1. tate aid for R&D and Innovation
Belgrade, 19 March 2012
Bernhard VON WENDLAND
European Commission
DG COMPETITION
R&D, innovation and risk capital

2. State aid for R&D and Innovation
• EU-objectives
• EU State-aid rules
• Concept of State aid
• State-aid control in the EU
• State-aid rules with an R&D and innovation objective State-aid rules
and SME's
• Focus on EU-Framework for State aid for R&D&I – eligible activities,
eligible costs
• R&D&I-aid and the General Block Exemption Regulation
• Decision practice

3. EU-objectives
• Objective "The establishment of an internal
market" - Art. 3 (3) of the Treaty on
European Union.
• To that end, the EU shall “work for the sustainable
development of Europe based on balanced economic growth
and price stability, a highly competitive social market
economy, aiming at full employment and social progress, and
a high level of protection and improvement of the quality of
the environment. It shall promote scientific and technological
advance.”

4. EU-objectives
• Objective "Promotion of Research and
Development and Innovation " - Article 179
(1) of the TFEU:
• "The Union shall have the objective of strengthening its
scientific and technological bases by achieving a European
research area in which researchers, scientific knowledge and
technology circulate freely, and encouraging it to become
more competitive, including in its industry, while promoting
all the research activities deemed necessary by virtue of other
Chapters of the Treaties.”

5. EU-objectives
• EU-2020 objective: Smart, sustainable and inclusive
growth; R&D-expenditure to reach 3 % of EU-GDP by
2020.
• Innovation Union Flagship Initiative: Strategic and
integrated approach to research and innovation.
• Member State and EU-funding should contribute to these
objectives.
• Important topics: Societal challenges, Key Enabling
Technologies, collaborative and industry-driven R&D,
reduce time to market, strengthen excellence.

6. EU State-aid rules
• Competition - an exclusive EU-
competence
The EU has exclusive competence in the
establishing of the competition rules necessary
for the functioning of the internal market; Art. 3
(1) lit b of the TFEU.

7. Concept of State aid
Art. 107 (1) TFEU: General
prohibition of State aid:
"Save as otherwise provided in the Treaties, any
aid granted by a Member State or through State
resources in any form whatsoever which distorts
or threatens to distort competition by favouring
certain undertakings or the production of certain
goods shall, in so far as it affects trade between
Member States, be incompatible with the internal
market."

8. Concept of State aid
That prohibition however is not total:
•The TFEU leaves room for a number of policy
objectives for which State aid "may" be
considered compatible with the Internal Market.
•State-aid rules are implemented through
secondary legislative acts that provide for criteria
and rules that the Commission shall use to
assess the compatibility of State aid with the
Internal Market.

9. Concept of State aid
• General rule: EU Funds are not considered as
State aid - no "State" resources and not under
State control.
• Notabene! Structural Funds and Cohesion Fund
monies pass through Member-State control –
fall under State aid rules if all criteria of Art.
107 (1) TFEU are met.

10. State-aid control in the EU
Member States must notify State aid to
the Commission, prior to its
implementation - Art. 108 (3) TFEU:
"The Commission shall be informed, in sufficient time to
enable it to submit its comments, of any plans to grant or
alter aid. If it considers that any such plan is not compatible
with the internal market having regard to Article 107, it shall
without delay initiate the procedure provided for in
paragraph 2. The Member State concerned shall not put its
proposed measures into effect until this procedure has
resulted in a final decision."

11. State-aid control in the EU
• Procedure and implementing rules:
• Procedural regulation: Council Regulation (EC) N°
659/1999 of 22.3.1999 laying down detailed rules
for the application of Article 93 of the EC Treaty
[now read Art. 108 of the TFEU]
• Commission Regulation (EC) N° 794/2004 of
21.4.2004 implementing Council Regulation
(EC)No 659/1999

12. State-aid control in the EU
• Commission approves aid measures by a Decision.
• Commission may exempt certain categories of aid
from the notification obligation.
• The General block exemption Regulation of 2008
(GBER) is the current legal basis for such
exemption: Commission Regulation (EC) N°
800/2008 of 6.8.2008 declaring certain categories
of aid compatible with the common market in
application of Articles 87 and 88 of the Treaty [now
read Articles 107 and 108 of the TFEU]

13. State-aid control in the EU
• Notification procedure – simplified overview:
• Formal notification (electronic format): Art . 108 (3) TFEU; Art. 2
Reg. 659/99; Art. 3 Reg. 794/94
• Legal deadline to take a decision: 2 months from the date when a
notification is "complete": Art. 4 (5) Reg. 659/99
• Preliminary assessment by the Commission, Art. 4 Reg. 659/99; if
necessary Commission sends information request(s) to Member
State, Art. 5 Reg. 659/99
• If serious doubts about the aid's compatibility: Formal
investigation, Art. 6 Reg 659/99 (consulting interested parties)
• Commission Decision, Artt. 4 and 7 Reg 659/99: Approval
"compatible aid"; "no State aid"; conditional approval; negative
decision

14. State-aid control in the EU
• Notification procedure – simplified
overview:
• A notification may be withdrawn by the Member State,
Art. 8 Reg 659/99.
• A Member State may "pre-notify" aid measures. This is
an informal procedure. In that process, Commission and
Member State discuss the legal and economic aspects of
an aid prior to notification. The objective is to enhance
the quality and completeness of notifications.

15. State-aid rules with an R&D and
innovation objective
• First and foremost: Community framework for state aid
for research and development and innovation – R&D&I-
Framework
• Targeting in particular innovative SME's in their start-up
and early phase: Community guidelines on state aid to
promote risk capital investments in small and medium-
sized enterprises – Risk-Capital Guidelines
• Exemption of, i.a., certain R&D&I-aids and risk-capital
measures from the obligation to notify aid: Commission
Regulation (EC) No 800/2008 of 6.8.2008 - General
block exemption Regulation

16. State-aid rules and SME's
• SME-definition for State-aid purposes is based on
the
• Commission Recommendation of 6.5.2003
concerning the definition of micro, small and
medium-sized enterprises
• See also Annex to the General Block Exemption
Regulation (GBER)

17. State-aid rules and SME's
SME's benefit from dedicated aid objectives
and from more generous rules, compared to
rules applicable to large enterprises.
• Aid during the entire life-cycle of an SME,
• to a large extent withot prior notification to the
Commission or,
• if notifiable, subject to a less detailed summary
assessment.

18. The Community Framework for State
Aid for R&D&I (R&D&I-Framework)
• Overall objective: Enhance economic efficiency and
thereby contribute to sustainable growth and jobs.
• State aid for R&D&I therefore must lead to additional
R&D&I (“incentive effect”!) whereas the distortion of
competition must not be contrary to the common
interest.
• The R&D&I-Framework is designed to ensure this
objective and, in particular, to make it easier for
Member States to better target the aid to market
failures that affect R&D&I-activities.

19. R&D&I-Framework
• Scope: All sectors (“horizontal” Framework); including
Agriculture and Fisheries (specific rules for agri-R&D aid of up
to 100% of costs in Chap. 9); excluding undertakings in
difficulty within the meaning of the Community Guidelines on
State aid for rescue and restructuring undertakings in difficulty
• Applies both to aid schemes and ad-hoc aid
• Duration: valid until 31 December 2013
• Legal status: non-binding secondary legal act; binding the
Commission when exercising its discretion = R&D&I-aid that
meets all the criteria of the R&D&I-Framework must be
approved.

20. R&D&I-Framework
• Structure – the most essential points:
• Guidance on State aid in R&D&I-situations: public funding to
research organisations and innovation intermediaries; indirect
aid through public research organisations to undertakings in
service contracts or collaboration (Chap. 3)
• R&D&I-State aid: Criteria for the standard assessment (Chap. 5)
• Incentive effect of R&D&I-aid: Basic formal and material criteria
(Chap. 6)
• R&D&I-State aid: Criteria for the detailed assessment (Chap. 7)
• Rules for cumulation with other aid (Chap. 8)

21. R&D&I-Framework
• Chapter 3 - Guidance on State aid in typical R&D&I-
situations:
• Public funding to research organisations and innovation
intermediaries could constitute State aid if the funding is for
economic activities (= offering goods or services on the market) -
Section 3.1
• Enterprises could receive indirect aid if a publicly funded research
organisation delivers an R&D-service at conditions more
favourable than market conditions (contract research, services) -
point 3.2.1
• Enterprises could receive indirect aid when collaborating with
publicly funded research organisations: Criteria for the exclusion
of State aid in point 3.2.2

22. R&D&I-Framework
• Chapter 5 - Standard criteria for certain
R&D&I-objectives that may be supported
with aid:
• Eligible beneficiaries; maximum aid-intensities (percentage
of eligible costs) or aid amounts; eligible costs; criteria for
aid instruments such as repayable advances and fiscal aid;
other criteria (e.g. maximum duration of a measure;
certificates).

23. R&D&I-Framework
• Chapter 5 - Eligible R&D&I-objectives/activities:
• R&D projects: fundamental, industrial research;
experimental development: the larger the beneficiary
and/or the closer the activity is to a practical
application, the lower is the allowed aid intensity (point
5.1)
• Aid for technical feasibility studies preparatory to
industrial research or experimental development (point
5.2)
• Aid for industrial property rights costs for SMEs: costs
associated with obtaining and validating patents and
other industrial property rights (point 5.3)

24. R&D&I-Framework
• Chapter 5 - Eligible R&D&I-objectives/activities:
• (continued)
• Aid for young innovative small enterprises: not older
than 6 years at the time when the aid is granted;
innovativeness can be evidenced either by an expert
evaluation or with R&D-costs - at least 15 % of total
operating costs (point 5.4)
• Aid for process and organisational innovation in services
(point 5.5): new and substantial improvements; must
involve ICT; project-based; must entail a clear degree of
risk; must develop standards, models, concepts

25. R&D&I-Framework
• Chapter 5 - Eligible R&D&I-objectives/activities:
• (continued)
• Aid for innovation advisory services and for innovation
support services for SMEs; services must be bought at
market price or aid must be granted in the form of a
reduced price (point 5.6)
• Aid to SME's for the loan of highly qualified personnel:
personnel and recruiting costs for the loan of highly
qualified personnel seconded from a research
organisation or a large enterprise to an SME (point 5.7)
• Aid for innovation clusters: Investment and operating
aid to the legal entity operating the innovation cluster
(point 5.8)

26. R&D&I-Framework
• Eligible costs:
• Are set out for each eligible activity (cf. points 5.1 – 5.8)
• Aid for Young Innovative enterprises: Not linked to any
eligible costs
• Example ("classic") R&D-project aid (point 5.1.4)- to the
extent and for the duration as used for the research project:
• personnel;
• instruments and equipment;
• building and land;
• contractual research, technical knowledge, patents bought or
licensed from outside sources at market prices;
• additional overheads
• other operating expenses, including costs of materials, supplies
and similar products

27. R&D&I-Framework
Incentive effect (Chap. 6)
• Formal criterion: The aided R&D&I-project must not have
commenced prior to the aid application by the beneficiary to the
national authorities. This criterion must be met in any case.
(decision practice document 3, (114), (115))
• Material criteria: If a significant positive effect on at least one of
the elements below can be demonstrated, an incentive effect of
R&D&I-aid can be presumed:
• increase in project size
• increase in scope
• increase in speed
• increase in total amount spent on R&D&I

28. R&D&I-Framework
• Chapter 6 - Legal presumption of an
incentive effect of
• project aid and feasibility studies where the aid
beneficiary is an SME and where the aid amount is
below EUR 7,5 million for a project per SME,
• aid for industrial property rights costs for SMEs,
• aid for young innovative small enterprises,
• aid for innovation advisory services and innovation
support services,
• Aid to SME's for the loan of highly qualified personnel.

29. R&D&I-Framework
• Incentive effect and aid schemes:
• Member State must verify for each individual aid
under an approved scheme that an incentive effect is
present; must demonstrate how it has assessed the
incentive effect of the aid in annual reports to the
Commission (cf. document 4, (40)-(44); (75)-(77)).
• Incentive effect and the detailed
assessment under Chap. 7:
• Chap. 6-indicators are not sufficient - complementary
evidence is needed, pursuant to specific criteria set
out in Chap. 7

30. R&D&I-Framework
• Chapter 7 - Subject to the detailed
assessment is:
• R&D&I-aid that must be notified individually
pursuant to the GBER - Art. 6 lit. e) and f)
GBER
• R&D&I-aid that is to be assessed in detail
pursuant to the R&D&I-Framework - point 7.1
of the R&D&I-Framework.
> Aid above certain thresholds

31. R&D&I-Framework
Chapter 7 Detailed assessment – methodology
and criteria
• Balancing test: The Commission balances the positive impact of the
aid measure in reaching an objective of common interest against its
potentially negative side effects by distortion of trade and competition.
• Positive Effects of R&D&I-aid (Point 7.3): aid addresses a market
failure; aid is appropriate; incentive effect; aid is proportional
• Negative effects - distortion of competition and trade (point 7.4):
aid distorts the dynamic incentives of market players to invest
(crowding out effect); aid creates or maintain positions of market
power; aid maintains an inefficient market structure
• Balancing: case-by-case; overall assessment based on the
proportionality principle

32. R&D&I-aid and the General Block
Exemption Regulation
• Most R&D&I-objectives that meet the "standard
criteria" of Chapter 5 of the R&D&I-Framework are
also caught by the GBER!
• > Such aid is exempt from the obligation to notify the aid
to the Commission.
• > Such aid must be in line with all GBER-provisions
• > most critical rules:
• No ad-hoc aid to large enterprises (Art. 1 (5) GBER);
• Aid must be "transparent" (Art. 5 GBER)

33. R&D&I-aid and the General Block
Exemption Regulation
• Exempted R&D&I-aid - Section 7 of the GBER (Artt.
30-37)
• However: Aid to Innovation Clusters; Aid for
innovation advisory services and for innovation
support services are outside the scope of the
GBER = not block-exempted.
• Aid to young innovative enterprises is inside the
scope of the GBER but the innovative character
must be demonstrated only with R&D-costs - not
with an expert evaluation

34. R&D&I-Framework – Decision practice
• Background - State-aid for R&D&I:
• +/- 0.09 % of EU-GDP
• 10.9 billion EUR in 2010, in the EU
• large disparities: Around 54% of total R&D&I-state
aid in 2010 was granted by three Member States:
Germany (€ 2.8 billion), France (€ 1.8 billion) and
Spain (€ 1.1 billion).

35. R&D&I-Framework – Decision practice
• Since the R&D&I-Framework's entry into
force on 1.1.2007 and until today:
• The Commission has approved approx. 220 aid
schemes
• and approx. 50 large individual aid measures. Most
of these large aids were subject to a detailed
economic assessment on the basis of Chapter 7 of
the R&D&I-Framework.

36. R&D&I-Framework – Decision practice
– Individual aid > EUR 3 million -
Discounted aid
by Sector Nb. of cases amount
Automotive 30 302.333.857
Aeronautics 68 822.513.487
Transport 4 30.873.496
Microelectronics 17 613.476.059
Energy 48 402.439.458
Biotechnology 41 322.555.614
ICT 36 265.058.100
Food 4 21.085.982
Other 11 85.973.255
TOTAL 259 2.866.309.308

37. R&D&I-Framework – Decision practice
– Individual aid > EUR 3 million -

38. R&D&I-Framework – Decision practice
– Individual aid > EUR 3 million -

39. R&D&I-Framework – Decision practice
– Individual aid > EUR 3 million -

40. R&D&I-Framework – Decision practice
Examples
• Large Framework schemes: N 112/2007 THESEUS; N
726a/2007 Omnibus
• Individual detailed assessment of aid to an innovative SME:
NN 39/2010 Mapper
• Individual detailed assessment of aid to a large enterprise:
N 357/2009 GKN, N 4 and 7/2010 ALESTIS
• R&D-infrastructures: N 301/2010 GreenLabs
• Issue of economic activities of research organisations: C
35/2008 IFP
• Aid for pilot/demonstration plants: N 193/2010 LignoBoost; N
521/2008 Alpha Ventus
• Aid for technology-transfer activities: N 617/2008
Technology-Transfer Institutes

41. State aid for R&D and Innovation
• Thank you for your attention!