This document summarizes state aid provided by EU member states for regional development and small and medium-sized enterprises (SMEs) between 2012-2014. It finds that total state aid amounts increased from €62.7 billion in 2013 to €101.2 billion in 2014. Regional aid and aid to SMEs also increased in this period. The document discusses challenges with state aid concepts and definitions, and examines a case study on defining what constitutes linked SMEs. It analyzes the European Commission's assessments of state aid compliance and effectiveness.

1. State Aid for
Regional Development & SMEs: An Assessment
Prof P. Nicolaides

2. Themes
 Amounts and ranking
 Where do MS appear to get it wrong?
 Difficulties with concepts/definitions
 A case study on SME definition

3. Total aid (excl rail), 2014
2014: EUR 101.2 billion
[0.72% of GDP]
2013: EUR 62.7 billion
[0.5% of GDP]
2012: EUR 66.7 billion

4. Aid objectives & changes in volume of support
Environment & energy: EUR 43.6 billion

5. Regional aid
2012 2013 2014
Total amount
of aid
12,537.9 13,124.6 15,437.1
Block-
exempted aid
6,213.9 6,181.6 9,776.1
In 2014 prices

6. SME aid (including risk capital)
2012 2013 2014
Total amount
of aid
4,283.2 3,682.0 3,856.2
Block-
exempted aid
1,904.6 1,643.2 1,606.9
In 2014 prices

7. Block exempted aid (2014)
Amount (billion)
Total 27.2
Regional 9.8
Environment/energy 7.7
Research 5.0
Employment 1.7
SME 1.6

8. ECA annual report on EU budget
 Source of irregularities:
• Public procurement
• State aid
 Types of irregularities in state aid:
• No incentive effect
• Ineligible costs
• Aid in excess of maximum ceilings

9. ECA special reports on financial instruments for SMEs
 Special report 19/2016: Implementing the EU budget through
financial instruments – lessons to be learnt from the 2007-
2013 programme period
 Special report 8/2015: Is EU financial support adequately
addressing the needs of micro-entrepreneurs?
 Special report 7/2014: Has the ERDF successfully supported
the development of business incubators?
 Special report 2/2012: Financial instruments for SMEs co-
financed by the European Regional Development Fund

10. Cont.
 Main comments concern the following:
• Absence of well-defined policy objectives
• Low leveraging
• Aid not necessary
• Ineligible costs
• Non-compliance with maximum aid ceilings

11. Difficult issues concerning regional aid
 Incentive effect for ad-hoc aid to LE: what is “material”
increase? [Art 6]
 Must MS inform beneficiaries that aid is granted on basis of
GBER? [Art 9]
 What is “fundamental” change in production process?
 How to verify that an activity was not closed in previous 2 years
down or will not close down in next 2 years [Art 13]
 Is diversification into new activity = diversification into new
product?

12. Aid to large enterprises
GBER RAG
Initial investment 2(49) setting-up of new establishment,
extension of capacity of existing
establishment, diversification of output
of establishment into products not
previously produced in the
establishment or fundamental change
in overall production process of an
existing establishment
20(h) setting-up of new establishment,
extension of capacity of existing
establishment, diversification of output
of establishment into products not
previously produced in the
establishment, or fundamental change
in overall production process of an
existing establishment
Initial investment
in favour of new
economic activity
2(51) setting up of new establishment,
or diversification of activity of
establishment, under condition that
new activity is not same activity as
activity previously performed
20(i) setting up of new establishment,
or diversification of activity of
establishment, under condition that
new activity is not same activity as
activity previously performed
Compatible aid
[Art 107(3)(c),
aid to large
enterprises]
Art 14 shall only be granted for initial
investment in favour of new economic
activity
15 granted for initial investments that
create new economic activities, or for
diversification of existing
establishments into new products or
new process innovations
Notifiable aid
[“c” areas]
24 granted to large undertaking to
diversify existing establishment into
new products

13. Difficult issues concerning SMEs
 What is “fundamental” change in production process?
 Definition of SME [especially in case of spin-off or JV with
large university where university has 51% share]
 Art 21(13): Risk finance shall be implemented via financial
intermediaries selected through open procedure
• Does it exclude direct granting of loans & guarantees? [Art
38 of Reg 1303/2013]

14. Case study: Linked SMEs through natural persons
 HaTeFo GmbH v Finanzamt Haldensleben, C-110/13
 Linked enterprises:
• majority share or voting rights
• right to appoint / remove board /management
• exercise of dominant influence through contract
 Enterprises which have such relationships through natural
persons acting jointly are also considered linked enterprises [if
they are active in same relevant market or adjacent market]

15. Cont.
 Absence of formal links does not mean enterprises are not
linked
 SME definition must be interpreted on basis of its aim
• Aim: Identify enterprises that suffer an economic handicap
due to their size

16. HaTeFo
A B C D
Wife of A Mother of A
HaTeFo
63%
25% 12%
Company X
It manages orders and represents HaTeFo
It carries out HaTeFo’s technical management, computer
management and research
50%
50%
Managing
Director
Managing
Director

17. Cont.
 ECJ: Links give those persons opportunity to work together in
order to exercise influence over commercial decisions of
enterprises concerned which precludes those enterprises
from being regarded as economically independent of one
another
 The two companies are single economic unit through a group
of natural persons acting jointly

18. Annex I: GBER provisions on regional development
 Art 13: Scope of regional aid
 Art 14: Investment aid
 Art 15: Operating aid
 Art 16: Urban development aid

19. Annex II: GBER provisions on SMEs
 Art 17: Investment costs
 Art 18: Consultancy costs
 Art 19: Cost of participation in trade fairs
 Art 20: Cooperation costs in ETC
 Art 21: Risk finance aid
 Art 22: Aid for start-ups
 Art 23: Alternative trading platforms
 Art 24: Scouting costs
 Art 28: Innovation aid for SMEs