EXPLANATORY MEMORANDUM

1. In the context of a people’s Europe, the Commission attaches great importance to simplifying and clarifying the law of the Union so as to make it clearer and more accessible to citizens, thus giving them new opportunities and the chance to make use of the specific rights it gives them.

This aim cannot be achieved so long as numerous provisions that have been amended several times, often quite substantially, remain scattered, so that they must be sought partly in the original instrument and partly in later amending ones. Considerable research work, comparing many different instruments, is thus needed to identify the current rules.

For this reason a codification of rules that have frequently been amended is also essential if the law is to be clear and transparent.

2. On 1 April 1987 the Commission decided[1] to instruct its staff that all acts should be codified after no more than ten amendments, stressing that this is a minimum requirement and that departments should endeavour to codify at even shorter intervals the texts for which they are responsible, to ensure that their provisions are clear and readily understandable.

3. The Conclusions of the Presidency of the Edinburgh European Council (December 1992) confirmed this[2], stressing the importance of codification as it offers certainty as to the law applicable to a given matter at a given time.

Codification must be undertaken in full compliance with the normal procedure for the adoption of acts of the Union.

Given that no changes of substance may be made to the instruments affected by codification, the European Parliament, the Council and the Commission have agreed, by an interinstitutional agreement dated 20 December 1994, that an accelerated procedure may be used for the fast-track adoption of codification instruments.

4. The purpose of this proposal is to undertake a codification of Council Regulation (EC) No 994/98 of 7 May 1998 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to certain categories of horizontal State aid[3]. The new Regulation will supersede the various acts incorporated in it[4]; this proposal fully preserves the content of the acts being codified and hence does no more than bring them together with only such formal amendments as are required by the codification exercise itself.

5. The codification proposal was drawn up on the basis of a preliminary consolidation, in 22 official languages, of Regulation (EC) No 994/98 and the instrument amending it, carried out by the Publications Office of the European Union, by means of a data‑processing system. Where the articles have been given new numbers, the correlation between the old and the new numbers is shown in a table set out in Annex II to the codified Regulation.

ê 733/2013 Art. 1.1

2014/0192 (COD)

Proposal for a

COUNCIL REGULATION

on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to certain categories of horizontal state aid (codification)

(Text with EEA relevance)

ê 994/98 (adapted)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty Ö on the Functioning of the European Union Õ , and in particular Article Ö 109 Õ thereof,

Having regard to the proposal from the European Commission,

Having regard to the opinion of the European Parliament[5],

Having regard to the opinion of the European Economic and Social Committee[6],

Whereas:

ê

(1) Council Regulation (EC) No 994/98[7] has been substantially amended[8]. In the interests of clarity and rationality that Regulation should be codified.

ê 994/98 recital 2 (adapted)

(2) Under the Treaty Ö on the Functioning of the European Union (TFEU) Õ , the assessment of compatibility of aid with the Ö internal Õ market essentially rests with the Commission.

ê 994/98 recital 3

(3) The proper functioning of the internal market requires strict and efficient application of the rules of competition with regard to state aid.

ê 994/98 recital 4 (adapted)

(4) The Commission should be enabled to declare by means of regulations, in areas where the Commission has sufficient experience to define general compatibility criteria, that certain Ö specified Õ categories of aid are compatible with the Ö internal Õ market pursuant to one or more of the provisions of Article Ö 107 Õ (2) and (3) Ö TFEU Õ and are exempted from the procedure provided for in Article Ö 108 Õ (3) thereof.

ê 994/98 recital 5 (adapted)

(5) Ö Block Õ exemption regulations Ö ensure Õ transparency and legal certainty. They can be directly applied by national courts, without prejudice to Article Ö 4(3) of the Treaty on European Union (TEU) Õ and Ö to Article 267 Õ Ö TFEU Õ .

ê 733/2013 recital 2 (adapted)

(6) State aid is an objective notion defined in Article 107(1) TFEU. The power of the Commission to adopt block exemptions as provided for in Ö this Õ Regulation only applies to measures that fulfil all the criteria of Article 107(1) TFEU and therefore constitute state aid. Inclusion of a certain category of aid in Ö this Õ Regulation or in an exemption regulation does not predetermine the qualification of a measure as state aid within the meaning of Article 107(1) TFEU.

ê 733/2013 recital 3 (adapted)

(7) The Commission Ö should be enabled Õ to declare that, under certain conditions, aid to small and medium-sized enterprises; aid in favour of research, development Ö and innovation Õ ; aid in favour of environmental protection; aid in favour of employment and training; and aid that complies with the map approved by the Commission for each Member State for the grant of regional aid is compatible with the internal market and not subject to the notification requirement.

ê 733/2013 recital 4 (adapted)

(8) Innovation has become a Union policy priority in the context of ‘Innovation Union’, one of the Europe 2020 flagship initiatives. Moreover, many aid measures for innovation are relatively small and create no significant distortions of competition.

ê 733/2013 recital 5 (adapted)

(9) In the culture and heritage conservation sector, a number of measures taken by Member States might not constitute aid because they do not fulfil all the criteria of Article 107(1)TFEU, for example because the beneficiary does not carry out an economic activity or because there is no effect on trade between Member States. However, to the extent measures in the field of culture and heritage conservation do constitute state aid within the meaning of Article 107(1) TFEU, the Commission Ö should be enabled to declare that, under certain conditions, that Õ aid Ö is compatible with the internal market and not subject to the notification requirement Õ. Small culture, creation and heritage conservation projects do not typically give rise to any significant distortion, and recent cases have shown that such aid has limited effects on trade.

ê 733/2013 recital 6 (adapted)

(10) Exemptions in the culture and heritage conservation sector could be designed on the basis of the Commission’s experience as set out in guidelines, such as for cinematographic and audiovisual works, or developed case by case. When drafting such block exemptions, the Commission should take into account that they should only cover measures constituting state aid, that they should in principle focus on measures that contribute to the objectives of ‘EU state aid modernisation’, and that only aid is block-exempted in respect of which the Commission has already substantial experience. Furthermore, the primary competence of the Member States in the area of culture, the special protection enjoyed by cultural diversity under Article 167(1) TFEU and the special nature of culture should be taken into account.

ê 733/2013 recital 7 (adapted)

(11) Ö As regards Õ state aid measures to make good the damage caused by natural disasters Ö , as well as state aid measures to make good the damage caused by certain adverse weather conditions in fisheries, Õ the amounts granted in Ö those areas Õ are usually limited, and clear compatibility conditions can be defined. Ö This Õ Regulation Ö should enable Õ the Commission to exempt such aid from the notification requirement. In the Commission’s experience, such aid does not give rise to any significant distortion, and clear compatibility conditions can be defined on the basis of the experience acquired.

ê 733/2013 recital 9 (adapted)

(12) In accordance with Article 42 TFEU, state aid rules do not apply under certain conditions to certain aid measures in favour of agriculture products listed in Annex I to the TFEU. Article 42 does not apply to forestry or to products not listed in Ö that Õ Annex . The Commission should be able to exempt certain types of aid in favour of forestry, including aid contained in the rural development programmes and also that in favour of promoting and advertising food sector products not listed in Annex I Ö to the TFEU Õ , where, according to the Commission’s experience, the distortions of competition are limited and clear compatibility conditions can be defined.

ê 733/2013 recital 10

(13) According to Article 7 of Council Regulation (EC) No 1198/2006[9], Articles 107, 108 and 109 TFEU apply to aid granted by the Member States to enterprises in the fisheries sector, except for payments made by Member States pursuant to, and in conformity with, Regulation (EC) No 1198/2006. Additional state aid for the conservation of marine and freshwater biological resources usually has limited effects on trade between Member States, contributes to the Union’s objectives in the field of maritime and fisheries policy, and does not create serious distortions of competition. The amounts granted are usually limited and clear compatibility conditions can be defined.

ê 733/2013 recital 11 (adapted)

(14) In the sports sector, in particular in the field of amateur sport, a number of measures taken by Member States might not constitute aid because they do not fulfil all the criteria of Article 107(1) TFEU, for example because the beneficiary does not carry out an economic activity, or because there is no effect on trade between Member States. However, to the extent that measures in the field of sports do constitute State aid within the meaning of Article 107(1) TFEU, the Commission Ö should be enabled to declare that, under certain conditions, that aid is compatible with the internal market and not subject to the notification requirement Õ . State aid measures for sport, in particular those in the field of amateur sport or those that are small-scale, often have limited effects on trade between Member States and do not create serious distortions of competition. The amounts granted are typically also limited. Clear compatibility conditions can be defined on the basis of the experience acquired so as to ensure that aid to sports does not give rise to any significant distortion.

ê 733/2013 recital 12

(15) In relation to aid concerning air and maritime transport, in the Commission’s experience, aid having a social character for the transport of residents of remote regions such as outermost regions and islands, including single region island Member States and sparsely populated areas, does not give rise to any significant distortion, provided that it is granted without discrimination related to the identity of the carrier. Moreover, clear compatibility conditions can be defined.

ê 733/2013 recital 13

(16) In the field of aid to broadband infrastructure, the Commission has in recent years acquired vast experience and has devised guidelines[10]. In the Commission’s experience, aid for certain types of broadband infrastructure does not give rise to any significant distortion and could benefit from a block exemption, provided that certain compatibility conditions are met and that the infrastructure is deployed in ‘white areas’, being areas where there is no infrastructure of the same category (either broadband or very high-speed next-generation access, ‘NGA’) and where none is likely to be developed in the near future, as outlined in the criteria developed in the guidelines. This is true of aid covering the provision of basic broadband, as well as of aid for small individual measures covering NGA networks, and of aid to broadband-related civil engineering works and passive broadband infrastructure.

ê 733/2013 recital 14 (adapted)

(17) As regards infrastructure, a number of measures taken by Member States might not constitute aid because they do not fulfil all the criteria of Article 107(1) TFEU, for example because the beneficiary does not carry out an economic activity, because there is no effect on trade between Member States, or because the measure consists of compensation for a service of general economic interest which fulfils all the criteria of the Altmark case-law[11]. However, to the extent that the financing of infrastructure constitutes state aid within the meaning of Article 107(1) TFEU, the Commission Ö should be enabled to declare that, under certain conditions, that aid is compatible with the internal market and not subject to the notification requirement Õ . With regard to infrastructure, small amounts of aid for infrastructure projects can be an efficient way of supporting the Union’s objectives, to the extent Ö that Õ the aid minimises costs and the potential distortion of competition is limited. The Commission should therefore be able to exempt state aid for infrastructure projects that are in support of the objectives mentioned in this Regulation and in support of other objectives of common interest, in particular the Europe 2020 objectives[12]. This could include support for projects involving multi-sectoral networks or facilities where relatively small amounts of aid are necessary. However, block exemptions can only be granted for infrastructure projects where the Commission has enough experience to define clear and strict compatibility criteria, ensuring that the risk of potential distortion of competition is limited and that large amounts of aid remain subject to notification pursuant to Article 108(3) TFEU.

ê 994/98 recital 6 (adapted)

(18) It is appropriate that the Commission, when it adopts regulations exempting categories of aid from the obligation to notify provided for in Article Ö 108 Õ (3) Ö TFEU Õ , specifies the purpose of the aid, the categories of beneficiaries and thresholds limiting the exempted aid, the conditions governing the cumulation of aid and the conditions of monitoring, in order to ensure the compatibility with the Ö internal Õ market of aid covered by this Regulation.

ê 733/2013 recital 16 (adapted)

(19) Thresholds for each category of aid in respect of which the Commission adopts a block exemption regulation Ö can Õ be expressed in terms of aid intensities in relation to a set of eligible costs, or in terms of maximum aid amounts. Ö Moreover, the Commission should also be enabled to issue block exemptions for Õ certain types of measures involving state aid which, because of the specific way in which they are designed, cannot be expressed precisely in terms of the aid intensities or maximum amounts of aid, such as financial engineering instruments or certain forms of measures aimed to promote risk capital investments. Such complex measures may involve aid at different levels: direct beneficiaries, intermediate beneficiaries and indirect beneficiaries. Given the increasing importance of such measures and their contribution to the Union’s objectives, Ö it Õ should be possible to exempt them. It should therefore be possible, in the case of such measures, to define the thresholds for a particular award of aid in terms of the maximum level of state support in or related to that measure. The maximum level of state support may comprise an element of support, which may not be state aid, provided that the measure includes at least some elements that contain state aid within the meaning of Article 107(1) TFEU and which elements are not marginal.

ê 994/98 recital 8 (adapted)

(20) It may be useful to set thresholds Ö or Õ other appropriate conditions requiring the notification of awards of aid in order to allow the Commission to examine individually the effect of certain aid on competition and trade between Member States and its compatibility with the Ö internal Õ market.

ê 994/98 recital 7 (adapted)

(21) It is appropriate to enable the Commission, when it adopts regulations exempting certain categories of aid from the obligation to notify in Article Ö 108 Õ (3) Ö TFEU Õ , to attach further detailed conditions in order to ensure the compatibility with the Ö internal Õ market of aid covered by this Regulation.

ê 994/98 recital 9 (adapted)

(22) The Commission, having regard to the development and the functioning of the Ö internal Õ market, should be enabled to establish by means of a regulation that certain aid does not fullfil all the criteria of Article Ö 107 Õ (1) Ö TFEU Õ and is therefore exempted from the notification procedure laid down in Article Ö 108 Õ (3) Ö TFEU Õ , provided that aid granted to the same undertaking over a given period of time does not exceed a certain fixed amount.

ê 994/98 recital 10 (adapted)

(23) In accordance with Article Ö 108 Õ (1) Ö TFEU Õ the Commission is under an obligation, in cooperation with Member States, to keep under constant review all systems of existing aid. For this purpose and in order to ensure the largest possible degree of transparency and adequate control it is desirable that the Commission ensures the establishment of a reliable system of recording and storing information about the application of the regulations it adopts, to which all Member States have access, and that it receives all necessary information from the Member States on the implementation of aid exempted from notification to fulfil this obligation, which may be examined and evaluated with the Member States within the Advisory Committee Ö on state aid Õ . For this purpose it is also desirable that the Commission may require such information to be supplied as is necessary to ensure the efficiency of such review.

ê 733/2013 recital 17 (adapted)

(24) Member States Ö should Õ provide summaries of information concerning aid implemented by them which is covered by an exemption regulation. The publication of those summaries is necessary to ensure the transparency of the measures adopted by the Member States. With the growth of electronic communication media, publication of the summaries on the website of the Commission is a fast and effective method Ö ensuring Õ transparency for the benefit of interested parties. Therefore, those summaries should be published on the website of the Commission.

ê 994/98 recital 11 (adapted)

(25) The control of the granting of aid involves factual, legal and economic issues of a very complex nature and great variety in a constantly evolving environment. The Commission should therefore regularly review the categories of aid which should be exempted from notification. The Commission should be able to repeal or amend regulations it has adopted pursuant to this Regulation where circumstances have changed with respect to any important element which constituted grounds for their adoption or where the progressive development or the functioning of the Ö internal Õ market so requires.

ê 994/98 recital 12 (adapted)

(26) The Commission, in close and constant liaison with the Member States, should be able to define precisely the scope of those regulations and the conditions attached to them. In order to provide for cooperation between the Commission and the competent authorities of the Member States, it is appropriate Ö that the Õ Advisory Committee on state aid be consulted before the Commission adopts regulations pursuant to this Regulation.

ê 733/2013 recital 18 (adapted)

(27) Draft regulations and other documents to be examined by the Advisory Committee on state aid in accordance with Ö this Õ Regulation should be published on the website of the Commission to ensure transparency.

ê 733/2013 recital 19 (adapted)

(28) The Advisory Committee on state aid Ö should Õ be consulted before publication of a draft regulation. In the interest of transparency, the draft regulation should be published on the website of the Commission at the same time as the Commission consults the Advisory Committee for the first time,

ê 994/98 (adapted)

HAS ADOPTED THIS REGULATION:

Article 1

Ö Block Õ exemptions

1. The Commission may, by means of regulations adopted in accordance with the procedure laid down in Article 8 of this Regulation and in accordance with Article Ö 107 Õ Ö TFEU Õ , declare that the following categories of aid Ö are Õ compatible with the Ö internal Õ market and Ö are Õ not subject to the notification requirements of Article Ö 108 Õ (3) Ö TFEU Õ :

ê 733/2013 Art. 1.2(a) (adapted)

(a) aid in favour of:

(i) small and medium-sized enterprises;

(ii) research, development and innovation;

(iii) environmental protection;

(iv) employment and training;

(v) culture and heritage conservation;

(vi) making good the damage caused by natural disasters;

(vii) making good the damage caused by certain adverse weather conditions in fisheries;

(viii) forestry;

(ix) promotion of food sector products not listed in Annex I of the TFEU;

(x) conservation of marine and freshwater biological resources;

(xi) sports;

(xii) residents of remote regions, for transport, when this aid has a social character and is granted without discrimination related to the identity of the carrier;

(xiii) basic broadband infrastructure, small individual infrastructure measures covering next-generation access networks, broadband-related civil engineering works and passive broadband infrastructure, in areas where there is either no such infrastructure or where no such infrastructure is likely to be developed in the near future;

(xiv) infrastructure in support of the objectives listed in points (i) to (xiii) Ö as well as Õ in point (b) of this paragraph and in support of other objectives of common interest, in particular the Europe 2020 objectives;

ê 994/98

(b) aid that complies with the map approved by the Commission for each Member State for the grant of regional aid.

2. The regulations referred to in paragraph 1 shall specify for each category of aid:

(a) the purpose of the aid;

(b) the categories of beneficiaries;

ê 733/2013 Art. 1.2(b)

(c) thresholds expressed in terms of aid intensities in relation to a set of eligible costs or in terms of maximum aid amounts or, for certain types of aid where it may be difficult to identify the aid intensity or amount of aid precisely, in particular financial engineering instruments or risk capital investments or those of a similar nature, in terms of the maximum level of state support in or related to that measure, without prejudice to the qualification of the measures concerned in the light of Article 107(1) TFEU;

ê 994/98

(d) the conditions governing the cumulation of aid;

(e) the conditions of monitoring as specified in Article 3.

3. In addition, the regulations referred to in paragraph 1 may, in particular:

(a) set thresholds or other conditions for the notification of awards of individual aid;

(b) exclude certain sectors from their scope;

(c) attach further conditions for the compatibility of aid exempted under such regulations.

ê 994/98 (adapted)

Article 2

De minimis

1. The Commission may, by means of a regulation adopted in accordance with the procedure laid down in Article 8 of this Regulation, decide that, having regard to the development and functioning of the Ö internal Õ market, certain aid does not meet all the criteria of Article Ö 107 Õ (1) Ö TFEU Õ and that it is therefore exempted from the notification procedure provided for in Article Ö 108 Õ (3) Ö TFEU Õ , provided that aid granted to the same undertaking over a given period of time does not exceed a certain fixed amount.

2. At the Commission’s request, Member States shall, at any time, communicate to it any additional information relating to aid exempted under paragraph 1.

Article 3

Transparency and monitoring

1. When adopting regulations pursuant to Article 1, the Commission shall impose detailed rules upon Member States to ensure transparency and monitoring of the aid exempted from notification in accordance with those regulations. Such rules shall consist, in particular, of the requirements laid down in paragraphs 2, 3 and 4.

ê 733/2013 Art. 1.3

2. Upon implementing aid systems or individual aids granted outside any system, which have been exempted pursuant to regulations referred to in Article 1(1), Member States shall forward to the Commission, with a view to publication on the website of the Commission, summaries of the information regarding such systems of aid or such individual aids as are not covered by exempted aid systems.

ê 994/98 (adapted)

3. Member States shall record and compile all the information regarding the application of the Ö block Õ exemptions. If the Commission has information which leads it to doubt that an exemption regulation is being applied properly, the Member States shall forward to it any information it considers necessary to assess whether an aid complies with that regulation.

4. At least once a year, Member States shall supply the Commission with a report on the application of Ö block Õ exemptions, in accordance with the Commission’s specific requirements, preferably in computerised form. The Commission shall make access to those reports available to all the Member States. The Committee referred to in Article 7 shall examine and evaluate those reports once a year.

Article 4

Period of validity and amendment of regulations

1. Regulations adopted pursuant to Articles 1 and 2 shall apply for a specific period. Aid exempted by a regulation adopted pursuant to Articles 1 and 2 shall be exempted for the period of validity of that regulation and for the adjustment period provided for in paragraphs 2 and 3 Ö of this Article Õ .

2. Regulations adopted pursuant to Articles 1 and 2 may be Ö repealed Õ or amended where circumstances have changed with respect to any important element that constituted grounds for their adoption or where the progressive development or the functioning of the Ö internal Õ market so requires. In that case the new regulation shall set a period of adjustment of six months for the adjustment of aid covered by the previous regulation.

3. Regulations adopted pursuant to Articles 1 and 2 shall provide for a period as referred to in paragraph 2 Ö of this Article Õ , should their application not be extended when they expire.

Article 5

Evaluation report

Every five years the Commission shall submit a report to the European Parliament and to the Council on the application of this Regulation. It shall submit a draft report for consideration by the Committee referred to in Article 7.

Article 6

Hearing of interested parties

Where the Commission intends to adopt a regulation, it shall publish a draft thereof to enable all interested persons and organisations to submit their comments to it within a reasonable time limit to be fixed by the Commission and which may not under any circumstances be less than one month.

Article 7

Advisory Committee Ö on state aid Õ

Ö The Õ Advisory Committee Ö on state aid Õ (hereinafter referred to as ‘the Committee’) shall be set up. It shall be composed of representatives of the Member States and chaired by Ö a Õ representative of the Commission.

Article 8

Consultation of the Committee

1. The Commission shall consult the Committee:

ê 733/2013 Art. 1.4(a)

(a) at the same time as publishing any draft regulation in accordance with Article 6;

ê 994/98 (adapted)

è1 733/2013 Art. 1.4(b)

(b) before adopting any regulation.

2. Consultation of the Committee shall take place at a meeting called by the Commission. è1 The drafts and documents to be examined shall be annexed to the notification and may be published on the Commission website. ç The meeting shall take place no earlier than two months after notification has been sent.

This period may be reduced in the case of the consultations referred to in paragraph 1(b), when urgent or for simple extension of a regulation.

3. The representative of the Commission shall submit to the Committee a draft of the measures to be taken. The Committee shall deliver its opinion on the draft, within a time limit which the chairman may lay down according to the urgency of the matter, if necessary by taking a vote.

4. The opinion shall be recorded in the minutes. In addition, each Member State shall have the right to ask to have its position recorded in the minutes. The Committee may recommend the publication of the opinion in the Official Journal of the European Ö Union Õ .

5. The Commission shall take the utmost account of the opinion delivered by the Committee. It shall inform the Committee of the manner in which its opinion has been taken into account.

ê

Article 9

Repeal

Regulation (EC) No 994/98 is repealed.

References to the repealed Regulation shall be construed as references to this Regulation and shall be read in accordance with the correlation table in Annex II.

ê 994/98 (adapted)

Article 10

Ö Entry into force Õ

This Regulation shall enter into force on the Ö twentieth Õ day following Ö that of Õ its publication in the Official Journal of the European Ö Union Õ .

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Done at Brussels,

For the Council

The President

[1] COM(87) 868 PV.

[2] See Annex 3 to Part A of the Conclusions.

[3] Entered in the legislative programme for 2014.

[4] See Annex I to this proposal.

[5] OJ C […], […], p. […].

[6] OJ C […], […], p. […].

[7] Council Regulation (EC) No 994/98 of 7 May 1998 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to certain categories of horizontal State aid (OJ L 142, 14.5.1998, p. 1).

[8] See Annex I.

[9] Council Regulation (EC) No 1198/2006 of 27 July 2006 on the European Fisheries Fund (OJ L 223, 15.8.2006, p. 1).

[10] Communication from the Commission — EU Guidelines for the application of State aid rules in relation to the rapid deployment of broadband networks (OJ C 25, 26.1.2013, p. 1).

[11] Judgment of the Court of Justice of 24 July 2003 in Case C-280/00, Altmark Trans GmbH and Regierungspräsidium Magdeburg v Nahverkehrsgesellschaft Altmark GmbH ([2003] ECR I-7747).

[12] See Council Recommendation 2010/410/EU of 13 July 2010 on broad guidelines for the economic policies of the Member States and of the Union (OJ L 191, 23.7.2010, p. 28) and Council Decision 2010/707/EU of 21 October 2010 on guidelines for the employment policies of the Member States (OJ L 308, 24.11.2010, p. 46).