State aid: guidance

Frequently asked questions

Some of the more frequently asked questions about state aid are listed below with answers. There are questions on general topics, as well as specific questions relating to the General Block Exemption Regulation, and on de minimis aid. If you have any queries which are not addressed here, please contact the State Aid Unit.

The UK’s exit from the European Union

The UK and European Union have agreed to terms on a Trade and Cooperation Agreement (TCA), which came into force on 1 January 2021.  This agreement contains provisions related to subsidy control. 

The EU State aid regime was effectively revoked from UK law from 1 January 2021, therefore any reference to State aid should be removed from all websites/offer letters etc. It is for each funding body to take the necessary steps to update their own documents.

We draw your attention to the guidance issued by DBEIS: Complying with the UK’s international obligations on subsidy control: guidance for public authorities.  Please be aware this is a living document and may be updated by BEIS as time progresses.

We will provide further guidance for Scottish funding bodies and local authorities in due course and will cascade these through our usual stakeholder channels.

General questions

1. What happens when an undertaking receives aid from more than one public source?

Where state aid is present, if an undertaking receives state aid from more than one source towards the same eligible costs, the total amount of state aid must be cumulated and remain within the relevant aid intensity ceiling.  This rule applies to all sources of state aid, and also European Structural Funds if involved in the project.

2. Can support be given for export activities?

No - following the World Trade Organisation (WTO) Agreement on Subsidies and Countervailing Measures, aid for export activities is prohibited. Export aid is defined as aid to export-related activities, namely aid directly linked to the quantities exported, to the establishment and operation of a distribution network or to other current expenditure linked to the export activity. Aid favouring domestic over imported goods is also prohibited under the WTO agreement.

3. Can aid be given for the operating costs of an undertaking?

Operating aid is generally prohibited under the state aid regulations - e.g. any support for running costs, ongoing expenditure and working capital. The European Commission (EC) considers that a company which needs support to meet its operating costs cannot be considered competitive and should not be propped up by state aid.
There are several exceptions to this :-

• de minimis funding may be used to provide operating aid - up to €200,000 over a three-year fiscal period (and taking into account any other de minimis received in the previous three years)
• limited operating aid may also be provided for the treatment of industrial waste under specific circumstances

Commercial rate loans do not count as state aid, and so provide an alternative option for supporting operating costs. Contact the State Aid Team for further details.

4. What do aid intensity limit and cash grant equivalent mean?

Particular aid intensity limits are specified for each scheme approved under a block exemption or other framework. These determine the maximum level of public funding that can be given under the rules that apply to your project, and are expressed as a percentage of the total costs eligible for support.

In the case of grants it is relatively easy to translate this into the amount of money that can be provided; however for soft loans and guarantees the aid element will have to be calculated - e.g. for loans this would be the difference between the soft and commercial interest rates.  This aid element is called the cash grant equivalent.

5. What are the Assisted Areas (AAs) and regional aid limits?

Certain areas of the EU, known as Assisted Areas, have been approved by the Commission as economically underdeveloped, and are eligible for specific levels of aid particularly aimed at creating investment and job creation in those areas.  

Based on the current EU Regional Aid Map there are three types of Assisted Area in Scotland - Tier 1, Tier 2 and Tier 3, all with differing aid intensity levels.

The Commission has approved the UK's map of Assisted Areas until 31 December 2020, setting out the aid limits that apply in each area.

Having Assisted Area status does not automatically entitle an undertaking to receive aid. It must be provided under an approved scheme, such as Scottish Enterprise's Regional Selective Assistance (RSA) scheme or similar.

6. What reporting requirements are there for state aid schemes?

All public bodies must submit annual reports to the Commission via the State Aid Team for each aid scheme they are authorised to operate.  These should cover the calendar year and show:

• actual payments
• expenditure committed
• the number of companies aided
• the number of jobs created or maintained

More detailed information is required for aid given under one of the block exemptions. In some instances, public bodies have cover to give the same kind of aid under both a block exemption and a separately approved scheme, in which case the aid must be reported under one or the other to ensure it is not double counted.

7. Is support to charities and universities exempt from state aid rules?

Not necessarily. If they are involved in any commercial activities then state aid issues will need to be considered.  Even where the organisation is not-for-profit, state aid rules may well apply. Apply the four state aid tests to determine whether support you are considering might be a state aid.

8. What is the Commission’s definition of an SME? 

The Commission’s guidance on the definition of what constitutes an SME came into force on 1 January 2005. The Commission considers a company to be an SME according to the following criteria:

Medium-sized enterprises are those that :

• have fewer than 250 employees
• have an annual turnover not exceeding €50 million or annual balance sheet total not exceeding €43 million
• are independent*

Small enterprises are those that :

• have fewer than 50 employees
• have an annual turnover not exceeding €10 million or annual balance sheet total not exceeding €10 million
• are independent*

* Independent enterprise means no more than 25% of the capital or voting rights are owned by one or more enterprises which fall outside the SME definition. This threshold may be exceeded when an enterprise is held by a public investment corporation, Venture Capital Company or other institutional investors, provided they exercise no control.

View the SME definitions on the European Commission's website.

9. What exchange rate should be used when determining the value of a de minimis award?

The official Commission exchange rate applicable on the date the offer of de minimis funding is made (date of written offer) should be used. The rate is updated monthly and the European Commission offers a rate calculator.

10. What is the Commission’s reference interest rate to determine commercial rate loans?

In January 2008, the European Commission (EC) published a new method of calculating reference and discount rates applicable to commercial loans. The new method conforms to market principles as it takes account of the specific situation of the company or project.

It is based on IBOR (the InterBank Offered Rate) with weightings based on the credit worthiness of the specific undertaking. The new method applies from 1 July 2008.

 

General Block Grant Exemption (GBER) questions

Article 1 – Scope

1. Can the Commission confirm that on approval of the evaluation plan (for schemes with an annual budget for over €150 million), that normal GBER rules apply to large schemes? Including permitting schemes to run until 31 December 2020?

Yes. Subject to approval of the evaluation plan, large schemes under GBER can normally be carried out until the end of validity of the GBER, i.e. 31 December 2020.

2. In article 1. 3 of the GBER it states that aid under GBER can be given to (a) the fishery and aquaculture sector and (b) the primary agricultural production sector for “aid for research and development, innovation aid for SMEs”. Could the Commission confirm which articles within Section 4, that the provisions under Aid for research and development and innovation can be used to support relevant activities in (a) the fishery and aquaculture sector and (b) the primary agricultural production sector?

As long as there is no distinction within Article 1(3) a and b as to the type of aid or instrument, all Articles within Section 4 are applicable to aid in the fishery and aquaculture sector, except for Article 30 which deals with a particular type of aid to research organizations for undertaking studies in the fisheries and aquaculture sector.

Article 14 – Regional Aid

3. In the final sentence in Article 14(3), in relation to large enterprises, can the Commission confirm that the ‘area concerned’ means the NUTS III area (in line with 14 (13))? If this is not the correct interpretation, please could the commission explain what ‘the area concerned’ is?

In the final sentence in Article 14(3), the 'area concerned' refers to an assisted area fulfilling the conditions of Article 107(3)(c).

4. Can the Commission also confirm that a large company setting up an additional ‘self-standing’ establishment in a different NUTS III area to its current establishment(s) constitutes initial investment in favour of new economic activity, even if the activities at the additional establishment are the same or similar to those at the existing one?

If a large company sets up a new establishment, which is self-standing and is not just a simple extension of the production capacity of an existing establishment, it could be considered as initial investment in favour of new economic activity.

5. In relation to the previous question, can the Commission confirm that by ‘self-standing’ it means that the establishments are independent of each other and do not share any functions other than back-office functions such as HR and IT (i.e. if one of these establishment(s) were to close, the other(s) could continue operating)?

 A self-standing establishment should indeed function independently of any existing operations and should not be just an extension of the production capacity of an existing establishment. The Commission cannot generally confirm that an establishment sharing back-office functions can be considered as new establishment.

6. In relation to Article 14 (7) – please could the Commission provide additional guidance as to how the ‘assets that are reused’ should be interpreted? In particular whether it  is assets directly reused (such as plant or machinery involved in both the existing & new activity) or indirect assets (such as building costs)? Also whether the response to this differs depending on whether the eligible costs are investment or wage costs?

Article 14 (7) 2nd sentence of the GBER reads as follows: "For aid granted for a diversification of an existing establishment, the eligible costs must exceed by at least 200 % the book value of the assets that are reused, as registered in the fiscal year preceding the start of works."

That sentence concerns initial investment for diversification of the output of an establishment into products not previously produced in the establishment (see article 2 (49) (a) GBER),and initial investment in favour of new economic activity for diversification of the activity of an establishment (see article 2 (51) (a) GBER).

The term assets in the context of initial investments refers both to tangible and intangible assets (see article 2 (49) (a) and article 2 (51) (a) GBER). Tangible assets consist of land, buildings and plant, machinery and equipment (see article 2 (29) GBER).

Therefore, the buildings for manufacturing or storing manufactured products are in principle covered by Article 14 (7) 2nd sentence of the GBER if these assets are used as part of diversification of an existing establishment. However, it is important to take into account the extent to which such assets are "reused" in determine the book value of the reused assets. For instance, if only 30% of the capacity of an asset is to be used, only pro rata book value would be taken into account.

7. In relation to Article 14 (15), please can the commission confirm whether this can apply to projects between assisted and non-assisted areas?

The scope of Art 14(15) is to facilitate the use of GBER for cooperation projects by allowing that the same aid intensity of the area in which the initial investment is located be applied to all beneficiaries participating in the project. The project therefore has to qualify as an initial investment and must be located in an assisted region. 

Article 31 – Training aid

8. Para 2 - Can the Commission confirm that ‘national mandatory standards’ on training refers to training such as Health and Safety training and other training required by EU or Member State legislation and policy?

Yes. We confirm.

9. Para 3(b) – Can the Commission confirm that the accommodation costs of trainees, who for example, have to go to another part of the Member State or another to receive training, are excluded from the new regulations?

Indeed, accommodation costs are excluded except for trainees who are workers with disabilities.

10. Para 3(b) – Can the Commission clarify whether the trainers’ or trainees’ hotel or bed and breakfast establishment cost is an ‘accommodation cost’ or an operating cost?

This is an operating cost that is excluded from the eligible cost base except for the accommodation costs for trainees that are workers with disabilities.

11. Para 3(b) - Can the Commission clarify that accommodation includes the costs for a trainer/trainee to stay during the course of the training, rather than the provision of a training facility to delivery training?

Accommodation refers to the costs for hotels/others for trainers/trainees and not for the renting of the training space.

Article 45 - Environmental Protection

12) Can the commission confirm that the UK’s ‘support for land remediation’ scheme can be covered under GBER?

Article 45 GBER specifies the conditions for granting aid for the remediation of contaminated sites when no liable person is identified or can be made to bear the costs. A contaminated site is defined in Article 2(121) as a site where there is a confirmed presence, caused by man, of hazardous substances of such a level that they pose a significant risk to human health or the environment taking into account current and approved future use of the land.

The eligible costs are defined in Article 45(4) as the costs incurred for the remediation work, less the increase in the value of the land. All expenditure incurred by an undertaking in remediating its site, whether or not such expenditure can be shown as a fixed asset on its balance sheet, may be considered as eligible investment in the case of the remediation of contaminated sites.

For determining whether a site is eligible for support, it is required that there are hazardous substances of such a level that they pose a significant risk to human health or the environment. The GBER does not provide further specific conditions and therefore it does not exclude that such risk relates from derelict or brownfield land, as long as they pose a significant risk to human health or the environment.

De minimis aid

1. Should all funding under €200,000 (or other relevant ceiling) be awarded as de minimis?

Not necessarily.  Where aid is present and an approved State aid scheme exists, we recommend that it is used to award funding.  For example, funding for a small scale R&D project might be provided under an approved R&D scheme, or funding for training provided under the Training provisions within the General Block Exemption Regulation.

We recommend that de minimis funding is kept as a last option – to provide support where no approved scheme or suitable block exemption regulation exists; or possibly to supplement aid given under an approved scheme.

2. Can de minimis aid be cumulated with other forms of state aid?

De minimis funding cannot be used to circumvent the maximum aid intensities allowable under approved schemes and block exemption regulations.  For example, if a company is receiving support for certain eligible costs up to the maximum possible aid intensities for an R&D project, de minimis cannot also be awarded to ‘double fund’ those project costs.  De minimis can, however, be awarded to support other costs associated with the project, or other aspects of the company’s operations.

Any previous de minimis received during this period must be deducted from the €200,000 total, where €200,000 is converted at the current EC exchange rate to provide the new maximum de minimis funding ceiling. E.g., company 'K' has received previous de minimis within the qualifying period - £50,000 in August 2011. This is converted to Euros at the date of the offer (€57,214) and deducted from the €200,000 threshold, leaving €142,786 available to the beneficiary under its de minimis threshold.

3. SGEI De Minimis

Under the EC's decision on Services of General Economic Interest (SGEI), up to €500k can be awarded without notification for services which meet the SGEI definition.  The SGEI de minimis Regulation allows cumulation of SGEI de minimis aid granted under another Regulation up to the ceiling of €500k.  This means, for example, that if an undertaking has already received €150k over the last three fiscal years under the general industrial de minimis Regulation, it can still receive up to €350k under the SGEI de minimis Regulation.

The €500,000 ceiling per undertaking for an SGEI is an absolute maximum for all types of de minimis aid added together. It applies irrespective of whether the amount granted under the general de minimis Regulation was granted for an SGEI or for a separate non-SGEI activity.

4. How does the three fiscal year period work?

This period refers to the fiscal years immediately prior to the award of de minimis aid.  The period should be the beneficiaries' current fiscal year (i.e. normally a 'part year' at the time of any award) and its previous two completed fiscal years

5. What date is used to calculate the relevant fiscal years?

The three fiscal years used to calculate a beneficiary's de minimis entitlement are determined by the date of the proposed award.

6. What date is used to calculate the rate awarded in Euros?

Any award of de minimis aid should be converted into Euros using the exchange rate as at the date the offer of aid is made.  This should be explained in writing to the beneficiary.

7. Is each branch or subsidiary of a company entitled to the full allocation of de minimis aid?

The European Court of Justice has ruled that all entities which are controlled (on a legal or on a de facto basis) by the same entity should be considered as a single undertaking.  Individual subsidiaries or branches of such an undertaking cannot therefore be treated as separate entities and awarded separate allocations of de minimis aid.