Tightened relocation criteria for obtaining state aid
On 20 June 2017 the European Commission issued Regulation No 2017/1084 (“Amending Regulation”) which extends the scope of General Block Exemption Regulation (“GBER”) and introduces new and stricter criteria in case of relocation of an economic activity with respect to investments within EEA.
Regional aid, with public funding of investment projects in certain underdeveloped regions of the EEA, promotes growth, creation of new jobs and the overall development of disadvantaged areas. On the contrary, regional aid linked to relocation of existing facilities within the EEA borders is considered as a per se prohibition. Prohibition of relocation seeks to limit the risk of subsidy races and opportunistic location decisions with adverse cohesion effects within the EEA. Such aid is therefore excluded from the safe harbor of GBER and needs to be notified to the Commission and assessed on a case by case basis according to rigorous rules imposed in Guidelines on regional aid.
The 2014 GBER considered that “relocation” in terms of EU state aid law occurred when the potential beneficiary has closed down the same or similar activity (activity falling under the same four digit NACE classification) in the EEA, two years preceding its application for regional investment aid. Alternatively, the relocation occurred also if at the time of the aid application potential beneficiary had concrete plans to close down such activity within a period of up to two years after the initial investment was completed. The 2014 GBER interpreted “closing down of an activity” as either the full closure (100%) or partial closure, which occurred with the loss of at least 100 jobs or job reduction of at least 50% of the workforce at a given location (at a given economic entity).
Amending Regulation has redefined the term of “relocation”. New Article 2(61a) of GBER now states that “relocation” still means a transfer of the same or similar activity or part thereof from one to another EEA country. However, the product or service in the initial and in the new establishment has to serve at least partly the same purpose and meet the demands or needs of the same type of customers. Additionally, the relocation happens if jobs are lost in one of the initial establishments of the beneficiary in the EEA. New Article 14(16) of GBER also requires that „the beneficiary shall confirm that it has not carried out a relocation to the establishment in which the initial investment for which aid is requested is to take place, in the two years preceding the application for aid and give a commitment that it will not do so up to a period of two years after the initial investment for which aid is requested is completed.”
Such new definition of relocation imposes stricter criteria for beneficiaries. There is no minimum threshold with regard to amount of „lost jobs”, which theoretically means, that even 2 lost jobs may be considered as relocation, provided that other elements of the definition apply. Also the obligation imposed on the beneficiary to commit not to relocate its activity for two years after the completion of initial investment, obliges beneficiary in a much stricter way than the 2014 GBER provisions. Amending Regulation's criteria that products or services in both establishments, initial and new, have to serve the same purpose, which seems to be more permissive than the former rule referring only to the same four digit NACE classification, also brings the area of state aid law closer to the traditional market definition as applied in competition law. There the market is defined from the consumer's perspective which often proves as a tricky and lengthy exercise.
Please be aware, however, that the interpretation of new rules leave some questions open, in particular with regards to the amount of lost jobs. The undertakings thinking of establishing a new, or extending an existing production site and considering to relocate, should therefore pay special attention and make sure that they comply with all the relevant relocation requirements in order to benefit from the safe harbor of GBER. As regards the timeframe, the new rules have to be implemented by the Member States within 6 months following the adoption of the Amending Regulation by the Commission, i.e. 10 January 2018. It has also to be admitted that in case the aid application has been submitted before 10 January 2018 but the incentive decision is issued by the granting authority only after this date, the Amending Regulation applies to the procedure, as a general rule. Therefore, it is recommended for potential beneficiaries to consult with the respective authorities during the period until 10 January 2018, which rules will be applied in the granting procedure.
Any questions? Please contact: Helge Heinrich, Dr. Ádám György Bodor
Practice Group: Antitrust & Competition