), the Commission announced three objectives to be pursued through the modernisation of State aid control:

7.

In particular, the communication called for a common approach in the revision of the different guidelines and frameworks based on strengthening the internal market, promoting more effectiveness in public spending through a better contribution by State aid to objectives of common interest, and exercising greater scrutiny on the incentive effect, on limiting the aid to the minimum, and on the potential negative effects of the aid on competition and trade. The compatibility conditions set out in this framework are based on that common approach.

8.

The principles set out in this framework apply to State aid for R&D&I in all sectors governed by the Treaty. It therefore applies to those sectors which are subject to specific Union rules on State aid, unless such rules provide otherwise.

9.

Union funding centrally managed by the institutions, agencies, joint undertakings or other bodies of the Union that is not directly or indirectly under the control of Member States (6) does not constitute State aid. Where such Union funding is combined with State aid, only the latter will be considered for determining whether notification thresholds and maximum aid intensities are respected or, in the context of this framework, subject to a compatibility assessment.

10.

Aid for R&D&I for firms in difficulty, as defined for the purposes of this framework by the Community guidelines on State aid for rescuing and restructuring firms in difficulty (7), as amended or replaced, is excluded from the scope of this framework.

11.

When assessing R&D&I aid in favour of a beneficiary that is subject to an outstanding recovery order following a previous Commission decision declaring an aid illegal and incompatible with the internal market, the Commission will take account of the amount of aid still to be recovered (8).

12.

The Commission has identified a series of R&D&I measures for which State aid may, under specific conditions, be compatible with the internal market:

13.

Member States must notify R&D&I aid pursuant to Article 108(3) of the Treaty, with the exception of measures that fulfil the conditions laid down in a block exemption Regulation adopted by the Commission pursuant to Article 1 of Council Regulation (EC) No 994/98 (11).

14.

This framework sets out the compatibility criteria for R&D&I aid schemes and individual aid which are subject to the notification requirement and must be assessed on the basis of Article 107(3)(c) of the Treaty (12).

15.

For the purposes of this framework, the following definitions apply:

16.

Generally, any measure meeting the criteria of Article 107(1) of the Treaty constitutes State aid. Whilst a separate Commission notice on the notion of State aid clarifies how the Commission understands the notion of State aid in general, situations typically arising in the field of R&D&I activities are considered in this Section without prejudice to the interpretation of the Court of Justice of the European Union.

17.

Research and knowledge dissemination organisations (‘research organisations’) and research infrastructures are recipients of State aid if their public funding fulfils all conditions of Article 107(1) of the Treaty. As explained in the Notice on the notion of State aid, and in accordance with the case-law of the Court of Justice, the beneficiary must qualify as an undertaking, but that qualification does not depend upon its legal status, that is to say whether it is organised under public or private law, or its economic nature, that is to say whether it seeks to make profits or not. Rather, what is decisive for that qualification as an undertaking is whether it carries out an economic activity consisting of offering products or services on a given market (16).

18.

Where the same entity carries out activities of both economic and non-economic nature, the public funding of the non-economic activities will not fall under Article 107(1) of the Treaty if the two kinds of activities and their costs, funding and revenues can be clearly separated so that cross-subsidisation of the economic activity is effectively avoided. Evidence of due allocation of costs, funding and revenues can consist of annual financial statements of the relevant entity.

19.

The Commission considers that the following activities are generally of a non-economic character:

20.

Where a research organisation or research infrastructure is used for both economic and non-economic activities, public funding falls under State aid rules only insofar as it covers costs linked to the economic activities (22). Where the research organisation or research infrastructure is used almost exclusively for a non-economic activity, its funding may fall outside State aid rules in its entirety, provided that the economic use remains purely ancillary, that is to say corresponds to an activity which is directly related to and necessary for the operation of the research organisation or research infrastructure or intrinsically linked to its main non-economic use, and which is limited in scope. For the purposes of this framework, the Commission will consider this to be the case where the economic activities consume exactly the same inputs (such as material, equipment, labour and fixed capital) as the non-economic activities and the capacity allocated each year to such economic activities does not exceed 20 % of the relevant entity’s overall annual capacity.

21.

Without prejudice to point 20, where research organisations or research infrastructures are used to perform economic activities, such as renting out equipment or laboratories to undertakings, supplying services to undertakings or performing contract research, public funding of those economic activities will generally be considered State aid.

22.

However, the Commission will not consider the research organisation or research infrastructure to be a beneficiary of State aid if it acts as a mere intermediary for passing on to the final recipients the totality of the public funding and any advantage acquired through such funding. This is generally the case where:

23.

Where the conditions in point 22 are fulfilled, State aid rules apply at the level of the final recipients.

24.

The question of whether and under which conditions undertakings obtain an advantage within the meaning of Article 107(1) of the Treaty in cases of contract research or research services provided by a research organisation or research infrastructure, as well as in cases of collaboration with a research organisation or research infrastructure must be answered in accordance with general State aid principles. To this purpose, as explained in the Notice on the notion of State aid, it may in particular be necessary to assess whether the behaviour of the research organisation or research infrastructure can be imputed to the State (23).

25.

Where a research organisation or research infrastructure is used to perform contract research or provide a research service to an undertaking, which typically specifies the terms and conditions of the contract, owns the results of the research activities and carries the risk of failure, no State aid will usually be passed to the undertaking if the research organisation or research infrastructure receive payment of an adequate remuneration for its services, particularly where one of the following conditions is fulfilled:

26.

Where the ownership of, or access rights to intellectual property rights (‘IPR’) remain with the research organisation or research infrastructure, their market value may be deducted from the price payable for the services concerned.

27.

A project is considered to be carried out through effective collaboration where at least two independent parties pursue a common objective based on the division of labour and jointly define its scope, participate in its design, contribute to its implementation and share its financial, technological, scientific and other risks, as well as its results. One or several parties may bear the full costs of the project and thus relieve other parties of its financial risks. The terms and conditions of a collaboration project, in particular as regards contributions to its costs, the sharing of risks and results, the dissemination of results, access to and rules for allocation of IPR, must be concluded prior to the start of the project (25). Contract research and provision of research services are not considered to be forms of collaboration.

28.

Where collaboration projects are carried out jointly by undertakings and research organisations or research infrastructures, the Commission considers that no indirect State aid is awarded to the participating undertakings through those entities due to favourable conditions of the collaboration if one of the following conditions is fulfilled:

29.

For the purpose of point 28(d), the Commission will consider that the compensation received is equivalent to the market price if it enables the research organisations or research infrastructures concerned to enjoy the full economic benefit of those rights, where one of the following conditions is fulfilled:

30.

If none of the conditions in point 28 are fulfilled, the full value of the contribution of the research organisations or research infrastructures to the project will be considered as an advantage for the collaborating undertakings, to which State aid rules apply.

31.

Public purchasers may procure research and development services from undertakings, through both exclusive development and pre-commercial procurement procedures (26).

32.

As long as an open tender procedure for the public procurement is carried out in accordance with the applicable directives (27), the Commission will generally consider that no State aid within the meaning of Article 107(1) of the Treaty is awarded to the undertakings delivering the relevant services (28).

33.

In all other cases, including pre-commercial procurement, the Commission will consider that no State aid is awarded to undertakings where the price paid for the relevant services fully reflects the market value of the benefits received by the public purchaser and the risks taken by the participating providers, in particular where all of the following conditions are fulfilled:

34.

Where the conditions in point 33 are not fulfilled, Member States may rely on an individual assessment of the terms of the contract between the public purchaser and the undertaking, without prejudice to the general obligation to notify R&D&I aid pursuant to Article 108(3) of the Treaty.

35.

To assess whether a notified aid measure can be considered compatible with the internal market, the Commission generally analyses whether the design of the aid measure ensures that the positive impact of the aid towards an objective of common interest exceeds its potential negative effects on trade and competition.

36.

The communication on State aid modernisation of 8 May 2012 called for the identification and definition of common principles applicable to the assessment of compatibility of all the aid measures carried out by the Commission. For this purpose, the Commission will consider an aid measure compatible with the Treaty only if it satisfies each of the following criteria:

37.

The overall balance of certain categories of aid schemes may further be made subject to a requirement of ex post evaluation as described in Section 5. In such cases, the Commission may limit the duration of those schemes (normally to four years or less) with a possibility to re-notify their prolongation afterwards.

38.

If a State aid measure or the conditions attached to it (including its financing method when it forms an integral part of the measure) entail a non-severable violation of Union law, the aid cannot be declared compatible with the internal market (30).

39.

In assessing the compatibility of any individual aid with the internal market, the Commission will take account of any proceedings concerning infringement to Articles 101 or 102 of the Treaty which may concern the beneficiary of the aid and which may be relevant for its assessment under Article 107(3) of the Treaty (31).

40.

State aid for R&D&I can be declared compatible with the internal market within the meaning of Article 107(3)(c) of the Treaty where, on the basis of the common assessment principles set out in Section 3, it leads to increased R&D&I activities without adversely affecting trading conditions in a manner contrary to the common interest.

41.

In this section, the Commission clarifies how it will apply those common assessment principles and, where applicable, lays down specific conditions for aid schemes and additional ones for individual aid which are subject to the notification obligation (32).

42.

The general objective of R&D&I aid is the promotion of R&D&I in the Union. In doing so, R&D&I aid should contribute to the achievement of the Europe 2020 strategy of delivering smart, sustainable and inclusive growth.

43.

Member States considering awarding State aid for R&D&I, must precisely define the objective pursued, and in particular explain how the measure intends to promote R&D&I. For measures co-financed by the European Structural and Investments Funds, Member States may rely on the reasoning in the relevant Operational Programmes.

44.

With respect to aid schemes subject to the notification obligation (‘notifiable aid schemes’), the Commission takes a favourable view of aid measures which are an integral part of a comprehensive programme or action plan to stimulate R&D&I activities or smart specialisation strategies, and are supported by rigorous evaluations of similar past aid measures demonstrating their effectiveness.

45.

With respect to State aid which is awarded for projects or activities that are also financed by the Union, either directly or indirectly (that is to say by the Commission, by its executive agencies, by joint undertakings established on the basis of Articles 185 and 187 of the Treaty, or by any other implementing bodies where the Union funding is not directly or indirectly under the control of Member States), the Commission will consider that the contribution to a well-defined objective of common interest has been established.

46.

To demonstrate that individual aid subject to the notification obligation (‘notifiable individual aid’) contributes to an increased level of R&D&I activities, Member States may use the following indicators, together with other relevant quantitative or qualitative elements:

47.

In order to conclude that the aid contributes to increasing the level of R&D&I in the Union, the Commission will consider not only the net increase of R&D&I carried out by the undertaking, but also the contribution of the aid to the overall increase of R&D&I spending in the sector concerned, as well as to the improvement of the Union situation with regard to R&D&I in the international context. A favourable view will be taken regarding aid measures, for which a publicly available ex post evaluation of their contribution to the common interest is envisaged.

48.

As explained in Section 3, State aid may be necessary to increase R&D&I in the Union in a situation where the market, on its own, fails to deliver an efficient outcome. In order to assess whether State aid is effective in reaching the objective of common interest, it is first necessary to identify the problem, which needs to be addressed. State aid should be targeted towards situations where it can bring about a material improvement that the market cannot deliver on its own. Member States should explain how the aid measure can effectively mitigate the market failure associated with reaching the objective of common interest without that aid.

49.

R&D&I takes place through a series of activities, which are usually upstream to a number of product markets and exploit available capabilities to develop new or improved products, services and processes in those product markets or completely new ones, thereby fostering growth in the economy, contributing to territorial and social cohesion or furthering the general consumer interest. However, given the available R&D&I capabilities, market failures may be an obstacle to reaching the optimal output and may lead to an inefficient outcome for the following reasons:

—    positive externalities/knowledge spillovers : R&D&I often generate benefits for society in the form of positive spill-over effects, for example knowledge spillovers or enhanced opportunities for other economic actors to develop complementary products and services. However, if left to the market, a number of projects might have an unattractive rate of return from a private perspective, although they would be beneficial for society, because profit seeking undertakings cannot sufficiently appropriate the benefits of their actions when deciding about the amount of R&D&I they should carry out. State aid may therefore contribute to the implementation of projects which result in an overall societal or economic benefit and which would otherwise not be pursued.

However, neither are all benefits of R&D&I activities externalities, nor does the presence of externalities alone automatically mean that State aid is compatible with the internal market. In general, consumers are willing to pay for the direct benefit of new products and services while firms can appropriate the benefits from their investment through other existing instruments, such as IPR. In some cases, however, those means are imperfect and leave a residual market failure that may be corrected by State aid. For instance, as is often argued for fundamental research, it may be difficult to exclude others from gaining access to the results of some activities, which might therefore have a public good character. On the other hand, more specific knowledge related to production can often be well protected, for example through patents, allowing the inventor to reap a higher return on the invention,

—    imperfect and asymmetric information : R&D&I activities are characterised by a high degree of uncertainty. Under certain circumstances, due to imperfect and asymmetric information, private investors may be reluctant to finance valuable projects and highly-qualified personnel may be unaware of recruitment possibilities in innovative undertakings. As a result, the allocation of human and financial resources may not be adequate and projects which may be valuable for society or the economy may not be carried out.

In certain cases, imperfect and asymmetric information may also hamper access to finance. However, imperfect information and the presence of risk do not automatically justify the need for State aid. Projects with lower private returns on investments not being financed can very well be a sign of market efficiency. Moreover, risk is part of every business activity and is not a market failure in itself. However, in a context of asymmetric information, risk may exacerbate financing problems,

—    coordination and network failures : the ability of undertakings to coordinate with each other or to interact in order to deliver R&D&I may be impaired for various reasons, including difficulties in coordinating among a large number of collaboration partners where some of them have diverging interests, problems in designing contracts, and difficulties in coordinating collaboration due for example to sensitive information being shared.

50.

Whilst certain market failures may hamper the overall level of R&D&I in the Union, not all undertakings and sectors in the economy are affected by them to the same extent. Consequently, for notifiable individual aid, Member States should provide adequate information about whether the aid addresses a general market failure regarding R&D&I in the Union, or a specific market failure regarding, for example, a particular sector or line of business.

51.

Depending on the specific market failure to be addressed, the Commission will take into consideration the following elements:

—    knowledge spillovers : level of knowledge dissemination envisaged; specificity of the knowledge created; availability of IPR protection; degree of complementarity with other products and services,

—    imperfect and asymmetric information : level of risk and complexity of R&D&I activities; need for external finance; characteristics of the aid beneficiary regarding access to external finance,

—    coordination failures : number of collaborating undertakings; intensity of collaboration; diverging interests among collaborating partners; problems in designing contracts; problems to coordinate collaboration.

52.

In its analysis of an alleged market failure the Commission will in particular take into account any available sectoral comparisons and other studies, which should be provided by the Member State concerned.

53.

When notifying investment or operating aid for clusters, Member States must provide information on the planned or expected specialisation of the innovation cluster, existing regional potential and presence of clusters in the Union with similar purposes.

54.

With respect to State aid which is awarded for projects or activities that are also financed by the Union, either directly or indirectly (that is to say by the Commission, by its executive agencies, by joint undertakings established on the basis of Articles 185 and 187 of the Treaty, or by any other implementing bodies where the Union funding is not directly or indirectly under the control of Member States), the Commission will consider that the need for State intervention has been established.

55.

On the other hand, where State aid is awarded for projects or activities which, with respect to their technological content, level of risk and size, are similar to those already delivered within the Union at market conditions, the Commission will in principle presume that no market failure is present and will require further evidence of and justification for the need for State intervention.

56.

State aid is not the only policy instrument available to Member States to promote R&D&I activities. It is important to keep in mind that there may be other, better placed instruments such as demand-side measures involving regulation, public procurement or standardisation, as well as an increase in funding of public research and education and general fiscal measures. The appropriateness of a policy instrument in a given situation is normally linked to the nature of the problem that is being addressed. For instance, reducing market barriers may be more appropriate than State aid to deal with a new entrant’s difficulty to appropriate R&D&I results. Increased investment in education may be more appropriate to deal with a lack of qualified personnel than awarding State aid.

57.

Aid for R&D&I can be authorised as an exception to the general prohibition of State aid, when it is necessary to achieve an objective of common interest. An important element in this respect is therefore whether and to what extent aid for R&D&I can be considered an appropriate instrument to increase R&D&I activities, given that other less distortive instruments may achieve the same results.

58.

In its compatibility analysis, the Commission will take particular account of any impact assessment of the proposed measure carried out by the Member State concerned. Measures, for which Member States have considered other policy options and for which the advantages of using a selective instrument such as State aid are established and submitted to the Commission, are considered to constitute an appropriate instrument.

59.

With respect to State aid which is awarded for projects or activities that are also financed by the Union, either directly or indirectly (that is to say by the Commission, by its executive agencies, by joint undertakings established on the basis of Articles 185 and 187 of the Treaty, or by any other implementing bodies where the Union funding is not directly or indirectly under the control of Member States), the Commission will consider that the appropriateness of the aid measure has been established.

60.

State aid for R&D&I can be awarded in various forms. Member States should therefore ensure that the aid is awarded in the form that is likely to generate the least distortions of competition and trade. In this respect, where the aid is awarded in forms that provide a direct pecuniary advantage (such as direct grants, exemptions or reductions in taxes or other compulsory charges, or the supply of land, products or services at favourable prices), the Member State concerned must include an analysis of other options and explain why or how other potentially less distortive forms of aid such as repayable advances or forms of aid that are based on debt or equity instruments (such as State guarantees, the purchase of a share-holding or an alternative provision of debt or capital on favourable terms) are less appropriate.

61.

The choice of the aid instrument should be made in view of the market failure which it seeks to address. For instance, where the underlying market failure is a problem of access to external debt finance due to asymmetric information, Member States should normally resort to aid in the form of liquidity support, such as a loan or guarantee, rather than a grant. Where it is also necessary to provide the firm with a certain degree of risk sharing, a repayable advance should normally be the aid instrument of choice. In particular, where aid is awarded in a form other than liquidity support or a repayable advance for activities that are close to the market, Member States must justify the appropriateness of the chosen instrument for tackling the specific market failure in question. For aid schemes implementing the objectives and priorities of Operational Programmes, the financing instrument chosen in those programmes is in principle presumed to be an appropriate instrument.

62.

R&D&I aid can only be found compatible with the internal market if it has an incentive effect. An incentive effect occurs where the aid changes the behaviour of an undertaking in such a way that it engages in additional activities, which it would not carry out or it would carry out in a restricted or different manner without the aid. The aid must however not subsidise the costs of an activity that an undertaking would anyhow incur and must not compensate for the normal business risk of an economic activity (33).

63.

The Commission considers that aid does not present an incentive for the beneficiary wherever work on the relevant R&D&I activity (34) has already started prior to the aid application by the beneficiary to the national authorities (35). Where start of works takes place before the aid application is submitted by the beneficiary to the national authorities, the project will not be eligible for aid.

64.

The aid application must include at least the applicant’s name and size, a description of the project, including its location and start and end dates, the amount of public support needed to carry it out, and a list of eligible costs.

65.

To the extent they constitute State aid, the Commission may consider that fiscal measures have an incentive effect, by stimulating higher R&D&I spending by undertakings, on the basis of evaluation studies (36) provided by Member States.

66.

For notifiable individual aid, Member States must demonstrate to the Commission that the aid has an incentive effect and therefore need to provide clear evidence that the aid has a positive impact on the decision of the undertaking to pursue R&D&I activities which would otherwise not have been pursued. To enable the Commission to carry out a comprehensive assessment of the aid measure in question, the Member State concerned must provide not only information concerning the aided project but also, to the extent possible, a comprehensive description of what would have happened or could reasonably have been expected to happen without aid, that is to say the counterfactual scenario. The counterfactual scenario may consist in the absence of an alternative project or in a clearly defined and sufficiently predictable alternative project considered by the beneficiary in its internal decision making, and may relate to an alternative project that is wholly or partly carried out outside the Union.

67.

In its analysis, the Commission will take into consideration the following elements:

—    specification of intended change : the change in behaviour which is expected to result from State aid, that is to say whether a new project is triggered, or the size, scope or speed of a project is enhanced, has to be well specified,

—    counterfactual analysis : the change of behaviour has to be identified by comparing what the expected outcome and level of intended activity would be with and without aid. The difference between the two scenarios shows the impact of the aid measure and its incentive effect,

—    level of profitability : where a project would not, in itself, be profitable to carry out for an undertaking, but would generate important benefits for society, it is more likely that the aid has an incentive effect;

—    amount of investment and time-frame of cash flows : a high start-up investment, a low level of appropriable cash flows and a significant fraction of the cash flow arising in the very far future or in a very uncertain manner, will be considered positive elements in assessing the incentive effect,

—    level of risk involved : the assessment of risk will in particular take into account the irreversibility of the investment, the probability of commercial failure, the risk that the project will be less productive than expected, the risk that the project undermines other activities of the aid beneficiary and the risk that the project costs undermine its financial viability.

68.

Member States are in particular invited to rely on board documents, risk assessments, financial reports, internal business plans, expert opinions and other studies related to the project under assessment. Documents containing information on demand forecasts, cost forecasts, financial forecasts, documents that are submitted to an investment committee and that describe in detail various investment scenarios, or documents provided to financial institutions could help Member States demonstrate the incentive effect.

69.

In order to ensure that the incentive effect is established on an objective basis, the Commission may in its assessment compare company-specific data with data concerning the industry in which the aid beneficiary is active. In particular, Member States should where possible provide industry-specific data demonstrating that the beneficiary’s counterfactual scenario, its required level of profitability and its expected cash-flows are reasonable.

70.

In that context, the level of profitability can be evaluated by reference to methodologies which are demonstrably used by the beneficiary undertaking or are standard practice in the particular industry concerned, and which may include methods for evaluating the net present value of the project (NPV) (37), the internal rate of return (IRR) (38) or the average return on capital employed (ROCE).

71.

If the aid does not change the behaviour of the beneficiary by stimulating additional R&D&I activities, it has no positive effects in terms of promoting R&D&I in the Union. Therefore, aid will not be considered compatible with the internal market in cases where it appears that the same activities could and would be pursued even without the aid.

72.

For any R&D&I aid to be considered proportional, its amount must be limited to the minimum needed for carrying out the aided activity.

73.

In order to ensure that the level of aid is proportionate to the market failures which it is intended to address, the aid must be determined in relation to a predefined set of eligible costs and limited to a certain proportion of those eligible costs (‘aid intensity’). The aid intensity must be established for each beneficiary of aid, including in a collaboration project.

74.

To ensure predictability and a level playing field, the Commission applies maximum aid intensities for R&D&I aid, which are established on the basis of three criteria: (i) the closeness of the aid to the market, as a proxy for its expected negative effects and the need for it, taking into account the potential higher revenues that can be expected from the aided activities; (ii) the size of the beneficiary as a proxy for the more acute difficulties generally faced by smaller undertakings to finance a risky project; and (iii) the acuteness of the market failure, such as the expected externalities in terms of dissemination of knowledge. Therefore, aid intensities should generally be lower for activities linked to development and innovation than for research activities.

75.

The eligible costs for each aid measure covered by this framework are set out in Annex I. When an R&D project encompasses different tasks, each eligible task must fall under the categories of fundamental research, industrial research or experimental development (39). When classifying different activities according to the relevant category, the Commission will refer to its own practice as well as to the specific examples and explanations provided in the OECD Frascati Manual (40).

76.

The maximum aid intensities generally applicable to all eligible R&D&I measures are set out in Annex II (41).

77.

In the case of State aid for a project being carried out in collaboration between research organisations and undertakings, the combination of direct public support and, where they constitute aid, contributions from research organisations to the same project must not exceed the applicable aid intensities for each beneficiary undertaking.

78.

If a Member State awards a repayable advance which qualifies as State aid within the meaning of Article 107(1) of the Treaty, the rules laid down in this section apply.

79.

Where a Member State can demonstrate, on the basis of a valid methodology based on sufficient verifiable data, that it is possible to calculate the gross grant equivalent of a repayable advance, it may notify an aid scheme and the associated methodology to the Commission. If the Commission accepts the methodology and deems the scheme compatible, the aid may be awarded on the basis of the gross grant equivalent of the repayable advance, up to the aid intensities laid down in Annex II.

80.

In all other cases, the repayable advance is expressed as a percentage of the eligible costs and may exceed the applicable maximum aid intensities by 10 percentage points, provided that the following conditions are fulfilled:

81.

For the Commission to assess the measure, it must include detailed provisions on the repayment in case of success, which clearly define what will be considered as a successful outcome, on the basis of reasonable and prudent hypothesis.

82.

To the extent it constitutes State aid, the aid intensity of a fiscal measure can be calculated either on the basis of individual projects or, at the level of an undertaking, as the ratio between the overall tax relief and the sum of all eligible R&D&I costs incurred in a period not exceeding three consecutive fiscal years. In the latter case, the fiscal measure may apply without distinction to all eligible activities, but must not exceed the applicable aid intensity for experimental development (43).

83.

Aid may be awarded concurrently under several aid schemes or cumulated with ad hoc aid, provided that the total amount of State aid for an activity or project does not exceed the aid ceilings laid down in this framework. As recalled in point 9, Union funding centrally managed by the institutions, agencies, joint undertakings or other bodies of the Union that is not directly or indirectly under the control of Member States does not constitute State aid and should not be taken into account. Where such Union funding is combined with State aid, the total amount of public funding awarded in relation to the same eligible costs must however not exceed the most favourable funding rate laid down in the applicable rules of Union law.

84.

Where the expenditure eligible for R&D&I aid is also potentially eligible in whole or in part for aid for other purposes, the overlapping portion will be subject to the most favourable ceiling under any of the relevant rules.

85.

Aid for R&D&I may not be cumulated with de minimis support in respect of the same eligible costs if that would result in an aid intensity exceeding those laid down in this framework.

86.

For notifiable individual aid, mere compliance with a set of predefined maximum aid intensities is not sufficient to ensure proportionality.

87.

As a general rule, and in order to establish whether the aid is proportional, the Commission will verify that its amount does not exceed the minimum necessary for the aided project to be sufficiently profitable, for example by making possible to achieve an IRR corresponding to the sector or firm specific benchmark or hurdle rate. Normal rates of return required by the beneficiary in other R&D&I projects, its cost of capital as a whole or returns commonly observed in the industry concerned may also be used for this purpose. All relevant expected costs and benefits must be considered over the lifetime of the project, including the costs and revenues stemming from the results of R&D&I activities.

88.

Where it is shown, for example by means of internal company documents, that the aid beneficiary faces a clear choice between carrying out either an aided project or an alternative one without aid, the aid will be considered to be limited to the minimum only if its amount does not exceed the net extra costs of implementing the activities concerned, compared to the counterfactual project that would be carried out in the absence of aid. In order to establish the net extra costs, the Commission will compare the expected net present values of the investment in the aided project and the counterfactual project, account being taken of the probabilities of different business scenarios occurring (44).

89.

Where aid is awarded for R&D projects or for the construction or upgrade of research infrastructures and the Commission can establish, on the basis of the methodology laid down in points 87 or 88, that the aid is strictly limited to the minimum necessary, higher maximum aid intensities than those laid down in Annex II may be allowed, up to the levels set out in the following table.

90.

In order to demonstrate that aid is limited to the minimum necessary, Member States must explain how the aid amount has been established. Documentation and calculations used for the analysis of the incentive effect can also be used to assess whether the aid is proportionate. Insofar as the identified need for aid relates mainly to difficulties in attracting debt finance from the market, rather than to a lack of profitability, a particularly apt way to ensure that the aid is kept to the minimum may be to provide it in the form of a loan, guarantee or repayable advance instead of a non-repayable form, such as a grant.

91.

Where there are multiple potential candidates for carrying out the aided activity, the proportionality requirement is more likely to be met if the aid is awarded on the basis of transparent, objective and non-discriminatory criteria.

92.

In order to address actual or potential direct or indirect distortions of international trade, higher intensities than generally permissible under this framework may be authorised if, directly or indirectly, competitors located outside the Union have received in the last three years or are going to receive aid of an equivalent intensity for similar projects. However, where distortions of international trade are likely to occur after more than three years, given the particular nature of the sector in question, the reference period may be extended accordingly. Where possible, the Member State concerned will provide the Commission with sufficient information to enable it to assess the situation, in particular the need to take account of the competitive advantage enjoyed by a third country competitor. Where the Commission does not have evidence concerning the awarded or proposed aid, it may also base its decision on circumstantial evidence.

93.

When gathering evidence, the Commission may use its investigative powers (45).

94.

For R&D&I aid to be compatible with the internal market, the negative effects of the aid measure in terms of distortions of competition and impact on trade between Member States must be limited and outweighed by the positive effects in terms of contribution to the objective of common interest.

95.

The Commission identifies two main potential distortions of competition and trade between Member States caused by R&D&I aid, namely product market distortions and location effects. Both types may lead to allocative inefficiencies, undermining the economic performance of the internal market, and distributional concerns, in that the aid affects the distribution of economic activity across regions.

96.

As far as distortions on the product markets are concerned, State aid for R&D&I may have an impact on competition in innovation processes and in the product markets where the results of the R&D&I activities are exploited.

97.

State aid for R&D&I can hamper competition in innovation processes and product markets in three ways, namely by distorting the competitive entry and exit process, by distorting dynamic investment incentives and by creating or maintaining market power.

98.

R&D&I aid may prevent the market mechanism from rewarding the most efficient producers and putting pressure on the least efficient to improve, restructure or exit the market. That might lead to a situation where, due to the aid awarded, competitors that would otherwise be able to stay on are forced out of the market, or never enter in the first place. Similarly, State aid can prevent inefficient firms from leaving the market or even induce them to enter and gain market shares from otherwise more efficient competitors. If not correctly targeted, R&D&I aid may therefore support inefficient undertakings and lead to market structures in which many players operate significantly below efficient scale. In the long run, interfering with the competitive entry and exit processes may stifle innovation and slow down industry-wide productivity improvements.

99.

R&D&I aid may distort the dynamic incentives to invest of competitors of the aid beneficiary. When an undertaking receives aid, the likelihood of successful R&D&I activities on its part generally increases, leading to an increased presence on the relevant product market(s) in the future. That increased presence may lead competitors to reduce the scope of their original investment plans (crowding out effect).

100.

Furthermore, the presence of aid may make potential beneficiaries complacent or more risk seeking. The long term effect on the overall performance of the sector is in this case likely to be negative. R&D&I aid may therefore, if not correctly targeted, support inefficient undertakings and lead to market structures where many market players operate significantly below efficient scale.

101.

Aid for R&D&I may also have distortive effects in terms of increasing or maintaining the degree of market power in product markets. Market power is the power to influence market prices, output, the variety or quality of products and services, or other parameters of competition for a significant period of time, to the detriment of consumers. Even where aid does not strengthen market power directly, it may do so indirectly, by discouraging the expansion of existing competitors or inducing their exit or discouraging the entry of new competitors.

102.

State aid for R&D&I may also give rise to distortions of competition when it influences the choice of a location. Those distortions can arise across Member States, either when firms compete across borders or consider different locations. Aid aimed at relocating an activity in another region within the internal market may not lead directly to a distortion in the product market, but it displaces activities or investments from one region into another.

103.

In principle, an aid measure and the context in which it is applied need to be analysed to identify the extent to which it can be deemed distortive. However, certain situations can be identified where the negative effects manifestly outweigh any positive effects, meaning that aid cannot be found compatible with the internal market.

104.

In particular, according to the general principles of the Treaty, State aid cannot be considered compatible with the internal market if the aid measure is discriminatory to an extent not justified by its State aid character. As explained in Section 3, the Commission will thus not allow any measure where such measure or the conditions attached to it entail a non-severable violation of Union law. This is particularly the case for aid measures where the award of aid is subject to the obligation for the beneficiary to have its central seat in the relevant Member State (or to be predominantly established in that Member State) or to use national products or services, as well as for aid measures restricting the possibility for the beneficiary to exploit the R&D&I results in other Member States.

105.

Likewise, aid that merely leads to a change in location of R&D&I activities within the internal market without changing the nature, size or scope of the project will not be considered compatible.

106.

In order to be compatible with the internal market, notifiable aid schemes must not lead to significant distortions of competition and trade. In particular, even where distortions may be considered limited at individual level (provided the aid is necessary and proportional to achieve the common objective), on a cumulative basis aid schemes might still lead to high levels of distortions. Such distortions may for instance result from aid that negatively affects dynamic incentives to innovate on the part of competitors. In the case of a scheme focusing on certain sectors, the risk of that kind of distortions is even more pronounced.

107.

Without prejudice to point 122, Member States therefore must demonstrate that any negative effects will be limited to the minimum taking into account, for example, the size of the projects concerned, the individual and cumulative aid amounts, the number of expected beneficiaries as well as the characteristics of the targeted sectors. In order to enable the Commission to assess the likely negative effects of notifiable aid schemes, Member States may submit any impact assessment as well as ex-post evaluations carried out for similar predecessor schemes.

108.

For notifiable individual aid, in order to enable the Commission to identify and assess potential distortions of competition and trade, Member States should provide information on (i) the product markets concerned, that is to say the markets affected by the change in behaviour of the aid beneficiary, and (ii) the competitors and customers or consumers affected.

109.

In assessing the negative effects of the aid measure, the Commission will focus its analysis of the distortions of competition on the foreseeable impact of the R&D&I aid on competition between undertakings in the product markets concerned. The Commission will give more weight to risks for competition and trade that arise in the near future and with particular likelihood.

110.

To the extent that a specific innovative activity will be associated with multiple future product markets, the impact of State aid will be looked upon on the set of markets concerned. In certain cases the results of R&D&I activities, for example in the form of IPR, are themselves traded in technology markets, for instance through patent licensing or trading. In those cases, the Commission may also consider the effect of the aid on competition in technology markets.

111.

The Commission will use various criteria to assess the potential distortions of competition, namely distorting dynamic incentives, creating or maintaining market power, and maintaining inefficient market structures.

112.

In its analysis of the potential distortion of dynamic incentives, the Commission will consider the following elements:

—    Market growth : the more the market is expected to grow in the future, the less likely that the competitors’ incentives will be negatively affected by the aid, given that there remain ample opportunities to develop a profitable business,

—    Aid amount : aid measures which involve significant amounts of aid are more likely to lead to significant crowding out effects. The significance of the aid amount will be measured mainly with reference to the amount spent by the main market players on projects of a similar kind,

—    Closeness to the market/category of the aid : the more the aid measure is aimed at activities close to the market, the more it is liable to develop significant crowding out effects,

—    Open selection process : where the aid is awarded on the basis of transparent, objective and non-discriminatory criteria, the Commission will take a more positive stance,

—    Exit barriers : competitors are more likely to maintain, or even to increase their investment plans when exit barriers to the innovation process are high. That may be the case when many of the competitors’ past investments are locked in to a particular R&D&I trajectory,

—    Incentives to compete for a future market : R&D&I aid may lead to a situation where competitors of the aid beneficiary renounce competing for a future ‘winner takes all’ market, because the advantage provided by the aid, in terms of degree of technological advance, economies of scale, network effects or timing, reduces their possibility to potentially successfully enter that future market,

—    Product differentiation and intensity of competition : where product innovation is rather about developing differentiated products, related for example to distinct brands, standards, technologies or consumer groups, competitors are less likely to be affected. The same situation arises where there are many effective competitors in the market.

113.

The Commission is concerned mainly about those R&D&I measures which enable the aid beneficiary to strengthen market power held on existing product markets or to transfer it to future product markets. The Commission is therefore unlikely to identify competition concerns related to market power in cases where the aid beneficiary has a market share below 25 % and in markets with a market concentration below 2 000 on the Herfindahl-Hirschman Index (HHI).

114.

In its analysis of market power, the Commission will consider the following elements:

—    Market power of the aid beneficiary and market structure : where the aid recipient is already dominant on a product market, the aid measure may reinforce that dominance by further weakening the competitive constraint that competitors can exert on the recipient undertaking. Similarly, State aid measures may have a significant impact in oligopolistic markets where only a few players are active,

—    Level of entry barriers : in the field of R&D&I, there may be significant barriers to entry for new entrants. Those barriers include legal entry barriers (in particular in respect of IPR), economies of scale and scope, access barriers to networks and infrastructure, and other strategic barriers to entry or expansion,

—    Buyer power : the market power of an undertaking may also be limited by the market position of the buyers. The presence of strong buyers can serve to counter a finding of a strong market position if it is likely that the buyers will seek to preserve sufficient competition in the market,

—    Selection process : aid measures which allow undertakings with a strong market position to influence the selection process, for example by having the right to recommend undertakings in the selection process or influencing the research path in a way which disfavours alternative paths on unjustified grounds, are liable to raise concern by the Commission.

115.

In its analysis of market structures, the Commission will consider whether the aid is awarded in markets featuring overcapacity or in declining industries. Situations where the market is growing or where State aid for R&D&I is likely to change the overall growth dynamics of the sector, notably by introducing new technologies, are less likely to give rise to concerns.

116.

In particular where R&D&I aid is close to the market, it may result in some territories benefiting from more favourable conditions in respect of subsequent production, particularly because of comparatively lower production costs as a result of the aid or due to higher levels of R&D&I activities pursued through the aid. This may lead undertakings to re-locate to those territories.

117.

Location effects may also be relevant to research infrastructures. If aid is mainly used to attract an infrastructure to a particular region at the expense of another, it will not contribute to promoting further R&D&I activities in the Union.

118.

In its analysis of notifiable individual aid, the Commission will accordingly take into account any evidence that the aid beneficiary has considered alternative locations.

119.

As from 1 July 2016, and with the exception of individual aid awards below EUR 500 000, Member States must publish on a comprehensive State aid website, at national or regional level, at least the following information on notified State aid measures: the full text of the aid scheme and its implementing provisions or legal basis for individual aid, or a link to it; the identity of the aid awarding authority; the identity of individual beneficiaries; the form and amount of aid awarded to each beneficiary; the date of award; the type of beneficiary (SME or large enterprise); the region in which the beneficiary is located (at NUTS level II); and the principal economic sector in which the beneficiary has its activities (at NACE group level) (46). Such information must be published within six months after the awarding decision has been taken or, for fiscal measures, within one year from the date of the tax declaration, must be kept for at least 10 years and must be available to the general public without restrictions (47).

120.

To further ensure that distortions of competition and trade are limited, the Commission may require that notifiable aid schemes be subject to a time limitation and to the evaluation referred to in point 37. Evaluations should in particular be carried out for schemes where the potential distortions are particularly high, that is to say schemes that may risk to significantly restrict competition if their implementation is not reviewed in due time.

121.

Given its objectives and in order not to put a disproportionate burden on Member States and on smaller aid measures, the requirement referred to in point 120 will apply only for aid schemes with large budgets, containing novel characteristics or when significant market, technology or regulatory changes are foreseen. The evaluation must be carried out by an expert independent from the aid awarding authority on the basis of a common methodology provided by the Commission (48) and must be made public. Member States must notify, together with the relevant aid scheme, a draft evaluation plan, which will be an integral part of the Commission assessment of the scheme.

122.

In the case of aid schemes excluded from the scope of a block exemption Regulation exclusively on the grounds of their large budget, the Commission will assess their compatibility solely on the basis of the evaluation plan.

123.

The evaluation must be submitted to the Commission in due time to allow for the assessment of the possible prolongation of the aid scheme and in any case upon its expiry. The precise scope and modalities of each evaluation will be defined in the decision approving the aid scheme. Any subsequent aid measure with a similar objective, including any alteration of aid schemes referred to in point 122, must take into account the results of the evaluation.

124.

In accordance with Council Regulation (EC) No 659/1999 (49) and Commission Regulation (EC) No 794/2004 (50) and their subsequent amendments, Member States must submit annual reports to the Commission.

125.

Member States must maintain detailed records regarding all aid measures. Such records must contain all information necessary to establish that the conditions regarding eligible costs and maximum aid intensities have been fulfilled. Those records must be maintained for 10 years from the date of award of the aid and must be provided to the Commission upon request.

126.

The Commission will apply the principles set out in this framework for the compatibility assessment of all notified R&D&I aid in respect of which it is called upon to take a decision after 1 July 2014. Unlawful R&D&I aid will be assessed in accordance with the rules applicable at the date on which the aid was awarded.

127.

Pursuant to Article 108(1) of the Treaty, the Commission proposes that Member States amend, where necessary, their existing R&D&I aid schemes in order to bring them into line with this framework no later than 1 January 2015.

128.

Member States are invited to give their explicit unconditional agreement to the appropriate measures proposed in point 127 within two months from the date of publication of this framework in the Official Journal of the European Union. In the absence of a reply from any of the Member States, the Commission will assume that the Member State in question does not agree with the proposed measures.

129.

The Commission may decide to review or amend this framework at any time should it be necessary for reasons associated with competition policy or in order to take account of other Union policies and international commitments or for any other justified reason.

27.6.2014   

EN

Official Journal of the European Union

C 198/30

—

on page 20 of the EU Guidelines for the application of State aid rules in relation to the rapid deployment of broadband networks, the first two sentences of paragraph 78(j),

—

on page 24 of the Guidelines on regional State aid for 2014-2020, paragraph 141,

—

on page 10 of the Communication from the Commission on State aid for films and other audiovisual works, paragraph 52(7),

—

on page 28 of the Guidelines on State aid to airports and airlines, paragraphs 162 and 163,

—

the full text of the approved aid scheme or the individual aid granting decision and its implementing provisions, or a link to it,

—

the identity of the granting authority/(ies),

—

the identity of the individual beneficiaries, the form and amount of aid granted to each beneficiary, the date of granting, the type of undertaking (SME/large company), the region in which the beneficiary is located (at NUTS level II) and the principal economic sector in which the beneficiary has its activities (at NACE group level) (22).

for: ‘Such a requirement can be waived with respect to SMEs which have not carried out any commercial sale in any market and for investments below EUR 200 000 into a final beneficiary undertaking’,

read: ‘Such a requirement can be waived with respect to SMEs which have not carried out any commercial sale in any market and for investments below EUR 500 000 into a final beneficiary undertaking’;

for: ‘the amount of the fiscal advantage received, where the latter exceeds EUR 200 000. Such amount can be provided in ranges of EUR 2 million’,

read: ‘the amount of the fiscal advantage received, where the latter exceeds EUR 500 000. Such amount can be provided in the following ranges (in EUR million): [0,5-1]; [1-2]; [2-5]; [5-10]; [10-30]; [30 and more].’;

—

on page 12 of the EU Guidelines for the application of State aid rules in relation to the rapid deployment of broadband networks, at the end of paragraph 53,

—

on page 25 of the Guidelines on regional State aid for 2014-2020, at the end of paragraph 144,

—

on page of 29 of the Guidelines on State aid to airports and airlines, at the end of paragraph 167,

—

on page 32 of the Guidelines on State aid to promote risk finance investments, at the end of paragraph 172,

27.6.2014   

EN

Official Journal of the European Union

C 198/35

27.6.2014   

EN

Official Journal of the European Union

C 198/36

27.6.2014   

EN

Official Journal of the European Union

C 198/37

27.6.2014   

EN

Official Journal of the European Union

C 198/38

27.6.2014   

EN

Official Journal of the European Union

C 198/39