3. COMPETITION POLICY

1. Treaty establishing the European Community, Title VI, Chapter 1, Rules on Competition.

Notwithstanding Articles 87 and 88 of the EC Treaty, Malta may maintain operating aid granted under the fiscal schemes under Regulations 4 and 6 of the Business Promotion Act until 31 December 2008, provided that the following conditions are fulfilled:

- the annual amount of aid accrued to one undertaking does not exceed MTL 7200 per employee, or

- if calculated on the basis of profits eligible for aid, the annual amount does not exceed MTL 25000 per employee where the applicable reduced rate of tax is 5 % (under either of Regulations 4 and 6) or MTL 28000 per employee where the reduced rate of tax is 10 % or 15 % (under either of Regulations 4 and 6).

2. Treaty establishing the European Community, Title VI, Chapter 1, Rules on Competition.

(a) Notwithstanding Articles 87 and 88 of the EC Treaty, Malta may apply corporate tax exemptions granted up until 30 November 2000 on the basis of the Industrial Development Act and the Malta Freeport Act under the following conditions:

(i) for small and medium-sized enterprises, as defined in accordance with the Community definition [1] of such enterprises and in conformity with Commission practice up to and including 31 December 2011.

In the event of a merger, acquisition or any similar event which involves the beneficiary of a tax exemption granted under the aforementioned legislation, the exemption from corporate tax shall be discontinued.

(ii) for other undertakings provided the following limitations on the aid amounts granted under the aforementioned legislation are respected:

(aa) State aid for regional investments:

- the aid shall not exceed a maximum of 75 % of the eligible investment costs if the undertaking obtained the entitlement for the tax exemption before 1 January 2000. If the undertaking obtained the entitlement for the tax exemption during the year 2000, the total aid shall not exceed a maximum of 50 % of the eligible investment costs;

- the period for calculation of aid to be included under the above mentioned ceilings of 75 % and 50 % shall start on 1 January 2001; all aid claimed and received on the basis of profits that precede this date shall be excluded from the calculation;

- there shall be no requirement to reimburse the aid if at the date of accession the undertaking already exceeded the applicable ceilings;

- for the purpose of calculating the total aid, account shall be taken of all aid granted to the beneficiary in relation to eligible costs, including aid granted under other schemes and irrespective of whether the aid is granted by local, regional, national or Community sources;

- eligible costs shall be defined on the basis of the Guidelines on national regional aid [2];

- the eligible costs that may be taken into account are those incurred between 1 January 1995 and 31 December 2006 under the terms of an investment programme formally adopted by the beneficiary no later than 31 December 2002, and notified to the Ministry for Economic Services of the Republic of Malta by 31 March 2003.

(bb) State aid for training, research and development, and environmental investment:

- the aid shall not exceed the relevant aid intensity ceilings applicable to such aid objectives;

- the period for calculation of aid to be included under the applicable ceilings shall start on 1 January 2001; all aid claimed and received on the basis of profits that precede this date shall be excluded from the calculation;

- for the purpose of calculating the total aid, account shall be taken of all aid granted to the beneficiary in relation to eligible costs, including aid granted under other schemes and irrespective of whether the aid is granted by local, regional, national or Community sources;

- eligible costs shall be defined on the basis of the Community rules applicable to the aid objective concerned;

- there shall be no requirement to reimburse the aid if at the date of accession the undertaking already exceeded the applicable ceilings;

- the eligible costs that may be taken into account are those incurred between 1 January 1995 and 31 December 2006 under the terms of an investment programme formally adopted by the beneficiary no later than 31 December 2002, and notified to the Ministry for Economic Services of the Republic of Malta by 31 March 2003.

(b) Any aid granted under the two schemes referred to above which is not brought into compliance with the conditions set out in (a) above by the date of accession shall be considered as new aid pursuant to the existing aid mechanism laid down in Annex IV, Chapter 3 on Competition Policy, to this Act.

(c) Malta shall supply the Commission:

- two months after the date of accession, information on the fulfilment of the conditions set out in (a) above;

- by the end of September 2007, information on the eligible investment costs effectively incurred by the beneficiaries under the aforementioned legislation, and on the total aid amounts received by the beneficiaries.

3. Treaty establishing the European Community, Title VI, Chapter 1, Rules on Competition.

(a) Notwithstanding Articles 87 and 88 of the EC Treaty and subject to the conditions set out below, Malta may grant the following restructuring aid measures of a maximum overall amount of MTL 419491000 to Malta Drydocks and to Malta Shipbuilding Company Limited, or to any of their legal successors (hereinafter referred to as the "shipyards"), during the restructuring period from 2002 until the end of 2008, broken down as follows:

- debt write-off of up to MTL 300000000;

- investment aid of up to MTL 9983000 in accordance with the capital investment plan included in the restructuring plan;

- training grants of up to MTL 4530000;

- compensation for social costs of restructuring of up to MTL 32024000;

- aid for financial costs of up to MTL 17312000;

- other aid linked to financial costs of training grants and the capital investment subsidy of up to MTL 3838000;

- working capital subsidy of up to MTL 51804000. This operating aid element of the plan decreases over time, so that no more than 25 % of the amount actually paid out may be paid out during the last four years of the restructuring plan.

The aid for each item shall not exceed the cost it is intended to cover, and shall be limited to the minimum necessary to attain the objectives of the restructuring plan.

(b) Malta shall implement the restructuring of the shipyards on the basis of a restructuring plan which aims at achieving full viability no later than by the end of the restructuring period, and which respects the following conditions:

(i) the aid shall only be granted once. No further aid shall be granted to the company owning the shipyards after 31 December 2008;

(ii) the man-hours available for the planned productive workforce for shipbuilding, ship repair and ship conversion of 1410 persons (after the restructuring) within the shipyards shall be 2,4 million man hours per annum;

(iii) the number of sold man-hours for ship-repair and ship-conversion shall not exceed 2035000 for any of the ten years following the beginning of the restructuring period;

(iv) shipbuilding, as defined in Regulation (EC) No 1540/98 establishing new rules on aid to shipbuilding [3], shall not exceed a maximum annual production of 10000 compensated gross tonnage. The shipyards may deduct from their reported output the following operations which can be shown to have been outsourced: erection of scaffolding, internal transport, provisional services, guard services, construction of fixtures and models, ship cleaning services, insulation and laminating, bilge and ballast systems, fire-extinguishing and sprinkler systems, cableways (if not part of e-installation), e-installation (because of the generally high proportion of material costs they involve only 40 % of documented costs shall be taken into account for these operations), rigging, locksmithery, mechanical processing, sanitation (excluding sanitary cells) and heating;

The total compensated gross tonnage of the shipbuilding contract in question may be reduced by the percentage accounted for by the above mentioned outsourced operations.

(v) dock 1 of Malta Drydocks shall be closed to shipbuilding, ship conversion and ship repair for at least ten years from the date of the start of the restructuring period. If the closed dock is re-used for other activities, these must be independent of the companies owning the shipyards at present, and must not be related to shipbuilding, ship repair or ship conversion;

(vi) with regard to the required reduction in manpower of the yards, Malta shall ensure that the necessary core workforce with the essential skill levels is retained;

(vii) training programmes associated with the restructuring plan must be compatible with the generally applicable Community rules;

(viii) any aid granted in breach of the above conditions shall be reimbursed.

(c) If viability for the shipyards cannot be achieved owing to exceptional circumstances unforeseen at the time the restructuring plan was drawn up, the Commission may review the conditions set out in (b) above in accordance with the procedure provided for in Article 88(1) of the EC Treaty. Before beginning this procedure, the Commission shall take full account of the views of Member States on the existence of exceptional circumstances. These views shall be expressed on the basis of a Commission recommendation and on the basis of available relevant information and circumstances.

The overall aid amount referred to in (a) above shall not be exceeded under any circumstances.

(d) Malta shall cooperate with the monitoring arrangements established by the Commission, including on-site inspections by independent experts, during the restructuring period.

Malta shall supply to the Commission yearly reports on the implementation of the plan. The reports shall include all relevant information to enable the Commission to assess the situation with regard to the implementation of the restructuring programme, including the pricing behaviour of the yards for new ship-repair and shipbuilding contracts obtained by the yards. The shipyard's yearly production report must specify the compensated gross tonnage of eligible outsourced works according to the actual period of time over which they were carried out by third parties and include this in the calculation of the compensated gross tonnage of the shipbuilding contract. In the case of ships the construction of which extends over two years, the compensated gross tonnage figure shall be frozen at the end of the year in order to prevent retroactive corrections. The shipyard must also be able to produce all contracts relating to the outsourcing of works contained in the list in subparagraph (b) (iv) for verification purposes.

Malta shall provide these reports within two months of the end of each year, beginning in March 2003. The last report shall be submitted by the end of March 2009, unless agreed otherwise by the Commission and Malta.

[1] Commission Recommendation 96/280/EC of 3 April 1996 concerning the definition of small and medium-sized enterprises (OJ L 107, 30.4.1996, p. 4).

[2] OJ C 74, 10.3.1998, p. 9.

[3] OJ L 202, 18.7.1998, p. 1.

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