(1)

On the basis of Article 61(3)(a) and Article 61(3)(c) of the EEA Agreement, State aid granted to promote the economic development of certain disadvantaged areas within the EEA may be considered to be compatible with the functioning of the EEA Agreement. This kind of State aid is known as national regional aid. National regional aid consists of aid for investment granted to large companies, or in certain limited circumstances, operating aid, which in both cases are targeted on specific regions in order to redress regional disparities. Increased levels of investment aid granted to small and medium-sized enterprises located within the disadvantaged regions over and above what is allowed in other areas are also considered as regional aid.

(2)

By addressing the handicaps of the disadvantaged regions, national regional aid promotes the economic, social and territorial cohesion of EEA States and the EEA as a whole. This geographical specificity distinguishes regional aid from other forms of horizontal aid, such as aid for research, development and innovation, employment, training or the environment, which pursue other objectives of common interest in accordance with Article 61(3) of the EEA Agreement, albeit sometimes with higher rates of aid in the disadvantaged areas in recognition of the specific difficulties which they face (2).

(3)

National regional investment aid is designed to assist the development of the most disadvantaged regions by supporting investment and job creation. It promotes the expansion and diversification of the economic activities of enterprises located in the less-favoured regions, in particular by encouraging firms to set up new establishments there.

(4)

The criteria applied by the EFTA Surveillance Authority (hereinafter “the Authority”) when examining the compatibility of national regional aid with the EEA Agreement under Articles 61(3)(a) and 61(3)(c) of the EEA Agreement have been codified in Chapter 25 of the Authority’s State Aid Guidelines (3) (hereinafter “the Guidelines”) which cover the period 2000 to 2006 (4). The specific rules governing aid for large investment projects have been codified in the Guidelines, Chapter 26.A Multisectoral Framework on Regional Aid for Large Investment Projects (5). However, important political and economic developments since 1998, including the enlargement of the EEA on 1 May 2004 and the anticipated accession of Bulgaria and Romania, have created the need for a comprehensive review in order to prepare new guidelines which will apply from 2007 to 2013.

(5)

Regional aid can only play an effective role if it is used sparingly and proportionately and is concentrated on the most disadvantaged regions of the EEA. In particular the permissible aid ceilings should reflect the relative seriousness of the problems affecting the development of the regions concerned. Furthermore, the advantages of the aid in terms of the development of a less-favoured region must outweigh the resulting distortions of competition (6). The weight given to the advantages of the aid is likely to vary according to the derogation applied, so that a greater distortion of competition can be accepted in the case of the most disadvantaged regions covered by Article 61(3)(a) than in those covered by Article 61(3)(c) (7).

(6)

In certain very limited, well-defined cases, the structural handicaps of a region may be so severe that regional investment aid, together with a comprehensive horizontal aid regime may not be sufficient to trigger a process of regional development. Only in such cases may regional investment aid be supplemented by regional operating aid.

(7)

An increasing body of evidence suggests that there are significant barriers to the formation of new enterprises within the EEA which are more acute inside the disadvantaged regions. The Authority has therefore decided to introduce a new aid instrument in these guidelines to encourage small business start-ups in disadvantaged regions with differentiated aid ceilings according to the regions concerned.

(8)

The Authority will apply these guidelines to regional aid granted in every sector of the economy falling within the scope of the EEA Agreement and the competences of the Authority. In addition, some of the sectors they cover are also subject to specific rules which take account of the particular situation of the sectors concerned and which may totally or partially derogate from these guidelines (8).

As regards the steel industry, in accordance with its long-established practice, the Authority considers that regional aid to the steel industry as defined in Annex I is not compatible with the functioning of the EEA Agreement. This incompatibility also applies to large individual grants made in this sector to small and medium-sized enterprises within the meaning of Article 6 of Regulation (EC) No 70/2001 (9) or any successor regulation, which are not exempted by the same Regulation.

In addition, due to its specific characteristics, no regional investment aid may be granted in the synthetic fibres sector as defined in Annex II.

(9)

Aid may only be granted to firms in difficulties within the meaning of Chapter 16 of the Guidelines (10) in accordance with the latter chapter (11).

(10)

As a general rule, regional aid should be granted under a multi-sectoral aid scheme which forms an integral part of a regional development strategy with clearly defined objectives. Such a scheme may also enable the competent authorities to prioritise investment projects according to their interest for the region concerned. Where, exceptionally, it is envisaged to grant individual ad hoc aid to a single firm, or aid confined to one area of activity, it is the responsibility of the EFTA State to demonstrate that the project contributes towards a coherent regional development strategy and that, having regard to the nature and size of the project, it will not result in unacceptable distortions of competition. If aid granted under a scheme appears to be unduly concentrated on a particular sector of activity, the Authority may review the scheme pursuant to Article 17 in Part II of Protocol 3 on the functions and powers of the Authority in the field of State aid to the Surveillance and Court Agreement (thereinafter “Protocol 3 to the Surveillance and Court Agreement”), and may propose, in line with Article 18(3) in Part II of the Protocol to abolish the scheme.

(11)

EFTA States do not have to notify national regional aid schemes which fulfil all the conditions laid down in the group exemption regulations to certain categories of horizontal State aid as incorporated in the EEA Agreement through Annex XV.

(12)

In the light of the principle of the exceptional nature of regional aid, the Authority considers that the total population coverage of assisted regions in the EFTA States must be substantially less than that of unassisted regions.

(13)

In view of the widely shared concerns about the distortive effects of investment aid for large companies, the Authority considers — in line with the European Commission and in accordance with the principle of ensuring a uniform implementation, application and interpretation of the EEA rules on State aid — that the overall population coverage of the regional aid guidelines for 2007-2013 should be limited to that which is necessary to allow coverage of the most disadvantaged regions, as well as a limited number of regions which are disadvantaged in relation to the national average in the EFTA State concerned.

(14)

Article 61(3)(a) provides that aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment may be considered compatible with the functioning of the EEA Agreement. As the Court of Justice of the European Communities has held, “the use of the words “abnormally” and “serious” in the exemption contained in Article 87(3)(a) shows that it concerns only areas where the economic situation is extremely unfavourable in relation to the Community as a whole” (12).

(15)

The Authority accordingly considers that the conditions laid down are fulfilled if the region, being a NUTS (13) level II geographical unit, has a per capita gross domestic product (GDP), measured in purchasing power standards (PPS), of less than 75 % of the EEA average (14). There is however no NUTS level II region in the EFTA States that currently fulfils this condition (15). Hence, no region in the EFTA States qualifies for the Article 61(3)(a) derogation.

(16)

The European Court of Justice, in case 248/84 (16), has expressed its views on the range of problems covered by the corresponding derogation in the EC Treaty and the reference framework for the analysis as follows: “The exemption in Article 87(3)(c), on the other hand, is wider in scope inasmuch as it permits the development of certain areas without being restricted by the economic conditions laid down in Article 87(3)(a), provided such aid “does not adversely affect trading conditions to an extent contrary to the common interest”. That provision gives the Commission power to authorise aid intended to further the economic development of areas of a Member State which are disadvantaged in relation to the national average”. In the Authority’s view, the same applies under Article 61(3)(c) of the EEA Agreement.

(17)

The regional aid covered by the derogation in Article 61(3)(c) must, however, form part of a well-defined regional policy of the EFTA State and adhere to the principle of geographical concentration. Inasmuch as it is intended for regions which are less disadvantaged than those to which Article 61(3)(a) relates, both the geographic scope of the exception and the aid intensity allowed must be strictly limited. This being so, only a small part of the national territory of an EFTA State may normally qualify for the aid in question.

(18)

So as to afford national authorities sufficient latitude when it comes to choosing eligible regions without jeopardizing the effectiveness of the system of checks and balances operated by the Authority in respect of this type of aid and the equal treatment of all EFTA States, the selection of the regions eligible under the derogation in question should be undertaken by a two-step process which consists, first, of the determination by the Authority of the maximum population coverage for each EFTA State for such aid, and, secondly, of the selection of eligible regions.

(19)

The European Commission has in its corresponding guidelines defined the methodology to be applied in order to determine the eligible national population coverage within the Member States. This method entails the following steps:

(20)

The EFTA States have certain specificities that must be taken into account when determining the eligible population coverage:

(21)

Due to such specificities, the Authority will fix the national population coverage on the basis of low population density regions according to Article 61(3)(c).

Norway has nine NUTS III regions with low population density making up 29,08 % of the Norwegian population. Consequently, the national population ceiling for Norway is 29,08 %.

Iceland is according to the NUTS classification system defined as such as a NUTS III region (as well as a NUTS I and a NUTS II region). The population density of Iceland is less than 12,5 inhabitants per square kilometre (21). As referred to above (paragraphs (16) and (17)), the derogation in Article 61(3)(c) gives the Authority the power to authorise aid with the aim of furthering the development of regions in an EFTA State which are disadvantaged in relation to the national average. Furthermore, only a small part of the national territory should normally qualify for the aid in question. On this background and with a view to the special population pattern in Iceland, the Authority will determine the population coverage for Iceland on the basis of NUTS IV regions with low population density (22). 31,6 % of the Icelandic population lives in such regions having a population of less than 12,5 inhabitants per square kilometre. The national population coverage for Iceland is thus 31,6 %.

Liechtenstein has no low population density regions and consequently no region eligible on that basis.

(22)

The eligibility criteria for the selection of regions by the EFTA States must be sufficiently flexible to allow for the wide diversity of situations in which the granting of national regional aid may potentially be justified but at the same time they must be transparent and provide sufficient safeguards that the award of regional aid will not distort trade and competition to an extent contrary to the common interest. Accordingly, the Authority considers that the following regions may be eligible for selection by the EFTA States concerned for the award of regional investment aid pursuant to the derogation under Article 61(3)(c) (23):

(23)

In addition, in order to allow EFTA States greater flexibility to target very localised regional disparities, below the NUTS-III level, EFTA States may also designate other smaller areas which do not meet the conditions described above provided they have a minimum population of 20 000 (27). It will be the task of EFTA States which wish to use this possibility to demonstrate that the areas proposed are relatively more in need of economic development than other areas in that region, using recognised economic indicators such as GDP per capita, employment or unemployment levels, local productivity or skill indicators. Regional aid will be approved by the Authority in these areas for SMEs, and the relevant SME bonus will also apply. However, because of the potential distortion of competition resulting from the spill-over effect into the more prosperous surrounding regions, the Authority will not approve aid for investments by large companies in these areas, or aids for investments with eligible expenses exceeding EUR 25 million.

(24)

Compliance with the total coverage allowed for each EFTA State will be determined by the actual population of the regions concerned, on the basis of the most recent recognised statistical information available.

(25)

Regional investment aid is aid awarded for an initial investment project.

(26)

Initial investment means an investment in material and immaterial assets relating to:

“Material assets” means assets relating to land, buildings and plant/machinery. In case of acquisition of an establishment, only the costs of buying assets from third parties should be taken into consideration, provided the transaction has taken place under market conditions.

“Immaterial assets” means assets entailed by the transfer of technology through the acquisition of patent rights, licences, know-how or unpatented technical knowledge.

Replacement investment which does not meet any of these conditions is thus excluded from the concept (28).

(27)

The acquisition of the assets directly linked to an establishment may also be regarded as initial investment provided the establishment has closed or would have closed had it not been purchased, and is bought by an independent investor (29).

(28)

Regional investment aid is calculated either in reference to material and immaterial investment costs resulting from the initial investment project or to (estimated) wage costs for jobs directly created by the investment project (30).

(29)

The form of the aid is variable. It may, for example, take the form of grants, low-interest loans or interest rebates, state guarantees, the purchase of a share-holding or an alternative provision of capital on favourable terms, exemptions or reductions in taxes, social security or other compulsory charges, or the supply of land, goods or services at favourable prices.

(30)

It is important to ensure that regional aid produces a real incentive effect to undertake investments which would not otherwise be made in the assisted areas. Therefore aid may only be granted under aid schemes if the beneficiary has submitted an application for aid and the authority responsible for administering the scheme has subsequently confirmed in writing (31) that, subject to detailed verification, the project in principle meets the conditions of eligibility laid down by the scheme before the start of work on the project (32). An express reference to both conditions must also be included in all aid schemes (33). In the case of ad hoc aid, the competent authority must have issued a letter of intent, conditional on the Authority’s approval of the measure, to award aid before work starts on the project. If work begins before the conditions laid down in this paragraph are fulfilled, the whole project will not be eligible for aid.

(31)

Where the aid is calculated on the basis of material or immaterial investment costs, or of acquisition costs in the case referred to in paragraph (27) above, to ensure that the investment is viable and sound and respecting the applicable aid ceilings, the beneficiary must provide a financial contribution of at least 25 % of the eligible costs, either through its own resources or by external financing, in a form which is free of any public support (34).

(32)

Furthermore, in order to ensure that the investment makes a real and sustained contribution to regional development, aid must be made conditional, through the conditions attached to the aid, or its method of payment, on the maintenance of the investment in question in the region concerned for a minimum period of at least five years after its completion (35). In addition, where the aid is calculated on the basis of wage costs, the posts must be filled within three years of the completion of the works. Each of the jobs created through the investment must be maintained within the region concerned for a period of five years from the date the post was first filled. In the case of SMEs, EFTA States may reduce these five-year periods for the maintenance of an investment or jobs created to a minimum of three years.

(33)

The level of the aid is defined in terms of intensity compared with reference costs. All aid intensities must be calculated in terms of gross grant equivalents (GGE) (36). The aid intensity in gross grant equivalent is the discounted value of the aid expressed as a percentage of the discounted value of the eligible costs. For aid which is individually notified to the Authority, the gross grant equivalent is calculated at the moment of notification. In other cases, the eligible investment costs are discounted to their value at the moment of the granting of the aid. Aid payable in several instalments shall be discounted to its value at the moment of its being notified or granted, as appropriate. The interest rate to be used for discounting purposes and to calculate the aid amount in a soft loan is the reference rate applicable at the time of grant. In cases where aid is awarded by means of tax exemptions or reductions on future taxes due, discounting of aid tranches takes place on the basis of the reference rates applicable at the various times the tax advantages become effective.

(34)

The intensity of the aid must be adapted to take account of the nature and intensity of the regional problems that are being addressed. This means that the admissible aid intensities are from the outset less high in regions qualifying for exemption under Article 61(3)(c) than in those qualifying under Article 61(3)(a).

(35)

The enlargement of the EEA has led to greater disparities of wealth within the EEA resulting in the need to introduce a greater categorisation of the regions concerned. With a view to being consistent with the approach adopted in the European Community, the Authority has decided to apply the same methodology.

(36)

In the Article 61(3)(c) regions, the ceiling on regional aid must not exceed 15 % GGE. This is reduced to 10 % GGE in the case of regions with both more than 100 % of average EEA GDP per capita and a lower unemployment rate than the EEA average, measured at NUTS-III level (based on averages for the last three years, using Eurostat data) (37).

(37)

However, the low population density regions (corresponding to NUTS-III level or smaller) and NUTS-III regions or parts thereof which share a land border with a country which is not a Member State of the European Economic Area or EFTA, are always eligible for an aid intensity of 15 % GGE.

(38)

In the case of aid awarded to small and medium-sized enterprises (38), the ceilings in Section 25.B.4.1.2 may be increased by 20 % GGE for aid granted to small enterprises and by 10 % GGE for aid granted to medium-sized enterprises (39).

(39)

Expenditures on land, buildings and plant/machinery (40) are eligible for aid for initial investment.

(40)

For SMEs, the costs of preparatory studies and consultancy costs linked to the investment may also be taken into account up to an aid intensity of 50 % of the actual costs incurred.

(41)

In the event of an acquisition of the type referred to in paragraph (27), only the costs of buying assets (41) from third parties should be taken into consideration (42). The transaction must take place under market conditions.

(42)

Costs related to the acquisition of assets other than land and buildings under lease can only be taken into consideration if the lease takes the form of financial leasing and contains an obligation to purchase the asset at the expiry of the term of the lease. For the lease of land and buildings, the lease must continue for at least five years after the anticipated date of the completion of the investment project for large companies, and three years for SMEs.

(43)

Except in the case of SMEs and takeovers, the assets acquired should be new. In the case of takeovers, assets for whose acquisition aid has already been granted prior to the purchase should be deducted.

(44)

For SMEs, the full costs of investments in intangible assets by the transfer of technology through the acquisition of patent rights, licences, know-how or unpatented technical knowledge may always be taken into consideration. For large companies, such costs are eligible only up to a limit of 50 % of the total eligible investment expenditure for the project.

(45)

In all cases, eligible intangible assets will be subject to the necessary conditions for ensuring that they remain associated with the recipient region eligible for the regional aid and, consequently, that they are not the subject of a transfer benefiting other regions, especially other regions not eligible for regional aid. To this end, eligible intangible assets will have to satisfy the following conditions in particular:

(46)

As was indicated in Section 25.B.4.1.1, regional aid may also be calculated by reference to the expected wage costs (43) arising from job creation as a result of an initial investment project.

(47)

Job creation means a net increase in the number of employees (44) directly employed in a particular establishment compared with the average over the previous 12 months. Any jobs lost during that 12 month period must therefore be deducted from the apparent number of jobs created during the same period (45).

(48)

The amount of aid must not exceed a certain percentage of the wage cost of the person hired, calculated over a period of two years. The percentage is equal to the intensity allowed for investment aid in the area in question.

(49)

For the purpose of these guidelines, a “large investment project” is an “initial investment” as defined by these guidelines with an eligible expenditure above EUR 50 million (46). In order to prevent that a large investment project be artificially divided into sub-projects in order to escape the provisions of these guidelines, a large investment project will be considered to be a single investment project when the initial investment is undertaken in a period of three years by one or more companies and consists of fixed assets combined in an economically indivisible way (47).

(50)

To calculate whether the eligible expenditure for large investment projects reaches the various thresholds in these guidelines, the eligible expenditure to be taken into account is either the traditional investment costs or the wage cost, whichever is the higher.

(51)

In two successive Multisectoral frameworks on regional aid for large investment projects in 1998 (48) and 2004 (49), the Authority reduced the maximum aid intensities for large investment projects to limit distortions of competition. In the interests of simplification and transparency, the Authority has decided to integrate the provisions of the 2004 Multisectoral framework (MSF 2004) into the Regional aid guidelines for 2007-2013.

(52)

MSF-2004 will therefore cease to apply to aid awarded or notified (50) after 31 December 2006 and will be replaced by these guidelines (51).

(53)

EFTA States are required to notify individually to the Authority any aid to be awarded to investment projects under an existing aid scheme if the aid proposed from all sources is more than the maximum allowable amount of aid that an investment with eligible expenditure EUR 100 million can receive under the scale and the rules laid down in paragraph (56) (52).

The notification thresholds for different regions with the most commonly encountered aid intensities under these guidelines are summarised in the table below.

(54)

Whenever regional aid is granted on the basis of existing aid schemes for non-notifiable large investment projects, EFTA States must, within 20 working days starting from the granting of the aid by the competent authority, provide the Authority with the information requested in the standard form laid down in Annex III. The Authority will make summary information available to the public through its website (www.eftasurv.int/fieldsofwork/fieldstateaid).

(55)

EFTA States must maintain detailed records regarding the granting of aid for all large investment projects. Such records, which must contain all information necessary to establish that the maximum allowable aid intensity has been observed, must be maintained for 10 years from the date on which the aid was granted.

(56)

Regional investment aid for large investment projects is subject to an adjusted regional aid ceiling (53), on the basis of the following scale:

Thus, the allowable aid amount for a large investment project will be calculated according to the following formula: maximum aid amount = R × (50 + 0,50 × B + 0,34 × C), where R is the unadjusted regional aid ceiling, B is the eligible expenditure between EUR 50 million and EUR 100 million, and C is the eligible expenditure above EUR 100 million. This is calculated on the basis of the official exchange rates prevailing on the date of the grant of aid, or in the case of aid subject to individual notification, on the date of notification.

(57)

Where the total amount of aid from all sources exceeds 75 % of the maximum amount of aid an investment with eligible expenditure of EUR 100 million could receive, applying the standard aid ceiling in force for large enterprises in the approved regional aid map on the date the aid is to be granted, and where

the Authority will approve regional investment aid only after a detailed verification, following the opening of the procedure provided for in Article 1(2) in Part I of Protocol 3 to the Surveillance and Court Agreement, that the aid is necessary to provide an incentive effect for the investment and that the benefits of the aid measure outweigh the resulting distortion of competition and effect on trade between Contracting Parties (55).

(58)

The product concerned is normally the product covered by the investment project (56). When the project concerns an intermediate product and a significant part of the output is not sold on the market, the product concerned may be the downstream product. The relevant product market includes the product concerned and its substitutes considered to be such either by the consumer (by reason of the product’s characteristics, prices and intended use) or by the producer (through flexibility of the production installations).

(59)

The burden of proof that the situations to which paragraphs (57)(a) and (b) refer do not apply, lies with the EFTA State (57). For the purpose of applying points (a) and (b), sales and apparent consumption will be defined at the appropriate level of the Prodcom classification (58), normally in the EEA, or if such information is not available or relevant, on the basis of any other generally accepted market segmentation for which statistical data are readily available.

(60)

The aid intensity ceilings laid down in Sections 25.B.4.1 and 25.B.4.3 above apply to the total aid:

(61)

Where aid calculated on the basis of material or immaterial investment costs is combined with aid calculated on the basis of wage costs, the intensity ceiling laid down for the region concerned must be respected (59).

(62)

Where the expenditure eligible for regional aid is eligible in whole or in part for aid for other purposes, the common portion will be subject to the most favourable ceiling under the applicable rules.

(63)

Where the EFTA State lays down that State aid under one scheme may be combined with aid under other schemes, it must specify, in each scheme, the method by which it will ensure compliance with the conditions listed above.

(64)

Regional investment aid shall not be cumulated with de minimis support in respect of the same eligible expenses in order to circumvent the maximum aid intensities laid down in these guidelines.

(65)

Regional aid aimed at reducing a firm’s current expenses (operating aid) is normally prohibited. Exceptionally, however, such aid may be granted in regions eligible under the derogation in Article 61(3)(a) provided that (i) it is justified in terms of its contribution to regional development and its nature and (ii) its level is proportional to the handicaps its seeks to alleviate (61). It is for the EFTA State to demonstrate the existence and importance of any handicaps. In addition, certain specific forms of operating aid can be accepted in the low population density regions and the least populated areas.

(66)

Operating aid should in principle only be granted in respect of a predefined set of eligible expenditures or costs (62) and limited to a certain proportion of those costs.

(67)

Because of the specific nature of financial and intra-group activities, as defined in Section J (codes 65, 66 and 67) and intra-group activities falling within the scope of Section K (code 74) of the European NACE Code, operating aid granted for these activities has only a very limited likelihood of promoting regional development but a very high risk of distorting competition, as stated in the Chapter 17.B of the Guidelines (63). The Authority will therefore not approve any operating aid to the financial services sector, or for intra-group activities under these guidelines unless such aid is granted under general schemes which are open to all sectors and which are designed to offset additional transport or employment costs. Operating aid intended to promote exports is likewise excluded.

(68)

Because it is intended to overcome delays and bottlenecks in regional development, except as provided for in paragraphs (69) and (70), operating aid should always be temporary and reduced over time, and should be phased out when the regions concerned achieve real convergence with the wealthier areas of the EEA (64).

(69)

In derogation from the previous paragraph, operating aid which is not both progressively reduced and limited in time may only be authorised in the least populated regions, in so far as it is intended to prevent or reduce the continuing depopulation of these regions (65). The least populated regions represent or belong to regions at NUTS-II level for Norway and NUTS IV level for Iceland (66) with a population density of 8 inhabitants per km2 or less and extend to adjacent and contiguous smaller areas meeting the same population density criterion.

(70)

In addition, in the low population density regions, aid which is not both progressively reduced and limited in time and which is intended partly to offset additional transport costs may be authorised under the following conditions:

(71)

In all cases, the need for and level of operating aid should be regularly re-examined to ensure its long-term relevance to the region concerned. The Authority will therefore only approve operating aid schemes for the duration of these guidelines.

(72)

In order to verify the effects on trade and competition of operating aid schemes, EFTA States will be required to provide each year a single report in respect of each NUTS-II region (67) in which operating aid is granted which provides a breakdown of total expenditure, or estimated income forgone, for each operating aid scheme approved in the region concerned and identifies the ten largest beneficiaries of operating aid in the region concerned (68), specifying the sector(s) of activity of the beneficiaries and the amount of aid received by each.

(73)

While newly created small enterprises encounter difficulties throughout the EEA, it appears that the economic development of the assisted regions is hindered by relatively low levels of entrepreneurial activity and in particular by even lower than average rates of business start-ups. It therefore appears necessary to introduce a new form of aid, which can be granted in addition to regional investment aid, in order to provide incentives to support business start-ups and the early stage development of small enterprises in the assisted areas.

(74)

In order to ensure that it is effectively targeted, it appears that this type of aid should be graduated according to the difficulties faced by each category of region. Furthermore, in order to avoid an unacceptable risk of distortions of competition, including the risk of crowding-out existing enterprises, the aid should, for an initial period at least, be strictly limited to small enterprises, limited in amount and degressive.

(75)

The Authority will accordingly approve aid schemes which provide aid up to a total of EUR 1 million per enterprise (69) for small enterprises with their economic activity in regions eligible for the derogation in Article 61(3)(c). Annual amounts of aid awarded for newly created small enterprises must not exceed 33 % of the above mentioned total amounts of aid per enterprise.

(76)

The eligible expenses are legal, advisory, consultancy and administrative costs directly related to the creation of the enterprise, as well as the following costs, insofar as they are actually incurred within the first five years of the creation of the enterprise thereafter (70):

(77)

The aid intensity may not exceed 25 % of eligible expenses incurred in the first three years after the creation of the enterprise, and 15 % in the two years thereafter.

(78)

These intensities are increased by 5 % in regions with a population density of less than 12,5 inhabitants/km2 and in small islands with a population of less than 5 000, and other communities of the same size suffering from similar isolation.

(79)

The EFTA State shall put in place the necessary system to ensure that the upper limits for the amount of aid and the relevant aid intensity in relation to the eligible costs concerned are not exceeded. In particular, the aid provided for in this chapter shall not be cumulated with other public support (including de minimis support) in order to circumvent the maximum aid intensities or amounts laid down.

(80)

Granting aid designed exclusively for newly created small enterprises may produce perverse incentives for existing small enterprises to close down and re-open in order to receive this type of aid. EFTA States should be aware of this risk and should design aid schemes in such a way as to avoid this problem, for example by placing limits on applications from owners of recently closed firms.

(81)

The regions of an EFTA State eligible for regional investment aid under the derogations and the ceilings on the intensity of aid for initial investment (71) approved for each region together form an EFTA State’s regional aid map. The regional aid map also defines the regions eligible to grant enterprise aid. Operating aid schemes are not covered by the regional aid maps, and are assessed on a case by case basis on the basis of a notification by the EFTA State concerned pursuant to Article 1(3) in Part I of Protocol 3 to the Surveillance and Court Agreement.

(82)

The European Court of Justice has ruled that the “decisions” by which the European Commission adopts the regional aid maps for each EC Member State should be construed as forming an integral part of the guidelines on regional aid and as having binding force only on condition that they have been accepted by EC Member States (72). In the Authority’s opinion, the same applies to the Authority’s decisions.

(83)

Furthermore, it should be recalled that the regional aid maps also define the scope of any group exemption exempting regional aid from the notification obligation under Article 1(3) in Part I of Protocol 3 to the Surveillance and Court Agreement, whether such aid is granted on the basis of Regulation (EC) No 70/2001 (73), or on the basis of a possible future exemption for other forms of regional aid.

(84)

Under these guidelines, depending on the socio-economic situation of the EFTA States, the regional aid map will include regions which are to be designated by EFTA States for eligibility for regional aid in accordance with Article 61(3)(c) up to the limit for population coverage determined in accordance with Section 25.B.3.3.1.

(85)

Provided they respect the conditions set out in these guidelines, it is the responsibility of the EFTA States themselves to decide whether they wish to grant regional investment aid and up to what level. As soon as possible after the adoption of these guidelines, each EFTA State should accordingly notify to the Authority in accordance with Article 1(3) in Part I of Protocol 3 to the Surveillance and Court Agreement, a single regional aid map covering its entire national territory.

(86)

The Authority will examine the notifications in accordance with the procedure set out in Article 1(3) in Part I of Protocol 3 to the Surveillance and Court Agreement. At the conclusion of its examination, it will publish the approved regional aid maps in the EEA Section of and the EEA Supplement to the Official Journal of the European Union. These maps will take effect on 1 January 2007, or their date of approval by the Authority if later, and will be considered an integral part of the present guidelines.

(87)

The notification should clearly identify the regions proposed for eligibility under Article 61(3)(c), and the aid intensities envisaged for large companies, taking account of adjustments in the regional aid ceiling for large investment projects.

(88)

Detailed supporting information should be given to explain the designation of the Article 61(3)(c) regions other than the economic development, the low population density and the border regions, including the detailed identification of the regions concerned, population data, information on GDP and unemployment levels in the regions concerned, and any other relevant information.

(89)

In order to ensure continuity, which is essential for long-term regional development, the list of regions notified by EFTA States should in principle apply throughout the period 2007 to 2013. It may, however, be subject to mid-term review in 2010 (74). Any EFTA State wishing to amend the list of regions eligible for aid under Article 61(3)(c) or the applicable aid intensities must submit a notification to the Authority before 1 April 2010 at the latest. Any changes of region in this context may not exceed 50 % of the total coverage allowed for the EFTA State under Article 61(3)(c). Regions which loose their eligibility for regional aid coverage as a result of this mid-term review will not be eligible for any transitional support. Moreover, EFTA States may at any time notify to the Authority a request to add further regions to the list until such time as the relevant population coverage is reached.

(90)

The Authority intends to apply these guidelines to all regional aid to be granted after 31 December 2006. Regional aid awarded or to be granted before 2007 will be assessed in accordance with the 1999 guidelines on national regional aid.

(91)

Since they must be coherent with the regional aid map, notifications of regional aid schemes, or ad hoc aid to be granted after 31 December 2006, cannot normally be considered complete until the regional aid map has been adopted for the EFTA State concerned in accordance with the arrangements described in Section 25.B.7. Accordingly, the Authority will not normally examine notifications of regional aid schemes which are to apply after 31 December 2006, or ad hoc aid to be granted after that date, until the adoption of the regional aid map for the EFTA State concerned (75). The same applies to aid schemes for newly created small enterprises covered by Section 25.B.6 of these guidelines.

(92)

The Authority considers that the implementation of these guidelines will lead to substantial changes in the rules applicable to regional aid throughout the EFTA States. Furthermore, it appears necessary to review the continuing justification for and effectiveness of all regional aid schemes including both investment aid and operating aid schemes. For these reasons, the Authority will propose the following appropriate measures to EFTA States pursuant to Article 1(1) in Part I of Protocol 3 to the Surveillance and Court Agreement:

The Authority will invite EFTA States to confirm their acceptance of these proposals within one month.

(93)

In addition, the Authority considers that further measures are necessary to improve the transparency of regional aid. In particular, it appears necessary to ensure that the EFTA States, economic operators, interested parties and indeed the Authority itself should have easy access to the full text of all applicable regional aid schemes in the EFTA States. The Authority considers that this can easily be achieved through the establishment of linked internet sites. For this reason, when examining regional aid schemes, the Authority will systematically seek an undertaking from the EFTA State that the full text of the final aid scheme will be published on the internet and that the internet address of the publication will be communicated to the Authority. Projects for which expenses were incurred before the date of publication of the scheme will not be eligible for regional aid.

(94)

The Authority may decide to review or amend these guidelines at any time if this should be necessary for reasons associated with competition policy or in order to take account of other EEA policies and international commitments.