EFTA SURVEILLANCE AUTHORITY DECISION No 112/96/COL of 11 September 1996 on the 10th amendment of the procedural and substantive rules in the field of State aid

THE EFTA SURVEILLANCE AUTHORITY

has amended the procedural and substantive rules in the field of State aid (1), adopted on 19 January 1994 (2), as last amended on 15 May 1996 (3), as follows:

Chapter 10 of the State aid guidelines shall be replaced by the following:

'10. AID TO SMALL AND MEDIUM-SIZED ENTERPRISES (SME) (1)

(1) The rules in this chapter are without prejudice to schemes already authorized at the date of their adoption. Such schemes may however be reviewed under Article 1 (1) of Protocol 3 to the Surveillance and Court Agreement (2).

(2) The rules in this chapter apply to aid granted to SMEs in all industries, with the exception of those covered by industry-specific rules. Any aid given to SMEs in those industries is subject to the relevant rules for the particular industry. Such rules currently exist for steel, shipbuilding, synthetic fibres, the motor vehicle industry and transport.

10.1. Introduction

(1) SMEs play a decisive role in job creation and, more generally, act as a factor of social stability and economic drive. It is generally accepted that SMEs suffer from a number of handicaps that can slow down their development. One such handicap is the difficulty in obtaining capital and credit, the chief causes of which are imperfect information, the risk-shy nature of financial markets and the limited guarantees that SMEs are in a position to offer. SMEs' limited resources restrict their access to information, notably regarding new technology and potential markets. The introduction of new regulatory arrangements often entails higher costs for SMEs. Imperfections in the market which limit the socially desirable development of SMEs justify the favourable consideration which the Authority has been prepared to give to State aid to SMEs, provided that such aid does not affect trade to a disproportionate extent relative to the contribution it makes to the achievement of objectives of common interest allowed by Article 61 (3) EEA.

(2) Article 61 (1) EEA imposes a general ban, subject to certain exceptions, on "any aid granted by EC Member States, EFTA States or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods . . . in so far as it affects trade between Contracting Parties . . . ". State aid given to SMEs will usually be caught by this provision. Such aid confers an advantage on particular firms, unlike general measures, which may benefit all enterprises throughout the economy. It may affect trade within the EEA because many SMEs export part of their output and because in most industries a strengthening in the position of SMEs on the local or national market will make it more difficult for producers from elsewhere in the EEA to penetrate that market.

(3) Nevertheless, some SMEs, and certain micro-enterprises in particular, carry on businesses in which there is no trade between Contracting Parties to the EEA Agreement (providing local services, for example). Aid given to them for activities of this sort falls outside the scope of Article 61 (1) EEA.

(4) Any aid given to a firm is capable of distorting competition; but not all aid has a perceptible effect on trade and competition within the EEA. This is particularly true where the amount of aid involved is small, although such aid is not, as a general rule, intended exclusively for SMEs. What is known as the de minimis rule (3) sets a threshold figure below which Article 61 (1) EEA can be said not to apply, so that a measure need not be notified in advance to the Authority in accordance with Article 1 (3) of Protocol 3 to the Surveillance and Court Agreement.

10.2. Definition of SMEs

(1) For the purpose of applying these guidelines, an SME is defined (4) as an enterprise which:

- has fewer than 250 employees (5), and

- has either:

- an annual turnover (6) (7) not exceeding ECU 40 million, or

- an annual balance-sheet total not exceeding ECU 27 million, and

- conforms to the criterion of independence defined below.

(2) Where it is necessary to distinguish between "small" and "medium-sized" enterprises, a "small" enterprise is defined as one which:

- has fewer than 50 employees, and

- has either:

- an annual turnover not exceeding ECU 7 million, or

- an annual balance-sheet total not exceeding ECU 5 million, and

- conforms to the criterion of independence defined below.

(3) An enterprise is considered independent unless 25 % or more of the capital or of the voting rights is owned by an enterprise falling outside the definition of an SME or of a small enterprise whichever may apply, or jointly by several such enterprises. This ceiling may be exceeded in two cases:

- if the enterprise is held by public investment corporations, venture capital companies or institutional investors, provided no control is exercised either individually or jointly,

- if the capital is spread in such a way that it is not possible to determine by whom it is held and if the enterprise declares that it can legitimately presume that it is not owned as to 25 % or more by one enterprise, or jointly by several enterprises, falling outside the definitions of an SME or a small enterprise, whichever may apply.

(4) The three tests - workforce, turnover or balance-sheet total, and independence - are cumulative: all three must be satisfied. The independence test, according to which a large enterprise must not hold 25 % or more of the SME's capital, is based on practice in a number of EEA States where this percentage is the threshold at which supervision becomes possible. In order to ensure that only genuinely independent SMEs are included, there has to be a way of eliminating legal arrangements in which SMEs form an economic group much stronger than an individual SME. In calculating the thresholds referred to above, it is therefore necessary to cumulate the relevant figures for the recipient enterprise and for all the enterprises which it directly or indirectly controls through possession of 25 % or more of the capital or of the voting rights.

10.3. The tests applied in assessing aid

10.3.1. General principles

(1) The Authority may consider aid compatible with the common market in accordance with Article 61 (3) (c) if it is intended "to facilitate the development of certain economic activities. . . where such aid does not adversely affect trading conditions to an extent contrary to the common interest". To qualify for exemption under this provision, a State aid measure must in the first place be in the nature of an incentive: it must under no circumstances have the sole effect of continuously or periodically reducing the costs which the enterprise would normally have to bear, while otherwise leaving the status quo untouched, as in the case of operating aid (8), and it must be necessary in order to achieve objectives which market forces alone would not secure. The objectives pursued must be in the common interest. Lastly, the aid must be proportionate to the handicaps which have to be overcome in order to secure the socio-economic benefits deemed to be desirable on grounds of the common interest: the positive effect must outweigh the damaging effect which State aid has on competition and trade.

10.3.2. Purpose of the aid and admissible intensities

10.3.2.1. Tangible investment

(1) Tangible "investment" is defined (9) as investment in fixed assets:

- "in the creation of a new establishment, the extension of an existing establishment or in engaging in an activity involving a fundamental change in the product or production process of an existing establishment (by means of rationalization, restructuring or modernization)",

or

- "by way of take-over of an establishment which has closed or which would have closed had such take-over not taken place".

(2) The intensity is to be calculated by reference to the eligible costs, namely the actual costs of land, buildings and plant. In the case of a take-over of an establishment the selling price of the assets should be looked at.

(3) Outside areas qualifying for regional aid (10), the Authority may grant exemption under Article 61 (3) (c) for aid to SMEs where the intensity of the aid, measured in gross grant equivalent (11) as a proportion of the costs referred to in the preceding paragraph, does not exceed 15 % in the case of small enterprises, or 7,5 % in the case of medium-sized enterprises.

(4) In assisted areas, the Authority may approve aid to SMEs which exceeds the level of regional investment aid it has authorized for large enterprises in the area:

- by 10 percentage points gross in areas covered by Article 61 (3) (c), provided the total does not exceed 30 % net,

- by 15 percentage points gross in areas covered by Article 61 (3) (a), provided the total does not exceed 75 % net.

(5) Where an EFTA State proposes financing in respect of costs other than the eligible costs defined above, the aid will have to be recalculated by reference to the eligible costs (12). The EFTA States are also free to grant aid within the limits authorized by the de minimis rule towards expenditure which would not be eligible under the definitions given in the present guidelines.

10.3.2.2. Intangible investment in the form of transfers of technology

(1) The Authority takes a sympathetic approach towards aid for research and development (R& D). The concept of aid for training and consultancy includes therefore aid that is designed to encourage SMEs to use advanced technology which they would not have been able to develop themselves, by authorizing limited assistance towards the transfer of technology to SMEs from research laboratories or from other firms. Inequality in the information available to licensors and licensees regarding new technology, and other types of market imperfection associated with technology transfers, along with the irrecoverable character of the costs of acquiring specific technology or know-how, may provide justification for public assistance towards spending of this kind by SMEs, while limiting the impact on competition. For SMEs outside areas qualifying for domestic regional aid, therefore, the Authority may authorize aid which does not exceed the following gross intensities, measured as a percentage of the cost of acquiring patent rights, licences, know-how or unpatented technical knowledge (13): 15 % in the case of small enterprises, or 7,5 % in the case of medium-sized enterprises.

(2) In assisted areas the Authority may approve aid to SMEs which exceeds the level of regional investment aid it has authorized for large enterprises in the area:

- by 10 percentage points gross in areas covered by Article 61 (3) (c), provided the total does not exceed 30 % net,

- by 15 percentage points gross in areas covered by Article 61 (3) (a), provided the total does not exceed 75 % net.

10.3.2.3. Consultancy services, training and dissemination of knowledge

(1) Aid of up to 50 % gross will generally be allowed for consultancy services provided by outside consultants to new or established SMEs or for the training given to their staff in such fields as management, financial matters, new technology (especially information technology), pollution control, protection of intellectual property rights or the like, or for the purpose of assessing the feasibility of new ventures. Each scheme will, however, be judged on its merits, with particular reference to the distance of the activity from the market place, any cost ceilings for individual firms, any possibilities of combination with other forms of aid, and other relevant factors. In certain exceptional circumstances, the Authority may allow aid of more than 50 %. Assisted areas are one such case. Aid for general information campaigns may also qualify for a higher intensity if the financial benefit to the individual firm is small.

(2) It is important to specify that such measures do not cover:

- aid relating to investment liable to be entered on the assets side of the enterprise's balance sheet as intangible assets (costs of R& D, concessions, patents, licences, etc.) and dealt with at sections 10.3.2.2. and 10.3.2.6., or

- continuous or periodic aid not acting as an incentive and relating to the enterprise's usual operating expenditure (routine tax consultancy services, regular legal services, advertising, etc.).

10.3.2.4. Aid for the transfer of SMEs

(1) The Authority recognizes the problems of SMEs, and particularly family businesses, being forced to cease trading owing to insuperable difficulties in transferring them. If the buyer is an SME too, it may be given aid to help with the take over in accordance with the rules on aid to tangible investment at section 10.3.2.1. above.

10.3.2.5. Aid for environmental protection

(1) Aid for environmental protection will be considered in the light of the rules contained in Chapter 15 of these guidelines. Environmental aid granted to SMEs may be up to 10 percentage points gross above the rate ordinarily allowed in the case of large enterprises.

10.3.2.6. Aid for R& D

(1) Aid for R& D will be considered in the light of the rules contained in Chapter 14 of these guidelines. R& D aid granted to SMEs may be up to 10 percentage points gross above the rate ordinarily allowed in the case of large enterprises.

10.3.2.7. Aid for employment

(1) Aid for employment will be considered in the light of the rules contained in Chapter 18 of these guidelines. In particular the Authority will be favourably disposed towards aid to create new jobs in SMEs.

10.3.2.8. Aid for other purposes

(1) The majority of the aid schemes for SMEs which are notified to the Authority fall into the categories listed above. But the Authority may be prepared to authorize aid towards other justified measures designed to help SMEs, e.g. by encouraging cooperation between them, or towards measures to promote culture and heritage conservation, provided that they do not affect trading conditions and competition to an extent that is contrary to the common interest.

(1) This chapter corresponds to the Community guidelines on aid for small and medium-sized enterprises adopted by the Commission on 20 March 1996 (OJ No C 213, 23. 7. 1996, p. 4). The operation of the Community guidelines will be reviewed after they have been in force for three years; they may be revised if necessary.

(2) See Chapter 7 of these guidelines.

(3) See Chapter 12 of these guidelines.

(4) In accordance with Commission recommendation 96/280/EC of 3 April 1996 concerning the definition of small and medium-sized enterprises (OJ No L 107, 30. 4. 1996, p. 4). The Commission will amend the ceilings chosen for turnover or balance-sheet total as the need arises and normally every four years from the adoption of this recommendation, to take account of changing circumstances in the Community.

(5) The number of employees is the number of annual work units (AWUs), that is to say the number of wage- and salary-earners employed full-time for a whole year, with part-time or seasonal work being counted as fractions of a unit. The year to be taken is the last completed financial year.

(6) The "turnover" referred to here is the "net turnover" defined in Article 28 of the European Council's Fourth Company Law Directive 78/660/EEC (the act referred to in Annex XXII.4 of the EEA Agreement) on the annual accounts of certain types of companies (OJ No L 222, 14. 8. 1978, p. 11), as last amended by Directive 94/8/EC (OJ No L 82, 25. 3. 1994, p. 33), that is to say "the amounts derived from the sale of products and the provision of services falling within the company's ordinary activities, after deduction of sales rebates and of value added tax and other taxes directly linked to the turnover".

(7) Where at the final balance sheet date, an enterprise exceeds or falls below the employee thresholds or financial ceilings, this is to result in its acquiring or losing the status of "SME", "medium-sized enterprise", "small enterprise" or "micro-enterprise" (fewer than ten employees) only if the phenomenon is repeated over two consecutive financial years. The turnover and balance sheet total thresholds are those of the last approved 12-month accounting period. In the case of newly established enterprises whose accounts have not yet been approved, the thresholds to apply shall be derived from a reliable estimate made in the course of the financial year.

(8) There are certain exceptional circumstances in which operating aid is admissible in regions qualifying for regional aid under Article 61 (3) (a) and (c). See Chapter 28 of these guidelines.

(9) In accordance with paragraph 25 (11) of these guidelines.

(10) See Chapter 28 of these guidelines.

(11) That is to say, the nominal (before-tax) value of grants and the discounted before-tax value of interest subsidies as a proportion of the investment cost. Net figures are after tax.

(12) This rule does not apply to costs which are eligible for the classes of aid described below.

(13) The rules which follow do not concern the costs of acquiring patent rights, licences, etc. which form part of the eligible costs of an R& D project put forward by the recipient in accordance with the fourth indent of paragraph 14.6. (1) of these guidelines and which qualify for the rates admissible for the type of R& D project of which they form part.`

Done at Brussels, 11 September 1996.

For the EFTA Surveillance Authority

The President

Knut ALMESTAD

(1) Hereinafter referred to as the State aid guidelines.

(2) OJ No L 231, 3. 9. 1994, p. 1.

(3) OJ No L 245, 26. 9. 1996, p. 28.