27.12.2006   

EN

Official Journal of the European Union

C 319/1

(1)

Article 33 of the Treaty defines the objectives of the common agricultural policy. In working out the common agricultural policy and the special methods for its application, account has to be taken of the particular nature of agricultural activity, which results from the special structure of agriculture and from structural and natural disparities between the various agricultural regions, the need to effect the appropriate adjustments by degrees and the fact that agriculture constitutes a sector closely linked with the economy as a whole. Recourse to State aid can only be justified if it respects the objectives of this policy.

(2)

Council Regulation (EC) No 1782/2003 of 29 September 2003 establishing common rules for direct support schemes under the common agricultural policy and establishing certain support schemes for farmers (1) enshrines a fundamental change in the way Community support to farmers is be granted. Council Regulation (EC) No 1698/2005 of 20 September 2005 on support for rural development by the European Agricultural Fund for Rural Development (EAFRD) (2) establishes the framework for rural development policy for the years 2007 to 2013, confirming the role of rural development as the second pillar of the common agricultural policy. Articles 88 and 89 of Regulation (EC) No 1698/2005 contain specific provisions in respect of State aid. Article 5 provides that support for rural development measures must be in conformity with the Treaty and any acts adopted under it.

(3)

Because the economic effects of an aid do not change depending on whether it is partly financed by the Community, or whether it is financed by a Member State alone, the Commission considers that there should in principle be consistency and coherence between its policy in respect of the control of State aid, and the support which is granted under the Community's own common agricultural and rural development policy.

(4)

By letter of 30 May 2005, Member States were invited to present proposals for the simplification of State aid rules in the agriculture sector. The Working Group on conditions of competition in agriculture was consulted on these guidelines at its meetings of 22 and 23 June 2006 and 25 October 2006.

(5)

These guidelines apply to all State aid, granted in connection with activities related to the production, processing and marketing of agricultural products falling within the scope of Annex I of the Treaty. They apply to any aid measure, in whatever form, including aid measures financed by parafiscal taxes, which falls within the definition of State aid laid down in Article 87(1) of the Treaty. These guidelines do not apply to State aids in the fisheries and aquaculture sector (3). Chapter VII contains rules for aids for the forestry sector, including aids for the afforestation of agricultural land.

(6)

For the purpose of these guidelines, ‘agricultural product’ means the products listed in Annex I of the Treaty, products falling under CN codes 4502, 4503 and 4504 (cork products) and products intended to imitate or substitute milk and milk products (4), excluding those products covered by Council Regulation (EC) No 104/2000 of 17 December 1999 on the common organisation of the market in fishery and aquaculture products (5).

(7)

For the purpose of these guidelines, ‘processing of an agricultural product’ means any operation on an agricultural product resulting in a product which is also an agricultural product, except on-farm activities necessary for preparing an animal or plant product for the first sale. The processing of agricultural products falling within the scope of Annex I of the Treaty into non-Annex I products therefore falls outside the scope of these guidelines.

(8)

For the purpose of these guidelines, ‘marketing of an agricultural product’ means holding or displaying with a view to sale, offering for sale, delivery or any other manner of placing on the market, except the first sale by a primary producer to resellers or processors and any activity preparing a product for such first sale; a sale by a primary producer to final consumers shall be considered as marketing if it takes place in separate premises reserved for that purpose. Aid for advertising of agricultural products is covered by the scope of the present guidelines whereas aid for advertising of Non Annex I products are covered by horizontal rules on State aid (6).

(9)

For the purpose of these guidelines, ‘small and medium-sized enterprises (SMEs)’ means small and medium-sized enterprises as defined in Annex I to Commission Regulation (EC) No 70/2001 on the application of Articles 87 and 88 of the EC Treaty to State aid to small and medium-sized enterprises (7).

(10)

Article 36 of the Treaty establishing the European Communities provides that the Treaty rules on competition are to apply to production and trade in agricultural products only to the extent determined by the Council. In contrast to other sectors, therefore, the Commission's authority to control and supervise State aids in the agricultural sector does not derive directly from the Treaty, but from legislation adopted by the Council under Article 37 of the Treaty and is subject to any restrictions which may have been laid down by the Council. In practice however, all the regulations establishing the common organisations of the market provide for the application of the State aid rules of Articles 87, 88 and 89 of the Treaty to the products concerned. Furthermore, Article 88 of Regulation (EC) No 1698/2005 expressly provides that Articles 87, 88 and 89 of the Treaty are to apply to aid granted by Member States to support rural development. It follows that, subject to any specific limitations or derogations which may have been laid down in the regulations concerned, the provisions of the Treaty are fully applicable to State aid granted in the agricultural sector, with the exception of those aids which are specifically aimed at the limited number of products which are not covered by common organisations of the market (see paragraph 21).

(11)

Although Articles 87, 88 and 89 are fully applicable to the sectors covered by the common organisations of the market, their application nevertheless remains subordinate to the provisions established by the regulations concerned. In other words recourse by a Member State to the provisions of Articles 87, 88 and 89 cannot receive priority over the provisions of the regulation on the organisation of that sector of the market (8). It follows that under no circumstances can the Commission approve an aid which is incompatible with the provisions governing a common organisation of the market or which would interfere with the proper functioning of the common organisation.

(12)

The Commission will not authorise aid to export-related activities, namely aid directly linked to the quantities exported, and aid contingent upon the use of domestic over imported goods, or for the establishment and operation of a distribution network or to other current expenditure linked to the export activity in other Member States. Aid towards the cost of participating in trade fairs, or of studies or consultancy services needed for the launch of a new or existing product on a new market does not normally constitute export aid.

(13)

In view of the specific rules applicable to food aid given to third countries, the Commission will normally not authorise State aid towards the purchase of agricultural products within the Community to be granted as food aid in third countries.

(14)

These guidelines apply subject to any specific derogations which may be set out in the Treaties or in Community legislation.

(15)

In order to be considered compatible with the common market, any aid measure must contain some incentive element or require some counterpart on the part of the beneficiary. Unless exceptions are expressly provided for in Community legislation or in these guidelines, unilateral State aid measures which are simply intended to improve the financial situation of producers but which in no way contribute to the development of the sector, and in particular aids which are granted solely on the basis of price, quantity, unit of production or unit of the means of production are considered to constitute operating aids which are incompatible with the common market. Furthermore, by their very nature, such aids are also likely to interfere with the mechanisms of the common organisations of the market.

(16)

For the same reason, aid which is granted retrospectively in respect of activities which have already been undertaken by the beneficiary cannot be considered to contain the necessary incentive element, and must be considered to constitute operating aid which is simply intended to relieve the beneficiary of a financial burden. In order to maximise the incentive effect of aid, and to facilitate the demonstration thereof in case of a notification, eligibility rules set up by Member States shall foresee the following steps preceding the granting of aid:

Aid under an aid scheme shall only be granted in respect of activities undertaken or services received after the aid scheme has been set up and declared compatible with the Treaty by the Commission.

If the aid scheme creates an automatic right to receive the aid, requiring no further administrative action at administrative level, the aid itself may only be granted for activities undertaken or services received after the aid scheme has been set up and declared compatible with the Treaty by the Commission.

If the aid scheme requires an application to be submitted to the competent authority concerned, the aid itself may only be granted for activities undertaken or services received after the following conditions have been fulfilled:

Individual aid outside any aid scheme shall only be granted in respect of activities undertaken or services received after the criteria in points (b) and (c) above have been satisfied.

These requirements shall not apply in the case of aid schemes which are compensatory in nature.

(17)

Because of the similarities between agricultural processing and marketing companies and non-agricultural companies, e.g. in the food processing sector, State aid rules applying to agricultural processing and marketing companies should be harmonised with those applying to non-agricultural companies. This policy should be applied to State aid granted for whatever purpose, for example aid towards the costs of investment, environmental protection or technical support. In this context, the Commission has already included agricultural processing and marketing in :

(18)

As a consequence of such harmonisation with the rules for non-agricultural companies, large enterprises may no longer be eligible for certain types of support, notably as far as technical support such as consultancy is concerned. Support to large companies in this respect will, in the future, be limited to de minimis support.

(19)

Unless specifically provided for in these guidelines by reference to the agriculture sector as opposed to either primary production (farmers) or processing and marketing, aid in favour of agricultural processing and marketing shall only be declared compatible with Article 87(2) or (3) of the Treaty if such aid would also be declared compatible if granted in favour of non-agricultural enterprises outside specific sectors such as transport or fishery.

(20)

Because the very specific conditions of agricultural primary production must be taken into account during the assessment of aid which is intended to favour the less favoured regions within the meaning of Article 36 of Regulation (EC) No 1698/2005, the Commission's guidelines on national regional aid for 2007 to 2013 (11) do not apply to primary production. They shall however apply to the processing and marketing of agricultural products to the extent set out in these guidelines.

(21)

As noted above, certain types of agricultural products falling within the scope of Annex I of the Treaty are not yet subject to a common organisation of the market, in particular potatoes other than starch potatoes, horsemeat, coffee and vinegars derived from alcohol and cork. In the absence of a common organisation of the market, the provisions of Article 3 of Council Regulation (EC) No 1184/2006 of 24 July 2006 applying certain rules of competition to production of, and trade in, agricultural products (12) are applicable to State aids which are specifically targeted at these products. Article 3 provides that only the provisions of Article 88(1) and the first sentence of Article 88(3) apply to these aids. Therefore, the Member States are required to inform the Commission in sufficient time to enable it to submit its comments on any plans to grant or alter aid. For its part, the Commission cannot oppose the granting of such aids by means of a final negative decision. In assessing such aids the Commission will take into account the absence of common organisations of the market at the Community level and the fact that Regulation (EC) No 1782/2003 has established the principle that Community support should normally be granted in the form of decoupled aid that is not linked to specific products or ongoing production. It must also be noted that certain market organisations do not provide for any domestic Community support. Provided that the national aid schemes follow that principle, the Commission will not formulate comments, even if the measures concerned consist of operating aids which would normally be prohibited. When formulating its comments, the Commission will also take into account the risk of support being granted for a product not subject to a common market organisation benefiting the production of a product subject to such an organisation. This is notably the case in the potato sector. If a Member State does not follow the Commission's comments and recommendations, the Commission reserves the right to revert to Article 226 of the Treaty.

(22)

Article 6 of the Treaty provides that ‘environmental protection requirements must be integrated into the definition and implementation of the Community policies and activities referred to in Article 3, in particular with a view to promoting sustainable development.’ The activities referred to in Article 3 cover both agricultural and competition policy. Particular attention therefore needs to be given to environmental issues in future State aid notifications, even in cases where the aid schemes are not specifically concerned with environmental issues. For example, in the case of an aid scheme for investments which are intended to increase production, and which involve an increased use of scarce resources or an increase in pollution, it will be necessary to show that the scheme will not result in an infringement of Community environmental protection legislation, or otherwise cause environmental damage. All State aid notifications should in future contain an assessment of the expected environmental impact of the activity aided. In many cases, this will involve no more than a confirmation that there is no expected environmental impact. The Commission reserves the right to require additional information, undertakings and conditions it deems necessary for ensuring adequate environmental protection.

(23)

The Commission will assess any aid measures which are not covered by these guidelines on a case by case basis, taking into account the principles set out in Articles 87, 88 and 89 of the Treaty and the Community's common agricultural and rural development policies. Member States proposing support for the agriculture sector not covered by these guidelines will have to provide an economic assessment of the positive impact of the measure for the development of the agriculture sector, and of the risks of distortions of competition posed by the measure in question. The Commission will only approve such measures if the positive contribution to the development of the sector clearly outweighs the risks of distortions of competition.

(24)

Unless otherwise indicated, all aid rates in these guidelines are expressed in terms of the total amount of support expressed as a percentage of the volume of eligible expenses (gross subsidy equivalents).

(25)

Regulation (EC) No 1698/2005 sets out a series of support measures for rural development. This chapter of the guidelines sets out the rules for State aid in favour of such measures and some other measures closely linked to rural development.

(26)

In order to ensure coherence between rural development measures proposed for co-financing in the framework of the rural development programmes put in place by Member States and rural development measures financed through State aids, every notification concerning aids for investments (Chapters IV A and B), environmental and animal welfare aid (Chapter IV C), aid to compensate for handicaps in certain areas (Chapter IV D), aid for meeting standards (Chapter IV E) and aid for the setting up of young farmers (Chapter IV F) must be accompanied by documentation demonstrating how the State aid measure fits into and is coherent with the relevant Rural Development programmes. State aid that is not coherent with the relevant Rural Development programme and notably State aid leading to increases in capacity for which no normal market outlets can be found will not be authorised.

(27)

This sub-chapter applies to investment linked to the primary production of products falling within the scope of Annex I of the Treaty. It does not apply to investment made on a farm in favour of processing and marketing of such products.

(28)

In order to determine its future policy, the Commission has in particular taken into account the following considerations:

(a)

In order to restructure and develop physical potential and promote innovation, Article 26(1) of Regulation (EC) No 1698/2005 foresees support for tangible and/or intangible investments which improve the overall performance of the agricultural holding;

(b)

In line with Article 26(1) of Regulation (EC) No 1698/2005, where investments are made in order to comply with Community standards, support may be granted only to those which are made in order to comply with newly introduced Community standards. In that case, a period of grace, not exceeding 36 months from the date on which the standard becomes mandatory for the agricultural holding, may be provided to meet that standard. In the case of young farmers receiving support for setting up, support may be granted for investments to comply with existing Community standards, when identified in the business plan referred to in Article 22(1)(c) of Regulation (EC) No 1698/2005. The period of grace within which the standard needs to be met may not exceed 36 months from the date of setting up;

(c)

Article 88(2) of Regulation (EC) No 1698/2005 prohibits State aid for the modernisation of agricultural holdings which exceeds the percentages set out in the Annex to the Regulation, which are:

(d)

The prohibition of Article 88(2) of Regulation (EC) No 1698/2005 does not apply to aid relating to investments undertaken predominantly in the public interest and related to the conservation of traditional landscapes shaped by agricultural and forestry activities or to the relocation of farm buildings, the protection and improvement of the environment, improvement of the hygiene conditions of livestock undertakings and animal welfare and occupational safety at the workplace;

(e)

Where the need to relocate results from an expropriation which, in accordance with the legislation of the Member State concerned gives rise to a right to compensation, the payment of such compensation will not normally be considered as State aid within the meaning of Article 87(1) of the Treaty;

(f)

Member States which delay the implementation of compulsory Community standards beyond the date foreseen in Community legislation may through such delays provide an advantage to farmers in comparison to farmers in Member States which comply with such new standards in line with the implementation dates foreseen in Community legislation. This risk of distortions of competition should not be increased by the granting of high amounts of State aid to farmers who bear the cost of new standards later than foreseen in Community legislation. However, when setting up the appropriate aid intensity for investment linked to compliance with newly introduced standards, account should also be taken of the fact that such standards often only entail costs for the farmer without increasing the earning potential. The highest aid intensity for investments related to newly introduced standards should therefore be reserved for those made within the time table foreseen in Community legislation. Investments made later on should only benefit from a lower aid intensity. Such intensity shall reflect the delay incurred and should be reduced to zero at some point in time;

(g)

As far as implementation of Directive 91/676/EEC is concerned, account should be taken of the specific problems and needs of the Member States which acceded to the Community on 1 May 2004 and 1 January 2007.

(h)

State aid for the purchase of second-hand equipment should be accepted in favour of small and medium-sized enterprises, where the lower cost of such equipment may be a useful first step towards modernisation notably for farms that start from a very low technical standard and which have little capital. Large companies should only receive investment aid for the purchase of new equipment.

(29)

Aid for investment in agricultural holdings shall be declared compatible with Article 87(3)(c) of the Treaty if it fulfils all the conditions of Article 4 of Regulation (EC) No 1857/2006. Without prejudice of Article 4(7)(c) of Regulation (EC) No 1857/2006, aid may also be granted up to the same rate and at the same conditions as those established in the said Article 4 to specific agricultural products and in respect of drainage works or irrigation equipment and irrigation works which do not lead to a reduction of previous water use of 25 %. The maximum amount of aid fixed in Article 4(9) of Regulation No 1857/2006 does not apply.

(30)

Aid for the conservation of traditional landscapes and buildings shall be declared compatible with Article 87(3)(c) or (d) of the Treaty if it fulfils all the conditions of [Article 5 of the BER replacing R 1/2004]. However, the limit of EUR 10 000 fixed in [Article 5 (2) of the BER replacing R 1/2004] could be exceeded in duly justified cases.

(31)

Aid for the relocation of farm buildings in the public interest shall be declared compatible with Article 87(3)(c) of the Treaty if it fulfils all the conditions of [Article 6 of the BER replacing R 1/2004].

(32)

Aid for investments resulting in extra costs relating to the protection and improvement of the environment, the improvement of hygiene conditions of livestock enterprises or the welfare of farm animals shall be declared compatible with Article 87(3)(c) of the Treaty if it fulfils all the conditions of [Article 4(2)(e) of the BER replacing R 1/2004]. For investment expenditure incurred after the dates for compliance with newly introduced standards established by [Article 2(10) of the BER replacing R 1/2004], the maximum aid intensity shall be:

(33)

Aid of 75 % for extra costs of investments in the Member States which acceded to the Community on 1 May 2004 and 1 January 2007 for the implementation of Directive 91/676/EEC shall be declared compatible with Article 87(3)(c) of the Treaty until 31 December 2008 and 31 December 2010 respectively, . This aid intensity must be limited to the extra eligible costs necessary and does not apply in the case of investments which result in an increase in production capacity. The Commission will take particular care of verifying the compatibility of the aid measures proposed with the action plans established in conformity with Directive 91/676/EEC.

(34)

Aid of 50 % in less favoured areas or in areas referred to in Article 36(a)(i), (ii) and (iii) of Regulation (EC) No 1698/2005, and 40 % of eligible investments in other areas in respect of extra costs of investments for the implementation of Directive 91/676/EEC shall be declared compatible with Article 87(3)(c) of the Treaty in so far they are supported under Regulation (EC) No 1698/2005. This aid intensity must be limited to the extra eligible costs necessary and does not apply in the case of investments which result in an increase in production capacity. The Commission will take particular care to verify the compatibility of the aid measures proposed with the action plans established in conformity with Directive 91/676/EEC. Aid measures for the implementation of Directive 91/676/EEC declared compatible with the Treaty by the Commission before the entry into force of these guidelines may continue up to 31 December 2008, at the aid rates authorised by the Commission.

(35)

No aid shall be authorised for investment to comply with existing Community or national standards. However, investment aid granted to young farmers for investments to comply with existing Community or national standards shall be declared compatible with Article 87(3)(c) of the Treaty when identified in the business plan referred to in Article 22(1)(c) of Regulation (EC) No 1698/2005. Such aid shall be authorised at a rate of up to 60 % of the amount of eligible investment by young farmers in the less favoured areas or areas referred to in Article 36(a)(i), (ii) and (iii) of Regulation (EC) No 1698/2005, and up to 50 % of eligible investments by young farmers in other areas. Aid must be limited to extra costs relating to the implementation of the standard incurred no later than 36 months from the date of setting up.

(36)

Notifications of investment aid to agricultural holdings must be accompanied by documentation showing that support is targeted at clearly defined objectives reflecting identified structural and territorial needs and structural disadvantages.

(37)

Where a common market organisation, including direct support schemes, financed by the European Agricultural Guarantee Fund (EAGF) places restrictions on production or limitations on Community support at the level of individual farmers, holdings or processing plants, no investment shall be supported by State aids which would increase production beyond those restrictions or limitations.

(38)

The Commission will also apply the rules set out in this section by analogy to investments in primary agricultural production which are not made by farmers, for example where equipment is purchased for shared use by a group of producers.

(39)

The Commission will not declare aid for the purchase of second-hand equipment compatible with the Treaty if such aid is granted in favour of large companies.

(40)

This sub-chapter applies to investment aid in connection with the processing and marketing of agricultural products.

(41)

In order to determine its future policy, the Commission has in particular taken into account the following considerations:

(42)

Aid for investment granted to companies active in the processing and marketing of agricultural products shall be declared compatible with Articles 87(3)(a) or (c) of the Treaty if it fulfils all the conditions of one of the following provisions:

(43)

Unless specified elsewhere in these guidelines, for example for aid linked to environmental protection, the Commission will thus only authorise aid for investment for companies active in the processing and marketing of agricultural products with 750 employees and more and a turnover of EUR 200 million and more, if it fulfils all the conditions of the guidelines on national regional aid 2007–2013, up to the maximum amount determined in the regional aid map approved for the Member States concerned for the period 2007–2013, in the regions eligible for regional aid. Investment aid not fulfilling these conditions will normally be declared incompatible with the Treaty. No aid may be granted which concerns the manufacture and marketing of products which imitate or substitute milk and milk products.

(44)

The Commission will declare aid for the purchase of second-hand equipment compatible with the Treaty only if such aid is granted in favour of small and medium-sized enterprises.

(45)

Aid for investments with eligible expenses in excess of EUR 25 million, or where the actual amount of aid will exceed EUR 12 million must be specifically notified to the Commission in accordance with Article 88(3) of the Treaty.

(46)

Notifications of investment aid in connection with the processing and marketing of agricultural products must be accompanied by documentation showing that support is targeted on clearly defined objectives reflecting identified structural and territorial needs and structural disadvantages.

(47)

Where a common market organisation, including direct support schemes, financed by the European Agricultural Guarantee Fund (EAGF) places restrictions on production or limitations on Community support at the level of individual farmers, holdings or processing plants, no investment shall be supported under State aids which would increase production beyond those restrictions or limitations.

(48)

Unless expressly specified, this sub-chapter only applies to aid granted to primary producers (farmers).

(49)

In order to determine its future policy, the Commission has in particular taken into account the following considerations:

(50)

In order to determine its future policy, the Commission has in particular taken into account the following considerations:

(51)

Aid for agri-environmental or animal welfare commitments shall be declared compatible with Article 87(3)(c) of the Treaty if it fulfils all the requirements as set out in Articles 39 or 40 of Regulation (EC) No 1698/2005, and of the relevant implementing rules adopted by the Commission.

(52)

When notifying State aid in favour of agri-environmental or animal welfare commitments, Member States must undertake to adapt such schemes to any relevant modification of Regulation (EC) No 1698/2005 or its implementing rules adopted by the Commission.

(53)

A Member State wishing to grant additional aid exceeding the maximum amounts fixed in accordance with Articles 39(4) or 40(3) of Regulation (EC) No 1698/2005 shall provide supporting evidence that the measure meets all the conditions laid down in that Regulation and the relevant implementing rules. It shall also provide a justification for the additional aid payments including a detailed breakdown of the cost components involved on the basis of income foregone and additional costs resulting from the commitment given.

(54)

Aid exceeding the amounts fixed in the Annex to Regulation (EC) No 1698/2005 shall in principle only be declared compatible with Article 87(3)(c) of the Treaty if it is granted for demonstrated additional costs and/or income foregone, in exceptional cases taking into account of specific circumstances to be duly justified, in favour of commitments which entail a real change of current agricultural practice and lead to a demonstrable and significant positive effect on the environment. Unless exceptional benefits for environmental protection can be demonstrated, such higher aid shall thus not be authorised in favour of farmers simply proposing not to change current agricultural practice on the land involved (for example, for not changing extensive grazing into more intensive forms of production).

(55)

If a Member State wants to compensate for transaction costs caused by entering into agri-environmental or animal welfare commitments, it must provide convincing proof of such costs, for example by presenting cost comparisons with farms not entering into such commitments. The Commission will therefore not normally authorise State aid for transaction costs for the continuation of agri-environmental or animal welfare commitments already entered into in the past, unless a Member State demonstrates that such costs continue to occur or that new transaction costs are being borne.

(56)

Where transaction costs are calculated on the basis of average costs and/or average farms, Member States should demonstrate that in particular large farms are not overcompensated. For the purpose of calculating compensation, Member States shall take into account whether the transaction costs in question are incurred per farm or per hectare.

(57)

Aid for the costs of non-productive investments linked to the achievements of commitments undertaken under agri-environmental commitments may be granted up to 100 % of eligible expenses. For this purpose, non productive investments should not lead to a net increase in farm value or profitability.

(58)

Where, exceptionally, a Member State proposes to grant State aid in respect of commitments of a shorter duration than that prescribed in accordance with Regulation (EC) No 1698/2005, it should provide a detailed justification, including a demonstration that the full environmental effects of the measure can be realised in the shorter time proposed. The amount of aid proposed should reflect the shorter duration of the undertakings given.

(59)

For the establishment of future policy, the following considerations have in particular been taken into account:

(60)

The Commission will declare State aid compatible with Article 87(3)(c) of the Treaty if it fulfils all the conditions set out in Article 38 of Regulation (EC) No 1698/2005 and the relevant implementing rules adopted by the Commission. Aid will only be permitted for obligations going beyond cross compliance obligations and the conditions set out in Article 5 of Regulation (EC) No 1782/2003. Any aid which is granted in breach of the polluter pays principle should be exceptional, temporary and degressive.

(61)

Investment aid to farmers in relation to environmental protection is dealt with under chapter IV.A above.

(62)

The Commission will examine any other aid in favour of environmental protection on the basis of the Community guidelines on State aid for environmental protection, which are thus declared applicable to the agriculture sector. Should those guidelines be modified or replaced, such new provisions shall be applied unless specified otherwise in such rules.

(63)

Aid for environmental protection in favour of companies active in the processing and marketing of agricultural products shall be declared compatible with Article 87(3)(c) of the Treaty if it fulfils all the conditions of the Community guidelines on State aid for environmental protection. In case of investment aid in favour of environmental protection, a possible higher maximum aid rate resulting from the application of the rules for investment aid set out above in chapter IV.B may be applied.

(64)

This sub-chapter only applies to support granted to primary production (farmers).

(65)

Article 37 of Regulation (EC) No 1698/2005 provides for natural handicap payments in mountain areas of a maximum of EUR 250 per hectare of UAA and payments in other areas with handicaps of a maximum of EUR 150 per hectare of UAA. Payments higher than the maximum amounts may be granted in duly justified cases provided that the average amount of all these payments granted at the level of the Member State concerned does not exceed this maximum amount. Article 88(3) of Regulation (EC) No 1698/2005 prohibits the payment of State aid to farmers to compensate for natural handicaps in mountain areas and in other areas with handicaps if it does not satisfy the conditions laid down in Article 37. However, additional aid exceeding the amounts fixed according to Article 37(3) may be granted in duly justified cases.

(66)

According to the third subparagraph of Article 94 of Regulation (EC) No 1698/2005, Articles 37 and 88(3) shall apply from 1 January 2010, subject to an act of Council adopted in accordance with the procedure laid down in Article 37 of the Treaty. Until then, in accordance with Article 93(1) of Regulation (EC) No 1698/2005, the relevant provisions of Regulation (EC) No 1257/1999 are maintained, notably Articles 14(2), 15 and 51(3) of that Regulation. Council Regulation (EC) No 1783/2003 of 29 September 2003 amending Regulation (EC) No 1257/1999 on support for rural development from the European Agricultural Guidance and Guarantee Fund (EAGGF) (24) has increased the maximum average amount per hectare that may be granted on the basis of Article 15 of Regulation (EC) No 1257/1999 from EUR 200 to EUR 250 in cases duly justified by objective circumstances. Contrary to Article 88(3) of Regulation (EC) No 1698/2005, Article 51(3) of Regulation (EC) No 1257/1999 prohibits State aid above the maximum amount set in the Annex to the Regulation, i.e. State aid above an average of EUR 250 per hectare.

(67)

A consistent method for calculating the economic impact of recognised handicaps should be established, based on the experience acquired by the Commission. This method shall notably ensure that there is no overcompensation of the economic effect of natural handicaps.

(68)

Distortions of competition and serious imbalances in the overall support levels between Member States should be avoided. Therefore, an upper limit of compensation should be established.

(69)

These rules may be reviewed following the entry into force of Articles 37 and 88(3) of Regulation (EC) No 1698/2005.

(70)

Until the entry into force of Articles 37 and 88(3) of Regulation (EC) No 1698/2005, the Commission will declare State aid compatible with Article 87(3)(c) of the Treaty if it fulfils all the conditions of Articles 14(1), the first two indents of Article 14(2) and Article 15 of Regulation (EC) No 1257/1999, and any implementing rules of this Regulation adopted by the Commission, and if the beneficiaries fulfil cross-compliance obligations.

(71)

Where State aid measures are combined with support under Regulation (EC) No 1257/1999, the total support granted to the farmer must not exceed the amounts determined in accordance with Article 15 thereof.

(72)

From the entry into force of Articles 37 and 88(3) of Regulation (EC) No 1698/2005, the Commission will declare State aid compatible with Article 87(3)(c) of the Treaty if it fulfils all the conditions of these Articles, and any implementing rules adopted by the Council or the Commission.

(73)

In all cases, for aid granted under both Regulation (EC) No 1257/1999 and under Regulation (EC) No 1698/2005, State aid shall only be declared compatible with Article 87(3)(c) of the Treaty under the following conditions:

(74)

The Commission, in coherence with rural development rules, reserves the right to require degressive payments for farms above a certain size. To that effect, notifications should specify the size of the farm that will benefit from these payments.

(75)

This sub-chapter only applies to support granted to primary production (farmers).

(76)

In order to determine its future policy, the Commission has in particular taken into account the following considerations:

(77)

The Commission will declare State aid compatible with Article 87(3)(c) of the Treaty if it fulfils all the conditions of Articles 31 and 88(5) or (6) of Regulation (EC) No 1698/2005, and any implementing rules adopted by the Commission

(78)

Support going above the maximum limit set in the Annex to Regulation (EC) No 1698/2005 shall not cover more than 80 % of costs incurred and income foregone by farmers. Altogether, and taking into account any Community support that may be granted, support shall not exceed EUR 12 000 per holding. This amount shall not be exceeded over any period of five years in case of compensation granted for meeting more than one standard.

(79)

Support may only be granted in relation to standards which, if calculated for an average farm of the sector and Member State concerned by the standard, can be shown to be the direct cause of :

(80)

Support may only be granted in relation to standards which lead to such an increase in operating costs or loss of income for at least 25 % of all farms of the (sub)sector in the Member State concerned by the standard.

(81)

In relation to national standards, the Member State shall demonstrate that the introduction of the relevant standard at national level would risk causing an important competitive handicap to the producers concerned. The demonstration of such handicap shall be made on the basis of average net profit margins for average farms of the (sub)sector concerned by the standard.

(82)

This sub-chapter only applies to support granted to primary production (farmers).

(83)

Support for the setting-up of young farmers tends to encourage the development of the sector as a whole and prevent the depopulation of rural areas. Article 22 of Regulation (EC) No 1698/2005 therefore provides for a Community scheme to support the setting-up of young farmers.

(84)

The Commission will declare State aid to support the setting-up of young farmers compatible with Article 87(3)(c) of the Treaty if it fulfils the conditions of Article 22 of Regulation (EC) No 1698/2005 and any implementing rule of this Regulation adopted by the Commission.

(85)

This chapter only applies to support granted to primary production (farmers).

(86)

In order to establish its future policy, the Commission has in particular taken account of the following considerations:

(87)

The Commission will declare State aid for early retirement compatible with Article 87(3)(c) of the Treaty if it fulfils the conditions of Article 23 of Regulation (EC) No 1698/2005. The Commission will authorise payments going above the maximum amounts set out in that Regulation provided the Member State demonstrates that such payment is not passed on to active farmers.

(88)

Provided they are subject to conditions requiring a permanent and definitive cessation of commercial farming activities, the Commission will authorise State aid for the withdrawal of farmers from any agricultural activity.

(89)

In order to establish its future policy, the Commission has in particular taken account of the following considerations. Because of the disparate nature of agricultural production, the Commission has traditionally taken a favourable view of the payment of ‘start-up’ aids intended to provide an incentive for the constitution of producers groups to promote the bringing together of farmers with a view to concentrating their supply and adapting their production to market requirements. In order to focus support on small producer groups, and in order to avoid large amounts of support being granted, such aid should, however, be limited to small and medium-sized enterprises, within a maximum amount.

(90)

The Commission will declare start-up aid for producer groups compatible with Article 87(3)(c) of the Treaty if it fulfils all the conditions of [Article 9 of draft exemption regulation].

(91)

Aids granted to other agricultural associations, which undertake tasks at the level of agricultural production, such as mutual support and farm relief and farm management services, in the members' holdings without being involved in the joint adaptation of supply to the market are not covered by this section. However, the Commission will apply the principles set out in this section to aids which are granted to cover the start-up costs of associations of producers which are responsible for the supervision of the use of denominations of origin or quality marks.

(92)

Aids which are granted to producer groups or associations to cover expenses which are not linked to start-up costs, such as investments or promotion activities, will be assessed in accordance with the rules governing such aids.

(93)

Aid schemes authorised under this section will be subject to a condition requiring them to be adjusted to take account of any change in the regulations governing the common organisations of the market.

(94)

As an alternative to providing aid to producer groups or associations thereof, aid up to the same overall amount may be granted directly to producers to offset their contributions to the cost of running the groups during the first five years following the formation of the group. The Commission will not authorise State aid towards the costs covered by this sub-chapter in favour of large companies.

(95)

In order to establish its future policy, the Commission has in particular taken account of the following considerations:

(96)

The Commission will declare aid for land reparcelling compatible with Article 87(3)(c) of the Treaty if it fulfils all the conditions of Article 13 of [the new exemption Regulation].

(97)

In order to establish its future policy, the Commission has in particular taken account of the following considerations:

(98)

The Commission will declare State aid to encourage the production of quality agricultural products granted to primary producers (farmers) compatible with Article 87(3)(c) of the Treaty if it fulfils all the conditions of [Article 14 of future exemption Regulation].

(99)

The Commission will declare State aid to encourage the production of quality agricultural products granted to companies active in the processing and marketing of agricultural products compatible with Article 87(3)(c) of the Treaty if it fulfils all the conditions of Article 5 of Regulation (EC) No 70/2001.

(100)

The Commission will not authorise State aid towards the costs covered by this sub-chapter in favour of large companies.

(101)

Aid for investments which are necessary to upgrade production facilities, including investments necessary to manage the documentation system and perform process and product controls, may only be granted in accordance with the rules set out in chapters IV.A and IV.B above, as appropriate.

(102)

In order to establish its future policy, the Commission has in particular taken account of the following considerations:

(103)

The Commission will declare State aid for the provision of technical support granted to primary producers (farmers) compatible with Article 87(3)(c) of the Treaty if it fulfils all the conditions of [Article 15 of future exemption Regulation].

(104)

The provision of technical support to primary producers (farmers) can be undertaken by producer groups or other organisations, regardless of their size.

(105)

The Commission will declare State aid for the provision of technical support granted to companies active in the processing and marketing of agricultural products compatible with Article 87(3)(c) of the Treaty if it fulfils all the conditions of Article 5 of Regulation (EC) No 70/2001.

(106)

The Commission will not authorise State aid towards the costs covered by points 104 and 105 in favour of large companies.

(107)

The Commission will examine on a case by case basis State aid in favour of other activities for the vulgarisation of new techniques, such as reasonable small scale pilot projects or demonstration projects. The Member State shall provide a clear description of the project including an explanation of the novel character of the project and of the public interest in granting support for it (for example because it has not been tested before) and demonstrate compliance with the following conditions:

(108)

In order to establish its future policy, the Commission has in particular taken account of the following considerations:

(109)

The Commission will declare State aid in the livestock sector compatible with Article 87(3)(c) of the Treaty if it fulfils all conditions of Article 16(1)(a), (b) and (c) and Article 16(3) of [the new exemption Regulation]. The Commission will not authorise State aid towards the costs covered by this chapter in favour of large companies.

(110)

In order to establish its future policy, the Commission has in particular taken account of the following considerations:

(111)

The Commission will examine proposals to grant State aid designed to meet the needs of these regions on a case by case basis, on the basis of the specific legal provisions applying to these regions, and having regard to the compatibility of the measures concerned with the Rural Development Programmes for the regions concerned, and their effects on competition both in the regions concerned and in other parts of the Community.

(112)

Good risk and crisis management is a key tool for a sustainable and competitive agriculture sector in the Community. Debate has been stimulated recently by the Communication from the Commission on risk and crisis management in agriculture (27). The discussion at Council level during 2005 concluded (28) unanimously that the use of State aid for risk and crisis management measures must be subject to the appropriate Community competition rules. The Council agreed that eligible risk management tools must therefore comply with the provisions laid down in the Community guidelines on State aid in the agriculture sector. There was broad consensus amongst Member States that although public financing may be essential, especially for the establishment and smooth start-up of new tools, joint responsibility and therefore a financial contribution from agricultural producers is also essential.

(113)

For certain types of risk and crisis in the agriculture sector, the granting of State aid can be an appropriate means of support. However, it must always be borne in mind that there is no obligation on a Member State to actually grant State aid. As a consequence, for a similar risk or crisis, producers in one Member State or region may receive support while those in other Member States or regions do not. Such differences in support may lead to distortions of competition. Therefore, just as for other types of State aid, the authorisation of State aid for risk and crisis management must take into consideration the need to avoid undue distortions of competition. Requiring a minimum contribution from producers to losses or the cost of such measures or some other adequate counterpart should be foreseen to mitigate the risk of distortions of competition and to provide an incentive for minimising risk.

(114)

It is primary production (farming) that is exposed to the particular risks and crises confronting the agriculture sector. Companies active in the processing and marketing of agricultural products normally have much better possibilities to hedge risks. Therefore, certain types of risk and crisis support should be limited to primary production.

(115)

State aid should be limited to helping farmers facing various difficulties despite having undertaken reasonable efforts to minimise such risks. State aid should not have as its effect to entice farmers into taking unnecessary risk. Farmers should themselves bear the consequences of imprudent choices of production methods or products.

(116)

Based on these considerations, the Commission has reviewed the existing series of risk and crisis management measures that may be financed through State aid. The conclusion of this review is that the existing combination of tools is adequate, but should be refined in the light of experience. In the light of the large-scale evaluation and re-examination of Community animal disease compensation policy that is still going on, it will however be necessary to review sub-chapter V.B.4 as soon as this evaluation has been concluded.

(117)

The introduction in 2005 of a de minimis facility (29) at the level of primary production offers an additional tool to Member States to grant a minimum of support quickly and without any need to seek Commission authorisation. The inclusion of agricultural processing and marketing companies in the de minimis Regulation covering non-agricultural companies, which opens up the possibility of support up to [EUR 200 000] per company and per period of three fiscal years provides an additional facility to support such companies. However, it must be clear that de minimis support cannot solve bigger economic problems resulting from a crisis. Any more substantial support must be granted within a State aid framework that ensures Commission control and avoids distortions of competition.

(118)

It should be clear that these State aid rules alone cannot as such provide for or replace optimal crisis management. State aid can only facilitate it in certain circumstances. A crisis may happen overnight, requiring rapid reaction. Effective crisis management requires Member States to think early about which State aid measures shall be made available. It is the responsibility of Member States to examine the various State aid support possibilities and to set up aid schemes in time, so that they can be immediately put to use in the event of acute problems. Otherwise, the need to establish a compensation system, notify it and seek Commission authorisation may take precious time before help can be offered to those most in need.

(119)

In order to avoid a risk of the distortion of the conditions of competition, the Commission considers it important to ensure that aid to compensate enterprises for damage caused to agricultural production is paid as soon as possible after the occurrence of the adverse event concerned. Where aid is paid only several years after the occurrence of the event in question, there is a real danger that the payment of such aid will produce the same economic effects as operating aid. This is particularly the case where aid is paid retrospectively in respect of claims which were not properly documented at the time. Therefore, in the absence of a specific justification, resulting for example from the nature and extent of the event, or the delayed or continuing nature of the damage, the Commission will not approve proposals for aid which are submitted more than three years after the occurrence of the event, nor for aid to be paid out more than four years following the event.

(120)

This sub-chapter applies to the whole of the agriculture sector.

(121)

Because they constitute exceptions to the general principle of the incompatibility of State aid with the common market laid down by Article 87(1) of the Treaty, the Commission has consistently held that the notions of ‘natural disaster’ and ‘exceptional occurrence’ contained in Article 87(2)(b) must be interpreted restrictively. This has been confirmed by the Court of Justice of the European Communities (30). Hitherto the Commission has accepted that earthquakes, avalanches, landslides and floods may constitute natural disasters. In order to facilitate rapid crisis management, the Commission will in the future authorise aid schemes to compensate for the damages of natural disasters in the form of earthquakes, avalanches, landslides, floods and other natural disasters provided that a sufficiently precise description can be established.

(122)

Exceptional occurrences which have hitherto been accepted by the Commission include war, internal disturbances or strikes, and with certain reservations and depending on their extent, major nuclear or industrial accidents and fires which result in widespread loss. On the other hand the Commission did not accept that a fire at a single processing plant which was covered by normal commercial insurance could be considered as an exceptional occurrence. As a general rule, the Commission does not accept that outbreaks of animal or plant diseases can be considered to constitute natural disasters or exceptional occurrences. However, in one case the Commission did recognise the very widespread outbreak of a completely new animal disease as an exceptional occurrence. Because of the inherent difficulties in foreseeing such events, the Commission will continue to evaluate proposals to grant aid in accordance with Article 87(2)(b) of the Treaty on a case by case basis, having regard to its previous practice in this field.

(123)

Once the existence of a natural disaster or an exceptional occurrence has been demonstrated, the Commission will permit aid of up to 100 % to compensate for material damage. Compensation should normally be calculated at the level of the individual beneficiary. In order to avoid over-compensation, any payments due, for example under insurance policies, should be deducted from the amount of aid. The Commission will also accept aid to compensate for loss of income resulting from the destruction of the means of agricultural production, provided that there is no over-compensation. In all cases, the case law of the Court of Justice requires the Member State to demonstrate a direct link between the damage caused by the exceptional occurrence and the State aid and as precise an assessment as possible to be made of the damage suffered by the producers concerned.

(124)

This sub-chapter applies only to support granted to primary production (farmers).

(125)

In order to establish its future policy, the Commission has in particular taken account of the following considerations:

(126)

The Commission will declare aid for losses due to adverse climatic events compatible with Article 87(3)(c) of the Treaty if it fulfils all the conditions of [Article 11 future exemption Regulation].

(127)

In order to enable the Commission to assess such aid schemes, notifications of aid measures to compensate for damage caused by adverse weather conditions should include appropriate supporting meteorological information. Such information may also be provided ex post in the form of annual reports in line with the requirements of the last sentence of [Article 20(3) future exemption Regulation].

(128)

The Commission will accept alternative methods of calculation of normal production, including regional reference values, provided it is satisfied that these are representative and not based on abnormally high yields. If the adverse weather conditions have affected a wide area in the same way, aid payments may be based on average losses provided that these are representative and do not result in significant overcompensation of any beneficiary.

(129)

Aid under this sub-chapter may only be paid to farmers or, alternatively, to a producers' organisation of which the farmer is a member, and the amount of aid should not exceed the actual loss incurred by the farmer.

(130)

For losses suffered from 1 January 2010, the Commission will derogate from the condition of [Article 11(8) of the future exemption regulation] only if a Member State can convincingly show that, despite all reasonable efforts, affordable insurance covering the statistically most frequent climatic risks in the Member State or region concerned was not available at the time the damage occurred.

(131)

This sub-chapter only applies to support granted to primary producers (farmers). In the light of the large-scale evaluation and re-examination of Community animal disease compensation policy that is still going on, it will however be necessary to review the relevant sub-chapter as soon as this evaluation has been concluded.

(132)

In order to establish its future policy, the Commission has in particular taken account of the following considerations:

(133)

The Commission will declare State aid for combating animal and plant diseases compatible with Article 87(3)(c) of the Treaty if it fulfils all the conditions of [Article 10 of future exemption Regulation].

(134)

The Commission will declare State aid concerning TSE tests and fallen stock compatible with Article 87(3)(c) of the Treaty if it fulfils all the conditions of [Article 16 of future exemption Regulation].

(135)

In relation to fallen stock and slaughterhouse waste, the Commission will not authorise the following State aid:

(136)

Where aid is provided under Community and/or national and/or regional aid schemes, the Commission will require evidence that there is no possibility of overcompensation through the cumulation of the different schemes. Where Community aid has been approved, the date and references of the relevant Commission decision should be provided.

(137)

The Commission will authorise such State aid in favour of farmers only.

(138)

This sub-chapter only applies to primary producers (farmers).

(139)

In order to establish its future policy, the Commission has in particular taken account of the following considerations:

(140)

The Commission will declare aid towards the payment of insurance premiums compatible with Article 87(3)(c) of the Treaty if it fulfils all conditions of [Article 12 future exemption Regulation].

(141)

The Commission will examine other aid measures in connection with insurance against natural disasters and exceptional occurrences on a case by case basis, in particular reinsurance schemes and other aid measures to support producers in particularly high risk zones.

(142)

The Commission will not authorise State aid towards the payment of insurance premiums in favour of large companies, and companies active in the processing and marketing of agricultural products.

(143)

The Commission takes a favourable view of aid schemes for the closing of capacity in the agriculture sector provided that they are coherent with any Community arrangements to reduce production capacity, and certain conditions are met, namely:

(144)

The Commission will declare aid for the closing of capacity compatible with Article 87(3)(c) of the Treaty if it fulfils the following conditions:

(145)

Aids for rescuing and restructuring firms in difficulty in the agriculture sector will be assessed in accordance with the applicable Community guidelines on State aid for rescuing and restructuring firms in difficulty (36).

(146)

Since 2002, aid for the creation of employment in the agriculture sector is covered by Commission Regulation (EC) No 2204/2002 of 12 December 2002 on the application of Articles 87 and 88 of the EC Treaty to State aid for employment (37). The rules set out in that Regulation establish a coherent framework for such support. Aid for employment limited to the agriculture sector but fulfilling all other conditions of the Regulation is not exempted. Because of the specificities of the agriculture sector, and notably of primary production, Member States may have an interest in introducing specific aid schemes for employment in the agriculture sector. As long as such aid is open to the whole of the agriculture sector, without limiting support to certain products, the benefits of such support would still appear to outweigh the risk of distortions resulting from such an approach.

(147)

The Commission will declare State aid for employment in the agriculture sector compatible with Article 87(3)(c) of the Treaty if it fulfils all the conditions of Articles 1 and 2 as well as Articles 4 to 9 of Regulation (EC) No 2204/2002. Aid limited to the agriculture sector shall be authorised under the same conditions.

(148)

Aid for research and development in the agriculture sector will be examined in accordance with the criteria set out in the applicable Community framework for State aid for research and development (38), including the possibility for additional support for research in favour of the agriculture sector.

(149)

For the sake of completeness, it should be pointed out that in addition to the aid instruments and rules described above, notably the following rules concerning the definition of aid and the compatibility of aid with the Treaty are also applicable to the agriculture sector:

(150)

If any of these aid instruments are reviewed, the Commission intends to maintain its policy of including agriculture, unless convincing reasons appear to provide for a specific treatment of the agriculture sector.

(151)

As far as the application of Article 86(2) of the Treaty in the agriculture sector is concerned, it should be pointed out that the Commission has held that companies producing and marketing products falling within the scope of Annex I of the Treaty and covered by a common market organisation cannot be regarded as undertakings entrusted with the operation of services of general economic interest within the meaning of Article 86(2) of the Treaty (48).

(152)

In order to establish its future policy, the Commission has in particular taken account of the following considerations:

(153)

State aid for advertising campaigns within the Community will be declared compatible with the Treaty if the following conditions are fulfilled:

(154)

Where the advertising campaign is earmarked for Community-recognised denominations, reference may be made to the origin of the products provided that the reference corresponds exactly to those references which have been registered by the Community.

(155)

In the case of national or regional quality labels, the origin of the products may be mentioned as a subsidiary message. To assess whether the origin is indeed a subsidiary message, the Commission will take into account the overall importance of the text and/or symbol, including pictures and general presentation, referring to origin and the importance of the text and/or symbol referring to the unique selling point of the advertisement, i.e. the part of the advertising message which does not focus on origin.

(156)

The rate of direct aid shall not exceed 50 %. If the sector contributes to at least 50 % of the costs, whichever the form of the contribution, the aid rate may go up 100 %.

(157)

In addition, State aid for advertising up to 100 % will be declared compatible if it is generic in character and in the benefit of all producers of the type of product concerned. No mention may be made of product origin in such advertising. The advertising can be carried out by producer groups or other organisations, regardless of their size.

(158)

Advertising activities with an annual budget in excess of EUR 5 million shall be notified individually.

(159)

The Commission will examine and authorise State aid in favour of advertising in third countries compatible with Article 87(3)(c) of the Treaty if it is in line with the principles of Regulation (EC) No 2702/1999. The Commission will however not declare compatible State aid for advertising which:

(160)

In order to establish its future policy, the Commission has in particular taken account of the following considerations:

(161)

The Commission will not declare State aid for short term loans compatible with the Treaty.

(162)

The possibility to grant reduced tax rates and exemptions to agricultural taxation exist in Community excise legislation since 1993. No clear policy as to the compatibility of these measures with State aid rules was laid down so far. The current Council Directive 2003/96/EC of 27 October 2003 restructuring the Community framework for the taxation of energy products and electricity (54) allows Member States to apply tax exemptions, tax reductions, tax differentiation and tax refunds. Its Article 26(2) explicitly points to the fact that ‘measures such as tax exemptions, tax reductions, tax differentiation and refunds within the meaning of this Directive might constitute State aid and in those cases have to be notified to the Commission pursuant to Article 88(3) of the Treaty’.

(163)

The measures in question may indeed constitute State aid for the following reasons: they may be considered as publicly financed, as, by applying them, the State deprives itself of financial resources; if applied in a specific sector of the economy, they provide an advantage to certain companies or certain types of products; they may distort or threaten to distort competition in a sensitive sector such as agriculture, where trade flows are very intensive.

(164)

A set of rules must be designed in order to evaluate the compatibility of such measures with Article 87(3)(c) of the Treaty.

(165)

Article 8 of Directive 2003/96/EC states that lower minimum levels of taxation set out in Table B of Annex I thereto shall apply to products used as motor fuel for the purposes of agricultural and horticultural works as well as for forestry.

(166)

Article 15(3) of Directive 2003/96/EC states that Member States may apply a level of taxation down to zero to energy products and electricity used for agricultural and horticultural works, as well as for forestry, but also that on the basis of a proposal from the Commission, the Council shall before 1 January 2008 examine if the possibility of applying a level of taxation down to zero shall be repealed.

(167)

The Commission takes these provisions into consideration when drawing up its rules for State aid compatibility for primary production in the agricultural sector, whilst ensuring that no tax differentiation is applied within the sector. When a tax measure provided for in Articles 8 and 15(3) of Directive 2003/96/EC is applied equally to the whole agricultural sector, the Commission considers that this measure may contribute to the development of the sector. The Commission until now has only received notifications for tax reductions in connection with motor fuels used in primary agricultural production. In view of the fact that these reductions are based on quantities of motor fuel actually used in primary production (which should be substantiated by invoices presented by farmers) and in the light of the small scale structure of farms in the European Union (more than 60 % of farms have less than 5 hectares of utilized agricultural area) the Commission considers that this measure will not unduly distort competition. By way of analogy, tax exemptions for energy and electricity used in primary agricultural production should also be rather small-scale and should thus not adversely affect trading conditions to an extent contrary to the common interest.

(168)

It is possible that unlawful State aids in the form of tax exemptions, reductions, differentiation and refunds have been granted since the entry into force of Directive 2003/96/EC in connection with primary agricultural production. If they fulfil the relevant provisions of the Directive and no tax differentiation has been applied within agriculture, they should be declared compatible with Article 87(3)(c) of the Treaty.

(169)

The application of lower minimum level of taxation as set out in Table B of Annex I to Directive 2003/96/EC to products used as motor fuel for the purposes of primary agricultural production will be declared compatible with Article 87(3)(c) of the Treaty, provided no differentiation is made within agriculture.

(170)

The application of a level of taxation down to zero to energy products and electricity used for primary agricultural production, will be declared compatible with Article 87(3)(c) of the Treaty until 31 December 2007 or any other date decided by the Council, provided no differentiation is applied within agriculture. In case Directive 2003/96/EC is modified, the present provision will be reviewed accordingly.

(171)

If the possibility of applying a level of taxation down to zero to energy products and electricity used for agricultural works, is repealed by the Council, State aid linked to a tax reduction under Directive 2003/96/EC will be declared compatible with Article 87(3)(c) of the Treaty if the reduction in question fulfils all the relevant provisions of the directive and no tax differentiation is applied within agriculture.

(172)

Unlawful State aid granted since the entry into force of Directive 2003/96/EC will be declared compatible with Article 87(3)(c) of the Treaty if it fulfils all the relevant provisions set out in this chapter and no tax differentiation has been applied within agriculture.

(173)

No specific Community rules exist governing State aid for the forest sector (forestry and forest-based industries) (55). Nevertheless, in addition to State aid granted under Community rules common to all sectors, notably the Community framework for Research and Development (56) and the Community guidelines on State aid for rescuing and restructuring forms in difficulty (57), certain Community instruments governing State aid granted for trade and industrial production apply also to the forest sector, notably the Commission guidelines on national regional aid for 2007–2013 and the Community Guidelines on State Aid for Environmental Protection (58). The forest sector can also benefit from aid granted under the de minimis Regulation applicable to industrial activities and Regulation (EC) No 70/2001, which do not apply to agricultural production. Moreover, in addition to the rules and instruments mentioned it is established Commission practice to authorise State aid for conservation, improvement, development and maintenance of forests on account of the ecological, protective and recreational functions of forest. In order to make this practice transparent and to determine its scope in relation to the other rules for State aid for the forest sector, it is appropriate to set out the policy the Commission will apply to State aid for the forest sector. When formulating this policy it is also necessary to take into account the aid available for measures targeting the sustainable use of forestry land under the Regulation (EC) No 1698/2005 in order to assure consistency of State aid and co-financed support for forestry.

(174)

In order to determine its future policy, the Commission has in particular taken into account the following considerations:

(175)

In order to contribute to the maintenance and improvement of forests and to promote their ecological, protective and recreational function the Commission will declare State aid up to 100 % compatible with Article 87(3)(c) of the Treaty for the following eligible costs where the Member State can demonstrate that these measures are directly contributing to maintaining or restoring ecological, protective and recreational functions of forests, biodiversity and a healthy forest ecosystem:

(176)

The Commission will declare State aid for afforestation of agricultural or non-agricultural land, establishment of agroforestry systems on agricultural land, Natura 2000 payments, forest-environment payments, restoration of forestry potential and introduction of prevention actions as well as non-productive investments compatible with Article 87(3)(c) of the Treaty if the aid meets the conditions laid down in Articles 43–49 of Regulation (EC) No 1698/2005 and does not exceed the maximum intensity stipulated therein.

(177)

The Commission will authorise State aid for the additional costs and income foregone due to the use of environmentally friendly forestry technology going beyond the relevant mandatory requirements if the forest owners enters into a voluntary commitment concerning the use of such technology and the commitment satisfies the conditions of Article 47 of Regulation (EC) No 1698/2005. Aid exceeding the amounts fixed in the Annex to Regulation (EC) No 1698/2005 shall in principle only be declared compatible with Article 87(3)(c) of the Treaty if granted for demonstrated additional costs and/or income foregone, in exceptional cases taking into account specific circumstances to be duly justified, in favour of commitments which lead to a demonstrable and significant positive effect on the environment.

(178)

The Commission will declare State aid for the purchase of forestry land compatible with Article 87(3)(c) of the Treaty if the aid intensity does not exceed that laid down in [Article 4 of the Block Exemption Regulation] for the purchase of agricultural land.

(179)

The Commission will declare State aid for training of forest owners and forestry workers and for consultancy services provided by third parties, including the establishment of business plans, forestry management plans and feasibility studies, as well as participation in competitions, exhibitions and fairs compatible with Article 87(3)(c) of the Treaty if the aid fulfils the conditions set out in [Article 15 of future Exemption Regulation].

(180)

The Commission will authorise State aid for the setting up of forestry associations if the aid fulfils the conditions set out in [Article 9 of future Exemption Regulation].

(181)

The Commission will authorise State aid in favour of activities for the vulgarisation of new techniques, such as reasonable small scale pilot projects or demonstration projects if the aid fulfils the conditions set out in point 107 of these Guidelines.

(182)

The provisions of this Chapter are without prejudice to the possibility of applying other State aid rules applicable to all sectors or trade and industry to the forest sector.

(183)

Subject to the points below, all new aid schemes and all new individual aids must be notified to the Commission before they are put into effect in accordance with Article 88(3) of the Treaty and Council Regulation (EC) No 659/1999 laying down detailed rules for the application of Article 88 of the Treaty (59). This does not apply to aid covered by one of the exemption Regulations adopted by the Commission on the basis of Council Regulation (EC) No 994/98 of 7 May 1998 on the application of Articles 92 and 93 of the Treaty establishing the European Community to certain categories of horizontal State aid (60).

(184)

In accordance with Article 89 of Regulation (EC) No 1698/2005, a separate notification under Article 88(3) of the Treaty is not required in respect of State aid intended to provide additional financing for rural development measures for which Community support is granted provided that this aid has been notified to and approved by the Commission in accordance with the provisions of the Regulation as part of the programming referred to in that Regulation.

(185)

In order to benefit from this exception, the measures concerned must themselves respect all conditions of substance for State aid, and notably the eligible costs and aid intensities set out in these guidelines. The amount of additional State aid allocated to each of them must be clearly identified in the rural development plan in accordance with the provisions of the Rural Development Implementing Regulation. Commission approval of the plan will cover only measures which have been identified in this way. State aids granted for other measures, whether or not included in the plan, or measures which are subject to different conditions from those set out in the plan must be the subject of a separate notification to the Commission in accordance with Article 88(3).

(186)

Furthermore, Commission approval of the plan will only cover the amount of aid set out by the Member State.

(187)

The same rules apply by analogy to amendments to rural development plans.

(188)

Under the Community Guidelines for State aid in the agriculture sector applied during the period 2000–2006, the Commission has accepted notifications of State aid schemes of unlimited duration. This can create a lack of transparency, notably where an aid measure is not used for several years. It also makes the regular review of all existing schemes more difficult for the Commission.

(189)

Therefore, the Commission will, in the future, only authorise schemes of limited duration. Schemes covering State aid for measures that can also benefit from co-financing under Regulation (EC) No 1698/2005 should be limited to the duration of the programming period 2007–2013. Other aid schemes should not apply for more than seven years.

(190)

Article 21 of Regulation (EC) No 659/1999 requires Member States to submit annual reports to the Commission on all existing aid schemes with regard to which no specific reporting obligations have been imposed in a conditional decision. Details are set out in Commission Regulation (EC) No 794/2004 of 21 April 2004 implementing Council Regulation (EC) No 659/1999 laying down detailed rules for the application of Article 93 of the EC Treaty. (61)

(191)

The Commission reserves the right to seek additional information on existing aid schemes on a case by case basis, where this is necessary to enable it to fulfil its responsibilities under Article 88(1) of the Treaty.

(192)

Where annual reports are not provided in accordance with these guidelines, the Commission may proceed in accordance with Article 18 of Regulation (EC) No 659/1999.

(193)

Having regard to the annual reports provided by the Member States, the Commission will take appropriate steps to ensure an increase in the transparency of information regarding State aid in the agricultural sector.

(194)

The Commission will apply these guidelines to new State aids with effect from 1 January 2007. Notifications pending on 31 December 2006 will be assessed according to the Community State aid guidelines that were applicable in the agricultural sector on the date of notification of the aid. Except for measures referred to in point 195, the Commission will no longer apply the following texts from 1 January 2007 :

(195)

For the assessment of the aid schemes and individual aids that are regarded as existing aid in accordance with Point 4, Chapter 4 of Annex IV to the 2003 Act of Accession (65), the Community guidelines for State aid in the agriculture sector applicable on 31 December 2006 will remain applicable until 31 December 2007 without prejudice of point 196, provided that such aid complies with those guidelines by 30 April 2007 at the latest.

(196)

In accordance with Article 88(1) of the Treaty the Commission proposes that Member States amend their existing aid schemes to conform with these guidelines by 31 December 2007 at the latest, except for existing aid schemes for investments in connection with processing and marketing of agricultural products, that have to be eliminated by 31 December 2008 at the latest, and for investments concerning land purchase in agricultural holdings, that have to be amended to conform with these guidelines by 31 December 2009.

(197)

The Member States are invited to confirm that they accept these proposals for appropriate measures in writing by 28 February 2007 at the latest.

(198)

In the event that a Member State fails to confirm its acceptance in writing before that date, the Commission will apply Article 19(2) of Regulation (EC) No 659/1999 and, if necessary, initiate the proceedings referred to in that provision.

(199)

These guidelines shall apply until 31 December 2013. The Commission may amend them before that date on the basis of important competition policy considerations, or agricultural or human and animal health policy considerations, or in order to take account of other Community policies or international commitments