Queries from the Czech Republic to clarify certain provisions of
Commission Regulation (EU) No 651/2014 (GBER)
Article 13(d)
What is meant by closing down an activity in the European Economic Area? Does it mean completely closing down (i.e. completely leaving the region and transferring somewhere else) or can it also be partial closing down (maintaining a certain number of, say, administrative posts and jobs in the region)?
Answer: At this stage, DG COMP is still looking into how to best translate the relocation provisions into practice given that the implications are more complex than expected. As soon as we will have a final position on this subject Member States will be informed accordingly.
Article 14(6)
Is there any best practice on how to demonstrate that the assets of an establishment were acquired on market conditions, especially in the case of acquisitions of entire establishments (undertakings) and intangible assets?
Answer: In this regard we would consider as best practice the expertise conducted by an independent company, or proofing that the acquisition of an establishment takes place between independent companies or in full respect of the "arm's length" principle (please see definition of "arm's length" which is given in the field of Research and Development and Innovation in Article 2(89) GBER). In cases where State bodies are involved in the sale (e.g. as the owners of the assets or in situations where the sale is organised under the supervision of a bankruptcy court), we would recommend that the sale takes place on the basis of a well-publicised open, unconditional and non-discriminatory tendering process.
Article 14(7)
In practice, when assessing specific investment projects, it is difficult, if not impossible, to distinguish between "a fundamental change in the production process", "diversification" and "extension of capacity" of an existing establishment. A given project usually involves all these activities. For example:
§ An undertaking acquires new production equipment to manufacture a new product (this counts as diversification because it will still be producing the existing product as well).
§ However, to make the new product the undertaking partially uses the existing facilities (such as the assembly hall, fixtures and fittings, certain pieces of machinery), which it plans to significantly modernise (thereby constituting a fundamental change in the production process).
§ In addition, there will be a partial increase in capacity, since the new product replaces the existing product but the existing product will continue to be manufactured in a limited quantity and, after the investment has been implemented, it will be possible to produce more items/units/quantities of both products (thereby constituting an extension of capacity).
1) Where various types of "initial investment" under a single project overlap (see example), it is not clear what to compare the eligible costs under paragraph 7 with. Does the aid provider have to somehow determine the predominant nature of the initial investment in the project and, according to that, compare the amount of eligible expenditure against the existing assets as stipulated in paragraph 7? If a project partly involves a fundamental change in the production process and partly involves diversification, does it have to meet both the conditions in paragraph 7 as regards the amount of eligible expenditure?
Answer: It is necessary to clearly distinguish the different forms of initial investment. A fundamental change of a production process always refers to the production process for a given product. If the product changes due to a product diversification (bullet point 1), a fundamental change (bullet point 2) is excluded by definition. The situation under bullet point 2 is a typical diversification investment. A capacity increase (bullet point 3) has to be defined by product. An investment into the production of a new product in the context of a diversification of the activity of the existing establishment does not constitute an extension of the capacity of a given establishment for a given (existing product), but the creation of a new production capacity for a new product (and production). An extension investment refers only to the extension of the capacity in the production of a product that was already produced in the establishment.
2) What is meant by a "fundamental" change in the production process? How is it to be distinguished from a non-fundamental change?
Answer: An initial investment in the form of a fundamental change in the overall production process of an existing establishment means the implementation of a fundamental (as opposed to routine) process innovation. The GBER does not define the notion of fundamental change. However, the GBER requires that the eligible expenditure to be incurred for investments in tangible and intangible assets necessary for the implementation of this process innovation exceeds a certain threshold: this threshold is defined, in article 14 (7) of the GBER, as "the depreciation of the assets linked to the activity to be modernised in the course of the preceding three fiscal years." The sum of depreciation is calculated over the three fiscal years that preceded the start of works of the project. The simple replacement of individual assets without fundamentally changing the overall production process constitutes a replacement investment which is not eligible for regional investment aid as it does not qualify as a fundamental change of an overall production process, and thus is not considered to constitute an initial investment. This holds also if individual items of equipment are replaced by others that are more performing unless this replacement leads to a fundamental change on the overall production process.
3) What is meant by "new products"? Does it mean a different NACE classification or does it mean, for example, where a company makes 25kW engines and expands into making 30kW engines?
Answer: The regional aid provisions of the GBER and the definition of initial investment in Article 2(49) does not use the notion of "new product". According to Article 2 (49) of the GBER defines different types of initial investments, including diversification investments: a "diversification" project is an initial investment if it is "diversification of the output of an establishment into products not previously produced in the establishment". The important condition for qualifying a "diversification" project as an "initial investment" is that the products were not produced in that establishment before the project. A "not previously produced product" is not defined by reference to NACE codes. A product which was slightly amended by a routine product innovation (as opposed to a basic innovation), e.g. through minor changes to its design, does not qualify as a not previously produced product, and corresponding investment expenditure is therefore not eligible for regional aid.
It should be noted, however, that the RAG 2014-20 use the notion of new process innovation and new product.
Recital 15 of RAG for example prohibits aid for large undertakings in c-areas for investments into existing activities, unless they concern initial investments for the diversification of existing establishments into new products or new process innovations. Recital 24 subjects to individual notification "investment aid granted to a large undertaking to diversify an existing establishment in a ‘c’ area into new products". The Commission will define in its decisions on future relevant notifications the notion of "new products". New products have to constitute products that were not previously produced in the establishment, but not all products not previously produced in the establishment qualify as "new products ".
4) What is meant by "extension of the capacity of an existing establishment"? Is this to be taken to mean production of a greater volume of all products?
Answer: The extension of capacity of an existing establishment means that the existing establishment is put into a situation where it can manufacture more of at least one of the products already produced in the establishment, whilst the underlying production process is not fundamentally changed.
5) If depreciation of "assets linked to the activity to be modernised" is to include all assets, however peripherally linked they are to production (such as the assembly hall premises, shared lighting etc.), how is the percentage share of these depreciations to be determined in order to be compared against the eligible expenditure? On the basis of the floor surface area of the assembly hall, the percentage use of the machines, the share of sales?
Answer: The term assets in the context of initial investments refers both to tangible and intangible assets (see article 2 (49) (a) and article 2 (51) (a) GBER). Tangible assets consist of land, buildings and plant, machinery and equipment (see article 2 (28) GBER).Therefore, the buildings for manufacturing or storing manufactured products are covered by Article 14 (7) 2nd sentence of the GBER if these assets are linked to the activity to be modernised. Member State can carry out a pro rata calculation. The GBER does not prescribe the method to be applied by the Member State for that purpose, i.e. the Member State can rely on a bona fide approach that takes into account the specific situation and characteristics of the establishment and activity concerned.
6) How is asset depreciation to be calculated for companies that have existed for less than three years?
Answer: This question appears rather hypothetical, and is not covered explicitly by the GBER. The Member State can apply a bona fide estimate, taking into account standard depreciation rules under its fiscal law.
7) Likewise, when determining the book value of "reused" assets that are only partially reused in the context of diversification, what ratio is to be used to compare the book value of the reused assets against the eligible costs?
Answer: It is important to take into account the extent to which such assets are "reused" in determining the book value of the reused assets. For instance, if only 30% of the capacity of an asset is to be used, only pro rata book value would be taken into account. The proportion to which such assets are "reused" has to be taken into account in applying article (14(7) of the GBER.
8) Does "book value" mean "net book value"?
Answer: The book value is the value at which an asset is carried on a balance sheet. To calculate, take the cost of an asset minus the accumulated depreciation.
Article 14(13) GBER - Definition of group
Question: Please define "at group level". Does "group" in paragraph 13 mean the same as "single undertaking" in Article 2(2) of Council Regulation (EU) No 1407/2013?
If so, does the "group" include only linked enterprises headquartered in the same Member State? (i.e. links via foreign parent companies are not taken into account).
Answer: The de minimis definition of ’single undertaking’ is a simplification of the case-law based criteria used to determine whether several undertakings form part of a single economic unit. As it is only mentioned in this regulation, it applies solely as regards de minimis aid. For the purposes of the GBER, the notion of group should be understood as a single economic entity having a common source of control. Therefore, to determine the single economic entity (group) for the purposes of the GBER, in addition to the de iure criteria of the de minimis Regulation, the granting authority shall also take into account de facto control criteria (e.g. control through natural persons). Please note also that links via foreign parent companies are taken into account for the definition of group.
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