The European Commission adopts its revised Regional State Aid Guidelines

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The European Commission adopted on 19 April 2021 its revised EU Guidelines on regional State aid for the period 2022–2027, to be followed by Member States when granting State aid to companies in order to support the economic development of regions where there is an abnormal low standard of living and other disadvantaged regions. The Guidelines set out the conditions under which such aid is compatible with the internal market in accordance with Article 107(3)(a) and (c) of the Treaty on the Functioning of the European Union (“TFEU”).

Subparagraph (a) concerns aid aimed at promoting the economic development of areas where the standard of living is unusually low or where there is serious underemployment, and also of the regions referred to in Article 349 of the TFEU, in terms of their structural, economic and social situation. Subparagraph (c) allows State aid for the development of certain economic regions, provided it does not unduly affect trade and competition in the Single Market.

Regional aid is an invaluable tool for alleviating the hardships of regions with inherent economic problems and for mitigating the adverse consequences of the unequal allocation of resources created by market integration, specifically the structural imbalance between certain regions in terms of depopulation, income distribution and unemployment.

The formal incentive effect, i.e. the aid must change the behaviour of the undertakings concerned so that they carry out an additional activity that they would otherwise not carry out or would carry out in a restricted or different manner or location, is key to obtain any regional aid. This condition requires more detailed assessment for large enterprises compared with SMEs.

In accordance with Articles 3 and 174 of the TFEU, the EU will develop, promote and pursue actions leading to economic, social and territorial cohesion. In this respect, the Guidelines aim at ensuring a level playing field between the Member States. In practice, this entails support for investments and job creation by undertakings.

The main takeaways from the revised Guidelines are as follows:

  • The overall regional aid coverage increases from 47% to 48% of the EU population, and an updated list of assisted ‘a’ areas and predefined ‘c’ areas, as defined above, based on the latest available Eurostat statistics on GDP (2016–2018) and unemployment (2017–2019), has been published. Moreover, the Commission now makes it easier for Member States to assign the non-predefined ‘c’ area qualification to Just Transition Areas, without affecting the assignment criteria for assisted areas.

  • Increased maximum aid intensities whereby SMEs maintain higher maximum aid intensities than large enterprises. Aside from this, the Guidelines include several aid intensity bonuses: (i) for outermost regions, (ii) for border areas, (iii) for Just Transition Areas in the most disadvantaged areas, and (iv) for areas experiencing population loss.

  • The sectorial scope of the Guidelines was updated, as well as the criteria for balancing the positive impact of aid against its negative effect on competition and trade. In making this assessment, negative effects such as creating overcapacity in a market in absolute decline, counter-cohesion effects and relocation should not outweigh the positive effects of the aid that are not necessarily strictly linked to competition. Such positive effects may be the creation of jobs, digital transformation or transition towards environmentally sustainable activities.

This last modification aims particularly at aligning with the recent objectives set out by the EU, such as the Green Deal or the Industrial and Digital Strategy. All of these changes come alongside a general simplification of the structure of the Guidelines and a clarification of some of the definitions and terminology used.

On the basis of the revised Guidelines, Member States will now have to draft a single regional aid map applicable from 1 January 2022 to 31 December 2027 that will have to be notified to and approved by the Commission.

The newly revised Guidelines will enter into force on 1 January 2022 and will apply until the end of 2027, with a mid-term review envisaged for 2023. Most of the aid covered by the Guidelines should be exempt from prior notification to the Commission in accordance with the General Block Exemption Regulation, which itself will also be revised in that respect. Only aid exceeding certain thresholds will still have to be formally authorised by the Commission.