Information from the Commission - Guidelines on national regional aid (Text with EEA relevance)
Date: 1998-03-10
Institutions: European Commission
Subjects: State aid, employment aid, investment aid, regional aid, restriction on competition, terms for aid

10.3.98

EN

Official  Journal  of  the  European  Communities

C  74/9

GUIDELINES  ON  NATIONAL  REGIONAL  AID

(98/C  74/06)

(Text  with  EEA  relevance)

1.(cid:218)(cid:218)(cid:217)Introduction

The  criteria  applied  by  the  Commission  when
examining  the  compatibility  of  national  regional
aid  with  the  common  market  under  Articles
92(3)(a)  and  92(3)(c)  of  the  EC  Treaty  have
been  set  out  in  a  number  of  documents  of  various
sorts  brought  to  the  attention  of  the  Member
States  and  other  interested  parties(cid:216)(˛).

The  growing  number  of  these  documents,  their
heterogeneous  nature  and  the  long  time(cid:220)frame
involved,  the  changes  in  thinking  and  practice
both  within  the  Commission  and  within  Member
States  and  the  need  to  concentrate  aid  and
reduce  distortions  of  competition  make 
it
necessary  to  aim  for  transparency,  up(cid:220)to(cid:220)dateness
and  simplification  by  revising  all  the  criteria
currently 
said
and 
documents(cid:216)(ˇ)  with  a  single  text.  The  text  that
follows  seeks  to  meet  this  need.

replacing 

applied 

the 

(˛)(cid:217)See  Commission  of 

the  European  Communities,  Com(cid:220)
petition  law  in  the  European  Communities,  Volume  IIA:
Rules  applicable  to  State  aids,  Brussels  -  Luxembourg,
1995,  p.  187  et  seq.

(ˇ)(cid:217)The  documents  replaced  by  these  Guidelines,  including  the

annexes  thereto,  are  as  follows:
-(cid:217)Commission  Communication  to  the  Council  (OJ  C  111,

4.11.1971,  p.  7);

-(cid:217)Commission  Communication  to  the  Council  (COM(73)

1110,  27.6.1973);

-(cid:217)Commission  Communication  to  the  Council  (COM(75)

77  final,  26.2.1975);

-(cid:217)Commission  Communication  to  the  Member  States  (OJ

C  31,  3.2.1979,  p.  9);

-(cid:217)Commission  Communication  to  the  Member  States  on
the  method  for  the  application  of  Article  92(3)(a)  and  (c)
to  regional  aid  (OJ  C  212,  12.8.1988,  p.  2);

-(cid:217)Commission  Communication  to  the  Member  States  on
the  reference  and  discount  rates  applicable  in  France,
Ireland  and  Portugal  (OJ  C  10,  16.1.1990,  p.  8);

-(cid:217)Commission  Communication  to  the  Member  States  on
the  method  of  application  of  Article  92(3)(a)  to  regional
aid  (OJ  C  163,  4.7.1990,  p.  6);

-(cid:217)Commission  Notice,  addressed  to  Member  States  and
other  interested  parties,  concerning  an  amendment  to
Part  II  of  the  Communication  on  the  method  for  the
application  of  Article  92(3)(a)  and  (c)  to  regional  aid
(OJ  C  364,  20.12.1994,  p.  8).

The  Guidelines  are  consistent  with  the  criteria 
in  the
Council  Resolution  of  20  October  1971  (OJ  C  111,
4.11.1971,  p.  1).
As  to  the  Notice  concerning  the  reference  and  discount  rate
(OJ  C  273,  9.9.1997,  p.  3),  this  is  no  longer  part  of  the
documents  relating  to  regional  aid,  since  it  concerns  all  State
aid.

The  aid  measures  which  form  the  subject(cid:220)matter
of  these  Guidelines  ("regional  aid’)  differ  from
the  other  categories  of  government 
support
(in  particular  aid 
for  R&D,  environmental
protection,  or  firms  in  difficulty)  in  that  they  are
reserved  for  particular  regions  and  have  as  their
specific  aim  the  development  of  those  regions(cid:216)(—).

Regional  aid  is  designed  to  develop  the  less(cid:220)
favoured  regions  by  supporting  investment  and
job  creation  in  a  sustainable  context.  It  promotes
the  expansion,  modernisation  and  diversification
of  the  activities  of  establishments  located  in  those
regions  and  encourages  new  firms  to  settle  there.
In  order  to  foster  this  development  and  reduce
the  potential  negative  effects  of  any  relocation,  it
is  necessary  to  make  the  granting  of  such  aid
conditional  on  the  maintenance  of  the  investment
and  the  jobs  created  during  a  minimum  period  in
the  less(cid:220)favoured  region.

In  exceptional  cases,  such  aid  may  not  be  enough
to  trigger  a  process  of  regional  development,  if
the  structural  handicaps  of  the  region  concerned
are  too  great.  Only  in  such  cases  may  regional
aid  be  supplemented  by  operating  aid.

justify 

The  Commission  considers  that  regional  aid  can
play  the  role  that  is  assigned  to  it  effectively  and
hence 
the  consequent  distortions  of
competition,  provided  that  it  adheres  to  certain
principles  and  obeys  certain  rules.  Foremost
among  these  principles  is  the  exceptional  nature
of  the  instrument,  in  keeping  with  the  letter  and
spirit  of  Article  92.

(—)(cid:217)Also  regarded  as  regional  aid  is  aid  to  SMEs  that  provides

for  increases  to  assist  regional  development.

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on 

the  most 

In  fact,  such  aid  is  conceivable  in  the  European
Union  only  if  it  is  used  sparingly  and  remains
concentrated 
disadvantaged
regions(cid:216)((cid:209)).  If  aid  were  to  become  generalised
and,  as  it  were,  the  norm,  it  would  lose  all  its
incentive  quality  and  its  economic  impact  would
be  nullified.  At  the  same  time,  the  aid  would
interfere  with  the  normal  interplay  of  market
forces  and  reduce  the  efficacy  of  the  Community
economy  as  a  whole.

An  individual  ad  hoc  aid  payment(cid:216)((cid:213))  made  to  a
single  firm,  or  aid  confined  to  one  area  of
activity,  may  have  a  major  impact  on  competition
in  the  relevant  market,  and  its  effects  on  regional
development  are  likely  to  be  too  limited.  Such
aid  generally  comes  within  the  ambit  of  specific
or  sectoral  industrial  policies  and  is  often  not  in
keeping  with  the  spirit  of  regional  aid  policy  as
such(cid:216)((cid:214)).  The  latter  must  remain  neutral  towards
the  allocation  of  productive  resources  between
the  various  economic  sectors  and  activities.

2.(cid:218)(cid:218)(cid:217)Scope

The  Commission  considers  that,  unless  it  can  be
shown  otherwise,  such  aid  does  not  fulfil  the
requirements 
preceding
out 
paragraph(cid:216)(˛˝).

the 

set 

in 

The  Commission  will  apply  these  Guidelines  to
in  every  sector  of  the
regional  aid  granted 
economy  apart  from  the  production,  processing
and  marketing  of  the  agricultural  products  listed
in  Annex  II  of  the  Treaty,  fisheries  and  the  coal
industry.  In  addition,  some  of  the  sectors  they
rules  aimed
cover  are  also  governed  by 
specifically  at  the  sectors  in  question(cid:216)((cid:210)).

Consequently,  the  derogations  in  question  will
normally  be  granted  only  for  multisectoral  aid
schemes  open,  in  a  given  region,  to  all  firms  in
the  sectors  concerned.

3.(cid:218)(cid:218)(cid:217)Demarcation  of  regions

A  derogation  from  the  incompatibility  principle
established  by  Article  92(1)  of  the  Treaty  may  be
granted  in  respect  of  regional  aid  only  if  the
equilibrium  between  the  resulting  distortions  of
competition  and  the  advantages  of  the  aid  in
terms  of  the  development  of  a 
less(cid:220)favoured
region(cid:216)((cid:211))  can  be  guaranteed.  The  weight  given  to
likely  to  vary
the  advantages  of  the  aid 
according  to  the  derogation  applied,  having  a
more  adverse  effect  on  competition 
the
situations  described  in  Article  92(3)(a)  than  in
those  described  in  Article  92(3)(c)(cid:216)((cid:212)).

in 

is 

3.1.

3.2.

In  order  that  the  aid  schemes  directed  at  them
may  benefit  from  one  of  the  derogations,  the
regions  concerned  must  satisfy  the  conditions  set
forth 
those  derogations.  The  Commission
establishes  whether  the  conditions  are  met  by
applying  predetermined  analytical  criteria.

in 

In  the  light  of  the  principle  stated  in  the  intro(cid:220)
duction  to  these  Guidelines  (that  of  the  excep(cid:220)
tional  nature  of 
the  Commission
the  aid), 
considers  prima  facie  that  the  total  extent  of
assisted  regions  in  the  Community  must  remain
smaller 
In
practice,  and  using  the  most  common  unit  of
(the
measurement  of 
percentage  of  population  covered),  this  means
that  the  total  coverage  of  regional  aid  in  the
Community  must  be 
the
Community  population.

that  of  unassisted  regions. 

than  50(cid:216)%  of 

scale  of 

the  aid 

than 

less 

the 

((cid:209))(cid:217)See  the  conclusions  of  the  Council  of  6(cid:220)7  November  1995

on  competition  policy  and  industrial  competitiveness.

((cid:210))(cid:217)The  sectors  covered  by  special  rules  over  and  above  those
set  out  here  are  currently  as  follows:  transport,  steel,  ship(cid:220)
building,  synthetic  fibres,  and  motor  vehicles.  In  addition,
specific  rules  apply  to  investment  covered  by  the  multi(cid:220)
sectoral  framework  for  regional  aid  to  large  projects.

((cid:211))(cid:217)See  in  this  respect  the  judgment  of  the  Court  of  Justice  in
Case  730/79  Philip  Morris  [1980(cid:129)  ECR  2671,  at  paragraph
17  and  in  Case  C(cid:220)169/95  Spain  v.  Commission  [1997(cid:129)  ECR
I(cid:220)135,  at  paragraph  20.

((cid:212))(cid:217)See  in  this  respect  the  judgment  of  the  Court  of  First
Instance  in  T(cid:220)380/94  AIUFFASS  and  AKT  [1996(cid:129)  ECR
II(cid:220)2169,  at  paragraph  54.

((cid:213)) See  in  this  respect  the  judgment  of  the  Court  of  Justice  in
Joined  Cases  C(cid:220)278/92,  C(cid:220)279/92  and  C(cid:220)280/92,  Spain  v.
Commission  [1994(cid:129)  ECR  I(cid:220)4103.

((cid:214)) As  a  result,  under  the  WTO  Agreement  on  subsidies  and
countervailing  measures,  this  type  of  aid  has  been  expressly
excluded  from  the  category  of  non(cid:220)actionable  regional  aid
(authorized  without  scrutiny).

(˛˝) Ad  hoc  aid  for  firms  in  difficulty  is  governed  by  specific
rules  and  is  not  conceived  of  as  regional  aid  as  such.  The
rules  currently  in  force  are  those  published  in  OJ  C  368,
23.12.1994,  p.  12.

3.3.

3.4.

3.5.

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As  the  two  derogations  in  question  relate  to
regional  problems  of  a  different  nature  and
intensity,  priority  must  be  given,  within  the  limits
of  the  total  aid  coverage  referred  to  in  point  3.2,
acute
regions 
to 
problems(cid:216)(˛˛).

the  most 

affected 

by 

the  Statistical  Office 

by 
Communities.

for 

the  European

The  derogation  in  Article  92(3)(c)

The  demarcation  of 
regions  must
therefore  lead  to  a  spatial  concentration  of  aid  in
accordance  with 
in
points  3.2  and  3.3.

the  principles  mentioned 

eligible 

3.6.

The  derogation  in  Article  92(3)(a)

is 

the  Court  of  Justice  of 

Article  92(3)(a)  provides  that  aid  to  promote  the
economic  development  of  areas  where 
the
standard  of  living  is  abnormally  low  or  where
serious  underemployment  may  be
there 
considered  compatible  with  the  common  market.
As 
the  European
Communities  has  held,  "the  use  of  the  words
in  the  exemption
""abnormally’’  and 
""serious’’ 
it
contained 
concerns  only  areas  where  the  economic  situation
is  extremely  unfavourable 
in  relation  to  the
Community  as  a  whole’(cid:216)(˛ˇ).

in  Article  92(3)(a) 

shows 

that 

that 

tried  and 

tested  approach, 

The  Commission  accordingly  considers,  follow(cid:220)
the
ing  a 
conditions  laid  down  are  fulfilled  if  the  region,
being  a  NUTS(cid:216)(˛—)  level  II  geographical  unit,  has
a  per  capita  gross  domestic  product  (GDP),
measured  in  purchasing  power  standards  (PPS),
the  Community
of 
average(cid:216)(˛(cid:209)).  The  GDP/PPS  of  each  region  and
the  Community  average  to  be  used  in  the  analysis
must  relate  to  the  average  of  the  last  three  years
for  which  statistics  are  available.  These  amounts
are  calculated  on  the  basis  of  data  furnished

than  75,0(cid:216)%  of 

less 

(˛˛)(cid:217)The  regions  eligible  under  the  derogation  in  paragraph  (a)
currently  account  for  22,7(cid:216)%  of  the  Community  popu(cid:220)
lation,  compared  with  24(cid:216)%  for  the  regions  eligible  under
the  derogation  in  paragraph  (c).

(˛ˇ)(cid:217)Case  248/84  Germany  v.  Commission  [1987(cid:129)  ECR  4013,  at

paragraph  19.

(˛—)(cid:217)Nomenclature  of  Statistical  Territorial  Units.
(˛(cid:209))(cid:217)The  underlying  assumption  being  that  the  GDP  indicator  is
capable  of  reflecting  synthetically  both  the  phenomena
mentioned.

is 

in  view 

to  Article  92(3)(a),  where 

the
In  contrast 
situation 
identified  precisely  and
formally,  Article  92(3)(c)  allows  greater  latitude
when  it  comes  to  defining  the  difficulties  of  a
region  that  can  be  alleviated  with  the  help  of  aid
measures.  The 
indicators  do  not
therefore  necessarily  boil  down  in  this  case  to
standards  of  living  and  underemployment.  In  any
case,  the  appropriate  framework  for  evaluating
these  difficulties  may  be  provided  not  only  by  the
Community  as  a  whole  but  also  by  the  relevant
Member  State  in  particular.

relevant 

in  Case  248/84  (see
The  Court  of  Justice, 
footnote  12),  has  expressed  its  views  on  these
two  matters  (range  of  problems  covered  and
reference  framework  for  the  analysis),  as  follows:
"The  exemption  in  Article  92(3)(c),  on  the  other
hand,  is  wider  in  scope  inasmuch  as  it  permits  the
development  of  certain  areas  without  being
restricted  by  the  economic  conditions  laid  down
in  Article  92(3)(a),  provided  such  aid  ""does  not
adversely  affect  trading  conditions  to  an  extent
contrary  to  the  common  interest’’.  That  provision
gives  the  Commission  power  to  authorise  aid
intended  to  further  the  economic  development  of
areas  of  a  Member  State  which  are  disad(cid:220)
vantaged  in  relation  to  the  national  average’.

3.7.

The  regional  aid  covered  by  the  derogation  in
point  (c)  must,  however,  form  part  of  a  coherent
regional  policy  of  the  Member  State  and  adhere
to  the  principles  of  geographical  concentration
set  out  above.  Inasmuch  as  it  is  intended  for
regions  which  are  less  disadvantaged  than  those
to  which  point  (a)  relates,  such  aid  is,  to  a
greater  extent  than  the  latter,  exceptional  and
can  be  allowed  only  to  a  very  limited  degree.
This  being  so,  only  a  small  part  of  the  national
territory  of  a  Member  State  may  prima  facie
qualify  for  the  aid  in  question.  This  is  why  the

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population  coverage  of  regions  falling  under
Article  92(3)(c)  must  not  exceed  50(cid:216)%  of  the
national  population  not  covered  by  the  dero(cid:220)
gation  under  Article  92(3)(a)(cid:216)(˛(cid:210)).

On  the  other  hand,  the  fact  that  the  nature  of
such  aid  makes  it  possible  to  take  account  of  the
national  peculiarities  of  a  Member  State  does  not
exempt  the  aid  from  the  need  for  scrutiny  from
the  viewpoint  of  Community  interests.  The  deter(cid:220)
mination  of  the  regions  eligible  in  each  Member
framework
State  must 
guaranteeing  the  overall  coherence  of  such  deter(cid:220)
mination  at  Community  level(cid:216)(˛(cid:211)).

therefore 

into  a 

fit 

3.8.

it  comes 

system  of 

So  as  to  afford  national  authorities  sufficient
latitude  when 
to  choosing  eligible
regions  without  jeopardising  the  effectiveness  of
the
the 
Commission  in  respect  of  this  type  of  aid  and  the
equal  treatment  of  all  Member  States,  the  deter(cid:220)
mination  of  the  regions  eligible  under  the  dero(cid:220)
gation  in  question  consists  of  two  parts:

checks  operated 

by 

-(cid:217)the 

fixing  by 

for  each
country,  of  a  ceiling  on  the  coverage  of  such
aid,

the  Commission, 

-(cid:217)the  selection  of  elegible  regions.

The  latter  part  will  obey  transparent  rules  but
will  also  be  sufficiently  flexible  to  allow  for  the
diversity  of  situations  potentially  justifying  the
application  of  the  derogation.  The  aid  coverage
ceiling  is  designed  to  be  conducive  to  the  above(cid:220)
in  the  choice  of  eligible
mentioned  flexibility 
regions  whilst  ensuring  the  uniform  treatment
required  by  acceptance  of  such  aid  from  the
Community  point  of  view.

(g) 

(j), 
for 

and 
sets  an  overall  ceiling 

the
particular  under  points 
Commission 
the
coverage  of  regional  aid  in  the  Community  in
terms  of  population.  The  overall  ceiling  covers  all
the  92(3)(c)  and
the  regions  eligible  under 
92(3)(a)  derogations.  Since  the  regions  eligible
for  regional  aid  under  the  Article  92(3)(a)  dero(cid:220)
gation  and  their  global  coverage  at  Community
level  are  determined  exogenously  and  auto(cid:220)
matically  by  applying  the  criterion  of  75(cid:216)%  of
per  capita  GDP/PPS, 
the
Commission  decision  on 
the  overall  ceiling
defines,  simultaneously,  the  ceiling  on  coverage
at
under 
Community  level.  The  Article  92(3)(c)  ceiling  is
obtained  by  deducting  from  the  overall  ceiling
the  population  of  the  regions  eligible  under  the
92(3)(a)  derogation.  It  is  then  distributed  among
the  different  Member  States  in  the  light  of  the
relative  socio(cid:220)economic  situation  of  the  regions
within  each  Member  State,  assessed 
the
context  of  the  Community.  The  method  of  deter(cid:220)
mining  this  percentage  in  each  Member  State  is
described  in  Annex  III.

the  Article  92(3)(c)  derogation, 

follows 

that 

in 

it 

3.10. The  Member  States  notify  to  the  Commission,
under  Article  93(3),  the  methodology  and  the
quantitative  indicators  which  they  wish  to  use  to
determine  the  eligible  regions,  and  the  list  of
regions  they  propose  for  the  (c)  derogation  and
the  relative  intensities(cid:216)(˛(cid:212)).  The  percentage  for  the
population  of  the  regions  concerned  may  not
exceed  the  said  ceiling  on  coverage  for  the
purposes  of  the  92(3)(c)  derogation.

3.10.1. The  methodology  must  satisfy 

the 

following

conditions:

-(cid:217)it  must  be  objective,

-(cid:217)it  must  make 
disparities 
in 
stances  of  the  regions 
Member 
significant  differences,

it  possible  to  measure  the
socio(cid:220)economic  circum(cid:220)
the 
in  the
highlighting

in  question 

concerned, 

State 

3.9.

To  guarantee  effective  control  of  regional  aid
while  contributing  to  the  achievement  of  the
objectives  set  out  in  Article  3  of  the  Treaty,  in

-(cid:217)it  must  be  presented 

in  a  clear,  detailed
fashion,  to  enable  the  Commission  to  assess
its  merits.

(˛(cid:210)) Barring  a  transitional  exception  arising  from  the  application

of  point  8  of  Annex  III  to  these  Guidelines.

(˛(cid:211)) See,  in  this  connection,  the  judgments  of  the  Court  of
Justice  in  Cases  730/79  Philip  Morris,  at  paragraph  26,  and
310/85  Deufil  [1987(cid:129)  ECR  901,  at  paragraph  18.

(˛(cid:212))(cid:217)See  points  4.8  and  4.9.

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3.10.2. The 

indicators  must 

satisfy 

the 

following

3.10.4. Regions  with  a  low  population  density:

conditions:

-(cid:217)their  number, 

in(cid:220)
dicators  and  combinations  of  indicators,  must
be  limited  to  five,

including  both 

simple 

-(cid:217)they  must  be  objective  and  relevant  to  the
examination  of  the  socio(cid:220)economic  circum(cid:220)
stances  of  the  regions,

-(cid:217)they  must  either  be  based  on  statistical  series
relating  to  the  indicators  used  over  a  period
including  at  least  the  three  years  prior  to  the
moment  of  notification,  or  be  derived  from
the  last  survey  carried  out,  if  the  relevant
statistics  are  not  available  on  an  annual  basis,

-(cid:217)they  must  be  drawn  up  by  reliable  statistical

sources.

3.10.3. The  list  of  regions  must  satisfy  the  following

conditions:

-(cid:217)the  regions  must  conform  to  NUTS  level  III
or,  in  justified  circumstances,  to  a  different
homogeneous  geographical  unit.  Only  one
type  of  geographical  unit  may  be  submitted
by  each  Member  State,

-(cid:217)the  individual  regions  proposed  or  the  groups
of  contiguous  regions  must  form  compact
zones,  each  of  which  must  have  a  population
of  at  least  100(cid:216)000.  If  the  population  of  the
regions  is  less,  a  fictitious  figure  of  100(cid:216)000
inhabitants  will  be  used  for  the  calculation  of
the  percentage  of  the  population  covered.
Exceptions  to  this  rule  are  the  NUTS  level  III
regions  with  a  population  of 
than
100(cid:216)000,  islands  and  other  regions  charac(cid:220)
terised  by  similar  geographical  isolation(cid:216)(˛(cid:213)).
Where  one  region  adjoins  regions  eligible  for
regional  aid  in  other  Member  States,  the  rule
applies  to  the  whole  complex  formed  by  those
regions,

less 

-(cid:217)the  list  of  regions  must  be  arranged  on  the
basis  of  the  indicators  set  out  at  point  3.10.2.
The  regions  proposed  must  show  significant
disparities  (half  of  the  standard  deviation)
compared  with  the  average  of  the  potential
the  Member  State
92(3)(c) 
concerned, 
respect  of  one  or  other
in 
indicator  used  in  the  method.

regions  of 

(˛(cid:213))(cid:217)Because  of  the  size  of  its  population,  Luxembourg  is  also

exempt  from  this  rule.

-(cid:217)subject  to  the  ceiling  for  each  Member  State
mentioned  at  point  3.9,  regions  with  a  popu(cid:220)
lation  density  of  less  than  12,5  inhabitants  per
square  kilometre(cid:216)(˛(cid:214))  may  also  qualify  for  the
derogation  in  question.

3.10.5. Consistency  with  the  Structural  Funds:

the  choice  of 

-(cid:217)to  encourage  the  Member  States  to  ensure
consistency  between 
such
regions  and  the  selection  of  those  qualifying
for  Community  assistance,  the  regions  eligible
under  the  Structural  Funds  may  also  qualify
for  the  derogation  in  question  subject  to  the
ceilings  mentioned  at  point  3.9,  and 
in
accordance  with  the  conditions  set  out  in  the
second  indent  of  point  3.10.3.

4.(cid:218)(cid:218)(cid:217)Object,  form  and  level  of  aid

4.1.

The  object  of  regional  aid  is  to  secure  either
productive  investment  (initial  investment)  or  job
creation  which  is  linked  to  investment.  Thus  this
method  favours  neither  the  capital  factor  nor  the
labour  factor.

4.2.

To  ensure  that  the  productive  investment  aided  is
viable  and  sound,  the  recipient’s  contribution(cid:216)(ˇ˝)
to  its  financing  must  be  at  least  25(cid:216)%.

the  aid 

form  of 

The 
is  variable:  grant,
low(cid:220)interest  loan  or  interest  rebate,  government
guarantee  or  purchase  of  a  State  shareholding  on
in
favourable  terms,  tax  exemption,  reduction 
social  security  contributions,  supply  of  goods  and
services  at  a  concessionary  price,  etc.

In  addition,  aid  schemes  must  lay  down  that  an
application  for  aid  must  be  submitted  before
work  is  started  on  the  projects.

(˛(cid:214))(cid:217)Eligibility  criterion  established  by  the  Commission  Notice

cited  at  footnote  2,  eighth  indent.

(ˇ˝)(cid:217)This  minimum  contribution  of  25(cid:216)%  must  not  contain  any
aid.  This  is  not  the  case,  for  instance,  where  a  loan  carries
an 
is  backed  by  government
guarantees  containing  elements  of  aid.

interest(cid:220)rate  subsidy  or 

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4.3.

4.4.

4.5.

level  of  the  aid 

The 
in  terms  of
intensity  compared  with  reference  costs.  (see  4.5,
4.6  and  4.13)

is  defined 

Aid  for  initial  investment

Initial  investment  means  an  investment  in  fixed
capital  relating  to  the  setting(cid:220)up  of  a  new  estab(cid:220)
lishment,  the  extension  of  an  existing  estab(cid:220)
lishment,  or 
starting(cid:220)up  of  an  activity
involving  a  fundamental  change  in  the  product  or
production  process  of  an  existing  establishment
(through 
or
modernisation)(cid:216)(ˇ˛).

rationalisation, 

diversification 

the 

An  investment  in  fixed  capital  undertaken  in  the
form  of  the  purchase  of  an  establishment  which
has  closed  or  which  would  have  closed  had  it  not
been  purchased  may  also  be  regarded  as  initial
investment,  unless  the  establishment  concerned
belongs  to  a  firm  in  difficulty.  In  the  latter  case,
aid  for  the  purchase  of  an  establishment  may
include  an  advantage  for  the  firm  in  difficulty,
which  must  be  examined  in  accordance  with  the
Guidelines  on  State  aid  for  rescuing  and  restruc(cid:220)
turing  firms  in  difficulty(cid:216)(ˇˇ).

initial 

investment 

Aid  for 
is  calculated  as  a
percentage  of  the  investment’s  value.  This  value
is  established  on  the  basis  of  a  uniform  set  of
(standard  base)  corre(cid:220)
items  of  expenditure 
the
sponding 
to 
investment: 
plant/
machinery(cid:216)(ˇ—).

following  elements  of 

the 
land, 

buildings 

and 

(ˇ˛)(cid:217)Replacement  investment  is  thus  excluded  from  the  concept.
Aid  for  this  type  of  investment  falls  within  the  category  of
operating  aid,  to  which  the  rules  described  at  points  4.15  to
4.17  apply.
Also  excluded  from  this  concept  is  aid  for  the  financial
restructuring  of  a  firm  in  difficulty  within  the  meaning  of
the  Community  Guidelines  on  State  aid  for  rescuing  and
in  difficulty  (OJ  C(cid:216)368,  23.12.1994,
restructuring  firms 
p.  12).
Restructuring  aid  within  the  meaning  of  point  2.5  of  the
said  Guidelines  may  be  granted,  in  so  far  as  it  relates  to
investment  measures  (rationalisation,  modernisation,  diver(cid:220)
sification),  without  needing  separate  notification,  under  a
scheme  of  regional  aid.  However,  since  such  regional  aid  is
part  of  proposed  aid  for  the  restructuring  of  a  firm  in
difficulty,  it  must  be  taken  into  account  in  the  examination
carried  out  under  the  said  Guidelines.

(ˇˇ)(cid:217)For  the  text  currently  applicable,  see  footnote  10.
(ˇ—)(cid:217)In  the  transport  sector,  expenditure  on  the  purchase  of
transport  equipment  (movable  assets)  cannot  be  included  in
the  uniform  set  of  items  of  expenditure  (standard  base).
Such  expenditure,  therefore,  is  not  eligible  for  aid  for  initial
investment.

In  the  event  of  a  purchase,  only  the  costs  of
buying  these  assets(cid:216)(ˇ(cid:209))  should  be  taken 
into
consideration  (the  transaction  must  take  place
under  market  conditions).  Assets 
for  whose
acquisition  aid  has  already  been  granted  prior  to
the  purchase  should  be  deducted.

4.6.

include  certain
Eligible  expenditure  may  also 
categories  of  intangible  investment  up  to  a  limit
of  25(cid:216)%  of  the  standard  base  in  the  case  of  large
firms(cid:216)(ˇ(cid:210)).

Such  expenditure  must  be  confined  to  expen(cid:220)
diture  entailed  by  the  transfer  of  technology
through  the  acquisition  of:

-(cid:217)patents,

-(cid:217)operating  or  patented  know(cid:220)how  licences,

-(cid:217)unpatented  know(cid:220)how.

that 

for  ensuring 

Eligible  intangible  assets  will  be  subject  to  the
necessary  conditions 
they
remain  associated  with 
the  recipient  region
eligible  for  the  regional  aid  and,  consequently,
that  they  are  not  the  subject  of  a  transfer  ben(cid:220)
efiting  other  regions,  especially  other  regions  not
eligible  for  regional  aid.  To  this  end,  eligible
intangible  assets  will  have  to  satisfy  the  following
conditions  in  particular:

-(cid:217)they  must  be  used  exclusively  in  the  estab(cid:220)

lishment  receiving  the  regional  aid,

-(cid:217)they  must  be  regarded  as  amortisable  assets,

-(cid:217)they  must  be  purchased  from  third  parties

under  market  conditions,

-(cid:217)they  must  be  included  in  the  assets  of  the  firm
and  remain  in  the  establishment  receiving  the
regional  aid  for  at  least  five  years.

4.7.

Aid  notified  by  the  Member  States  must  normally
i.e.  before  tax.
in  gross  terms, 
be  expressed 

(ˇ(cid:209))(cid:217)Where  a  purchase 

initial
investment,  the  expenditure  relating  to  the  latter  should  be
added  to  the  cost  of  the  purchase.

is  accompanied  by  other 

(ˇ(cid:210))(cid:217)For  SMEs,  the  criteria  and  conditions  applying  are  defined
in  the  Community  Guidelines  on  State  aid  for  small  and
medium(cid:220)sized  enterprises,  OJ  C(cid:216)213,  23.7.1996,  p.  4.

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In  order  to  make  (i)  the  various  forms  of  aid
comparable  with  one  another  and  (ii)  aid  inten(cid:220)
sities  comparable  from  one  Member  State  to
another,  the  Commission  converts  aid  notified  by
Member  States  into  aid  expressed  in  net  grant
equivalent  (NGE)(cid:216)(ˇ(cid:211)).

is  greater  than  60(cid:216)%  of  the  Community  average,
the  intensity  of  regional  aid  must  not  exceed
40(cid:216)%  NGE,  except 
in  the  outermost  regions,
where  it  may  be  as  high  as  50(cid:216)%  NGE.

4.8.

intensity  of 

the  nature  and 

The  intensity  of  the  aid  must  be  adapted  to  take
the
account  of 
regional  problems  that  are  being  addressed.  A
distinction  must  therefore  be  drawn  from  the
outset  between  the  intensities  allowed  in  regions
eligible  under  the  derogation  in  point  (a)  and
those  allowed  in  regions  eligible  under  the  dero(cid:220)
gation  in  point  (c).  Regard  has  to  be  had  in  this
connection  to  the  fact  that  regions  which  are
eligible  under  the  derogation  in  Article  92(3)(c)
are  not  characterised  by  an  abnormally 
low
standard  of  living  or  serious  underemployment  in
the  sense  in  which  these  terms  are  used  in  the
derogation  in  point  (a)  of  that  paragraph.  The
distorting  effects  of  aid  are  accordingly 
less
in  regions  qualifying  for
justified  there  than 
exemption  under  point  (a).  This  means  that  the
admissible  aid  intensities  are  from  the  outset  less
high  in  regions  qualifying  for  exemption  under
point  (c)  than  in  those  qualifying  for  exemption
under  point  (a).

rate 

than 

lower  unemployment 

In  the  regions  eligible  under  Article  92(3)(c)
which  have  both  a  higher  per  capita  GDP/PPS
and  a 
the
respective  Community  average(cid:216)(ˇ(cid:213)),  the  intensity
of  regional  aid  must  not  exceed  10(cid:216)%  NGE
except  in  the  low  population  density  regions  or
in  the  outermost  regions,  where  it  may  be  as  high
as  20(cid:216)%  NGE.  Exceptionally 
in  the  case  of
regions  subject  to  the  said  ceiling  of  10(cid:216)%  NGE,
higher 
the  normal
ceiling  of  20(cid:216)%  NGE  may  be  approved  for
regions  (corresponding  to  NUTS 
level  III  or
smaller)  adjoining  a  region  with  Article  92(3)(a)
status.

intensities  not  exceeding 

All  the  abovementioned  ceilings  constitute  upper
limits.  Beneath  these  ceilings,  the  Commission
will  ensure  that  the  regional  aid 
is
adjusted  to  reflect  the  seriousness  and  intensity
of 
regional  problems  addressed  when
examined  in  a  Community  context.

intensity 

the 

In  the  case  of  regions  falling  under  Article
92(3)(a),  the  Commission  thus  considers  that  the
intensity  of  regional  aid  must  not  exceed  the  rate
the  outermost
except 
of  50(cid:216)%  NGE, 
regions(cid:216)(ˇ(cid:212)),  where  it  may  be  as  much  as  65(cid:216)%
NGE.  In  the  Article  92(3)(c)  regions,  the  ceiling
on  regional  aid  must  not  exceed  20(cid:216)%  NGE  in
general,  except  in  the  low  population  density
regions  or  in  the  outermost  regions,  where  it  may
be  as  high  as  30(cid:216)%  NGE.

in 

4.9.

The  ceilings  indicated  in  point  4.8  may  be  raised
by  the  supplements  for  SMEs  provided  for  in  the
Commission  notice  on  aid  for  SMEs(cid:216)(ˇ(cid:214)),  i.e.  by
15  percentage  points  gross(cid:216)(—˝)  in  the  case  of
regions  qualifying  for  exemption  under  point  (a)
and  by  10  percentage  points  gross  in  the  case  of
regions  qualifying  for  exemption  under  point  (c).
The  final  ceiling  applies  to  the  base  for  SMEs.
These  supplements  for  SMEs  do  not  apply  to
transport  firms.

In  the  NUTS 
level  II  regions  eligible  under
Article  92(3)(a)  whose  percapita  GDP/PPS

(ˇ(cid:211))(cid:217)For  the  method  used  to  calculate  NGE,  see  Annex  I.
(ˇ(cid:212))(cid:217)The  outermost  regions  are: 

the  French  overseas  de(cid:220)
partments  (FOD),  the  Azores,  Madeira  and  the  Canary
Islands  (see  Declaration  26  on  the  Outermost  Regions  of
the  Community,  annexed  to  the  Treaty  on  European
Union).

(ˇ(cid:213))(cid:217)GDP  and  unemployment  must  be  measured  at  NUTS

level  III.

(ˇ(cid:214))(cid:217)Regional  aid  supplements  are  also  provided  for  in  the  case
of  aid  for  R&D  and  aid  for  environmental  protection.  The
basis  on  which  such  aid  is  calculated  is,  however,  different
from  that  for  regional  aid  (including  the  SME  variant).  The
supplements  in  question,  therefore,  are  added,  not  to  the
regional  aid,  but  to  the  other  type  of  aid  concerned.  The
texts  currently  applicable  to  the  two  types  of  aid  mentioned
are,  in  the  case  of  R&D,  that  published  in  OJ  C(cid:216)45,
17.2.1996,  p.  5  and,  in  the  case  of  environmental  protection,
that  published  in  OJ  C(cid:216)72,  10.3.1994,  p.  3.

(—˝)(cid:217)Aid 

intensity  supplements 

in  gross  terms  are  used,  as

defined  in  the  guidelines  on  aid  for  SMEs.

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4.10. Aid  for  initial  investment  must  be  made  con(cid:220)
its  method  of  payment  or
ditional, 
through 
its
acquisition,  on  the  maintenance  of  the  investment
in  question  for  a  minimum  period  of  five  years.

through 
the  conditions  associated  with 

4.14. Aid  for  job  creation  must  be  made  conditional,
through  its  method  of  payment  or  through  the
conditions  associated  with  its  acquisition,  on  the
maintenance  of  the  employment  created  during  a
minimum  period  of  five  years.

Aid  for  job  creation

Operating  aid

job  creation,  which 

4.11. As  was  indicated  in  point  4.1,  regional  aid  may
also  focus  on  job  creation.  However,  unlike  aid
for 
the
Guidelines  on  aid  to  employment  and  relates  to
jobs  not  linked  to  an  investment  project(cid:216)(—˛),  we
are  concerned  here  solely  with  jobs  linked  to  the
carrying(cid:220)out  of  an  initial  investment  project(cid:216)(—ˇ).

is  defined 

in 

4.15. Regional  aid  aimed  at  reducing  a  firm’s  current
expenses  (operating  aid)  is  normally  prohibited.
Exceptionally,  however,  such  aid  may  be  granted
in  regions  eligible  under  the  derogation  in  Article
92(3)(a)  provided  that  (i)  it  is  justified  in  terms  of
its  contribution  to  regional  development  and  its
nature  and  (ii)  its  level  is  proportional  to  the
handicaps  it  seeks  to  alleviate(cid:216)(—(cid:211)).  It  is  for  the
Member  State  to  demonstrate  the  existence  of
any  handicaps  and  gauge  their  importance.

4.12.

Job  creation  means  a  net  increase  in  the  number
of  jobs(cid:216)(——)  in  a  particular  establishment  com(cid:220)
pared  with  the  average  over  a  period  of  time.
Any  jobs  lost  during  that  period  must  therefore
be  deducted  from  the  apparent  number  of  jobs
created  during  the  same  period(cid:216)(—(cid:209)).

4.16.

4.13. As  with  investment  aid,  the  aid  for  job  creation
provided  for  in  these  Guidelines  must  be  tailored
to  the  nature  and 
intensity  of  the  regional
problems  it  addresses.  The  Commission  considers
that  the  amount  of  aid  must  not  exceed  a  certain
percentage  of  the  wage  cost(cid:216)(—(cid:210))  of  the  person
hired,  calculated  over  a  period  of  two  years.  The
percentage  is  equal  to  the  intensity  allowed  for
investment  aid  in  the  area  in  question.

(—˛)(cid:217)For 

the  version  currently 

in 

force,  see  OJ  C  334,

12.12.1995,  p.  4.

(—ˇ)(cid:217)A  job  is  deemed  to  be  linked  to  the  carrying(cid:220)out  of  an
investment  project  if  it  concerns  the  activity  to  which  the
investment  relates  and  if  it  is  created  within  three  years  of
the  investment’s  completion.  During  this  period,  the  jobs
created  following  an  increase  in  the  utilisation  rate  of  the
capacity  created  by  the  investment  are  also  linked  to  the
investment.

(——)(cid:217)The  number  of  jobs  corresponds  to  the  number  of  annual
labour  units  (ALU),  i.e.  the  number  of  persons  employed
full  time  in  one  year,  part(cid:220)time  and  seasonal  work  being
ALU  fractions.

(—(cid:209))(cid:217)It  goes  without  saying  that  such  a  definition  holds  true  as
much  for  an  existing  establishment  as  for  a  new  estab(cid:220)
lishment.

(—(cid:210))(cid:217)The  wage  cost  comprises  the  gross  wage,  i.e.  before  tax,
the  compulsory  social  security  contributions.  The
and 
Commission  retains  the  right  to  use  Community  statistics  on
the  average  wage  cost  in  the  different  Member  States  as  a
reference.

the 

regions 

qualifying 

outermost 

In 
for
exemption  under  Article  92(3)(a)  and  (c),  and  in
the  regions  of  low  population  density  qualifying
either  for  exemption  under  Article  92(3)(a)  or
under  92(3)(c)  on  the  basis  of  the  population
density  test  referred  to  at  point  3.10.4,  aid
intended  partly  to  offset  additional  transport
costs(cid:216)(—(cid:212))  may  be  authorised  under 
special
conditions(cid:216)(—(cid:213)).  It  is  up  to  the  Member  State  to
prove  that  such  additional  costs  exist  and  to
determine  their  amount.

4.17. With  the  exception  of  the  cases  mentioned  in
point  4.16,  operating  aid  must  be  both  limited  in
time  and  progressively  reduced.  In  addition,
operating  aid  intended  to  promote  exports(cid:216)(—(cid:214))
between  Member  States  is  ruled  out.

(—(cid:211))(cid:217)Operating  aid 

takes 

the 

form 

in  particular  of 

tax

exemptions  or  reductions  in  social  security  contributions.
(—(cid:212))(cid:217)Additional  transport  costs  mean  the  extra  costs  occasioned
by  movements  of  goods  within  the  borders  of  the  country
concerned.  In  no  circumstances  may  such  aid  constitute
it  constitute  measures  having  an
export  aid,  nor  must 
equivalent  effect  to  quantitative  restrictions  on 
imports,
within  the  meaning  of  Article  30  of  the  EC  Treaty.

(—(cid:213))(cid:217)With  regard  to  the  special  conditions  for  regions  qualifying
for  the  Article  92(3)(c)  derogation  under  the  population
density  criterion,  see  Annex  II.  As  for  the  other  regions
eligible  for  aid  to  offset  in  part  additional  transport  costs,
the  conditions  applicable  are  similar  to  those  in  Annex  II.
(—(cid:214))(cid:217)See  footnote  3  of  the  Notice  on  de  minimis  aid,  OJ  C  68,

6.3.1996,  p.  9.

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Rules  on  the  cumulation  of  aid

creation  approved  for  each  region  together  form
a  Member  State’s  regional  aid  map.

4.18. The 

aid 

intensity 

in
accordance  with  the  criteria  set  out  at  points  4.8
and  4.9,  apply  to  the  total  aid:

laid  down 

ceilings 

-(cid:217)where  assistance 

is  granted  concurrently

under  several  regional  schemes,

-(cid:217)whether  the  aid  comes  from  local,  regional,

national  or  Community  sources.

4.19. The  job  creation  aid  described  in  points  4.11  to
4.14  and  the  investment  aid  described  in  points
4.4  to  4.10  may  be  combined(cid:216)((cid:209)˝),  subject  to  the
intensity  ceiling  laid  down  for  the  region(cid:216)((cid:209)˛).

4.20. Where  the  expenditure  eligible  for  regional  aid  is
eligible  in  whole  or  in  part  for  aid  for  other
purposes,  the  common  portion  will  be  subject  to
the  most  favourable  ceiling  under  the  schemes  in
question.

4.21. Where  the  Member  State  lays  down  that  State
aid  under  one  scheme  may  be  combined  with  aid
under  other  schemes,  it  must  specify,  for  each
scheme,  the  method  by  which 
it  will  ensure
compliance  with  the  conditions  listed  above.

5.2.

5.3.

5.4.

5.5.

5.(cid:218)(cid:218)(cid:217)Regional  aid  map  and  declaration  of  compatibility

5.6.

of  aid

5.1.

The  regions  of  a  Member  State  eligible  under  the
derogations  and  the  ceilings  on  the  intensity  of
job
aid  for 

investment  or  the  aid  for 

initial 

((cid:209)˝)(cid:217)The  job  creation  aid  and  the  investment  aid  provided  for  in
these  Guidelines  may  not  be  combined  with  the  job  creation
aid  defined 
in  the  Guidelines  on  aid  to  employment
indicated  in  footnote  31,  since  it  applies  in  different  circum(cid:220)
stances  and  at  different  times.  However,  increases  in  aid  for
particularly  less(cid:220)favoured  categories  of  beneficiaries  will  be
acceptable  under  arrangements  to  be  laid  down  in  the
Guidelines  on  aid  to  employment.

initial 

((cid:209)˛)(cid:217)This  condition  is  deemed  to  be  met  if  the  sum  of  the  aid  for
the 
investor,  expressed  as  a  percentage  of  the
investment,  and  of  the  job  creation  aid,  expressed  as  a
percentage  of  wage  costs,  does  not  exceed  the  most
favourable  amount  resulting  from  application  of  either  the
ceiling  set  for  the  region  in  accordance  with  the  criteria
indicated  at  points  4.8  and  4.9  or  the  ceiling  set  for
the  region  in  accordance  with  the  criteria  indicated  at
point  4.13.

the  draft  map  drawn  up 

Under  Article  93(3)  of  the  Treaty,  the  Member
States  notify 
in
accordance  with  the  criteria  set  out  above  in
points  3.5,  3.10,  4.8  and  4.9.  The  Commission
adopts  the  map  in  accordance  with  the  procedure
laid  down  in  Article  93  of  the  Treaty,  normally
by  a  single  decision  for  all  the  relevant  regions  of
a  Member  State  and  for  a  fixed  period.  National
regional  aid  maps  will  thus  be  reviewed  period(cid:220)
ically.

the 

interests  of  consistency  between 

the
In 
Commission’s  competition  policy  decisions  and
decisions  concerning  regions  eligible  under  the
Structural  Funds,  the  period  of  validity  of  the
maps  is  in  principle  aligned  on  the  timetable  for
Structural  Fund  assistance.

schemes  are  approved  by 

Draft  aid 
the
Commission  either  when  the  map  is  drawn  up  or
subsequently,  subject  to  the  regions,  ceilings  and
duration  defined  for  the  map.

The  implementation  of  the  schemes  mentioned  in
point  5.4  forms  the  subject  matter,  on  the  part  of
the
Member  States,  of  annual 
in
Commission 
force(cid:216)((cid:209)ˇ).

in  accordance  with  the  rules 

reports 

to 

the  map,
the  period  of  validity  of 
During 
Member  States  may  request  adjustments  to  it,  if
it  is  shown  that  socio(cid:220)economic  conditions  have
changed  significantly.  Such  changes  may  relate  to
the  rates  of  intensity  and  the  eligible  regions,
inclusion  of  new
provided 
regions 
is  offset  by  the  exclusion  of  regions
having  the  same  population.  The  validity  of  the
adjusted  map  expires  on  the  date  already  set  for
the  original  map.

the  possible 

that 

5.7.

For  regions  losing  their  Article  92(3)(a)  status  as
a  result  of  the  review  of  the  regional  aid  map,
the
and  acquiring  Article  92(3)(c) 
Commission  could  accept,  during  a  transitional
the  aid
period,  a  progressive  reduction  of 

status, 

((cid:209)ˇ)(cid:217)For  the  rules  currently  in  force,  see  the  Commission  letter
to  the  Member  States  of  22  February  1994  as  modified  by
Commission  letter  to  Member  States  of  2  August  1995.

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the 

intensities  for  which  such  regions  had  been
eligible  under  Article  92(3)(a),  at  a  linear  or
faster  rate,  until 
intensity  ceiling  corre(cid:220)
sponding  to  the  application  of  points  4.8  and  4.9
above  is  reached(cid:216)((cid:209)—)(cid:216)((cid:209)(cid:209)).  The  transitional  period
should  not  exceed  two  years 
in  the  case  of
operating  aid  and  four  years  in  the  case  of  aid
for  initial  investment  and  job  creation.

5.8. With  a  view  to  drawing  up  the  map,  Member
States  are  invited  to  notify  to  the  Commission
under  Article  93(3)  of  the  Treaty,  in  addition  to
the  list  of  regions  they  propose  as  being  eligible
for  the  derogations  in  question  and  the  ceilings
on  intensity,  any  other  factors  that  need  to  be
taken  into  account  in  determining  a  framework
scheme  for  aid  schemes  (purpose  and  form  of  the
aid,  size  of  firms,  etc.)  which  they  propose  to
adopt,  whether  at  central  or  regional  and  local
level.  During  the  period  of  validity  of  the  map
and  within  the  limits  of  its  duration,  all  schemes
conforming  to  this  framework  scheme  may  be
the  context  of  an  accelerated
notified 
procedure.

in 

6.(cid:218)(cid:218)(cid:217)Entry  into  force,  implementation  and  review

6.1.

Except  for  the  transitional  provisions  set  out  in
points  6.2  and  6.3  below,  the  Commission  will
assess  the  compatibility  of  regional  aid  with  the
common  market  on  the  basis  of  these  Guidelines
as  soon  as  they  are  applicable.  However,  aid
proposals  which  are  notified  before 
these
Guidelines  are  communicated  to  the  Member
States  and  on  which  the  Commission  has  not  yet
adopted  a  final  decision  will  be  assessed  on  the
basis  of  criteria  in  force  at  the  time  of  notifi(cid:220)
cation.

In  addition,  the  Commission  will  propose  appro(cid:220)
priate  measures  under  Article  93(1)  of  the  EC
Treaty  to  the  Member  States  to  ensure  that  all
the  regional  aid  maps  and  all  the  regional  aid
schemes 
force  on  1  January  2000  are
compatible  with  these  Guidelines.

in 

6.2.

6.3.

6.4.

((cid:209)—)(cid:217)The  transitional  provisions  do  not  apply  to  the  parts  of
NUTS  II  regions  losing  their  Article  92(3)(a)  status  which,
where 
percentage
obtained  by  applying  the  second  adjustment  at  point  8  of
Annex  III  to  these  Guidelines  is  not  available,  would  have
had  to  be  excluded  from  the  new  aid  map.

population(cid:220)density 

additional 

the 

In  this  connection,  the  Commission  will  propose,
as  an  appropriate  measure  under  Article  93(1),
that  the  Member  States  limit  the  validity  of  all
lists  of  assisted 
the
Commission  without  an  expiry  date,  or  with  an
expiry  date  after  31  December  1999, 
to
31  December  1999.

regions  approved  by 

The  Commission  will  also  propose,  as  an  appro(cid:220)
priate  measure  under  Article  93(1),  that  the
Member  States  amend  all  existing 
regional
force  after
aid 
31  December  1999, 
them
compatible  with  these  Guidelines  from  1  January
2000,  and  that  they  communicate  the  proposed
changes  within  six  months.

schemes  which  will  be 
so  as 

in 
to  make 

Since  the  eligibility  for  regional  aid  under  the
Article  92(3)(a)  and  (c)  derogations  of  most  of
the  assisted  regions  has  been  approved  until
31  December  1999,  and  with  a  view  to  ensuring
equitable  treatment  of  the  Member  States  until
that  date,  the  Commission  may  derogate  from
these  Guidelines  until  31  December  1999,  with
regard  to  examination  of  the  eligibility  of  the  lists
of  assisted  regions  (new  lists  or  amendments)
to  1  January  1999,  provided
notified  prior 
lists  expires  on
that  the  validity  of  the  said 
the
cases, 
31  December 
Commission  will  continue  to  base  itself  on  the
method  laid  down  in  its  Communication(cid:216)((cid:209)(cid:210)).

1999. 

such 

In 

the  aid 

combination  proposed 

Also  with  a  view  to  ensuring  equitable  treatment
of  the  Member  States,  the  Commission  may
derogate  from  these  Guidelines  until  31  De(cid:220)
cember  1999,  with  regard  to  the  examination  of
intensities  and
the  compatibility  of 
ceilings  on 
in  new
schemes,  ad  hoc  cases  and  modifications  of
existing  schemes  notified  prior  to  1  January
1999,  provided  that  the  validity  of  the  said  in(cid:220)
tensities  and  ceilings  on  combination  expires  on
31  December  1999  or  that  the  intensities  and
ceilings  on  combination  proposed  from  1  January
2000  are  compatible  with  these  Guidelines.

The  Commission  will  review  these  Guidelines
within  five  years  of  their  becoming  applicable.  It
may,  in  addition,  decide  to  amend  them  at  any
time, 
if  this  should  be  necessary  for  reasons
associated  with  competition  policy  or  in  order  to
take  account  of  other  Community  policies  and
international  commitments.

((cid:209)(cid:209))(cid:217)In  view  of 

its  particularly  difficult  situation,  Northern
Ireland  will  retain  its  status  as  an  exceptional  region  and  its
ceiling  will  be  40(cid:216)%.

((cid:209)(cid:210))(cid:217)Commission  Communication  on 

the
application  of  Article  92(3)(a)  and  (c)  to  regional  aid:  see
footnote  2,  fifth  indent.

the  method 

for 

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ANNEX  I

NET  GRANT  EQUIVALENT  OF  INVESTMENT  AID

The  method  of  calculating  the  net  grant  equivalent  (NGE)  is  used  by  the  Commission  in  its  assessment  of
aid  schemes  notified  by  the  Member  States.  In  principle,  therefore,  the  Member  States  do  not  have  to  apply
it,  and  it  is  published  here  simply  for  reasons  of  transparency.

1.  GENERAL  PRINCIPLES

The  calculation  of  net  grant  equivalent  (NGE)  consists  in  reducing  all  the  forms  of  aid  connected  with  an
investment(cid:216)((cid:209)(cid:211))  to  a  common  measure  irrespective  of  the  country  concerned,  i.e.  the  net  intensity,  for  the
purposes  of  comparing  them  with  each  other  or  with  a  predetermined  ceiling.  What  is  involved  is  an  ex
ante  comparative  method  that  does  not  always  reflect  accounting  practice.

The  net  intensity  represents  the  final  benefit  which  a  firm  is  deemed  to  derive  from  the  value  without  tax  of
the  aid  in  relation  to  the  assisted  investment.  This  calculation  may  take  account  only  of  fixed  capital
expenditure  corresponding  to  land,  building  and  plant,  which  represent  the  standard  base.

In  the  case  of  schemes  whose  base  includes  supplementary  expenditure,  the  latter  must  be  limited  to  a
certain  proportion  of  the  standard  base.  Thus,  all  schemes  will  be  examined,  in  the  light  of  their  intensities
reduced  to  the  expenditure  appearing  in  the  standard  base,  as  shown  in  the  following  examples(cid:216)((cid:209)(cid:212)).

Example  1

-(cid:217)Base(cid:217)of(cid:217)scheme:

plant

-(cid:217)Maximum(cid:217)intensity(cid:217)of(cid:217)scheme:(cid:217)30(cid:216)%

As  all  the  expenditure  eligible  for  the  scheme  appears  in  the  standard  base,  the  Commission  will  take  the
maximum  intensity  of  the  scheme,  i.e.  30(cid:216)%,  into  account  without  further  ado.  If  the  intensity  ceiling
authorised  by  the  Commission  in  the  region  in  question  is  30(cid:216)%,  the  scheme  will  be  considered  compatible
in  this  respect.

Example  2

-(cid:217)Base(cid:217)of(cid:217)scheme:

plant,  buildings(cid:216)+(cid:216)patents  up  to  20(cid:216)%  of  the  preceding  expenditure

-(cid:217)Maximum(cid:217)intensity(cid:217)of(cid:217)scheme:(cid:217)30(cid:216)%

All  the  expenditure  eligible  for  the  scheme  appears  either  in  the  standard  base  (plant,  buildings)  or  in  the
list  of  eligible  intangible  expenditure  (patents).  The  latter  expenditure  may  not  exceed  25(cid:216)%  of  the
standard  base.  In  these  circumstances,  the  Commission  will  take  the  maximum  intensity  of  the  scheme,  i.e.
30(cid:216)%,  into  account  without  further  ado.  If  the  intensity  ceiling  authorised  by  the  Commission  in  the  region
in  question  is  30(cid:216)%,  the  scheme  will  be  considered  compatible  in  this  respect.

((cid:209)(cid:211))(cid:217)Tax  aid  may  be  considered  to  be  aid  connected  with  an  investment  where  it  is  based  on  an  amount  invested  in  the
region.  In  addition,  any  tax  aid  may  be  connected  with  an  investment  if  one  sets  a  ceiling  expressed  as  a  percentage  of
the  amount  invested  in  the  region.  Where  the  grant  of  tax  aid  is  spread  over  several  years,  any  balance  remaining  at
the  end  of  a  given  year  may  be  carried  over  to  the  following  year  and  increased  in  accordance  with  the  reference  rate.
((cid:209)(cid:212))(cid:217)This  system  of  recalculating  intensities  does  not  apply  to  the  intangible  investments  referred  to  at  point  4.6  of  the  main

text.

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Example  3

-(cid:217)Base(cid:217)of(cid:217)scheme:

buildings,  plant,  land(cid:216)+(cid:216)stocks  up  to  50(cid:216)%  of  the  preceding  expen(cid:220)
diture

-(cid:217)Maximum(cid:217)intensity(cid:217)of(cid:217)scheme:(cid:217)30(cid:216)%

The  Commission  will  take  into  account  the  maximum  intensity  of  the  scheme  reduced  to  the  standard  base,
i.e.  30(cid:216)%(cid:216)(cid:141)(cid:216)1,5(cid:216)=(cid:216)45(cid:216)%.  If  the  intensity  ceiling  authorised  by  the  Commission  in  the  region  in  question  is
30(cid:216)%,  the  scheme  will  not  be  considered  compatible,  unless  its  intensity  is  reduced  to  30(cid:216)%(cid:216)/(cid:216)1,5(cid:216)=(cid:216)20(cid:216)%.

Example  4

-(cid:217)Base(cid:217)of(cid:217)scheme:

buildings

-(cid:217)Maximum(cid:217)intensity(cid:217)of(cid:217)scheme:(cid:217)60(cid:216)%

If  the  regional  ceiling  authorised  by  the  Commission  is  30(cid:216)%,  there  is  nothing  to  ensure  that  the  aid  will
comply  with  the  ceiling.  The  intensity  provided  for  by  the  scheme  is  higher  than  the  regional  ceiling,  but  it
is  applied  to  a  reduced  base.  The  scheme  will  therefore  not  be  considered  compatible  in  this  respect,  unless
an  express  condition  is  added  concerning  compliance  with  the  regional  ceiling  applied  to  the  complete  base.

The  determination  of  the  NGE  is  based  solely  on  calculation  of  tax  and  present  value,  except  in  the  case  of
certain  forms  of  aid  which  require  specific  treatment.  Such  calculations  are  based  on  elements  supplied  by
the  aid  scheme  or  the  tax  law  of  the  country  concerned  and  on  certain  parameters  established  by
convention.

1.1.(cid:217)Taxation

The  intensity  of  aid  must  be  calculated  after  taxation,  i.e.  after  having  deducted  the  taxes  payable  on  it,
and  in  particular  taxes  on  company  profits.  This  is  the  basis  for  the  term  Net  Grant  Equivalent  (NGE),
which  represents  the  aid  accruing  to  the  recipient  after  payment  of  the  relevant  tax,  assuming  that  the
enterprise  makes  a  profit  right  from  the  first  year,  so  that  maximum  tax  is  charged  on  the  aid.

1.2.(cid:217)Discounting

Present  value  is  calculated  at  various  stages  in  the  determination  of  an  NGE.  First,  when  aid  and/or
investment  expenditure  is  staggered  over  time,  the  actual  timing  of  aid  disbursement  and  expenditure  must
be  taken  into  account.  Consequently,  the  investment  expenditure  and  aid  payments  are  discounted  back  to
the  end  of  the  year  in  which  the  enterprise  made  its  first  depreciation  write(cid:220)off.  Second,  the  present  value  is
calculated  of  benefits  obtained  on  repayment  of  a  subsidised  loan,  or  of  the  tax  charged  on  a  grant.

The  rate  used  in  such  cases  is  the  reference/discount  rate  determined  by  the  Commission  for  each  Member
State.  In  addition  to  being  used  as  the  discount  rate,  it  is  also  used  to  calculate  the  interest  subsidy  on  a
low(cid:220)interest  loan.

1.3.(cid:217)Specific  cases

In  addition  to  the  taxation  and  discounting  calculations  described  above,  some  forms  of  aid  require  specific
handling.  Thus,  in  the  case  of  aid  for  the  renting  of  a  building,  the  aid  is  measured  by  discounting  the
differences  between  the  rent  paid  by  the  enterprise  and  a  theoretical  rent  equivalent  to  the  reference  rate
applied  to  the  value  of  the  building,  plus  an  amount  corresponding  to  depreciation  for  the  building  in  the
year  in  question.  A  similar  method  is  used  for  aid  to  finance  leasing(cid:216)((cid:209)(cid:213)).

((cid:209)(cid:213))(cid:217)It  should  be  noted  that  the  expenditure  associated  with  the  purchase  of  the  land  or  the  building  by  the  renting  firm

may  be  considered  as  eligible,  provided  that  the  need  for  the  aid  in  question  is  demonstrated.

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In  the  case  of  aid  for  the  renting  of  land,  the  theoretical  rent  is  calculated  on  the  basis  of  the  reference
rate,  minus  the  rate  of  inflation,  applied  to  the  value  of  the  land.

2.  NET  GRANT  EQUIVALENT  OF  INVESTMENT  AID  IN  THE  FORM  OF  A  CAPITAL  GRANT

2.1.(cid:217)General

Investment  aid  given  to  an  enterprise  in  the  form  of  a  capital  grant  is  expressed  first  as  a  percentage  of  the
investment,  representing  the  nominal  grant  equivalent  or  the  gross  grant  equivalent.

According  to  the  common  assessment  method,  the  Net  Grant  Equivalent  (NGE)  of  aid  is  the  benefit
accruing  to  the  recipient  after  payment  of  taxes  on  company  profits.

In  most  cases,  grants  are  not  taxable  in  themselves,  but  are  deducted  from  the  value  of  the  depreciable
investment.  This  means  that  the  investor  depreciates  a  smaller  amount  each  year  than  if  he  had  not  received
aid.  Since  depreciation  amounts  are  deductible  from  taxable  profits,  a  grant  increases  the  proportion  taken
by  the  State  each  year  in  the  form  of  tax  on  company  profits.

The  taxation  method  applying  to  grants  described  above,  which  consists  in  adding  the  grant  to  profits  in
step  with  depreciation,  is  the  one  most  commonly  used  in  all  the  Member  States,  but  other  taxation
methods  are  encountered  in  certain  schemes.

2.2.(cid:217)Calculation  examples

Example(cid:217)1: The  aid  is  not  subject  to  tax

In  all  Member  States,  grants  are  generally  entered  in  the  accounts  as  income  and  are  made  subject  to  tax.
It  may  be,  however,  particularly  in  the  case  of  certain  R&D  aid,  that  they  are  exempt  from  tax.  In  this
case,  the  NGE  is  equal  to  the  nominal  grant.

Example(cid:217)2: The  investment  involves  only  one  category  of  expenditure  and  the  grant  is  fully  subject  to  tax  at

the  end  of  the  first  financial  years

This  means  that  the  full  grant  is  subject  to  corporate  profits  tax  from  the  first  year  onward.  This
convention  is  not  excessive,  if  one  remembers  that  firms,  which  generally  record  a  loss  in  their  first  years  of
operation,  can  carry  over  their  losses  for  several  financial  years.

To  calculate  the  NGE  of  the  grant,  the  amount  of  tax  charged  is  deducted  from  it.

For(cid:217)instance:(cid:217)investment:  100

nominal  grant:  20

rate  of  tax:  40,0(cid:216)%

The  tax  charged  on  the  grant  is  thus  20(cid:216)(cid:141)(cid:216)40(cid:216)%(cid:216)=(cid:216)8

The  NGE  will  thus  be:  (20  (cid:134)  8)/100  =  12(cid:216)%

Example(cid:217)3: The  investment  involves  only  one  category  of  expenditure  and  the  grant  is  subject  to  tax  on  a

straight(cid:220)line  basis  over  five  years.

Here  the  grant  is  subject  to  tax  in  equal  portions  over  five  years.  One  fifth  of  the  aid  will  thus  be  added  to
profits  each  year  for  five  years.  To  calculate  the  NGE,  the  discounted  amounts  of  tax  charged  each  year
on  each  fifth  under  the  tax  arrangements  applicable  are  deducted  from  the  grant.

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For(cid:217)instance:(cid:217)investment:  100

nominal  grant:  20

rate  of  tax:  40,0(cid:216)%

discount  rate:  8(cid:216)%

The  table  below  shows  how  the  taxes  charged  each  year,  and  the  discounted  values,  are  calculated:

Tax  charged  on  grant

Discount  factor

Discounted  value

Period

(1)

End  of  1st  year

(20/5)(cid:216)(cid:141)(cid:216)40(cid:216)%

(2)

1,0

End  of  2nd  year

(20/5)(cid:216)(cid:141)(cid:216)40(cid:216)%

1/(1(cid:216)+(cid:216)0,08)1

End  of  3rd  year

(20/5)(cid:216)(cid:141)(cid:216)40(cid:216)%

1/(1(cid:216)+(cid:216)0,08)2

End  of  4th  year

(20/5)(cid:216)(cid:141)(cid:216)40(cid:216)%

1/(1(cid:216)+(cid:216)0,08)3

End  of  5th  year

(20/5)(cid:216)(cid:141)(cid:216)40(cid:216)%

1/(1(cid:216)+(cid:216)0,08)4

Total

(1)(cid:216)(cid:141)(cid:216)(2)

1,600

1,481

1,372

1,270

1,176

6,900

The  total  in  the  last  column  represents  the  sum  of  the  discounted  taxes  charged  each  year.  It  has  to  be
deducted  from  the  nominal  grant  to  obtain  the  Net  Grant  Equivalent.

Thus  the  NGE  is:  (20(cid:216)(cid:134)(cid:216)6,9)/100(cid:216)=(cid:216)13,1(cid:216)%

Note: The  tax  charged  on  the  grant  is  discounted  at  the  end  of  the  first  year  on  the  assumption  that  this  is

the  date  when  the  enterprise  makes  its  first  depreciation  write(cid:220)off.

Example(cid:217)4: The  investment  involves  three  categories  of  capital  expenditure:  land,  buildings  and  plant,  taxed

over  different  timescales

The  three  types  of  expenditure  constitute  what  is  referred  to  as  the  standard  base  for  aid.  Expenditure  is
apportioned  within  the  standard  base  using  a  breakdown  which  differs  by  Member  State,  as  shown  in  the
following  table.

Land

Buildings

Plant

Belgium

Germany

France

Italy

Luxembourg

Netherlands

United  Kingdom

Denmark

Greece

5

5

5

5

5

5

10

5

3

40

30

50

30

50

40

20

45

27

55

65

45

65

45

55

70

50

70

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Spain

Ireland

Portugal

Austria

Finland

Sweden

Land

Buildings

Plant

5

5

3

5

1

5

40

50

25

30

19

45

55

45

72

65

80

50

These  factors  are  used  to  calculate  the  theoretical  NGEs  under  aid  schemes.  In  individual  cases  of  aid,  on
the  other  hand,  the  actual  apportionment  breakdown  of  the  three  categories  of  expenditure  in  the  standard
base  is  used.

As  the  timescale  over  which  a  grant  is  subject  to  tax  differs  according  to  the  category  of  expenditure,  the
first  step  is  to  allocate  the  grant  proportionally  among  the  items  forming  the  base  of  the  aid.

The  next  step  is  to  calculate  the  amounts  charged  as  tax,  separately  for  each  category  of  espenditure  (the
calculations  are  of  the  same  kind  as  those  in  Example  3).

Lastly,  the  taxes  are  deducted  from  the  nominal  grant  in  order  to  arrive  at  the  NGE:

NGE(cid:217)=(cid:217)Nominal  grant  less:

-(cid:217)The  tax  charged  on  aid  allocated  to  land

-(cid:217)The  tax  charged  on  aid  allocated  to  buildings

-(cid:217)The  tax  charged  on  aid  allocated  to  plant

For(cid:217)instance:(cid:217)investment:  100

of(cid:217)which:(cid:217)-(cid:217)land:  3  not  depreciable

-(cid:217)buildings:  33  straight(cid:220)line  depreciation  over  20  years

-(cid:217)plant:  64  decreasing(cid:220)line  depreciation  over  5  years

nominal  grant:  20

rate  of  tax:  55(cid:216)%

discount  rate:  8(cid:216)%

To  calculate  the  tax  on  aid  allocated  to  land

In  general,  land  is  not  depreciable.  Assuming  that  the  aid  is  to  be  subject  to  tax  at  the  same  pace  as
depreciation,  aid  granted  to  land  is  not  taxed  and  no  tax  is  to  be  deducted  from  the  grant  made  in  respect
of  land.

To  calculate  the  tax  on  aid  allocated  to  buildings

Assuming  that  the  aid  allocated  to  buildings  is  to  be  subject  to  tax  in  equal  portions  at  the  same  pace  as
depreciation,  i.e.  over  20  years:

-(cid:217)the  nominal  grant  allocated  to  buildings  would  be:  20(cid:216)(cid:141)(cid:216)33(cid:216)%(cid:216)=(cid:216)6,6

-(cid:217)each  year,  the  portion  of  the  grant  included  in  profits  would  be:  6,6/20(cid:216)=(cid:216)0,33

-(cid:217)the  amount  of  tax  charged  on  that  portion  would  be:  0,33(cid:216)(cid:141)(cid:216)55(cid:216)%(cid:216)=(cid:216)0,18

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An  amount  of  0,18  would  be  due  from  profits  each  year  for  20  years  in  respect  of  the  grant  made  for
buildings.  If  this  stream  of  amounts  is  discounted  at  the  end  of  the  first  year  (same  kind  of  calculation  as  in
the  table  in  Example  3),  the  total  tax  charged  in  the  period  on  the  aid  grant  to  buildings  will  be  1,925.

To  calculate  the  tax  on  aid  allocated  to  plant

Let  us  assume  that  the  aid  allocated  to  plant  is  to  be  subject  to  tax  at  the  same  pace  as  depreciation,  i.e.  by
the  decreasing(cid:220)line  method,  over  five  years,  at  the  following  rates:  40(cid:216)%,  24(cid:216)%,  14,4(cid:216)%,  10,8(cid:216)%  and
10,8(cid:216)%.

Unlike  the  case  of  buildings,  taxation  here  is  different  each  year.  The  tax  will  therefore  have  to  be
calculated  year  by  year.  The  share  of  the  nominal  grant  allocated  to  plant  is  20(cid:216)(cid:141)(cid:216)64(cid:216)%(cid:216)=(cid:216)12,8.

To  calculate  the  tax  charges

Tax  charged  on  grant

Discount  factor

Discounted  value

Period

(1)

End  of  1st  year

12,8(cid:216)(cid:141)(cid:216)40(cid:216)%(cid:216)(cid:141)(cid:216)55(cid:216)%

(2)

1,0

End  of  2nd  year

12,8(cid:216)(cid:141)(cid:216)24(cid:216)%(cid:216)(cid:141)(cid:216)55(cid:216)%

1/(1(cid:216)+(cid:216)0,08)1

End  of  3rd  year

12,8(cid:216)(cid:141)(cid:216)14,4(cid:216)%(cid:216)(cid:141)(cid:216)55(cid:216)%

1/(1(cid:216)+(cid:216)0,08)2

End  of  4th  year

12,8(cid:216)(cid:141)(cid:216)10,8(cid:216)%(cid:216)(cid:141)(cid:216)55(cid:216)%

1/(1(cid:216)+(cid:216)0,08)3

End  of  5th  year

12,8(cid:216)(cid:141)(cid:216)10,8(cid:216)%(cid:216)(cid:141)(cid:216)55(cid:216)%

1/(1(cid:216)+(cid:216)0,08)4

Total

(1)(cid:216)(cid:141)(cid:216)(2)

2,816

1,564

0,869

0,604

0,559

6,412

To  calculate  the  NGE:

-(cid:217)nominal  grant

less:

-(cid:217)tax  charged  on  aid  allocated  to  land

20

0

-(cid:217)tax  charged  on  aid  allocated  to  buildings

(cid:134)(cid:216)1,925

(cid:141)
-(cid:217)tax  charged  on  aid  allocated  to  plant

(cid:134)(cid:216)6,412

NGE(cid:217)

11,6(cid:216)%

Notes:

1.(cid:217)The  taxation  of  grants,  referred  to  in  the  common  method  of  assessing  aid,  is  governed  both  by  the  tax
laws  of  the  Member  States  concerned  and  by  any  special  arrangements  under  the  scheme  in  question.

2.(cid:217)For  the  purposes  of  determining  an  NGE,  it  is  therefore  necessary  to  have  precise  information  on:

-(cid:217)the  scale  of  tax  rates  on  profits  in  the  country  concerned,

-(cid:217)the  depreciation  rules  in  force,  or  the  specific  method  of  incorporating  aid  into  profits  prescribed  by

the  scheme  in  question.

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3.  NET  GRANT  EQUIVALENT  OF  INVESTMENT  AID  IN  THE  FORM  OF  A  SUBSIDISED  LOAN

3.1.(cid:217)General

Investment  aid  given  to  an  enterprise  in  the  form  of  a  subsidised  loan  is  expressed  first  as  the  number  of
percentage  points  of  the  rebate,  i.e.  the  difference  between  the  reference  rate  and  the  rate  charged  by  the
lender.

The  sole  effect  of  the  interest  rebate  is  to  reduce  interest  charges,  since  it  is  assumed  that  capital
repayments  are  carried  out  in  the  same  way  whether  the  interest  rate  is  normal  or  reduced.

This  benefit  obtained  on  repayment  of  the  loan  is  expressed  as  a  percentage  of  the  investment,  as  for
capital  grants.  This  gives  the  nominal  grant  equivalent  or  gross  grant  equivalent.

This  does  not  represent  the  final  benefit  which  the  enterprise  derives  from  the  interest  subsidy.  Since
interest  charges  are  deductible  from  taxable  profits,  an  interest  subsidy  means  the  loss  of  part  of  such  tax
benefit  by  increasing  the  share  taken  by  the  State  in  the  form  of  tax  on  company  profits.

Consequently,  the  net  grant  equivalent  (NGE)  is  obtained  by  deducting  from  the  gross  grant  equivalent  the
tax  charged  by  the  State  on  the  increase  in  taxable  profits  that  is  attributable  to  the  rebate.

As  in  the  case  of  a  grant,  the  NGE  of  a  subsidised  loan  is  based  on  elements  supplied  either  by  the  aid
scheme  or  by  the  tax  law  of  the  country  in  question,  plus  any  other  factors  established  by  convention.

The  following  elements  are  needed  to  calculate  the  NGE  of  investment  aid  in  the  form  of  a  subsidised
loan:

-(cid:217)period  of  the  loan,

-(cid:217)length  of  the  grace  period,  i.e.  the  initial  period  when  no  repayments  need  to  be  made,  interest  being

paid  on  the  total  amount  of  principal,

-(cid:217)number  of  percentage  points  of  the  rebate,

-(cid:217)duration  of  the  rebate,  not  necessarily  the  same  as  the  loan,

-(cid:217)amount  of  the  loan  as  a  percentage  or  proportion  of  the  investment,

-(cid:217)reference/discount  rate,

-(cid:217)rate  of  tax.

It  is  also  necessary  to  know  the  terms  for  repayment  of  the  loan.  In  most  cases  the  loan  is  repaid  on  a
straight(cid:220)line  basis,  in  equal  portions,  interest  being  due  on  the  balance  outstanding.  Repayment  is  occa(cid:220)
sionally  by  constant  annual  instalments,  in  which  case  this  is  taken  into  account  in  calculating  the  NGE.

3.2.(cid:217)Calculation  examples

Example  1

1.(cid:217)Parameters

-(cid:217)the  loan  is  for  ten  years  with  straight(cid:220)line  repayment  and  no  grace  period,

-(cid:217)the  rebate  is  three  percentage  points  throughout  the  period  of  the  loan,

-(cid:217)the  loan  is  for  40(cid:216)%  of  the  investment,

-(cid:217)the  reference/discount  rate  is  8(cid:216)%,

-(cid:217)the  rate  of  tax  is  35(cid:216)%.

2.(cid:217)Calculation  of  the  unit  gift  element

The  unit  gift  element  is  the  nominal  grant  equivalent  of  a  one(cid:220)point  interest  rabete  on  a  loan  of  100(cid:216)%  of
the  investment,  taking  account  of  the  characteristics  of  the  aid  used  as  parameters.  It  is  calculated  as
follows:

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End  of  year
No

Loan:  balance
outstanding

1(cid:220)point  rebate

Benefit  obtained

Discount  factor

Discounted
value(cid:216)(*)

1

2

3

4

5

6

7

8

9

10

(1)

100

90

80

70

60

50

40

30

20

10

(2)

1(cid:216)%

1(cid:216)%

1(cid:216)%

1(cid:216)%

1(cid:216)%

1(cid:216)%

1(cid:216)%

1(cid:216)%

1(cid:216)%

1(cid:216)%

(1)(cid:216)(cid:141)(cid:216)(2)

(3)

(1)(cid:216)(cid:141)(cid:216)(2)(cid:216)(cid:141)(cid:216)(3)

1

0,9

0,8

0,7

0,6

0,5

0,4

0,3

0,2

0,1

1/(1(cid:216)+(cid:216)0,08)1

1/(1(cid:216)+(cid:216)0,08)2

1/(1(cid:216)+(cid:216)0,08)3

1/(1(cid:216)+(cid:216)0,08)4

1/(1(cid:216)+(cid:216)0,08)5

1/(1(cid:216)+(cid:216)0,08)6

1/(1(cid:216)+(cid:216)0,08)7

1/(1(cid:216)+(cid:216)0,08)8

1/(1(cid:216)+(cid:216)0,08)9

1/(1(cid:216)+(cid:216)0,08)10

Unit  gift  element:(cid:217)

0,926

0,772

0,635

0,515

0,408

0,315

0,233

0,162

0,100

0,046

4,112

(*)(cid:217)Discounting  stars  at  the  beginning  of  the  first  year.

3.(cid:217)Calculation  of  net  grant  equivalent

The  net  grant  equivalent  is  obtained  simply  by  multiplying  the  unit  gift  element  by  the  characteristics  of  the
aid  (three(cid:220)point  rebate,  40(cid:216)%  share,  non(cid:220)taxable  portion  of  aid:  (1(cid:216)(cid:134)(cid:216)35(cid:216)%):

NGE(cid:216)=(cid:216)4,112(cid:216)(cid:141)(cid:216)3(cid:216)(cid:141)(cid:216)40(cid:216)%(cid:216)(cid:141)(cid:216)(1(cid:216)(cid:134)(cid:216)35(cid:216)%)(cid:216)=(cid:216)3,21(cid:216)%

Example  2

1.(cid:217)Parameters

The  parameters  are  the  same  as  in  Example  1,  but  with  a  two(cid:220)year  grace  period  from  repayment.  This
means  that  capital  is  not  repaid  in  the  first  two  years.  The  ten(cid:220)year  loan  will  thus  be  repaid  in  eight  equal
portions  from  the  third  to  the  tenth  year.  Interest  is  payable  during  the  ten  years  on  the  balance
outstanding.

2.(cid:217)Calculation  of  unit  gift  element

End  of  year
No

Loan:  balance
outstanding

1(cid:220)point  rebate

Benefit  obtained

Discount  factor

Discounted
value(cid:216)(*)

1

2

3

4

5

6

7

8

9

10

(1)

100

100

100

87,5

75,0

62,5

50

37,5

25,0

12,5

(2)

1(cid:216)%

1(cid:216)%

1(cid:216)%

1(cid:216)%

1(cid:216)%

1(cid:216)%

1(cid:216)%

1(cid:216)%

1(cid:216)%

1(cid:216)%

(1)(cid:216)(cid:141)(cid:216)(2)

(3)

(1)(cid:216)(cid:141)(cid:216)(2)(cid:216)(cid:141)(cid:216)(3)

1

1

1

0,875

0,750

0,625

0,500

0,375

0,250

0,125

1/(1(cid:216)+(cid:216)0,08)1

1/(1(cid:216)+(cid:216)0,08)2

1/(1(cid:216)+(cid:216)0,08)3

1/(1(cid:216)+(cid:216)0,08)4

1/(1(cid:216)+(cid:216)0,08)5

1/(1(cid:216)+(cid:216)0,08)6

1/(1(cid:216)+(cid:216)0,08)7

1/(1(cid:216)+(cid:216)0,08)8

1/(1(cid:216)+(cid:216)0,08)9

1/(1(cid:216)+(cid:216)0,08)10

0,926

0,857

0,794

0,643

0,510

0,394

0,292

0,203

0,125

0,058

Unit  gift  element:

4,802(cid:216)%

(*)(cid:217)Discounting  starts  as  the  beginning  of  the  first  year.

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3.(cid:217)To  calculate  the  net  grant  equivalent

As  in  Example  1,  the  unit  gift  element  is  multiplied  by  the  number  of  rebate  points,  the  proportion  of
expenditure  covered  by  the  loan  and  the  complement  to  unity  of  the  rate  of  tax:

NGE(cid:216)=(cid:216)4,802(cid:216)(cid:141)(cid:216)3(cid:216)(cid:141)(cid:216)40(cid:216)%(cid:216)(cid:141)(cid:216)(1(cid:216)(cid:134)(cid:216)35(cid:216)%)(cid:216)=(cid:216)3,75(cid:216)%

Note: It  will  be  seen  that,  other  things  being  equal,  the  result  of  introducing  a  grace  period  from  capital
repayments  is  to  increase  the  NGE.  The  grace  period  increases  the  balance  due  each  year  and  hence
the  benefit  attributable  to  the  rebate  and,  consequently,  the  unit  gift  element.

Example  3

1.(cid:217)Parameters

The  same  facts  as  in  Example  2,  but  the  loan  is  to  be  repaid  in  constant  annual  instalments.

In  this  case,  the  calculation  method  differs  fundamentally  from  that  used  in  the  preceding  two  examples:
first  the  "nomal’  annual  instalments  excluding  the 
interest  rebate  are  calculated,  then  the  "rebated’
instalments;  the  difference  between  the  two  series  is  established  year  by  year,  and  the  results  discounted  in
order  to  obtain  the  grant  equivalent.

2.(cid:217)To  calculate  the  grant  equivalent

The  constant  annual  instalments,  expressed  as  a  percentage  of  the  loan,  are  calculated  as  follows:

A(cid:216)=(cid:216)i/(1(cid:216)(cid:134)(cid:216)rn)

where  r(cid:216)=(cid:216)1/(1(cid:216)+(cid:216)i)

i  being  the  interest  rate  and  n  the  number  of  years  for  which  the  instalment  is  calculated.  The  calculations
below  are  based  on  a  loan  of  100  units:

Year

Normal  instalment

Rebated  annual
instalment

Benefit  obtained

Discount  factor

Discounted
value(cid:216)(*)

1

2

3

4

5

6

7

8

9

10

(1)

8

8

17,401

17,401

17,401

17,401

17,401

17,401

17,401

17,401

(2)

5

5

15,472

15,472

15,472

15,472

15,472

15,472

15,472

15,472

(*)(cid:217)Discounting  starts  at  the  beginning  of  the  first  year.

(3)

3

3

(4)

(3)(cid:216)(cid:141)(cid:216)(4)

1/(1(cid:216)+(cid:216)0,08)1

2,778

1/(1(cid:216)+(cid:216)0,08)2

2,572

1,929

1/(1(cid:216)+(cid:216)0,08)3

1,532

1,929

1/(1(cid:216)+(cid:216)0,08)4

1,418

1,929

1/(1(cid:216)+(cid:216)0,08)5

1,313

1,929

1/(1(cid:216)+(cid:216)0,08)6

1,216

1,929

1/(1(cid:216)+(cid:216)0,08)7

1,126

1,929

1/(1(cid:216)+(cid:216)0,08)8

1,042

1,929

1/(1(cid:216)+(cid:216)0,08)9

0,965

1,929

1/(1(cid:216)+(cid:216)0,08)10

0,894

Grant  equivalent:(cid:217)

14,85(cid:216)%

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3.(cid:217)To  calculate  the  net  grant  equivalent

The  net  grant  equivalent  is  obtained  by  multiplying  the  grant  equivalent  by  the  proportion,  then  deducting
the  portion  charged  as  tax:

NGE(cid:216)=(cid:216)14,85(cid:216)(cid:141)(cid:216)40(cid:216)%(cid:216)(cid:141)(cid:216)(1(cid:216)(cid:134)(cid:216)35(cid:216)%)(cid:216)=(cid:216)3,86(cid:216)%

Note:  If  there  is  no  grace  period  from  repayment,  the  NGE  calulated  in  the  same  way  is  3,41(cid:216)%.

3.3.(cid:217)Formular  for  calculating  the  NGE  of  a  subsidised  loan

The  preceding  methods,  which  can  easily  be  transposed  to  a  spreadsheet,  make  it  possible  to  calculate  the
NGE  of  a  low(cid:220)interest  loan  according  to  the  characteristics  of  the  case  in  question.  In  standard  cases,  the
NGE  may  also  be  calculated  direct  by  means  of  the  following  formulae.

1.(cid:217)Terms

-(cid:217)i

is  the  reference  rat  per  inverval  and  r(cid:216)=(cid:216)1/(1(cid:216)+(cid:216)i)

-(cid:217)i(cid:190)

is  the  subsidised  rate  per  maturity  interval  and  r(cid:190) =(cid:216)1/(1(cid:216)+(cid:216)i(cid:190))

-(cid:217)P is  the  period  (in  number  of  maturity  intervals)  of  the  loan

-(cid:217)Q(cid:217)is  the  proportion

-(cid:217)T is  the  rate  of  tax

-(cid:217)F is  the  period,  in  number  of  intervals,  of  any  grace  period  from  repayment  of  principal:  during  the

grace  period,  only  interest  on  the  loan  is  repaid,  at  the  subsidised  rate.
(F(cid:216)=(cid:216)0  where  there  is  no  grace  period)

2.(cid:217)Straight(cid:220)line  repayment

NGE(cid:216)=(cid:216)(1(cid:216)(cid:134)(cid:216)T)(cid:216)Q (1(cid:216)(cid:134)(cid:216)

i(cid:190)

i ) (1(cid:216)+(cid:216)

rP (cid:134)(cid:216)rF
i(cid:216)(cid:141)(cid:216)(P(cid:216)(cid:134)(cid:216)F))

3.(cid:217)Repayment  in  constant  annual  instalments

NGE(cid:216)=(cid:216)(1(cid:216)(cid:134)(cid:216)T)(cid:216)Q [1(cid:216)(cid:134)(cid:216)( i(cid:190)

i ) (cid:141)(cid:216)( 1(cid:216)(cid:134)(cid:216)rF +

rF (cid:134)(cid:216)rP
1(cid:216)(cid:134)(cid:216)r(cid:190)P(cid:216)(cid:134)(cid:216)F ) (cid:129)

ANNEX  II

AID  TO  OFFSET  ADDITIONAL  TRANSPORT  COSTS  IN  REGIONS  QUALIFYING  FOR
EXEMPTION  UNDER  ARTICLE  92(3)(c)  ON  THE  BASIS  OF  THE  POPULATION  DENSITY
TEST

Conditions  to  be  met

-(cid:217)aid  may  serve  only  to  compensate  for  the  additional  cost  of  transport.  The  Member  State  concerned
will  have  to  show  that  compensation  is  needed  on  objective  grounds.  There  must  never  be  overcompen(cid:220)
sation.  Account  will  have  to  be  taken  here  of  other  schemes  of  assistance  to  transport,

-(cid:217)aid  may  be  given  only  in  respect  of  the  extra  cost  of  transport  of  goods  inside  the  national  borders  of

the  country  concerned.  It  must  not  be  allowed  to  become  export  aid,

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-(cid:217)aid  must  be  objectively  quantifiable  in  advance,  on  the  basis  of  an  aid(cid:220)per(cid:220)kilometre  ratio  or  on  the
basis  of  an  aid(cid:220)per(cid:220)kilometre  and  an  aid(cid:220)per(cid:220)unit(cid:220)weight  ratio,  and  there  must  be  an  annual  report
drawn  up  which,  among  other  things,  shows  the  operation  of  the  ratio  or  ratios,

-(cid:217)the  estimate  of  additional  cost  must  be  based  on  the  most  economical  form  of  transport  and  the

shortest  route  between  the  place  of  production  or  processing  and  commercial  outlets,

-(cid:217)aid  may  be  given  only  to  firms  located  in  areas  qualifying  for  regional  aid  on  the  basis  of  the  new
population  density  test.  Such  areas  will  be  made  up  essentially  of  NUTS  level  III  geographic  regions
with  a  population  density  of  less  than  12,5  inhabitants  per  square  kilometre.  However,  a  certain  flexi(cid:220)
bility  is  allowed  in  the  selection  of  areas,  subject  to  the  following  limitations:

-(cid:217)flexibility  in  the  selection  of  areas  must  not  mean  an  increase  in  the  population  covered  by  transport

aid,

-(cid:217)the  NUTS  III  parts  qualifying  for  flexibility  must  have  a  population  density  of  less  than  12,5  inhab(cid:220)

itants  per  square  kilometre,

-(cid:217)they  must  be  contiguous  with  NUTS  III  regions  which  satisfy  the  low  population  density  test,

-(cid:217)their  population  must  remain  low  compared  with  the  total  coverage  of  the  transport  aid,

-(cid:217)No  aid  may  be  given  towards  the  transport  or  transmission  of  the  products  of  businesses  without  an

alternative  location  (products  of  the  extractive  industries,  hydroelectric  power  stations,  etc.),

-(cid:217)Transport  aid  given  to  firms  in  industries  which  the  Commission  considers  sensitive  (motor  vehicles,
synthetic  fibres,  shipbuilding  and  steel)  must  always  be  notified  in  advance  and  will  be  subject  to  the
industry  guidelines  in  force.

ANNEX  III

METHOD  OF  DETERMINING  THE  CEILINGS  ON  THE  POPULATION  COVERED  BY  THE
92(3)(c)  DEROGATION

1.(cid:217)The  Commission  first  fixes  an  overall  ceiling  on  the  coverage  of  regional  aid  in  the  Community.  This
determines  the  maximum  percentage  of  the  population  which  the  regions  eligible  for  the  Article  92(3)
regional  derogations  in  the  Community  may  together  account  for.

2.(cid:217)The  regions  eligible  for  regional  aid  under  the  derogation  in  Article  92(3)(a),  and  their  overall  coverage
at  Community  level,  are  determined  exogenously  and  automatically  by  the  application  of  the  criterion
of  75,0(cid:216)%  of  per  capita  GDP  expressed  in  purchasing  power  standards  (PPS).  The  Commission’s
decision  on  the  overall  ceiling,  therefore,  simultaneously  defines  the  ceiling  on  coverage  under  the
Article  92(3)(c)  derogation,  at  Community  level.  The  Article  92(3)(c)  ceiling  is  obtained  by  deducting
from  the  overall  ceiling  the  population  of  the  regions  eligible  under  the  92(3)(a)  derogation.

3.(cid:217)The  distribution  of  the  Article  92(3)(c)  Community  ceiling  between  the  different  Member  States  is
effected  by  using  a  distribution  key  (see  section  I),  which  takes  account  of  regional  disparities  in  a
national  and  Community  context.

The  results  thus  obtained  are  then  adjusted  to  take  account  of  certain  other  aspects  (see  section  II).

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1.(cid:217)DISTRIBUTION  KEY

4.(cid:217)The  distribution  key  for  the  Article  92(3)(c)  Community  ceiling  is  calculated  on  the  basis  of  the  popu(cid:220)
lation  of  the  regions  which,  at  national  level,  have  a  minimum  disparity  in  terms  of  per  capita  GDP/PPS
and/or  unemployment,  defined  in  relation  to  certain  thresholds  (see  point  5).

The  geographical  unit  used  is  NUTS  level  III.  For  each  NUTS  III  region,  an  average  value  over  three
years  is  calculated  for  per  capita  GDP/PPS  and  unemployment  indices,  defined  in  relation  to  the
national  average.  The  per  capita  GDP/PPS  aand  unemployment  rate  indicators  are  supplied  by
Eurostat.

5.(cid:217)The  abovementioned  thresholds  are  calculated  for  each  of  the  two  criteria  (per  capital  GDP/PPS  and
unemployment),  and  for  each  of  the  Member  States  concerned.  The  calculation  is  carried  out  in  two
stages.  The  first  establishes  an  identical  basic  threshold  for  all  Member  States,  set  at  85  for  per  capita
GDP  and  115  for  the  unemployment  rate.  In  the  second  stage,  the  basic  thresholds  are  adjusted  to  take
account  of  the  relative  situation  of  each  of  the  Member  States  compared  with  the  average  for  the
Community.  The  formula  applied  is  as  follows:

Theshold  =

1
2

(cid:141)( Basic  threshold  +

Basic  threshold(cid:216)(cid:141)(cid:216)100
European  index

)

where  the  European  index  expresses  the  position  of  the  different  Member  States,  in  terms  of  unem(cid:220)
ployment  or  per  capita  GDP/PPS,  as  a  percentage  of  the  corresponding  Community  average.  The
European  index  is  calculated  as  an  average  value  over  the  same  three(cid:220)year  period  as  for  the  regional
indices.

Thus,  the  more  favourable  a  Member  State’s  situation  as  regards  unemployment  or  the  standard  of
living,  the  more  selective  the  thresholds  used  for  the  distribution  of  the  ceiling  on  92(3)(c)  coverage,  and
vice  versa.

However,  so  that  the  unemployment  criterion  does  not  become  too  rigorous,  the  corresponding
threshold  is  subject  to  a  ceiling  of  150.  This  facilitates  the  granting  of  regional  aid  in  Member  States
which  show  considerable  disparities  in  domestic  unemployment  but  whose  situation  does  not  seem  that
unfavourable  at  Community  level.  Since  for  the  per  capita  GDP/PPS  threshold  the  differences  observed
between  the  Member  States  are  small,  it  has  not  been  thought  necessary  to  establish  a  minimum  level.

6.(cid:217)The  regional  indices  are  then  compared  with  the  abovementioned  thresholds,  which  makes  is  possible  to
determine  whether  the  region  concerned  shows  a  sufficient  regional  disparity  to  be  taken  into  account  in
the  calculation  of  the  distribution  key.

The  population  of  all  the  regions  not  eligible  for  regional  aid  under  the  Article  92(3)(a)  derogation
which  show  a  sufficient  regional  disparity  compared  with  at  least  one  of  the  two  abovementioned
thresholds  is  aggregated  for  each  of  the  Member  States.  The  distribution  key  for  the  Article  92(3)(c)
Community  celing  is  defined  as  each  Member  State’s  share  of  the  corresponding  total  Community
population.

7.(cid:217)Subject  to  the  corrections  mentioned  above,  the  population  ceiling  for  each  Member  State  under  the
Article  92(3)(c)  derogation  is  calculated  by  directly  applying  the  distribution  key,  i.e.  by  multiplying  the
Article  92(3)(c)  Community  ceiling,  expressed  in  terms  of  population,  by  the  share  of  the  Member  State
concerned  in  the  total  sum  obtained.

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2.(cid:217)CORRECTIONS

8.(cid:217)The  results  thus  obtained  are  corrected,  if  necessary,  in  order:

-(cid:217)to  guarantee  to  each  Member  State  that  the  population  assisted  under  the  92(3)(c)  derogation  is  at
least  equal  to  15(cid:216)%  and  does  not  exceed  50(cid:216)%  of  its  population  not  covered  by  the  92(3)(a)  dero(cid:220)
gation,

-(cid:217)to  attain,  in  each  Member  State,  a  sufficient  level  to  include  all  the  regions  which  have  just  lost

92(3)(c)  status  and  the  areas  with  a  low  population  density,

-(cid:217)to  limit  the  reduction  in  the  total  coverage  (under  the  two  Article  92(3)  regional  derogations)  of  a

Member  State  to  25(cid:216)%  of  its  previous  coverage.

9.(cid:217)The  results  obtained  for  the  Member  States  not  directly  concerned  by  the  abovementioned  corrections
are  then  adjusted  proportionately  so  that  the  sum  of  the  indvidual  ceilings  equals  the  Article  92(3)(c)
ceiling  set  for  the  Commuity.

Commission  communication  concerning  extension  of  the  guidelines  on  State  aid  for  rescuing  and
restructuring  firms  in  difficulty

(98/C  74/07)

(Text  with  EEA  relevance)

The  Commission  has  decided  to  extend  the  current  guidelines  on  State  aid  for  rescuing  and
restructuring  firms  in  difficulty  (OJ  C  368,  23.12.1994,  p.  12,  as  supplemented  by  the  rules
applicable  to  agriculture  and  fisheries  (OJ  C  283,  19.9.1997,  p.  2))  until  such  time  as  new
guidelines  are  published  or,  at  any  event,  for  a  period  of  not  more  than  one  year  from  the  date
of  publication  of  this  Communication  in  the  Official  Journal  of  the  European  Communities.