State aid — United Kingdom — State aid No C 42/2004 (ex N 350/2004) — ‘Business Premises Renovation Allowances (BPRA)’ — Invitation to submit comments pursuant to Article 88(2) of the EC TreatyText with EEA relevance
Date: 2005-03-05
Institutions: European Commission
Subjects: State aid, United Kingdom, control of State aid, industrial plot, investment aid, stamp duty, tax relief

C 56/38

EN

Official Journal of the European Union

5.3.2005

STATE AID — UNITED KINGDOM

State aid No C 42/2004 (ex N 350/2004) — ‘Business Premises Renovation Allowances (BPRA)’

Invitation to submit comments pursuant to Article 88(2) of the EC Treaty

(2005/C 56/06)

(Text with EEA relevance)

By means of the letter dated 1 December 2004 reproduced in the authentic language on the pages
following this summary, the Commission notified the United Kingdom of its decision to initiate the proce-
dure laid down in Article 88(2) of the EC Treaty concerning the abovementioned aid scheme.

Interested parties may submit their comments on the measure in respect of which the Commission is initi-
ating the procedure within one month of the date of publication of this summary and the following letter,
to:

European Commission
Directorate-General for Competition
State Aid Greffe
B-1049 Brussels
Fax (32-2) 296 12 42

These comments will be communicated to the United Kingdom. Confidential treatment of the identity of
the interested party submitting the comments may be requested in writing, stating the reasons for the
request.

TEXT OF SUMMARY

By letter dated 6 August 2004, registered by the Commission
on 10 August 2004, the UK authorities notified the Business
Premises Renovation Allowances scheme.

qualifying business premises in the designated disadvantaged
areas. The notified scheme is primarily focussed on investment.
According to the regional aid guidelines, aid for investment in
disadvantaged areas may be compatible with the common
market, but only if certain conditions are satisfied.

Description of the scheme

The scheme would provide qualifying businesses (owners/occu-
piers) with capital allowances in respect of the capital costs
in renovating or converting business
they actually incur
premises that have been vacant for a year or longer and that
are situated in one of the 2,000 designated disadvantaged areas
of the UK, in order to bring those premises back into produc-
tive use.

State aid character of the scheme

The Commission considers, at this stage of the procedure, that
the measure constitutes State aid within the meaning of Article
87(1) of the EC Treaty.

Procedural considerations

The UK has complied with the procedural requirements of
Article 88(3) EC by notifying the abovementioned aid scheme
before putting it into effect.

Assessment of the compatibility of the aid measure

The capital allowances are granted in relation to the capital
costs occurred for renovating or converting into productive use

On the basis of a preliminary assessment, the Commission
concludes that the proposed scheme does not fall within the
scope and field of application of the existing guidelines, frame-
works or regulations. The Business premises renovation allow-
ances scheme is focused on deprived areas for which, at
present, no guidelines or frameworks exist.

Accordingly, it is necessary to examine if the notified scheme
could qualify for one of the exemptions laid down in Article
87(3) of the EC Treaty. In order to do so, the Commission has
assessed whether the measure proposed by the UK is necessary
and proportionate to the stated objective and does not distort
competition to an extent contrary to the common interest.

In the past, the Commission has expressed the opinion that the
rehabilitation of brownfield sites contributes to important Com-
munity objectives. The Commission believes that the renova-
tion or conversion of empty business premises in order to
bring them back into productive use as proposed by the UK by
means of the notified measure could also be considered as a
rehabilitation measure and would therefore, in general, contri-
bute to Community objectives.

5.3.2005

EN

Official Journal of the European Union

C 56/39

However, the Commission believes that, at this stage, further
analysis is required in order to judge the appropriateness and
proportionality of the Business Premises Renovation Capital
Allowances. This is underlined by the following facts:

— According to the data provided by the UK authorities, 85 %
of all relevant expenditure in the UK is undertaken by
larger businesses and only 15 % by SMEs. Although the
scheme is open for all enterprises regardless of their size,
the main beneficiaries of the BPRA will mainly be large
businesses.

— However, the UK authorities have stated that even in those
cases where large companies own the business premises,
SMEs would nevertheless be able to benefit
from the
measure indirectly as they are often renting business outlets
from large enterprises. This is underlined by data provided
by the UK indicating that of new leases taken out on
premises vacant for more than one year, 31 % are by large
businesses and 69 % by SMEs. For the most deprived areas
according to the definition of the UK, the respective figures
are 26 % for large enterprises and 74 % for SMEs.

— The Commission notes that the notified measure is not
restricted to small and medium-sized companies within the
Commission definition. Furthermore, the Commission also
notes that the scheme is not restricted to assisted areas
pursuant to Article 87(3)(a) or Article 87(3)(c) of the EC
Treaty.

It deviates from the standard practice of

— The use of the 2 000 designated most deprived areas of the
UK as target area of the notified measure raises the same
issues as already in the case of the Stamp duty exemption
scheme.
the
Commission when dealing with regional aid. The Commis-
sion continues to believe that such a deviation needs to be
justified in order to avoid that beneficiaries in areas which
are not designated as assisted areas according to Article
87(3)(a) areas and/or Article 87(3)(c) areas receive a dispro-
portionate economic advantage adversely affecting trading
conditions to an extent contrary to the common interest.

— Furthermore,

in approving the Stamp duty exemption
scheme on the basis of the specific merits of this scheme,
the Commission imposed a number of conditions. Amongst
others, the Commission decided that monitoring needed to
be ensured and that the beneficial effects of the scheme on
physical
regeneration and notably on brownfield sites
needed to be demonstrated. The Commission so far has not
received any ex-post analysis enabling it to assess the bene-
ficial effects of the scheme.

40 % net in case of unincorporated businesses and up to
30 % net in case of companies, respectively.

The Commission, after a first preliminary assessment of the
measure, therefore has doubts whether the measure proposed
by the UK is proportionate to the objective and does not
distort competition to an extent contrary to the common
interest. The Commission is of the opinion that a more thor-
ough analysis of
this complex question is necessary. The
Commission wishes to collect information from other inter-
ested parties. To do so, the Commission must, for legal reasons,
open the procedure provided for in Article 88(2) of the EC
Treaty. It is only with the help of such observations that the
Commission can decide whether such aid is necessary and does
not adversely affect trading conditions to an extent contrary to
the common interest.

TEXT OF LETTER

‘The Commission wishes to inform the United Kingdom that,
having examined the information supplied by your authorities
on the aid measure referred to above, it has decided to initiate
the procedure laid down in Article 88(2) of the EC Treaty.

1. PROCEDURE

1. By letter dated 6 August 2004, registered by the Commis-
sion on 10 August 2004, the UK authorities notified a
scheme providing qualifying businesses with favourable
in
depreciation allowances (called “capital allowances”)
respect of the capital costs the owners or occupiers actu-
ally incur in renovating or converting business premises
that have been vacant for a year or longer and that are
situated in designated disadvantaged areas. A request for
information aiming at clarifying some points of the notifi-
cation was sent on 2 September 2004 (D/56282). The UK
authorities replied by letter dated 4 October 2004. The
latter was registered by the Commission on 18 October
2004 (A/37971).

2. DESCRIPTION OF THE AID MEASURE

2. Aim of the measure

the redevelopment of brownfield sites,

The aim of the measure is to foster physical, economic and
social regeneration of so-called pockets of deprivation (1),
to support
to
increase private investment, enterprise and employment in
the UK's most deprived communities by means of bringing
empty for a year or longer-term derelict shops or business
property back into productive use. Such scheme is part of
the UK Government's integrated approach to tackling the
range of
its most
deprived communities face.

regeneration market

failures

that

— Although the UK authorities state that

the average aid
intensity would be between 9 % and 10 % net, maximum
aid intensities under the notified measure can reach up to

(1) The expression “pockets of deprivation” refers to the incidence of

deprived communities, often close to prosperous areas.

C 56/40

EN

Official Journal of the European Union

5.3.2005

3. The form and nature of the aid

7. Budget of the scheme

The notified aid takes the form of capital allowances.
Capital allowances enable the capital costs, which a busi-
ness actually incurs in the renovation or the conversion of
empty or derelict for a year or longer business premises in
order to bring them back into productive use,
to be
written off against a business's taxable profits. They take
the place of depreciation charged in the commercial
accounts, which is not allowed for tax purposes. The noti-
fied measure would provide the 100 % first year allowance
(FYA) and 25 % writing-down allowance (WDA) for capital
expenditure on renovating vacant commercial buildings, so
the relief would be available for:

(a) expenditure that already qualifies for allowances under
the plant and machinery regime (at 25 % WDAs per
annum or 40 % FYAs (2)) or under
the industrial
building regime (at 4 % WDAs per annum); and

(b) expenditure that does not currently qualify for any
relief, for example, expenditure on alterations to the
fabric of non-industrial, commercial buildings (shops,
offices).

In the case of expenditure falling under head (b), the noti-
fied measure would therefore constitute a new relief (at
100 % FYAs and 25 % WDAs per annum), as currently
commercial buildings do not qualify for capital allowances.
In the case of expenditure falling under head (a), the effect
of the measure would be the increased rate of allowance.

The new relief, according to the UK authorities, would
operate mainly as a tax deferment benefit and only partly
as a potential new relief against a business's taxable profits.

4. Eligible costs and aid intensity

To be eligible for the BPRA scheme, the empty premises
would have to have lain unused for a year or longer and
must be situated in one of the 2 000 designated most
deprived areas of
the UK — the so-called “designated
disadvantaged areas”.

5. Geographical coverage of the scheme

The “designated disadvantaged areas in the UK”, on which
the notified BPRA is targeted, have been selected on the
basis of the “indices of multiple deprivation (IMD)” devel-
oped for each of
the UK. This is a
four regions of
combined index covering six domains of deprivation
(income, employment, health, education, housing and
access to services). The analysis has been applied at a very
low geographical level (i.e. at the level of electoral wards,
divisions or postcodes). The present list of eligible areas
has been set out
in “The Stamp Duty (Disadvantaged
Areas) Regulations 2001”.

6. Beneficiaries

The scheme applies to undertakings of any size and oper-
ating in any sector of the economy.

(2) A 40 % rate FYA is available to small and medium sized enterprises

(SMEs), but not to large business.

The estimated overall revenue losses, due to tax conces-
sions for the five year period of the scheme, are about
GBP 135 million (ca. EUR 205 million).

8. Legal basis of the scheme

Primary legislation:

— Capital allowances: renovation of business premises in
disadvantaged areas (“Business Premises Renovation
Allowances (BPRA)”) — when enacted, this legislation
will be inserted into Capital Allowances Act 2001.

Secondary legislation:

— SI 3747/2001 The Stamp Duty (Disadvantaged Areas)

Regulations.

9. Duration of the scheme

2005 — 2010

3. ASSESSMENT OF THE AID MEASURE

10. In accordance with Article 6(1) of Council Regulation (EC)
No 659/1999 of 22 March 1999, the decision to initiate
proceedings shall summarise the relevant issues of fact and
from the
law, shall
include a preliminary assessment
the proposed
Commission as to the aid character of
measure, and shall set out the doubts as to its compatibility
with the common market.

11. Procedure

The UK authorities have complied with the procedural
requirements of Article 88(3) of the EC Treaty by notifying
the abovementioned aid scheme before putting it
into
effect.

12. The existence of aid

The Commission considers, at this stage of the procedure,
that the measure constitutes State aid within the meaning
of Article 87(1) of the EC Treaty, and this for the following
reasons:

— State resources are involved because tax is foregone.

— The measure is selective because it is targeted upon

particular geographical areas.

— The measure will

reduce the costs for companies
investing in the renovation or the conversion into
productive use of empty or derelict business premises
in the eligible areas. It will therefore provide an advan-
tage to such companies over other companies investing
in other areas, and therefore not receiving the exemp-
tion.

5.3.2005

EN

Official Journal of the European Union

C 56/41

— Because

capital allowances apply to all business
premises which have been renovated or converted into
productive use in the designated areas it will, among
inevitably benefit undertakings which are
others,
engaged in inter-State trade, or in a business sector in
which there is
the
scheme does not provide that the limits laid down in
Council Regulation (EC) No 69/2001 of 12 January
2001 on the application of Articles 87 and 88 of the
EC Treaty to de minimis aid will be respected. Accord-
ingly, the new exemption may give rise to aid which
affects competition in inter-State trade.

inter-State trade. Furthermore,

13. Exemption grounds

(a) Article 87(2) of the EC Treaty lists certain types of aid
that are compatible with the EC Treaty. In view of the
nature and purpose of the aid, and the geographical
coverage of the scheme, the Commission considers, at
this stage of the analysis, that the subparagraphs (a),
(b) and (c) are not applicable to the measure in ques-
tion.

(b) Article 87(3) of the EC Treaty specifies other forms of
aid, which may be regarded as compatible with the
common market. In view of the nature and purpose of
the aid measure and its geographical
the
Commission considers, at this stage of the investiga-
tion, that the subparagraphs (a),
(d) and (e) of
(b),
Article 87(3) are not applicable either.

scope,

(c) In the notification the UK authorities appear to agree
with the above analysis and suggest that the question
is whether the aid measure is compatible with the
common market on the basis that it will facilitate the
development of certain economic areas and it will not
adversely affect
to an extent
trading conditions
contrary to the common interest (Article 87(3)(c) of
the EC Treaty).

(d) The coverage of the notified measure is not limited to
small and medium-sized enterprises (SMEs), nor to
firms in difficulty, nor to any one of the following
activities: R&D, environmental protection, training, the
creation or maintenance of employment. Therefore,
the Commission considers, at this stage of the analysis,
that the notified measure can not be declared compa-
tible with the common market on the basis of its
conformity with any of
the following regulations,
frameworks or guidelines:

— Community guidelines on State aid for rescuing
and restructuring firms in difficulty (OJ C 244,
1.10.2004, p. 2);

— Community framework for State aid for research
and development (OJ C 45, 17.2.1996, p. 5 and OJ
C 111, 8.5.2002, p. 3);

— Commission Regulation (EC) No 68/2001 of 12
January 2001 on the application of Articles 87 and
88 of the EC Treaty to training aid (OJ L 10,
13.1.2001, p. 20) and Commission Regulation (EC)
No 363/2004 of 25 February 2004 amending
Regulation (EC) No 68/2001 on the application of
Articles 87 and 88 of the EC Treaty to training aid
(OJ L 63, 28.2.2004, p. 20);

— Commission Regulation (EC) No 2204/2002 of 12
December 2002 on the application of Articles 87
and 88 of the EC Treaty to State aid for employ-
ment (OJ L 337, 13.12.2002, p. 3).

(e) The notified scheme could not be declared compatible
with Commission Regulation (EC) No 70/2001 of 12
January 2001 on the application of Articles 87 and 88
of the EC Treaty to State aid to small and medium-
sized enterprises (OJ L 10, 13.1.2001, p. 33) and
Commission Regulation (EC) No 364/2004 of 25
February 2004 amending Regulation (EC) No 70/2001
as regards the extension of its scope to include aid for
research and development (OJ L 63, 28.2.2004, p. 22)
either. In order for the aid to be in line with the provi-
sions of the latter Regulations,
it should be directed
exclusively to SMEs respecting the foreseen maximum
aid intensity. The scheme is not restricted to SMEs.
Moreover, according to the data provided by the UK
authorities, 85 % of all capital expenditure in the UK is
undertaken by larger businesses and 15 % by SMEs.
Thus, although the scheme would be open for all
enterprises, regardless of their size, it seems that the
real immediate beneficiaries of the BPRA will mainly
be large businesses.

(f) In the notification the UK authorities indicate that the
aim of the measure is twofold: to promote the regional
development and the environmental protection of
disadvantaged areas in the UK. With regards to the
environmental protection objective, the scheme cannot
be assessed on the basis of the Community guidelines
on State aid for environmental protection (OJ C 37,
3.2.2001, p. 3):

— The measures cannot be qualified as any action
designed to remedy or to prevent damage or to
the resources as
encourage the efficient use of
defined in point 6 of the abovementioned guide-
lines.

— The investments concerned cannot be qualified as
strictly necessary in order to meet environmental
objectives intended to reduce or eliminate pollution
and nuisances or for the rehabilitation of polluted
industrial sites as defined respectively in points 36
and in 38 of the environmental protection guide-
lines.

— The measures cannot satisfy the rules applicable to
tax reductions as

operating aid in the form of
defined in point E.3.2.

(g) The primary objective of the measure, as indicated by
the UK authorities, is to promote the regional develop-
ment. Therefore, the Commission has examined the
compatibility of the measure on the basis of the Guide-
lines on national regional aid (OJ C 74, 10.3.1998, p.
9), hereinafter referred to as the “regional aid guide-
lines”. The results of this analysis are presented below.

14. Conformity with the regional aid guidelines

the notified scheme is

The capital allowances are granted in relation to the capital
costs occurred for renovating or converting into produc-
tive use qualifying business premises in the designated
disadvantaged areas. In its notification the UK authorities
argue correctly that
therefore
primarily focussed on investment. According to the
regional aid guidelines, aid for investment in disadvantaged
areas may be compatible with the common market, but
only if certain conditions are satisfied. At this stage of the
examination,
the Commission has doubts whether the
notified scheme respects the conditions set out in these
guidelines:

C 56/42

EN

Official Journal of the European Union

5.3.2005

regional aid under

14(1) By letter No SG(2000) D/106293 of 17 August
2000, the Commission approved the UK regional
aid map for the period 2000 to 2006 (N 265/
the areas eligible for
2000). The map defines
national
the derogations of
Article 87(3)(a) and (c) of the EC Treaty. The Article
87(3)(a) EC Treaty regions included in the map were
defined on the basis of EU-wide criteria (NUTS level
II regions with a GDP per capita in PPS lower than
75 % of
the Community average). The Article
87(3)(c) EC Treaty areas were selected on the basis
of geographical units and social and economic indi-
cators, proposed by the UK authorities themselves.
The business premises capital allowances will apply
to costs qualifying as capital assets occurred for
renovation or conversion into productive use of
business premises situated in the so-called “desig-
nated disadvantaged areas”, which have been
defined on the basis of different geographical units
and indicators (see point 5 above). The result of this
approach is that a number of areas eligible under
the notified measure does not fall within the areas
eligible for regional aid as defined in the present UK
regional aid map.

14(2) Although the Commission has already dealt with
this issue in the State aid C 13/2002 Stamp duty
exemption for non-residential property in disadvantaged
areas (3), being the latter scheme targeted precisely
on the same disadvantaged areas, doubts whether
the geographical coverage of the business premises
capital allowances is compatible with the regional
aid guidelines persist. The concern is still based on
the fact that the approval of the scheme, including
the list of “designated disadvantaged areas” would in
effect lead to a widening of the UK regional aid
map. In turn, this would undermine the concentra-
tion of regional aid areas, which is a leading prin-
ciple of the Community's regional aid policy (4).

Initial

investment

14(3) In order for the aid to be acceptable in assisted
areas,
it has to promote the development of the
less-favoured regions by supporting either initial
investment
to establishments located in regions
eligible for regional aid or job creation that is linked
to investment (5).
is defined in
point 4.4 of the guidelines as “an investment in
fixed capital relating to the setting-up of a new
establishment, the extension of an existing establish-
ment, or the starting-up of an activity involving a
fundamental change in the product or production
process of an existing establishment (through ratio-
nalisation, diversification or modernisation).” The
UK authorities were not able to remove
the
Commission's doubts as to whether expenditure
incurred under the BPRA would constitute “initial
investment” in all circumstances within the meaning
of point 4.4 of the regional aid guidelines.

(3) L 149, 17.6.2003, p. 18.
(4) In this context the Guidelines on national regional aid point out
that regional aid “… is conceivable in the European Union only if it
is used sparingly and remains concentrated on the most disadvan-
taged regions. 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”.
(5) Point 4.1 of the regional aid guidelines.

14(4) Section 360B of the draft Schedule 1 “Capital allow-
ances: renovation of business premises in disadvan-
taged areas” allows the application of the notified
depreciation rules in relation to:

(a) the conversion of a qualifying building into

qualifying business premises,

(b) the renovation of qualifying building if it is or

will be qualifying business premises,

(c) or repairs to a qualifying building or, where the
qualifying building is part of a building, to the
building of which the qualifying buildings forms
part, to an extent that the repairs are incidental
to expenditure within paragraph (a) or (b).

The Commission is not able, at this stage of the
analysis, to conclude that work for conversion and
renovation falls without a doubt under the defini-
tion of initial investment as given above. Especially
the words repair and renovation linguistically point
out the direction of replacement investment, which,
for the Commission falls under the definition of
the
operating aid. According to point 4.15 of
regional aid guidelines operating aid is aimed at
reducing a firm's current expenses. Cases in point as
given by the regional aid guidelines are replacement
investments (6).

14(5) Point 5.4. of the regional aid guidelines provides
that regional aid schemes are approved by the
Commission, subject to the aid intensity ceilings and
the duration defined in the regional aid map. The
scheme intends to operate until 2010 and the UK
authorities do not plan to modify it
the
regional aid rules that come into force on 1 January
2007.

to fit

14(6) Point 4.18 specifies

is

the total amount of
that
regional investment aid should respect the aid inten-
sity ceilings set out in the regional aid map. In the
notification, the UK argues that the intensity of the
estimated around 9-10 % NGE (7).
scheme
According to the UK authorities, this would be the
most likely case based on experience gained in tax
offices in the UK, assuming that about 50 % of all
expenditure on renovation will go to integral plant
and machinery, 40 % to commercial buildings and
the remaining 10 % will be on industrial buildings.
However, the maximum aid intensity up to 40 %
NGE could be reached in case of unincorporated
business and up to 30 % NGE in case of companies.
The UK authorities claim that the likelihood of such
maximum aid intensities is very slim, as this would
assume that all the company's expenditure should
be on the commercial building, i.e. on renovations
for which no allowances are currently available,
with no expenditure on integral plant
and
machinery which all qualify for capital allowances
under the current regime for plant and machinery.

(6) Footnote 21 of the regional aid guidelines, p. 14.
(7) NGE: Net Grant Equivalent.

5.3.2005

EN

Official Journal of the European Union

C 56/43

14(7) The Commission has doubts as to whether the
“theoretical” maximum aid intensities would rarely
apply in practice. The definition of refurbishment is
based on fiscal rules on capital expenditures as well
as on the associated accountancy rules and it does
not seem that plants that become an integral part of
the buildings, such as lifts, heating systems, water
and waste water
alarm and security
services,
systems, fire fighting/prevention systems and wiring
associated with or ancillary to any of the foregoing
could be kept separately from a building. In view of
the more used general accountancy rules this kind
of plants should become part of the building and,
therefore, all the capital costs will qualify for capital
allowances under
the notified business premises
renovation allowances scheme.

in the production, processing

14(8) Point 2 of the regional aid guidelines provides that
the granting of (regional) State aid in certain sectors
(transport, shipbuilding, fisheries and coal) is subject
to specific restrictions. The Guidelines on national
regional aid excludes specifically from its scope the
production, processing and marketing of Annex I
products. Therefore any aid granted to undertakings
operating
and
marketing of Annex I products is to be assessed
according to the Community Guidelines for State
aid in the agriculture sector (8). In addition, pursuant
to the provisions of the Multisectoral Framework
(MSF 2002) (9), no regional aid may be granted in
the
and a
maximum aid intensity of 30 % of the regional aid
in the motor
ceiling applies for an investment
vehicle sector that exceeds an aid amount above
EUR 5 million. According to the notification, sensi-
tive sectors are not excluded from the scope of the
It is unclear though how the UK
BPRA scheme.
authorities will ensure that the aid granted under
the notified scheme to companies engaged in the
abovementioned specific sectors will comply with
the applicable special State aid rules.

and steel

synthetic

sectors,

fibres

14(9) Finally, the incentive of the measure can be ques-
tioned,
as businesses might deliberately keep
premises vacant for a year and forgo the income
that could be generated by making use of these
premises in order to benefit from BPRA.

15. In the light of what has been said above, the Commission
concludes that the proposed scheme does not fall within
the scope and field of application of the existing guidelines,
frameworks or regulations. The Business premises renova-
tion allowances scheme is focused on deprived areas for
which, at present, no guidelines or frameworks exist.

16. The former Guidelines on State aid for undertakings in
deprived urban areas (10), which expired in 2002, would
not have covered this kind of measure either. However, the
Commission Notice on the expiry of the guidelines on

(8) OJ C 28 of 1.2.2000, p. 2.
(9) Multisectoral Framework on regional aid for

large investment
projects, OJ C 70 of 19 March 2002, p. 8, as amended by the
“Commission communication on the modification of the Multisec-
toral Framework on regional aid for large investment projects
(2002) with regard to the establishment of a list of sectors facing
structural problems and on a proposal of appropriate measures
pursuant to Article 88(1) of the EC Treaty, concerning the motor
vehicle sector and the synthetic fibres sector”, OJ C 263 of 1
November 2003, p. 3.
(10) OJ C 146, 14.5.1997, p. 6.

State aid for undertakings in deprived urban areas (11)
provides that the non-prolongation of the guidelines does
not imply that state aid for deprived areas would no longer
be possible and, depending on specific circumstances of
the proposed aid in question, it may be approved directly
upon the basis of Article 87(3) of the EC Treaty.

17. Accordingly,

it

is necessary to examine if

the notified
scheme could qualify for one of the exemptions laid down
in Article 87(3) of the EC Treaty. In order to do so, the
Commission has assessed whether the measure proposed
by the UK is necessary and proportionate to the stated
objective and does not distort competition to an extent
contrary to the common interest.

18. Compatibility with Article 87(3) of the EC Treaty

18(1) In the past,

the Commission has expressed the
opinion that the rehabilitation of brownfield sites
contributes to important Community objectives (12).
Brownfield has been defined as land and/or build-
ings in urban or rural areas that have previously
been developed, but
that are not currently in
use (13). The Commission believes that the renova-
tion or conversion of empty business premises in
order to bring them back into productive use as
proposed by the UK by means of
the notified
measure could also be considered as a rehabilitation
measure and would therefore, in general, contribute
to Community objectives.

18(2) However, the Commission believes that at this stage
further analysis is required in order to judge the
appropriateness and proportionality of the Business
Premises Renovation Capital Allowances. This is
underlined by the following facts:

— According to the data provided by the UK
authorities, 85 % of all relevant expenditure in
the UK is undertaken by larger businesses and
only 15 % by SMEs. Although the scheme is
open for all enterprises regardless of their size,
the main beneficiaries of the BPRA will mainly
be large businesses.

— However, the UK authorities have stated that
even in those cases where large companies own
the business premises, SMEs would nevertheless
be able to benefit from the measure indirectly as
they are often renting business outlets from
large enterprises. This is underlined by data
provided by the UK indicating that of new leases
taken out on premises vacant for more than one
year, 31 % are by large businesses and 69 % by
SMEs. For the most deprived areas according to
the definition of the UK, the respective figures
are 26 % for large enterprises and 74 % for
SMEs.

(11) The Commission Notice on the expiry of the Guidelines for under-
takings in deprived urban areas was published in OJ C 119,
22.5.2002, p. 21.

(12) See Commission decision on Land remediation (State aid N 385/

2002).

(13) See Commission decision on stamp duty exemption L 149,

17.6.2003, p. 18.

C 56/44

EN

Official Journal of the European Union

5.3.2005

— The Commission notes that the notified measure
is not restricted to small and medium-sized
companies within the Commission definition.
the Commission also notes that
Furthermore,
the scheme is not restricted to assisted areas
pursuant to Article 87(3)(a) or Article 87(3)(c) of
the EC Treaty.

from the standard practice of

— The use of the 2 000 designated most deprived
areas of the UK as target area of the notified
measure raises the same issues as already in the
case of the Stamp duty exemption scheme. It
deviates
the
Commission when dealing with regional aid.
The Commission continues to believe that such
a deviation needs to be justified in order to
avoid that beneficiaries in areas which are not
designated as assisted areas according to Article
87(3)(a) areas and/or Article 87(3)(c) areas
receive a disproportionate economic advantage
adversely affecting trading conditions
to an
extent contrary to the common interest.

— Furthermore,

in approving the Stamp duty
exemption scheme on the basis of the specific
merits of this scheme, the Commission imposed
a number of conditions. Amongst others, the
Commission decided that monitoring needed to
be ensured and that the beneficial effects of the
scheme on physical regeneration and notably on
brownfield sites needed to be demonstrated. The
Commission so far has not received any ex-post
the beneficial
analysis enabling it
effects of the scheme.

to assess

state that

— Although the UK authorities

the
average aid intensity would be between 9 % and
10 % net, maximum aid intensities under the
notified measure can reach up to 40 % net in
case of unincorporated businesses and up to
30 % net in case of companies, respectively.

18(3) The Commission, after a first preliminary assessment
of the measure, therefore has doubts whether the

contrary to the

measure proposed by the UK is proportionate to the
objective and does not distort competition to an
extent
common interest. The
Commission is of the opinion that a more thorough
analysis of this complex question is necessary. The
Commission wishes to collect
information from
other interested parties. To do so, the Commission
must,
reasons, open the procedure
provided for in Article 88(2) of the EC Treaty. It is
only with the help of such observations that the
Commission can decide whether such aid is neces-
sary and does not adversely affect trading conditions
to an extent contrary to the common interest.

legal

for

4. DECISION

19. In the light of the foregoing considerations, the Commis-
sion, acting under the procedure laid down in Article 88(2)
of the EC Treaty, requests the United Kingdom to submit
its comments and to provide all such information as may
help to assess the aid scheme “Business Premises Renova-
tion Allowances”, within one month of the date of receipt
of this letter.

20. The Commission wishes to remind the United Kingdom
that Article 88(3) of the EC Treaty has suspensory effect,
and would draw your attention to Article 14 of Council
Regulation (EC) No 659/1999, which provides that all
unlawful aid may be recovered from the recipients.

21. The Commission warns the United Kingdom that it will
inform interested parties by publishing this letter and a
meaningful summary of it in the Official Journal of the Euro-
pean Union. It will also inform interested parties in the
EFTA countries which are signatories to the EEA Agree-
ment, by publication of a notice in the EEA Supplement to
the Official Journal of the European Union and will inform
the EFTA Surveillance Authority by sending a copy of this
letter. All such interested parties will be invited to submit
their comments within one month of the date of such
publication.’