2001/690/EC: Commission Decision of 21 December 2000 on the reduced social contributions aid scheme notified by Sweden (Text with EEA relevance) (notified under document number C(2000) 4354)
Date: 2000-12-21
Institutions: European Commission
Subjects: State aid, Sweden, control of State aid, social-security contribution, tariff reduction

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 21 December 2000

on the reduced social contributions aid scheme notified by Sweden

(notified under document number C(2000) 4354)

(Only the Swedish text is authentic)

(Text with EEA relevance)

(2001/690/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(3)

Having regard to the Treaty establishing the European
Community, and in particular the first subparagraph of Article
88(2) thereof,

Having regard to the Agreement on the European Economic
Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments
pursuant to the provisions cited above (1),

Whereas:

I. PROCEDURE

(1)

(2)

By letter dated 22 October 1999, registered as received
by the Commission on 25 October 1999, Sweden noti-
fied a modified reduced social contributions aid scheme
under Article 88(3) of the EC Treaty. The scheme is a
modification and extension of the reduced social contri-
butions (Nedsatta socialavgifter) scheme which expired on
31 December 1999.
In 1997 the Commission had
adopted appropriate measures regarding this scheme
under No E 8/96 (Commission letter SG(97) D/6781 of
7 August 1997).

By letter D/64905 of 25 November 1999, the Commis-
sion requested additional information on the above aid
measure. The Swedish authorities submitted the infor-
mation requested by letter dated 21 December 1999,
which was registered as received by the Commission on
22 December 1999.

the Commission
By letter dated 4 April 2000 (2)
informed the Swedish authorities of
its decision to
initiate the procedure laid down in Article 88(2) of the
EC Treaty in respect of the reduced social contributions
aid scheme.

The decision to initiate the procedure was published in
the Official Journal of the European Communities (3). The
Commission invited interested parties
to present
comments on the aid scheme concerned.

The Commission received comments from one inter-
ested party.

The official response of the Swedish authorities was
received by letter dated 11 May 2000.

On 12 and 27 October and 21 November 2000, meet-
ings were held between the Commission's departments
and the Swedish authorities to discuss the scheme.

(4)

(5)

(6)

(7)

II. DETAILED DESCRIPTION OF THE AID

(8)

Object and form of the aid granted

The scheme is intended to contribute to the develop-
low population density areas in northern
ment of
Sweden. To this end,
security contributions
social
payable for persons employed in undertakings located in
the eligible region and engaged in eligible sectors/activi-
ties are reduced by eight percentage points.

(1) OJ C 184, 1.7.2000, p. 10.

(2) Reference: SG(2000) D/102835.
(3) OJ C 184, 1.7.2000, p. 10.

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(9)

Eligible regions

III. INITIATION OF THE PROCEDURE UNDER ARTICLE

88(2) EC

The area eligible under the scheme is assisted area A (1)
in the north of Sweden with the exception of a number
of parishes belonging to the municipalities of Östersund
and Krokom. The eligible area has a population of
around 430 000, or around 4,8 % of the total Swedish
population. A detailed list of
is
contained in the letter by which the Commission noti-
fied Sweden of its decision to initiate the Article 88(2)
procedure in respect of the reduced social contributions
aid scheme (2).

the eligible areas

(14)

(10)

Eligible sectors/activities

The aid scheme applies to undertakings belonging to the
following sectors or engaged in the following activities:

— contracting, hire and repairs,

— hotels, boarding houses and camping sites,

— restaurants and cafes run in combination with hotels,

boarding houses and camping sites,

— cleansing, cleaning and laundry activities,

— recreation and cultural services with the exception of

libraries,

— activities of non-profit, cultural or religious organ-

isations and interest groups,

(15)

— establishments engaged in administrative activities
that concern the management of a company, busi-
ness and wages administration, bookkeeping, auto-
matic data processing, registration, telephone sales
and order booking.

In its decision to initiate the procedure laid down in
Article 88(2) of the EC Treaty in respect of the reduced
the Commission
social
expressed two doubts regarding the compatibility of the
notified aid measure with the Community's State aid
rules:

contributions

scheme (3),

(a) the Swedish authorities tried to justify the reduction
in social contributions as transport aid to offset the
‘additional distance-related costs’ incurred by eligible
companies. In its decision to initiate the procedure,
the Commission expressed doubts as to whether the
concept of ‘additional distance-related costs’ corre-
sponded with the concept of ‘extra cost of transport
of goods’.

(b) secondly, the Commission also questioned whether
it was possible to establish a direct link between the
amount of aid received by beneficiaries under the
scheme and the amount of extra transport costs
actually incurred by them.

In its decision to initiate the Article 88(2) procedure, the
Commission also indicated that
it would consider
whether harsh weather conditions and other specific
circumstances could provide additional justification for
the aid granted under the scheme.

to

not

does

apply

scheme

The
establishments
performing administrative functions for undertakings
engaged in the production, processing and marketing of
agricultural products listed in Annex I to the EC Treaty,
nor to any undertaking in the following sensitive sectors:
fisheries, coal, steel, transport, shipbuilding, synthetic
fibres or motor vehicles.

(11) Combination of aid

A reduction in social security contributions may not be
granted if the applicant has been granted transport aid
under the modified regional policy transport aid scheme
(N 146/1999) during the same period.

(12) Duration

The scheme will expire on 31 December 2000.

(13)

Budget

The budget
EUR 36 634 000).

for 2000 is SEK 313 734 000 (around

(1) Assisted area A qualifies for exemption under Article 87(3)(c) of the
EC Treaty and is part of
the Swedish regional aid map for the
period 2000 to 2006, approved by the Commission under State aid
N 639/1999 (approval
letter SG(2000) D/103189 of 17 April
2000).

(2) OJ C 184, 1.7.2000, p. 10.

IV. COMMENTS FROM SWEDEN

(16)

By letter dated 11 May 2000, Sweden submitted
comments on the Commission's decision to initiate the
Article 88(2) procedure in respect of the reduced social
contributions aid scheme. These comments can be
summarised as follows.

(a) The aid is an effective instrument to encourage the
establishment of service companies in regions that
are suffering from severe handicaps (remote north-
erly location, adverse weather conditions,
long
distances and low population densities).

(b) The concept of ‘extra cost of transport of goods’ is
not very well suited for application in the services
sector. By their very nature, most service companies
do not transport large quantities of physical goods.
However, they are affected by heavy fixed direct
costs related to long distances, low population densi-
ties and unfavourable climate. A study commis-
sioned by the Swedish Government confirms that
service companies in northern Sweden have higher
‘distance-related costs’ than companies in the Stock-
holm area.

(3) OJ C 184, 1.7.2000, p. 10.

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(c) In the past, the Commission adopted a broader defi-
nition of
transport of goods’,
including, for example, the costs of transferring staff.

the ‘extra cost of

(d) The study commissioned by Sweden shows that, for
the companies included in the sample, the amount
of the additional distance-related costs per person
employed in companies in northern Sweden is much
higher than the average aid per person employed
granted under the scheme. There is therefore no risk
of the aid granted under the scheme overcompen-
sating for
additional distance-related costs
incurred by beneficiaries.

the

(e) The administrative costs of operating the aid scheme

are low.

a

(f) Norway operates

scheme, which has been
approved by the EFTA Surveillance Authority (ESA)
and which is similar to the Swedish reduced social
contributions aid scheme (namely the regionally
differentiated social security taxation scheme).

(19) Aid in any form whatsoever: under the scheme the aid is
provided in the form of a reduction in social contribu-
tions paid by employers for persons employed in under-
takings located in the eligible regions and engaged in
eligible sectors/activities.

(20) Aid granted by the Member State or through State resources:
employers' social security contributions are compulsory
payments from employers to the State. They are an
important source of revenue for the Swedish Govern-
the
In its notification, Sweden indicated that
ment.
operation of
the Swedish
the scheme would cost
Treasury SEK 313 734 000 (around EUR 36 634 000)
in foregone tax receipts in 2000.

(21) Aid: the effect of the scheme is to reduce the wage costs
of eligible undertakings. The benefits to an individual
undertaking resulting from the reduced social contribu-
tions will depend on the number of persons employed
in the undertaking and their salaries. Enterprises bene-
fiting from the reduced social contributions gain a
competitive advantage by being relieved of part of their
tax burden.

(22)

(23)

(24)

(17)

V. COMMENTS FROM INTERESTED PARTIES

In their letter,

The Norwegian Government was the only interested
party to submit comments. This was done by letter
dated 27 July 2000.
the Norwegian
authorities confirm that Norway operates a scheme that
is similar to the Swedish reduced social contributions
scheme and which was approved by the ESA in accord-
ance with Article 62 of and Protocol 27 to the EEA
Agreement. Many of
the arguments advanced by
Norway are similar to the arguments presented by
Sweden (namely those summarised under (a), (b), (d) and
(e) of recital 16. In addition, Norway argues that, so far,
no complaints have been received to the effect that the
Swedish reduced social contributions aid scheme or the
Norwegian regionally differentiated social security taxa-
tion scheme has distorted trading conditions. Further-
more, the Swedish scheme essentially covers companies
in the services sector, typically serving local markets.
Norway therefore concludes that it is unlikely that the
scheme has a significant effect on competition and EEA
trade.

VI. ASSESSMENT OF THE AID

The existence of aid

(18)

The Commission takes the view that the reduced social
contributions aid scheme constitutes State aid within the
meaning of Article 87(1) of the EC Treaty because it
satisfies all the conditions for the application of that
paragraph. The arguments are set out below.

The aid favours certain undertakings or the production of
certain goods: the Commission considers that the selec-
tivity criterion is satisfied because the aid is granted
exclusively to firms which are located in certain regions
(part of northern Sweden) and which are active in
certain sectors (mainly service activities).

The aid distorts or threatens to distort competition: the effect
of the scheme is to reduce the overall wage costs of
eligible undertakings. The exact benefit accruing to an
individual undertaking depends on the number of
persons employed in the undertaking and their salaries.
The aid has a direct effect on the production costs of the
eligible undertakings. The Commission must therefore
conclude that
the reduced social contributions aid
scheme is liable to enhance the ability of these enter-
prises to compete with enterprises in other Member
States. It is clear that the provision of advantages of this
nature to competitors which are located in certain
regions rather than others and which are active in
certain sectors
could distort
competition.

than others

rather

The aid distorts competition in so far as it affects trade
between Member States: in relation to an aid scheme of the
same type as
the reduced social contributions aid
scheme (as opposed to an ad hoc aid case), the European
Court of Justice has ruled that ‘In the case of an aid
programme the Commission may confine itself to exam-
ining the characteristics of the programme in question in
order to determine whether, by reason of
the high
amounts or percentages of aid, the nature of investments
for which aid is granted or other
the
programme, it gives an appreciable advantage to recipi-
ents in relation to their competitors and is likely to

terms of

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benefit undertakings engaged in trade between Member
States’ (1) (emphasis added). The reduced social contribu-
tions aid scheme is open to a number of service sectors.
It is also open to establishments of all sectors (2) that are
engaged in administrative activities that concern the
management of a company, business and wages admin-
istration, bookkeeping, automatic data processing, regis-
tration, telephone sales and order booking. It is therefore
clear that the scheme could also be applied to compa-
nies engaged in economic activities which are subject to
trade between Member States.

(30)

In view of the above, the Commission examined the aid
on the basis of Article 87(3)(c) EC. This examination has
given rise to the following observations.

(a) The reduced social contributions aid scheme is
targeted at low population density areas in the north
of Sweden. Its aim is to promote the development of
these areas and should therefore be examined on the
basis of the Guidelines on national regional aid (4);

The legality of the aid

(25)

The scheme was notified in accordance with Article
88(3) of the EC Treaty.

(b) The reduced social contributions aid scheme enables
the Swedish authorities to provide aid to individual
invest-
companies without reference to any initial
ment or job creation by the recipient
firms, as
required by point 4.4 of the guidelines on national
regional aid;

The compatibility of the aid

(26) Having established that the reduced social contributions
aid scheme constitutes State aid within the meaning of
Article 87(1) of the EC Treaty, the Commission has
examined it to see whether it qualifies for one of the
derogations in Article 87(2) and (3).

(27)

In the case of
the reduced social contributions aid
scheme, the Commission considers that the exemptions
provided for in Article 87(2) EC do not apply, since the
aid measure does not pursue any of the objectives listed
in that paragraph. In addition, Sweden did not argue
that this might be the case.

(28) Article 87(3)(a) EC does not apply, since, in 2000, no
part of Sweden qualifies for regional aid under that
provision (3).

(29) Aid under the scheme is not intended to promote the
execution of an important project of common European
interest or to remedy a serious disturbance in the
economy of a Member State, nor is it
intended to
promote culture or heritage conservation. The Commis-
sion therefore considers that neither Article 87(3)(b) EC
nor Article 87(3)(d) EC is applicable to the reduced
social contributions aid scheme. It should be pointed out
here that
the Swedish authorities have not claimed
exemption of the scheme on the basis of either of these
derogations.

(1) Case 248/84 Germany v Commission [1987] ECR 4013.
(2) With the exception of those to which special Community State aid

rules apply.

(3) The Swedish regional aid map for

the period 2000 to 2006,
aid N 639/1999
letter No SG(2000) D/103189 of 17 April 2000), does

approved by
(approval
not contain any regions eligible under Article 87(3)(a).

the Commission under

State

(c) The implication of this is that the scheme in ques-
tion enables the Swedish authorities to grant, in the
eligible area, aid intended to reduce the recipients'
normal current costs. Such aid constitutes ‘operating
aid’;

(d) In several communications, and more particularly in
its guidelines on national regional aid, the Commis-
sion has indicated that,
in view of its particularly
distortive effect, operating aid may be considered
compatible with the common market only in excep-
tional circumstances. Only two such exceptions are
mentioned in the guidelines:

— point 4.15 of the guidelines provides that such
aid may be granted in regions eligible under the
derogation in Article 87(3)(a). As mentioned in
recital 28 of this Decision, no area in Sweden
qualifies for this derogation. It can therefore not
be applied to the reduced social contributions
scheme,

— point 4.16 of the guidelines provides that aid
intended to offset additional transport costs may
be authorised in the outermost regions or the
regions of low population density qualifying for
exemption under
either Article 87(3)(a) or
Article 87(3)(c).

In its decision to initiate the Article 88(2) proce-
dure in respect of the Reduced Social Contribu-
tions aid scheme,
the Commission concluded
that the area eligible under the scheme qualifies
as a region of
low population density under
Article 87(3)(c).

(4) Guidelines on national regional aid (OJ C 74, 10.3.1998, p. 9 and

OJ C 258, 9.9.2000, p. 5).

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the above,

the Commission examined
In view of
whether the reduced social contributions aid scheme
satisfied the criteria regarding transport aid as laid
down in point 4.16 of and Annex II to the guidelines
on national regional aid. The results of this exam-
ination are set out in paragraph (e).

(e) The Commission considers that the reduced social
contributions scheme does not satisfy the following
conditions specified in point 4.16 of and Annex II to
the guidelines on national regional aid:

— footnote 37 of and the second indent of Annex
II to the guidelines specify that transport aid may
be given only in respect of the extra cost of
transport of goods,

— the first indent of Annex II to the guidelines
provides that the aid may serve only to compen-
sate for the additional cost of transport and that
there must never be overcompensation,

— the third indent of Annex II to the guidelines
requires that transport aid must be objectively
quantifiable in advance, on the basis of an
aid-per-kilometre ratio or on the basis of an
aid-per-kilometre
and an aid-per-unit-weight
ratio.

The amount of aid granted under the scheme to an
eligible undertaking does not bear any relation to the
additional transport costs actually incurred by that
particular undertaking. The aid granted depends on
the size of its wage bill, which depends in turn on the
number of persons employed and their average sala-
ries. It can therefore scarcely be argued that the aid is
‘objectively quantifiable in advance on the basis of an
aid-per-kilometre ratio or on the basis of an aid-per-
kilometre and an aid-per-unit-weight
ratio’. The
implication is also that it cannot be excluded that
there is overcompensation of the additional transport
costs in at least some cases.

service

Sweden tries to justify the aid granted under the
in
scheme by arguing that
northern Sweden have additional distance-related
costs compared with service companies in the Stock-
holm area. Sweden defines these distance-related
costs as travel and accommodation costs, telecom-
munications costs, and costs of management, training

companies

and other business services. This goes far beyond the
concept of ‘extra cost of transport of goods’, which
can be accepted as a justification for the granting of
transport aid according to the guidelines (footnote 37
and the second indent of Annex II). In addition, the
use of extra distance-related costs as defined by
Sweden as a basis for the granting of transport aid
does not provide any guarantee that
there is no
overcompensation of the extra cost of transport of
goods actually incurred by the recipients of the aid;

(f) The Commission considers that the criteria of harsh
weather conditions, low population density, remote-
ness and long distances are all
interrelated. Low
population density and long distances are largely a
consequence of the harsh weather conditions and
the remoteness of the areas concerned. The Commis-
sion recognises that, taken together, these factors
represent a significant handicap for the northern
regions of Sweden. This is why the guidelines on
national regional aid contain a number of special
provisions in favour of low population density areas
such as northern Sweden. The ability to grant trans-
port aid is only one of these special provisions made
in the guidelines in favour of this type of region. In
addition, point 3.10.4 of the guidelines facilitates
eligibility of low population density areas for the
regional derogation under Article 87(3)(c). Further-
more, point 4.10.8 of the guidelines enables Member
States to apply higher regional aid intensity ceilings
in low population density areas than is permitted in
other Article 87(3)(c) regions (with the exception of
the outermost regions). The Commission considers
that,
these arrangements provide
adequate compensation for the handicaps faced by
low population density regions;

taken together,

(g) Sweden has not argued that

the reduced social
contributions aid scheme falls within the scope of
the Guidelines on aid to employment (1). It may
nevertheless be possible to interpret aid granted
under the scheme as contributing to the mainte-
nance of jobs in the affected low population density
areas. The Commission has therefore analysed this
possibility. Point 22 of the guidelines allows the
Commission to authorise aid to maintain jobs, but
only if one of the following criteria is met:

— the purpose of the aid is to make good the
damage caused by natural disasters or excep-
tional occurrences in accordance with Article
87(2)(b) of the EC Treaty,

— the aid is limited to Article 87(3)(a) regions.

The Commission considers that neither of the two
criteria is met in the case of the reduced social contri-
butions aid scheme;

(1) Guidelines on aid to employment (OJ C 334, 12.12.1995, p. 4).

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research and development (1),

(h) The coverage of the reduced social contributions aid
scheme is not limited to R & D projects, training aid
measures, environmental protection projects or to
rescue and restructuring projects in conformity with
the provisions of the Community framework for
State aid for
the
framework on training aid (2),
the Community
guidelines on State aid for environmental protec-
tion (3) or the Community guidelines on State aid
for rescuing and restructuring firms in difficulty (4).
Nor is the scheme limited to small and medium-
sized enterprises as defined in the Community guide-
lines on State aid for SMEs (5). The Commission
therefore concludes that the reduced social contribu-
tions aid scheme does not qualify for the derogation
provided for in the above frameworks and guidelines
either.

In view of the above, the Commission concludes that the
reduced social contributions aid scheme does not qualify
for any of the derogations provided for under Article
87(3)(c).

(31) As to the other comments made by Sweden and by
Norway (see recitals 16 and 17, the Commission makes
the following observations.

(a) The fact

that Sweden considers that

impact on competition. However,

the scheme
constitutes an effective instrument to encourage the
establishment of service companies in the eligible
region underlines the fact that the scheme has a
significant
the
Commission is of the opinion that the fact that a
particular scheme is effective in terms of its impact
on regional development does not necessarily mean
that the scheme is also compatible with the Treaty.
Article 87(3)(c) EC provides that aid to facilitate the
development of certain economic areas may be
considered compatible only where such aid does not
adversely affect
trading conditions to an extent
contrary to the common interest;

In this context, the Court of Justice has
scheme.
ruled that ‘any breach by a Member State of an
obligation under the Treaty in connection with the
prohibition laid down in Article 92 cannot be justi-
fied by the fact that other Member States are also
failing to fulfil this obligation. The effects of more
than one distortion of competition on trade between
Member States do not cancel one another out but
accumulate and the damaging consequences to the
common market are increased’ (6);

(d) Finally,

that

the fact

the Commission adopted a
more flexible approach in its 1997 Decision on
appropriate measures regarding the predecessor of
the reduced social contributions aid scheme (E 8/
96) (7), which expired on 31 December 1999,
cannot be taken as a justification for approving the
modified successor scheme which is the subject of
the present Decision. In this connection, the Court
has ruled that a measure of general application
cannot be impliedly amended by an individual
decision and that such an individual decision cannot
be subsequently relied upon, on the basis of the
principles of equal treatment and the protection of
legitimate expectations, in order to justify a further
infringement of those rules (8).

(32) On the basis of the analysis presented in recitals 26 to
31, the Commission takes the view that the reduced
social contributions aid scheme does not qualify for any
of the derogations provided for in Article 87(2) and (3).
The Commission therefore concludes that the scheme is
incompatible with the common market.

(33)

This Decision does not affect the possibility for the
Member State of applying the rules on de minimis aid, to
assist non-economic activities or to grant aid which does
not affect trade between Member States, irrespective of
whether or not it is based on the notified reduced social
contributions aid scheme,

(b) Similarly, the Commission considers that the fact
that a particular aid scheme is easy or cheap to
implement is not relevant to the assessment of its
compatibility with the common market;

HAS ADOPTED THIS DECISION:

(c) The existence of a similar

scheme in Norway
(namely the regionally differentiated social security
reason to
taxation scheme)
approve the Swedish reduced social contributions

is not a sufficient

Article 1

(1) Community framework for State aid for research and development

(OJ C 45, 17.2.1996, p. 5).

(2) Framework on training aid (OJ C 343, 11.11.1998, p. 10).
(3) Community guidelines on State aid for environmental protection (OJ

C 72, 10.3.1994, p. 3).

The reduced social contributions aid scheme is incompatible
with the common market. Accordingly, it may not be imple-
mented.

(4) Community guidelines on State aid for rescuing and restructuring

firms in difficulty (OJ C 368, 23.12.1994, p. 12).

(5) Community guidelines on State aid for small and medium-sized

enterprises (OJ C 213, 23.7.1996, p. 4).

(6) Case 78/76 Steinike & Weinlig v Germany [1977] ECR 595.
(7) Commission letter No SG(97) D/6781 of 7 August 1997.
(8) Case C-313/90 Comité international de la rayonne et des fibres synthé-

tiques and others v Commission [1993] ECR I-1125.

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Sweden shall inform the Commission, within two months of notification of this Decision, of the measures
taken to comply with it.

Article 2

This Decision is addressed to the Kingdom of Sweden.

Article 3

Done at Brussels, 21 December 2000.

For the Commission

Mario MONTI

Member of the Commission