2000/380/: EFTA Surveillance Authority Decision No 380/00/COL of 18 December 2000 on the Act on temporary reimbursements in respect of film-making in Iceland (Act No 43/1999) (Iceland)
Date: 2000-12-18
Institutions: EFTA Surveillance Authority
Subjects: Iceland, aid system, film production

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EUROPEAN ECONOMIC AREA

EFTA SURVEILLANCE AUTHORITY

EFTA SURVEILLANCE AUTHORITY DECISION

No 380/00/COL

of 18 December 2000

on the Act on temporary reimbursements in respect of film-making in Iceland

(Act No 43/1999)

(Iceland)

THE EFTA SURVEILLANCE AUTHORITY,

Having regard to the Agreement on the European Economic Area (1), in particular to Articles 61 to 63
thereof,

Having regard to the Agreement between the EFTA States on the establishment of a Surveillance Authority
and a Court of Justice (2),

in particular Article 24 and Article 1 of Protocol 3 thereto,

Having regard to the Procedural and Substantive Rules in the Field of State Aid (3),

Having regard to the Authority's Decision of 4 June 1999, by which the Authority initiated proceedings in
accordance with Artricle 1(2) of Protocol 3 to the Surveillance and Court Agreement,

Having called on interested parties to submit their comments pursuant to those provisions (4),

Whereas:

Procedure

I. FACTS

By letter from the Ministry of Industry and Commerce dated 10 March 1999 received and registered by the
Authority on 7 April 1999 (Doc. No 99/2531-A), the Icelandic authorities notified, pursuant to Article 1(3)
of Protocol 3 to the Surveillance and Court Agreement, support measures in favour of film production in
Iceland. As the Authority subsequently learned, the Government bill on these support measures had been
adopted by the Icelandic Parliament on 11 March 1999 (Act No 43/1999 on the temporary repayment of
costs of films produced in Iceland; hereinafter referred to as the ‘Act’). By Decision of 4 June 1999 (No
114/99/COL), the Authority decided to initiate a formal investigation procedure regarding the aid measures
provided for in the Act. In a letter of the same date, the Icelandic authorities were informed of the Decision
to open the formal investigation procedure and were requested to submit their comments within one
month of receipt of the communication of that Decision. After several extensions of the deadline, written
comments were submitted by letter dated 15 October 1999, registered by the Authority on 26 October
1999 (Doc. No 99-7966-A).

(1) Hereinafter referred to as the EEA Agreement.
(2) Hereinafter referred to as the Surveillance and Court Agreement.
(3) Guidelines on the application and interpretation of Articles 61 and 62 of the EEA Agreement and Article 1 of
Protocol 3 to the Surveillance and Court Agreement, adopted and issued by the EFTA Surveillance Authority on 19
January 1994, published in OJ L 231, 3.9.1994, EEA Supplements No 32, 3.9.1994 last amended by the Authority's
Decision No 78/00/COL of 12 April 2000, not yet published; hereinafter referred to as State Aid Guidelines.

(4) The opening Decision was published in the OJ C 223, 5.8.1999 (in the EU languages) and in the EEA Supplement

No 40, 16.9.1999 (in the EFTA languages)

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The opening Decision was published in the Official Journal of the European Communities C 223 of 5 August
1999 (in the EU languages) and in the EEA Supplement No 40 of 16 September 1999 (in the EFTA
languages). Interested parties had the opportunity to submit their observations within one month of the
publication in the Official
the European Communities/EEA Supplement. No comments were
submitted to the Authority.

Journal of

In the opening Decision, the Authority expressed doubts as to the compatibility of the aid measures under
the Act with Article 61(3)(c) of the EEA Agreement. These doubts were based on the grounds that the
reimbursement of film production costs constituted operating aid not normally accepted by the Authority,
and that the Act did not have the promotion of activities of specific cultural value is an objective. The
Authority's concerns were further explained in a letter dated 9 September 1999 to the Icelandic authorities
(Doc. No 99/6620-D). With reference to the practice of the European Commission, and in particular the
‘French’ (1) and the ‘Irish’ (2) Decisions, the Competition and State Aid Directorate of the Authority
emphasised specifically that the scheme did not provide for mechanisms ensuring that eligible films were
selected according to cultural criteria, and that by requiring film producers to spend the totality of
production costs in Iceland, the scheme had the effect of restricting the provision of services within the
EEA.

The issues of concern were discussed at bilateral meetings in Brussels on 30 June 1999 and 7 October
1999, at a package meeting on 26 November 1999 in Reykjavik, as well as at a multilateral meeting held
on 21 March 2000 in Brussels. At this last meeting the consequences and implications of applying the
criteria developed by the Commission for the assessment of film support schemes under Article 61(3)(c) of
the EEA Agreement were discussed with the EFTA States.

In a letter dated 24 July 2000 (Doc. No 00-5245-D), the Authority expressed the view that, in the light of
the criteria developed by the European Union Commission with respect to film support schemes in the
European Union and of the written comments submitted by the Icelandic authorities, the aid measures
provided for under the Act could not be exempted under Article 61(3)(c) of the EEA Agreement, and were
therefore considered to be incompatible with this Agreement. Against this background, the Authority called
on the Icelandic authorities to submit their comments within two months of the receipt of the said letter. In
their response, the Icelandic authorities informed the Authority by fax of 8 September 2000, registered by
the Authority on 14 September 2000 (Doc. No 00-6356-A), that the Icelandic Government was in the
process of initiating work on a bill of law, taking into account the concerns raised by the Authority
regarding the compatibility of the Act under Article 61(3)(c) of the EEA Agreement. In addition, the
Icelandic Government confirmed that it refrained from applying the provisions of the law, as requested in
the Authority's Decision of 4 June 1999. A meeting was held on 11 October 2000 between the Icelandic
authorities and representatives from the Authority's Competition and State Aid Directorate, on the occasion
of which the amendments as envisaged by the Icelandic Government were discussed in more detail. At this
meeting, the Icelandic authorities also confirmed that no payments had been made under the Act. The final
draft of the bill amending Act No 43/1999 on temporary reimbursement in respect of film making in
Iceland (3), was submitted to the Authority by letter of the Ministry of Finance dated 28 November 2000,
registered by the Authority on 4 December 2000 (Doc. No 00-8857-A).

Description of the aid measures under the bill amending Act No 43/1999

According to Article 1 of the bill amending the Act on the temporary reimbursements in respect of film
making in Iceland, No 43/1999 (hereinafter referred to as the ‘proposed amending Act’), the objective of
film support under the proposed amending Act is ‘to enhance domestic culture and promote the history
and nature of Iceland’ by temporarily supporting motion pictures and television programmes produced in
Iceland.

Pursuant to Article 2 of the proposed amending Act, reimbursement is granted for a proportion of the
production costs incurred in the production of films and television programmes in Iceland. This provision
further clarifies that ‘when more than 80 % of the total production cost of a motion picture or television

(1) State aid No 3/98 — France
(2) State

aid NN 49/97 and N 357/99 — Ireland;

this Decision can also be

found on the

Internet:

http://europa.eu.int/comm/secretariat_general/sgb/state_aids/industrie/nn049-97.pdf

(3) The Authority notes that the title of the bill amending Act No 43/1999 is slightly different compared to the title of

the original Act No 43/1999. However, the Act to be amended is obviously the same.

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programme is incurred in Iceland, reimbursement shall be calculated from the total production cost
incurred within the European Economic Area’. Production costs refer to all costs incurred in Iceland
deductible from the revenues of enterprises pursuant to the provisions of the Act on income and net wealth
tax. Payments pertaining to employees and contractors are only to be included in the production costs if
they are verifiably taxable in Iceland.

Articles 3 and 4 of the proposed amending Act refer to the application procedure and the establishment of
a committee responsible for the assessment of applications for reimbursement. The Committee shall take
into consideration whether the motion picture or television programme promotes Icelandic culture, and, as
applicable, contains references to Icelandic history and nature. When assessing an application for reim-
bursement, the Committee may also ask for an expert opinion regarding the presumed artistic value of the
relevant production.

The conditions for reimbursement are laid down in Article 4 of the proposed amending Act. These
conditions include, in particular, the requirement that the production be suited to promoting Icelandic
culture and the history and nature of Iceland, and that a specific company shall be estalished in Iceland for
the production (a company is also considered to be established in Iceland, if a company registered in
another Member State of the European Economic Area has an Icelandic branch or agency).

Article 5 of the proposed amending Act determines the permissible aid intensity under the scheme: ‘The
proportion of reimbursed production costs shall be 12 % of the production cost pursuant to Article 2.’ The
Minister for Industry shall determine the reimbursement based on a recommendation of the Committee
pursuant to Article 3 of the proposed amending Act. Article 7 of the proposed amending Act ensures that
‘in the event that an applicant has received a grant from the Icelandic Film Fund for the production of the
same motion picture or television programme, the grant shall be deducted from the amount that is
considered domestic production cost. The total of a grant from the Icelandic Film Fund and a reimburse-
ment pursuant to Article 5 shall not exceed 50 % of the total production costs of the same motion picture
or television programme’.

Pursuant to Article 8 of the proposed amending Act, ‘the Minister for Industry shall issue a regulation on
the implementation of this Act. It shall, inter alia, contain provisions on procedures for reimbursements as
stipulated in this Act, the right of the Minister to defer reimbursements in excess of the amount allocated in
the government budget, conditions for reimbursements, applications, responses to applications and deci-
sions on reimbursements’.

In accordance with Article 9 of the proposed amending Act, the scheme shall enter into force immediately
and shall cease to be effective on 31 December, 2006. Reimbursement requests that have been approved
before that time shall remain valid.

II. APPRECIATION

Standstill obligation

Pursuant to Article 1(3) of Protocol 3 to the Surveillance and Court Agreement, ‘the EFTA Surveillance
Authority shall be informed, in sufficient time to enable it to submit its comments, of any plans to grant or
alter aid. If it considers that any such plan is not compatible with the functioning of the EEA Agreement
having regard to Article 61 of the EEA Agreement, it shall without delay initiate the procedure provided for
in paragraph 2. The State concerned shall not put its proposed measures into effect until the procedure has
resulted in a final Decision’.

In the opening Decision, the Authority considered the aid to be unlawful on procedural grounds since the
Act had been notified late and implemented without awaiting a decision of the Authority. However, in the
course of the proceedings the Icelandic authorities have confirmed that no aid had been paid out under Act
No 43/1999.

The Authority can, therefore, conclude that the Icelandic authorities have respected the standstill obligation
under Article 1(3) of Protocol 3 to the Surveillance and Court Agreement.

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State aid within the meaning of Article 61 of the EEA Agreement

Article 61 of the EEA Agreement stipulates: ‘Save as otherwise provided in this Agreement, 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 shall,
in so far as it affects trade between the Contracting Parties, be incompatible with the functioning of the
Agreement’.

The aid measures provided for under the proposed amending Act are financed through the State budget.
The proposed amending Act grants film producers a financial benefit they would not have obtained in the
normal course of business. Consequently, the aid strengthens the recipient's position compared with that of
competing firms. In general, support measures will affect competition and trade between the Contracting
Parties, provided that the recipient firm carries on an economic activity involving trade between the
Contracting Parties. Film productions may be shot in different locations within the EEA. Furthermore, film
productions are subsequently traded between the Contracting Parties and may compete between them to
attract audiences. Consequently, production aid granted under the proposed amending Act may alter
competition between different locations for the production of a film and may influence the trading
conditions of films for their commercialisation. Therefore, the proposed amending Act on the temporary
repayment of production costs contains aid within the meaning of Article 61(1) of the EEA Agreement.

Compatibility of aid measures under Article 61(3)(c) of the EEA Agreement

The Authority has examined whether the aid measures under the proposed amending Act may be approved
on cultural grounds. It should be mentioned that, unlike in several other areas, the Authority has not
adopted interpretative guidelines in the field of aid to film and television industries yet. Therefore, the
assessment of the compatibility of aid to film producers has to be based directly on Article 61 of the EEA
Agreement,

interpreted in particular in the light of relevant Commission practice.

In its decision-making practice the Commission has historically adopted a favourable approach to aid for
television programmes and film production. Aid schemes were considered compatible with the EC Treaty
provided that the aid was necessary for and proportional to the promotion and/or the preservation of
European culture and was in accordance with the basic principles of the EC Treaty, such as non-discrim-
ination and freedom to provide services (1).

The Commission has recognised in various policy papers that the production and distribution of films and
programmes plays a major role in European cultural identity. In its most recent paper, ‘A strategy for the
Community's audiovisual policy in the digital age’ (2), the Commission recognised that, in the light of the
special importance of this industry, it would — define the fundamental goals of the audiovisual policy as
being ‘to encourage the production and distribution of European works’, by establishing a secure and stable
legal framework to guarantee the freedom to provide audiovisual services on the one hand, and through
appropriate support mechanisms on the other (3).

With the Maastricht Treaty, a cultural derogation was added to the State aid rules of the EC Treaty. This
cultural exemption under Article 92(3)(d) of the EC Treaty (now Article 87(3)(d) (4) provides that the
Commission may consider compatible with the common market ‘aid to promote culture and heritage
conservation, where such aid does not affect trading conditions and competition in the Community to an
extent that is contrary to the common interest’. This exemption is not included in the EEA Agreement.

(1) See first report on the consideration of cultural aspects in the European Community action, COM(96) 160 final, 17
April 1996, see: http://europa.eu.int/comm/dg10/culture/cult-asp/en/index.html; see also Commission Decision 89/
441/EEC of 21 December 1988 on aid granted by the Greek Government to the film industry for the production of
Greek films (OJ L 208, 20.7.1989, p. 38).

(2) COM 1999 657 of 14 December 1999.
(3) Audiovisual Policy (quoted above), p. 8/9.
(4) Citation according to ‘Note on the citation of articles of the Treaties in the publications of the Court of Justice and

the Court of First Instance’ (see: http://curia.eu.int/en/jurisp/remnot.htm).

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Nevertheless, the Authority considers that film support measures may be approved on cultural grounds on
the basis of Article 61(3)(c) of the EEA Agreement, to the extent that Commission Decisions based on
Article 92(3)(d) of the EC Treaty (now Article 87(3)(d)) do not deviate from its previous practice under
Article 92(3)(c) of the EC Treaty (now Article 87(3)(c)). In this respect, the Authority would like to refer to
the Commission's Decision regarding aid to film production in Ireland, where the Commission stated that
‘it should be stressed that the introduction by the 1992 Treaty on European Union of Articles 151(1) and
87(3)(d) did not necessarily reflect a change in the Commission's policy towards the cultural sector because
the considerations set out in the said Articles had previously been taken into account by the Commission
when assessing the compatibility of aid to cultural activities (1)’.

The Authority is aware that, in recent Decisions regarding film support measures, the Commission has
excluded the application of Article 87(3)(c) (equivalent to Article 61(3)(c) of the EEA Agreement) and based
its approval on Article 87(3)(d). According to the Commission Article 87(3)(c) of the EC Treaty was not
applicable since the film support measures at issue constituted operating aid not normally allowed under
this provision. Furthermore, film support measures would not have as their primary objective the develop-
ment of an economic activity but rather the creation of a cultural product (film). In the Authority's view,
the Commission's approach does not prevent the recourse to Article 61(3)(c) of the EEA Agreement as a
legal basis for the approval of film support measures in the EFTA States, provided that the criteria
developed by the Commission under Article 87(3)(d) of the EC Treaty are sufficiently taken into considera-
tion.

Against this background, the Authority has examined whether the proposed amending Act can be approved
under Article 61(3)(c) of the EEA Agreement. According to Article 61(3)(c) of the EEA Agreement ‘aid to
facilitate the development of certain economic activities or of certain economic areas …’ may be considered
to be compatible with the EEA Agreement ‘… where such aid does not adversely affect trading conditions
to an extent contrary to the common interest’.

According to Commission practice in the field of State support measures for the film industry (2), operating
aid to the film industry may be declared compatible provided that the following criteria are fulfilled:

— the cultural content of the film receiving aid must be ensured in some way,

— the aid intensity must not exceed 50 % of the production costs,

— the producer must be free to spend at least 20 % of the film budget in other EEA States without losing

aid on this part of the production costs,

— the aid must satisfy the general principles regarding compatibility of State aid (necessity, proportionality

and transparency) as well as the fundamental principles of the EEA Agreement.

The Authority is of the opinion that these criteria strike a balance between the aims of cultural creation and
the development of audiovisual industries on the one hand, and competition concerns on the other. They
adapt the general conditions underlying Article 61(3)(c) of the EEA Agreement, namely necessity and
proportionality of the aid, to the specific circumstances and requirements in the field of film production.

(1) State

aid NN 49/97 and N 357/99 — Ireland;

this Decision can also be

found on the

Internet:

http://europa.eu.int/comm/secretariat_general/sgb/state_aids/industrie/nn049-97.pdf

(2) State aid N 3/98 — France; State aid N 486/97 — Netherlands; State aid N 4/98 — Germany: State aid NN 49/97

and N 357/99 — Ireland; State aid N 748/99 — Sweden.

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The cultural content of the film receiving aid must be ensured

The Authority would like to emphasise that this criterion does not aim at restricting the EFTA States'
competence regarding cultural affairs, nor does it intend to determine what kind of film productions should
be considered of cultural value under the national film support scheme. However, to be exempted from the
general prohibition of operating aid on cultural grounds, and in the light of the Commission's practice
requiring that aid should be primarily aimed at promoting the creation of a film as a cultural product,
rather than promoting the film industry as such, the Authority takes the view that the scheme must clearly
pursue the objective of promoting the production of films, rather than the development of the film
production-related industry. Furthermore, it must be designed in such a way that the promotion of culture
is secured under the provisions of the aid scheme. This means that the national bodies responsible for
awarding film support must assess the application for aid on artistic/cultural grounds. Furthermore, the
requirement regarding the cultural content excludes aid to non-cultural productions, such as commercials.

In the course of the formal investigation procedure, the Authority had expressed concerns regarding various
provisions of the Act adopted on 11 March 1999. In the Authority's view, these provisions were mainly
aiming at supporting the film industry in Iceland by attracting foreign capital, without however placing
sufficient emphasis on the selection of eligible films on cultural criteria. Under the proposed amending Act,
it is now explicitly stated that the support measures pursue cultural objectives, such as to enhance domestic
culture and promote the history and nature of Iceland. Furthermore, the applications for reimbursements of
film production costs are assessed by a Committee under cultural criteria. The Authority is satisfied that
these provisions ensure the appraisal of eligible film projects on quality and artistic grounds.

The aid intensity must not exceed 50 % of the production costs

In order to strike a balance between the objectives of promoting film production and maintaining
conditions of undistorted competition, it is appropriate to limit State support for individual productions.
The respect of a maximum ceiling of aid for film production is necessary to stimulate normal commercial
initiatives inherent in a market economy and to avoid a bidding contest between the Contracting Parties.
Furthermore, the threshold of 50 % of the production budget is also in line with thresholds set by other
supra-national film support mechanisms, such as aid provided through the EC programme MEDIA II (1996
to 2000) (1) and the Council of Europe Eurimage programme. Considering that, since 1998, all film
support schemes approved by the Commission respect the maximum ceiling of 50 % without exception (2),
and in order to ensure a level playing field between film producers within the EEA, the Authority is of the
opinion that it is important to restrict the allowable aid intensity to 50 % of the production budget.

The aid intensity fixed pursuant to Article 5 of the proposed amending Act, with a maximum support of
12 % of the production costs, respects the 50 % aid ceiling. Furthermore, cumulation rules inserted into
Article 7 of the proposed amending Act ensure that, when the same film project receives aid from the
Icelandic Film fund, this amount should be deducted from the amount that is considered domestic
production costs under the proposed amending Act. In no case can the cumulated aid granted to the same
film exceed 50 % of the total production budget.

(1) For example Article 3 of Council Decision 95/563/EC of 10 July 1995 on the implementation of a programme

encouraging the development and distribution of European audiovisual works (OJ L 321, 30.12.1995).

(2) State aid N 3/98 — France: State aid N 486/97 — Netherlands; State aid N 4/98 — Germany; State aid NN 49/97

and N 357/99 — Ireland; State aid N 748/99 — Sweden.

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The producer must be free to spend at least 20 % of the film budget in other EEA States with the full benefit of the aid

Although the aid measure should be primarily aimed at promoting the production of a film as a cultural
product, the Authority acknowledges that without a sufficiently well-developed human and technical
environment film producers will not be able to express their creativity. Therefore, and to the extent
necessary to foster the continued presence if not the development of a human and technical environment
required for cultural creation in the EFTA State concerned, EFTA States are allowed to provide support to
the film industry going beyond the support for the production of a particular film, by obliging film
producers to spend part of their production budget in the aid-awarding country. However, this possibility is
not without limitations. In this respect, it would appear that certain purely technical services, which do not
form part of the necessary cultural environment, should not be subject to such an obligation. Against this
background, the Commission has developed, the ‘80 %/20 % rule’, which allows EC Member States to
‘territorialise’ up to 80 % of a total production budget in their country: This requirement implies that, when
less than 80 % of total production costs are spent in the aid-awarding country, only production costs
incurred in that country will be eligible for aid. If the ratio is 80 % or higher, all costs incurred in the EEA
must be eligible for aid.

Even where a film support scheme does not contain an explicit obligation for film producers to spend the
total or part of the production budget in the aid-awarding country other provisions, in particular those
related to the calculation of the aid, may have the same effect. As regards the Act adopted on 11 March
1999, the Authority had taken the view that certain provisions (in particular Article 2 of the Act) might
induce a film producer to spend a larger part of the production budget in Iceland than he would otherwise
have contemplated. In this context, the ‘80 %/20 % rule’ requires that the amount of the reimbursement
must be calculated on the basis of the total production costs irrespective of where these costs were incurred
if the producer spends 80 % or more of the total production budget in the country concerned. However,
whenever film producers spend less than 80 % of the production budget in Iceland, the interests of the
other Contracting Parties to the EEA Agreement are considered to be sufficiently taken care of. In such
cases, the amount of the reimbursement may be calculated on the basis of the costs incurred in Iceland.

Under the provisions of the proposed amending Act (see Article 2) reimbursement is granted for a
proportion of the production costs incurred in the production of films and television programmes in
Iceland. However, it is stressed that ‘when more than 80 % of the total production costs of a motion picture
or television programme is incurred in Iceland, reimbursement shall be calculated from the total production
costs incurred within the European Economic Area’. This means that a film producer is free to spend up to
20 % of the production budget outside Iceland without losing aid on this amount. On the other hand,
where a producer spends less than 80 % in Iceland, the aid will be calculated on the basis of the costs
incurred in Iceland. This territorialisation of the aid is in accordance with the criteria established by the
Commission in its practice regarding film support schemes in the Community. It further strikes a balance
between the justified concern to provide support for the film industry in Iceland and concerns related to the
freedom to provide services within the EEA. The Authority can, therefore, conclude that the provisions
inserted in the proposed amending Act fully comply with the criteria set out above.

The aid must satisfy the general principles regarding compatibility of State aid (necessity, proportionality and
transparency)

As to the necessity of the aid, it is common knowledge that film production in Europe requires substantial
State support in order to ensure that Europe's own culture and creative capacity has the opportunity to be
expressed. This support is required for ensuring the European presence in a market dominated by
audiovisual products from outside the EEA. The fostering of audiovisual production by individual EFTA
States allows the promotion of cultural diversity that would not, otherwise, have been possible (1). Without
State support, it could be expected that to limited markets and audiences for European films, and in
particular those in languages not widely spoken in Europe, film producers would not be able to cover their
production costs with revenues from the distribution of films in cinemas, television and video. It is widely
recognised that market forces alone do not ensure the desired level of production. In the light of these
circumstances, the Icelandic film support scheme can be considered to be necessary.

(1) This was most

recently

confirmed by

the

report

from the high level

group on audiovisual policy

http://europa.eu.int/comm/dg10/avpolicy/key_doc/hlg_en.html

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Previous concerns regarding the proportionality of the aid have been dispelled under the proposed
amending Act. Under the proposed provisions, the aid intensity no longer increases with the size of the
film budget. Furthermore, the proposed amending Act has abolished the requirement of a minimum budget
of ISK 80 million for film productions to be eligible under the aid scheme. With these amendments the film
support scheme can be considered proportional to its objectives, namely to enhance Icelandic culture
irrespective of the film production budget. Finally, the Authority notes that the aid scheme is limited in
time to five years (until December 2006).

The aid must satisfy the fundamental principles of the EEA Agreement

Under the Act adopted on 11 March 1999, reimbursement was dependent upon the film producer having a
fixed establishment in Iceland. The Authority regarded this requirement as constituting a restriction to the
freedom to provide services which could not be justified on cultural grounds. Pursuant to Article 4(c) of the
proposed amending Act, film producers no longer have to be established in Iceland to be eligible under the
scheme. For companies having their registered office within the EEA it is sufficient to have a branch or
agency in Iceland. Furthermore, the territory-related provision for determining the amount of reimburse-
ment has been limited to the extent required under the ‘80 %/20 % rule’. The Authority can, therefore,
conclude that the provisions under the proposed amending Act are in compliance with the basic freedoms
of the EEA Agreement.

Conclusions

The film support measures contained in the bill amending the Act on temporary reimbursements in respect
of film-making in Iceland can be considered compatible with Article 61(3)(c) of the EEA Agreement.
Therefore, the Authority is in a position to close the proceedings against the original Act No 43/1999
initiated under Article 1(2) of Protocol 3 to the Surveillance and Court Agreement. The Authority would,
however, emphasise that this conclusion is based on the bill to amend Act No 43/1999 as communicated
to the Authority by letter of the Ministry of Finance dated 28 November 2000, registered by the Authority
on 4 December 2000 (Doc. No 00-8857-A). Amendments to this bill, which may affect the assessment of
the aid measures under Article 61(3)(c) of the EEA Agreement, are not covered by this decision. Such
amendments would have to be notified to the Authority and could only be put into effect after the
Authority has given its approval.

Finally, in order to allow the Authority to keep the application of the scheme under constant review, the
Icelandic authorities are requested, pursuant to Chapter 32 of the Authority's State aid guidelines, to submit
simplified annual reports regarding the implementation of this scheme in the form shown in Annex IV to
the Authority's State aid guidelines. The Icelandic authorities are reminded that pursuant to point 5 of
Chapter 32 of the Authority's State aid guidelines, ‘for each scheme, the first report should be sent to the
EFTA Surveillance Authority not later than six months after the end of the financial year in which the
scheme was approved by the EFTA’.

Finally, in accordance with point 6 of Chapter 32 of the Authority's State aid guidelines, ‘Failure to comply
with the obligation to provide the reports within the deadline may oblige the EFTA Surveillance Authority
to initiate proceedings under Article 1(2) of Protocol 3 to the Surveillance and Court Agreement’ in respect
to the aid scheme in question,

HAS ADOPTED THIS DECISION:

1. The aid measures provided for in the bill amending Act No 43/1999 on temporary reimbursements in

respect of film making in Iceland are compatible with the EEA Agreement.

2. The formal investigation procedure against the original Act No 43/1999 on temporary repayment of
costs of films produced in Iceland, as adopted by the Icelandic Parliament on 11 March 1999, is closed.

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3. The Icelandic authorities are requested to submit simplified annual reports regarding the implementation

of the scheme in accordance with Chapter 32 of the Authority's State aid guidelines.

Done at Brussels, 18 December 2000.

For the EFTA Surveillance Authority

Knut ALMESTAD

President

Hannes HAFSTEIN

College Member