Look back in anger
The European Commission is taking an increasingly robust approach to ensuring that schemes comply with the restrictions on state aid - even after they have been approved, writes Bridget Wilcox.
Recent action taken by the European Commission (EC) relating to non-compliance with the requirements for two existing approved schemes (in Italy and Germany) has made it clear that the EC is more than willing to look back at measures which have previously been approved in order to establish whether the conditions on which the original approval was based have been complied with.
In relation to a scheme in Italy linked to investment aid to hotel projects, the EC ordered the Italian Government to recover funding provided to a number of projects under the scheme on the basis that such aid was not compliant with the requirements of the scheme (namely the need for the aid to have the necessary incentive effect). Such action was due to a complaint that certain funded projects had been commenced before applications for funding under the scheme had been submitted. The EC has now referred Italy to the European Court of Justice (ECJ) for its failure to recover aid granted to such projects.
Similarly, in respect of previously approved grant funding to Sovello AG (a German manufacturer of solar panels), the EC opened a formal investigation on the basis of additional information provided to it that suggested Sovello AG was not an SME, with the level of grant funding approved being on the basis that it fell within the EC definition of an SME. The EC looked at the issue in depth and concluded the amounts of shares held in the company by one particular shareholder did not reflect the extent of control one of the shareholders had over it and its operations. As a result, the EC has now revoked their original approval decision and has ordered Germany to recover a proportion of the aid provided to Sovello AG.
The above decisions highlight the increasingly robust approach to non-compliance being taken by the EC. Due to the increasing number of schemes/ad hoc aid measures that are being put in place without prior approval from the EC (through use of the General Block Exemption Regulation ("the GBER")) we anticipate an increase in retrospective reviews by the EC of scheme and ad hoc measures put in place under the GBER.
Simplified procedure - under used?
The EC has recently put in place a simplified procedure for state aid notifications. As the simplified procedure significantly reduces timescales for obtaining a state aid approval, it was anticipated that it would be heavily utilised by Member states. Our analysis suggests that this is far from the case at present.
Since the simplified procedure has come into force (in September 2009), it has only been used three times (for one Irish matter relating to rural broadband and for two Spanish matters linked to culture).
Whilst the apparent lack of interest in use of the simplified procedure may be due to use of the General Block Exemption Regulations ("the GBER") to justify aid measures, there are a number of circumstances where the simplified procedure can be use. By way of example if funding levels are in excess of an applicable threshold within the GBER (eg the €7.5 million threshold for SME investment aid) such funding can be approved, relatively quickly, under the simplified procedure.
Also where there is some doubt as to the validity of no aid arguments based on "no effect on trade", the simplified procedure represent a quick method of obtaining formal approval (and thus removal of any doubt and thus risk as to the state aid position) in a relatively short period of time. Moreover, funding linked to culture, even for substantial amounts, can be approved on the basis of the simplified procedure.
In conclusion, we would recommend giving the simplified procedure further consideration.
Bridgette Wilcox is a partner at Eversheds
