2002/780/EC: Commission decision of 28 February 2001 on the aid scheme "investment allowance" 1999, which Germany is planning to implement for certain undertakings in the new Länder, including Berlin (Text with EEA relevance.) (notified under document number C(2001) 668)
Date: 2001-02-28
Institutions: European Commission
Subjects: Berlin, German Democratic Republic, Germany, State aid, aid system, control of State aid, investment aid, tax system

19.10.2002

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Official Journal of the European Communities

L 282/15

COMMISSION DECISION

of 28 February 2001

on the aid scheme ‘investment allowance 1999’, which Germany is planning to implement for
certain undertakings in the new Länder, including Berlin

(notified under document number C(2001) 668)

(Only the German text is authentic)

(Text with EEA relevance)

(2002/780/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Com-
munity, and in the 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 those provisions (1), and having regard to their
comments,

Whereas:

I. PROCEDURE

(1)

(2)

On 13 October 1997, following its adoption by the
lower house of the German Parliament (Bundestag) and
its approval by the upper house (Bundesrat), Germany
notified the investment allowance 1999 for the new
Länder provided for in the Law on the Continuation of
Economic Assistance in the new Länder of 18 August
1997 (Gesetz zur Fortsetzung der wirtschaftlichen För-
derung in den neuen Ländern). The case was registered
under number N 702/97. At a meeting in Bonn on
16 January 1998 and at meetings in Brussels on 28 May
and 7 July 1998, and by memoranda dated 26 and
27 January, 19 June and 22 July 1998, Germany
provided further information on the scheme, including
studies running to several hundred pages on the socio-
economic situation in the new Länder.

By letter dated 30 December 1998, the Commission
informed Germany that
it had decided to initiate
Article 88(2) of the EC Treaty proceedings in respect of
certain aspects of the scheme (aid C 72/98) and to
approve other aspects of the Law provided that proceed-
ings on appropriate measures pursuant to Article 88(1)
of the Treaty were completed by 1 January 2000.

(3)

(4)

(5)

(6)

(7)

(8)

The Commission’s decision to initiate proceedings was
published in the Official Journal of the European Communi-
ties (2). The Commission called on interested parties to
submit their comments.

The comments which the Commission received from
interested parties were forwarded to Germany, which
gave its reactions to them by letter dated 18 December
2000.

Germany put forward its own comments by letters dated
8 April 1999, 26 April 1999, 28 May 1999, 14 July
1999, 25 October 1999, 14 February 2000, 27 April
2000, 18 January 2001 and 14 February 2001 and at
meetings held on 11 and 12 May 1999, 10 December
1999, 27 March 2000, 5 June 2000, 30 October 2000
and 18 January 2001.

By letter dated 25 October 1999, Germany submitted a
new notification (which was registered under N 671/
99). This concerned an increase in the aid rates for
certain types of initial investment begun after 31 Decem-
ber 1999.

supplemented,

The notification was
initially on
10 December 1999, by two letters which were handed
over at the meeting in Brussels and, subsequently, by
letters dated 27 January and 14 February 2000. By letter
dated 9 November 2000, the notification was amended
once again and the assistance rates in certain border
areas increased.

At meetings held on 27 March 2000, 5 June 2000 and
30 October 2000 and by letters dated 27 April 2000,
29 August 2000, 6 October 2000, 20 November 2000,
11 January 2001, 18 January 2001 and 14 February
2001, Germany provided additional
information
requested by the Commission.

( 1) OJ C 76, 19.3.1999, p. 2.

(2) See footnote 1.

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Official Journal of the European Communities

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(9)

During these proceedings, Germany amended the text
of the original Law which had prompted the Com-
mission to initiate proceedings (Article 1 of the Law on
the Continuation of Economic Assistance in the new
Länder of 18 August 1997, published in the Bundesge-
setzblatt 1997, Part I, No 59 of 25 August 1997, the
‘Investment Allowance Law 1999’) by means of two
new Laws (Article 8 of the Tax Adjustment Law 1999,
published in the Bundesgesetzblatt 1999, Part I, No 59
of 29 December 1999, which amended the Investment
Allowance Law 1999, and Article 1 of the Law of
20 December 2000 amending the Investment Allowance
Law 1999, published in the Bundesgesetzblatt 2000,
Part I, No 58 of 27 December 2000) (3).

(10)

In agreement with Germany, the Commission will not
deal here with aid being granted after 2003 (i.e. after the
period of validity of the German regional aid map has
expired).

II. DETAILED DESCRIPTION OF THE MEASURE FOLLOW-
ING THE AMENDMENTS MADE BY GERMANY IN THE CON-
TEXT OF THE FORMAL INVESTIGATION PROCEEDINGS
(C 72/98), THE APPROPRIATE MEASURES (E 5/98) AND THE
NEW NOTIFICATION (N 671/99)

(11) Under the Law, a tax allowance on investment is granted
for the acquisition and production of equipment and
buildings in firms established in the five new Länder and
Berlin (4).

rules are complied with. This applies to the following
sectors: ECSC sectors, shipbuilding, motor vehicle indus-
try, synthetic fibres, agriculture, fisheries and aquacul-
ture, and transport (5).

(15) The granting of the investment allowance to firms in
difficulty will be notified individually if the recipient
firm:

— does not meet the definition of SMEs,

— has received restructuring aid as a firm in difficulty,

— is in a restructuring phase (6).

(16) The investment allowance in respect of investment
coming under the multisectoral framework on regional
aid will be determined only when the Commission has
laid down the maximum authorised aid intensity (7).

(17)

Investment allowances may be granted to:

— firms involved in manufacturing industry or pro-

duction-related services (8),

— craft firms with no more than 250 employees (9),

— firms operating in the distributive trades in a town
centre with no more than 50 employees (10).

(12) The measure is a tax measure which in principle (see
recitals 14, 15 and 16) gives firms in all branches of the
economy entitlement to the granting of the investment
allowance.

(18) An investment allowance may be granted for the
acquisition and production of equipment (11) and build-
ings (12). The investment may be either initial investment
or replacement
investment (see recitals 20, 25, 26
and 27).

(13) The budget is set at EUR 2 to 2,5 billion a year.

(19)

In all cases, investment may receive assistance only if (13):

(14)

Firms in certain branches of the economy governed by
specific rules are eligible only if the relevant Community

— it was begun after 24 August 1997,

( 3) References to the individual articles in the Investment Allowance
Law 1999 are given in the footnotes; a single asterisk or two
asterisks indicate whether the articles were adjusted by the first or
second amending Law.

( 4) Article 1(2).

(5) Article 2(2) and (3), Annex 1* and**.
(6) Article 6(2)**.
(7) Article 6(2)*.
(8) Article 2(2)(1) and (3)(1).
(9) Article 2(2)(2) and (3)(2).
(10) Article 2(2)(3) and (3)(3).
(11) Article 2(2).
(12) Article 2(3).
(13) Article 2(4)*.

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L 282/17

— it was completed after 31 December 1998,

firm for five years or, if shorter, for its normal useful
life (20).

— it is completed before 31 December 2005 where
the firm is involved in manufacturing industry or
production-related services,

(25)

Initial investment

Different groups of recipients

— it is completed before 31 December 2002 where
the firm is a craft
firm with no more than
250 employees or a firm operating in the distribu-
tive trades in a town centre with no more than
50 employees.

—

(20) The only buildings eligible are those which comply with

the definition of initial investment (14) (15).

(21) The investment allowance amounts to:

— 10 % of the assessment basis in the case of initial
investment begun before 1 January 2000 (16),

— 12,5 % of the assessment basis in the case of initial
investment begun after 31 December 1999 (17),

— 5 % of the assessment basis in the case of initial
investment begun after 31 December 2000 in
certain border areas adjacent to the Czech Republic
and Poland (Interreg III) which do not form part of
the Berlin labour market region (18).

(22)

In all instances, economic goods to which the investment
allowance applies must remain in the firm for five years
or, if shorter, for their normal useful life (19).

(23) As noted in recitals 17 and 18, a distinction is made, in
the case of equipment, between initial investment and
replacement investment, firms involved in manufactur-
ing industry and firms involved in production-related
services with no more than 250 employees and other
recipient firms.

(24)

Equipment investment begun after 31 December 1999
in the
is eligible only if

the equipment

remains

in

involved

firms
manufacturing
and
industry
duction-related
vices with more than duction-
250 employees

firms involved
in manufactur-
industry
ing
pro-
and

pro-
ser-

related services
with no more
250
than
employees

— craft firms with no
250

than

more
employees

— firms operating in
the distributive trade
in a town centre with
no more than 50
employees

10 % (21)

20 % (22)

12,5 % (23)

20 % (24)

12,5 % (23)

25 % (25)

15 % (26)

27,5 %( 27)

Begun
before
1 January 2000

Begun
after
31 December
1999 in the
Berlin
labour
market region

Begun
after
31 December
1999

Begun
after
31 December
2000 in certain
border
areas
adjacent to the
Czech Republic
Poland
and
III)
(Interreg
forming
not
the
part
of
Berlin
labour
market region

( 14) First sentence of Article 2(3)*.
( 15) The term initial investment is defined in Article 2(8)*.
( 16) Article 2(6)(1)*.
( 17) Article 2(6)(2)*.
( 18) Article 2(6)(3)** and Annex 2.
( 19) First sentence of Article 2(2)(3)*.

(21) Article 2(6)(1)*.
(22) Article 2(7)(1)*.
(23) Article 2(6)(2)*.
(24) Article 2(7)(2)* and Article 10(4)**.
(25) Article 2(7)(2)*.
(26) Article 2(6)(3)**.
(27) Article 2(7)(3)**.

(20) Article 2 (1) and 2 (1)(2) and (2)(2) and (2)(3)*.

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(26) Replacement investment

Different groups of recipients

(30) The investment must have been begun after 24 August
than 31 December

1997 and completed no later
2003 (33).

—

in

involved

firms
manufacturing
and
industry
duction-related
vices with more than duction-
250 employees

firms involved
in manufactur-
industry
ing
pro-
and

pro-
ser-

related services
with no more
250
than
employees

— craft firms with no
250

than

more
employees

— firms operating in
the distributive trade
in a town centre with
no more than 50
employees

5 % (28)

10 % (29)

0

5 % (30)

Completed
before
1 January
2002

Completed
after
1 December
2001 and
before
1 January 2005

(28) Article 2(6)(4)**.
(29) Article 2(7)(4)**.
(30) Article 2(7)(4)**.

(27)

It should be noted that,
in the case of replacement
investment in the Land of Berlin, the allowance is granted
only in respect of investment completed before 1 January
2000 in East Berlin (operating aid is allowed only in that
part of Berlin) (31).

(28) With the exception of investment begun after 31 Decem-
ber 1999 in the Brandenburg municipalities of the Berlin
labour market region, the allowance may be granted in
all five new Länder.

(29) The investment allowance is granted in respect of the
acquisition and production costs of investment projects
completed in the relevant year, including advance pay-
ments and partial production costs incurred in the year.
Eligibility extends only to investment which was begun
after 24 August 1997 and completed before 1 January
in so far as the costs were incurred after
2005,
31 December 1998. The investment must be completed
before the end of 2005, and, in certain cases, before the
end of 2002 (32).

(31)

Investment is deemed to have been begun at the time
when the economic goods were ordered or a start was
made on producing them. Investment is deemed to have
been completed when the economic goods have been
acquired or produced (34).

(32) Aircraft and cars are not eligible (35).

III. SUMMARY

1. The doubts as to the compatibility of the originally
notified scheme with the common market which
prompted the Commission to initiate the informal
investigation procedure.

2. The appropriate measures proposed in the Com-

mission letter of 30 December 1998.

(33) The proceedings initiated by the Commission related to

the following aspects of the Law (aid C 72/98):

(a)

(b)

initial investment in Berlin after 31 December 1999
(no Commission decision had recognised Berlin as
eligible under Article 87(3)(a) or (c) of the EC
Treaty);

replacement investment. Here, the rules specifying
that operating aid must be degressive and limited
in time were not complied with. In addition, it was
unclear whether Berlin qualified after 1999 for the
derogations provided for in Article 87(3)(a) of the
EC Treaty or whether West Berlin qualified in 1999
for the derogations provided for in Article 87(3)(c)
and whether accordingly operating aid could be
deemed lawful;

(c)

compliance with the special rules on the granting
of investment aid for firms in sectors to which
specific Community rules apply or which, under
the criteria set out in the multisectoral framework
on regional aid, have to be notified individually;

( 31) Article 10(3)(2)*.
( 32) Article 2(5)*.

(33) Article 2(4)(2)* in conjunction with Article 10(1)*.
(34) Article 2(4)(2)*.
(35) Article 2(1).

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(d)

investment begun before publication of the Law on
25 August 1997 (there was at that time no apparent
need for the aid).

V. ACCEPTANCE OF THE COMMISSION’S COMMENTS AND
INCORPORATION OF ALL NECESSARY AMENDMENTS IN
THE LAW BY GERMANY

(34) The Commission authorised certain components of the
Law, including aid for initial investment in the five new
Länder up to the end of 2004 and for initial investment
in Berlin in 1999, in so far as the investment was begun
after 25 August 1997 and was not subject to special
Community rules or to the multisectoral framework.

(35)

Such authorisation was given subject to the condition
that appropriate measures pursuant to Article 88(1) of
the EC Treaty be implemented so as to bring the scheme
into line with the new regional aid guidelines as from
1 January 2000, particularly as regards:

(a)

the maintenance of the investment for a period of
five years;

(b)

compliance with the German regional aid map as
from 1 January 2000;

(c)

the requirement that there be an appropriate contri-
bution from the recipient amounting to 25 %;

(d)

the definition of the concept of initial investment.

(40) The amendments concern:

(a)

(b)

(c)

(d)

(e)

(f)

the inclusion of an explicit reference to the individ-
ual notification requirement provided for in the
multisectoral framework;

the inclusion of an explicit reference to the specific
Community rules applicable to the so-called sensi-
tive sectors;

the exclusion of aid for replacement investment
carried out in Berlin after 31 December 1999;

the restriction of the aid to investment begun after
25 August 1997;

compliance with the requirement that operating
aid be degressive and limited in time;

the granting of aid for investment begun after
31 December 2003 to be subject to approval of
the regional aid map by the Commission for the
subsequent period, and any aid granted must
comply with the regional aid map approved.

IV. COMMENTS FROM INTERESTED PARTIES AND COM-
MENTS FROM GERMANY

(36) The Commission received comments from several inter-

ested parties.

VI. ASSESSMENT OF THE MEASURE FOLLOWING THE
AMENDMENTS MADE BY GERMANY IN THE CONTEXT OF
THE FORMAL INVESTIGATION PROCEDURE (C 72/98), THE
PROPOSED APPROPRIATE MEASURES (E 5/98) AND THE
NEW NOTIFICATION (N 671/99)

(37) The main point made was that the notified scheme did
not take account of the specific features of certain
in
industries (breakfast cereals, synthetic fibres etc.);
some cases, specific examples of investment projects in
the new Länder were given to illustrate that the granting
of aid in these sectors has to be notified individually or
completely ruled out.

(38) Germany pointed out in its comments that the original
draft had been amended in order to take account of the
special Community rules governing certain industries.

(41)

Existence of aid

(42) The investment allowances provided for in the scheme
constitute state aid within the meaning of Article 87(1)
of the EC Treaty and Article 61(1) of the EEA Agreement,
since they assist investment by the recipient undertak-
including undertakings operating in sectors in
ings,
which there is trade between Member States. The
investment allowances affect
trade between Member
States and distort or threaten to distort competition by
favouring certain undertakings and the production of
certain goods.

(39)

It was also emphasised that the Law represented a
the obligations
reasonable
imposed by Community competition law and the
requirements of regional policy.

compromise between

(43) They are intended in particular for investment in the
new Länder and in Berlin and thus constitute regional
aid.

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(44)

Lawfulness of the aid

(45) By adopting the Law subject to approval by the Com-
mission as regards the State aid rules and by notifying
the scheme prior to its entry into force, Germany has
complied with its obligations under Article 88(3).

(46)

It must be examined whether the scheme is compatible
the EC Treaty in
with Article 87(3)(a) and (c) of
conjunction with the guidelines on national regional
aid (36).

1. Aid for initial investment

(53) Where the investment allowance is combined with other
public assistance under the joint Federal Government/
Länder scheme, the aid application must show whether
any other State financing has been applied for or granted.
The investment allowance is explicitly mentioned. The
amount applied for or already approved is taken into
account so that the aid ceiling is not exceeded. The
provision of incorrect information is punishable, and
partial repayment may be required as a result of ex post
checks (40).

(54) Where the investment allowance is combined with
strictly regional aid, each of the relevant Länder has given
an undertaking to the Commission that it will comply
if necessary
with the cumulation ceilings and will
provide supplementary explanations.

(47) This component of the scheme concerns initial invest-
ment within the meaning of point 4.4 of the guidelines.
What is involved is therefore investment-related aid.

(55) Aided investment begun after 31 December 1999 must
remain for at least five years in the recipient
firm;
however, if the normal useful life of the relevant asset is
shorter, such shorter period applies.

(48) The requirements

laid down in the Commission
decisions on the German regional aid map are complied
with.

(49) The investment must have been started after 24 August
1997 and no later than 31 December 2003 (37).

(50)

In agreement with Germany, the Commission will not
express an opinion here on aid granted after 2003 (i.e.
after the period of validity of the German regional aid
map has expired). Aid will be granted for investment
begun after 31 December 2003 only after approval of
and in line with the regional aid map for the period
subsequent to that date (the German map was approved
only up to the end of 2003) (38).

(51) As regards investment begun after 31 December 1999
and before 31 December 2003, it should be noted that
the maximum intensities for investment aid provided
for in the German regional aid map are complied with.
Since 1 January 2000, the maximum aid rate in Berlin
and in the Brandenburg municipalities of the Berlin
labour market region is 20 % net and in the other new
Länder 35 % net (39).

(52) The rules on the cumulation of aid are complied with.

(56) The requirement that the recipient must make a mini-
mum contribution of his own is complied with, since all
the other aid schemes in the new Länder contain this
provision.

(57) The special Community rules applicable to specific
sectors are complied with, as is the multisectoral frame-
work and the rules applicable to firms in difficulty.

2. Aid for replacement investment

(58) The requirements

laid down in the Commission
decisions on the German regional aid map are complied
with.

(59) The investment must have been commenced after
24 August 1997 and no later than 31 December
2003 (41).

(60)

It should be emphasised here that, in agreement with
Germany, the Commission will not at present express
any view on aid granted after 2003.

( 36) OJ C 74, 10.3.1998, p. 9.
( 37) Article 2(4)(2)* in conjunction with Article 10(1)*.
( 38) Article 10(1)*.
( 39) Article 2(6) and (7)* and **.

(40) Point 2.5.1 of the 29th Framework Plan and point 2.5 of the
28th Framework Plan of the joint Federal Government/Länder
scheme for improving regional economic structures; points 7
and 3.8.1 of the declaration form.

(41) Article 2(4)(2)*.

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(61) Aid will be granted for investments commenced after
31 December 2003 only following approval of and in
line with the German regional aid map for the sub-
sequent period (the current regional aid map was
approved only up to the end of 2003) (42).

(69) As far as the contribution to regional development and
the nature of the aid granted are concerned, operating
aid is granted only in the form of aid for replacement
investment carried out in one of the new Länder.

(62)

In the case of replacement investment carried out in
Berlin, the aid is restricted to investment completed
before 1 January 2000 in East Berlin (operating aid is
allowed only in that part of Berlin) (43).

(70)

It is thus ensured that:

(63) The operating aid will now be provided in such a way as
to be degressive and limited in time (up to the end of
2004).

(64)

It should be noted in particular that the Federal Govern-
ment gave an assurance, in a letter dated 16 February
2001, that the granting of the investment allowance in
respect of replacement investment by firms with no
more than 250 employees will not be extended beyond
the investment completed before 1 January 2005. In the
same letter, the Federal Government confirmed that the
granting of
the investment allowance in respect of
replacement investment by firms with more than 250
employees will remain limited to investment which was
completed before 1 January 2002.

(65)

In its decision to initiate the formal investigation pro-
cedure, the Commission recognised the difficult socio-
economic situation which continues to exist in the new
Länder; it noted that the aid seemed justified in the light
of other economic indicators (GDP, unemployment rate,
export ratio and labour productivity).

(66) As the Commission has acknowledged in a number of
its decisions, the main handicap for East German firms
is their significant lack of equity resources.

(67)

It should also be noted that the aid intensities are well
below those granted in the case of initial
investment
and consequently the part of the budget allocated to
replacement investment will probably be much smaller
than that for initial investment.

(68)

In its decision to initiate the formal investigation pro-
cedure, the Commission did not raise any objections
the aid to
regarding the nature or contribution of
regional development.

(a)

the aid relates to an activity actually carried out in
the region and is proportionate to that activity,

(b)

the aid is not directed at all firms, but only at those
which invest in the renewal or modernisation of
the regional productive apparatus,
i.e. the only
firms which need aid,

(c)

any impact of the aid in terms of prompting the
relocation of firms established in other Community
regions should remain insignificant.

(71) The special Community rules applicable to specific
sectors are complied with, as are the multisectoral
framework and the rules applicable to firms in difficulty.

VII. CONCLUSION

(72) The Commission finds that the doubts as to the compati-
bility of the originally notified measure with the com-
mon market have been dispelled as a result of the
changes made since the initiation of the formal investi-
gation procedure.

(73) The Commission finds that the measure as renotified
(and registered under number N 671/99) does not give
rise to any doubts as to its compatibility with the
common market.

( 42) Article 10(1)*.
( 43) Article 10(3)(2)*.

(74) The scheme is therefore compatible with the common
market under Article 87(3)(a) of the EC Treaty in the
case of the five new Länder and under Article 87(3)(c) in
the case of the Land of Berlin,

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HAS ADOPTED THIS DECISION:

Article 2

Article 1

Done at Brussels, 28 February 2001.

This Decision is addressed to the Federal Republic of Germany.

The State aid scheme ‘investment allowance 1999’ which
Germany is planning to implement is compatible with the
common market within the meaning of Article 87(3) of the
EC Treaty until 31 December 2003.

Implementation of this aid scheme is accordingly authorised
for the period up to 31 December 2003.

For the Commission

Mario MONTI

Member of the Commission