Case N 519/2007 Poland - Scheme for firms employing persons held in detention

Transcription

1 EUROPEAN COMMISSION Brussels, C(2008) PUBLIC VERSION WORKING LANGUAGE This document is made available for information purposes only. Subject: Case N 519/2007 Poland - Scheme for firms employing persons held in detention Sir, 1. PROCEDURE (1) By electronic notification of 7 September 2007, registered at the Commission on 10 September 2007 (A/37324), the Polish authorities notified by means of a simplified procedure amendments to the measure PL 44/2002, which was initially recommended by the Commission for inclusion in the existing aid list attached to the Accession Treaty 1. (2) By letter of 24 September 2007 (D/53786), the Commission informed the Polish authorities that the simplified procedure was not applicable to the present case and invited them to submit appropriate notification forms for the measure concerned. 1 Commission Decision Letter to the Member States of 19 November 2002 (D/56579) Pan Radosław Sikorski Minister Spraw Zagranicznych Al. Szucha 23 PL Warszawa Commission européenne, B-1049 Bruxelles Belgique European Commission, B-1049 Brussels - Belgium Telephone: (0)

2 (3) The Polish authorities submitted the notification forms requested by letter dated 25 October 2007, registered at the Commission on the same day (A/38781). (4) By letter dated 17 December 2007 (D/55023) the Commission requested additional information. The Polish authorities submitted additional information by letter dated 17 January 2008, registered on the same day (A/979), and by of 6 February 2008 (A/2240). 2. THE AID MEASURE 2.1. Objective of the aid scheme (5) The scheme aims at granting support to the so-called prison work establishments (hereinafter "the establishments").the aim of "the establishments" is employment of persons held in detention in order to prepare them for work in the open labour market after release and to prevent their relapse into crime. (6) The measure constitutes a key part of the Polish national strategy to combat recidivism and falls within the logic of the Polish penitentiary system which considers convict work as a highly valuable and indispensable component of the correctional and rehabilitation process. (7) Under the existing aid scheme PL 44/2002, the status of "the establishment" could be acquired by public entities, i.e. state-owned enterprises and holdings ancillary to prison establishments and remand centres (public finance sector units). (8) The notified measure aims to increase the current unsatisfactory level of employment of convicts in Poland by enlarging the scope of bodies, who can apply for this particular status, to private undertakings Legal basis (9) The national legal basis for the measure is the following: Act of 28 August 1997 on the employment of persons held in detention (Journal of Laws No 123, item 777) 2 ; Draft Law on the amendment of Act of 28 August 1997 on the employment of persons held in detention and on the amendment of Law on corporate income tax Beneficiaries prison work establishments (10) "The establishments" are granted their specific status, provided that they base their economic activities on economic accounts and are self-financing, upon the fulfilment of detailed conditions of the 1997 Act as well as its amendment. (11) In particular, under the proposed draft law, the status of "the establishment" can be acquired by both state and/or private undertakings 3 that employ a minimum 2 Journal of Laws No 123, item 777 from 2003, No 202, item 1957 from 2004, No 273, item 2703 from 2006, No 66, item Pursuant to Article 3a) 1) of the draft law, the status of prison work establishments can be acquired by any "spolka akcyjna" or "spolka z o.o" (i.e. limited liability companies under the Polish law) or any 2

3 number of 20 prisoners and ensure that the share of convicts on a full-time basis in the overall staffing is not less than 35%. (12) The state-owned undertakings acquire the status of prison work establishments by inscription in a specific register held by the Minister of Justice. (13) The private undertakings are granted the status of "the establishment" by an administrative decision of the Minister of Justice, following an application by an undertaking, and subject to compliance with the conditions to employ a minimum number of 20 prisoners and to ensure that the share of convicts on a full-time basis in the overall staffing is not less than 35% for a minimum period of three months. In case "the establishment" does not comply with the specific conditions specified in the legal basis of the scheme, the Minister of Justice shall decide by an administrative decision to withdraw this status. (14) In addition, the Minister of Justice has to ensure control and detailed monitoring of accurate functioning of "the establishments". In particular, on the basis of a Ministerial Regulation, the state officials may be authorised to undertake inspections and controls in "the establishments". (15) The estimated number of beneficiaries under the notified measure varies from 101 to 500. (16) Normally, "the establishments" are to be located in the immediate proximity of prisons or remand centres. However, as the notified scheme enlarged the scope of the beneficiaries also to entities (i.e. private undertakings), which do not institutionally belong to the Polish penitentiary system, "the establishments" can be located outside the premises of prisons. (17) The Polish authorities confirm that the extra-costs arising from the specific nature of "the establishments" (for example, costs of security protection of work places, surveillance and escort costs, training, lower efficiency related to high turnover of convicts) are covered from the revenues generated by "the establishments". (18) The Polish authorities also inform that goods and services produced or provided by "the establishments" are sold at market prices and that the economic activity of "establishments" is normally limited to the sectors where there is a demand for unskilled labour. (19) The conditions related to prisoners' recruitment and wage costs are laid down in the Polish Penal Enforcement Code and other specific laws 4. According to these brunch of company registered in EU or/and EEA which can be assimilated to "spolka akcyjna" or "spolka z o.o" and which exercises its economic activity in Poland. 4 Section 5 (Employment) of Chapter X (Penalty of Imprisonment) of the Act of 6 June 1997 Executive Penal Code (Journal of Laws No 90, item 557, as amended), the Regulation of the Minister of Justice of 9 February 2004 on detailed rules for the employment of convicted persons (Journal of Laws No. 27 item 242), which is based on Article of the Executive Penal Code. 3

4 specific laws, remuneration for work is a general rule 5 that also applies to the employment of convicted persons. (20) In particular, the remuneration of convicted persons in full-time employment is determined to equate to at least half of the national minimum wage for a full month of work or monthly workload, which is determined in separate regulations. For an incomplete month of work or monthly workload, remuneration is paid proportionately to the duration of the work or workload. If a convicted person is not in full-time employment, the minimum remuneration is determined in proportion to the number of working hours and is based on half of the national minimum wage. The minimum hourly rates for convicted persons are set annually. They guarantee that a convicted person receives at least half of the national minimum wage 6, i.e. PLN 1126 (approx. EUR 313) 7. It should be added that convicted persons do not cover the costs of their stay in penitentiary units and do not bear any of the costs borne by other non convicted employees (for example, costs of food, rent, transport and other charges). (21) Before convicted persons can be employed by "the establishment", a director of the prison work establishment and a director of the prison sign a contract for the employment of convicted persons. Convicted persons are not a party to the contract. The incarcerated persons are delegated to work by the director of the prison establishment and do not sign employment contracts. Past experience under the existing aid scheme PL 44/2002 (22) The Polish authorities inform that at present, among prisoners held in detention in Poland, only are remunerated employees. The majority of them help in works related to the administrative and economic management of prisons. (23) The majority of the prison work establishments currently in operation gain revenue from their economic activities. However, there are also some unprofitable establishments. If loss of profitability is permanent, undertakings are then liquidated, or the Minister of Justice applies to the Commercial Court of local jurisdiction to declare them bankrupt. (24) The Polish authorities indicate that in 2006, 35 of the 41 prison work establishments in operation had made a total profit of PLN 26.9 million, while 6 undertakings had made a total loss of PLN 3 million. (25) In order to describe the scale of State aid support, the Polish authorities indicate that, for example, in 2006, the total aid amount paid out to 41 establishments amounted to PLN 9.4 million (approx. EUR 2.47 million) 8, i.e. approximately EUR per establishment. 5 Exceptions to this rule are defined in the Executive Penal Code. Among others, Article 123a 3 of the Code stipulates that convicted persons may perform unpaid work in prison work establishments for up to a month, upon their written consent, for training purpose. 6 The national minimum wage which was set as from 1 January The exchange rate in January 2008: EUR 1 = PLN 3.6 (OJ C 1, , p. 1). 8 The exchange rate in December 2006: EUR 1 = PLN 3.8 (OJ C 292, , p. 1). 4

5 (26) At present in Poland there are only 38 entities which operate under the status of the prison work establishment. (27) The sectors of activity are diversified and mainly concern the fields where qualified work force is not required (for example, hunting and forestry, manufacture of made-up textile articles, production of wood, leather, rubber and steel products, construction works, food catering). The export activities of prison work establishments are of marginal significance: in 2007, the total declared export sales of four firms amounted to PLN 2 million (approx. EUR 0.5 million) Sectoral and geographical scope of the scheme (28) The scheme is not related to any specific sectors. The scheme covers the entire territory of Poland, which for the period is an assisted region pursuant to the derogation under Article 87(3)(a) of the EC Treaty Form of aid (29) The aid under the scheme can be granted in the form of several aid instruments such as a grant, a loan on preferential terms, a tax relief, an exemption from nontax budget charges, an exemption from contributions to the State Fund for the Rehabilitation of Disabled Persons, an exemption from fees for the use or perpetual usufruct of land owned by the Treasury. The aid will be also financed by the State waiving its entitlement to levy certain government claims on the prison work establishments. Grant and loan on preferential terms (30) Prison work establishment can apply for an interest-free loan or a grant from the State Fund for the Development of Prison Work Establishments to finance activities relating to the rehabilitation of prisoners 11. The Fund is formed from contributions from the above operators on the basis of 25% of the exemptions granted. (31) Aid from the Fund is discretionary and is awarded following applications from prison work establishments. It may be awarded up to the amount of the total planned value of the project. The aid may be made conditional upon a partial commitment of own resources by a prison work establishment to the project defined in the application. A prison work establishment is obliged to repay immediately any part of the aid from the Fund which was not used or was misused. Repayment may be guaranteed by any form of security provided for in the Polish law. 9 The exchange rate in December 2007: EUR 1 = PLN 3.64 (OJ C 289, , p. 7). 10 N 531/2006, OJ C 256, , p According to the Regulation of the Minister of Justice of 1 June 2005 on the Fund for the Development of Prison Work Establishments and law on the conditions of employment of prisoners, the activities relating to rehabilitation of the prisoners should mainly concerned 1) creation of new jobs for prisoners and maintaining of the current prisoners posts, 2) modernisation of the prison work establishments, 3) creation of necessary infrastructure which will allow rehabilitation of the prisoners in the establishments; 4) various training courses on improvement of prisoners' working skills which will help them to work efficiently during detention and after release. 5

6 (32) The aid awarded to a prison work establishment by the Fund for the Development of Prison Work Establishments is not exempt from taxation revenue from this source is subject to taxation according to the general taxation rules. Tax relief (33) Tax relief is related to the exemption of the revenue of prison work establishment from the corporate income tax in that part from which at least 25% of the tax due is transferred to the Fund for the Development of Prison Work Establishments within the deadlines specified for payment of that tax. (34) Only "the establishment" in which, over the previous tax year, average annual employment of prisoners on a full-time basis accounted for at least 50% of the total of employed persons are eligible for the exemption (an additional condition is that at least 20 convicted persons must have been employed on a full-time basis, as this is one of the general conditions of being awarded the status of a prison work establishment). If this 50% threshold is not reached, "the establishment" will not be entitled to the exemption. (35) All economic operators paying corporate income tax will automatically benefit from the exemption if they fulfil all the following criteria: - at the time when they benefit from the exemption they have the status of a prison work establishment and hence fulfil the criterion concerning the employment of convicted persons which is a condition of that status; - they provide evidence that in the previous tax year at least 50% of the persons they employed were prisoners employed on a full-time basis (no fewer than 20 convicted persons on a full-time basis); - they transfer the equivalent of at least 25% of the income tax that would have been due on the exempted income to the Fund for the Development of Prison Work Establishments. (36) Aid in the form of exemption from corporate income tax is, because of its nature, not subject to subsequent taxation. Exemption from non-tax budget charges, exemption from contributions to the State Fund for the Rehabilitation of Disabled Persons, exemption from fees for the use or perpetual usufruct of land owned by the Treasury (37) Only a prison work establishment, in which over the last tax year the average annual employment of prisoners on a full time basis accounted for at least 50% of the total of persons employed, is entitled to the exemptions listed above in full (an additional condition is that at least 20 convicted persons must have been employed full-time). (38) Where the average employment of prisoners on a full-time basis in the previous tax year was varying from 35% to 50%, the establishments are entitled to a 50% exemption from the payments due. Where the proportion of prisoners employed is lower than 35%, the establishments are not entitled to the exemptions. (39) A further condition of eligibility for the above exemptions is that at least 25% of the funds derived from the exemptions have to be transferred to the Fund for the Development of Prison Work Establishments. 6

7 (40) The aid described above is automatic, i.e. it is awarded if the establishments meet the conditions set out in the Act. (41) The funds gained by the prison work establishment from the above exemptions are subject to taxation according to the general rules. Other forms of aid (42) The aid is also financed by the State by means of waiving its entitlement to levy certain government claims on the prison work establishments. Part of the funds from this source (75%) remains in the prison work establishment, while the remaining 25% is credited to the Fund for the Development of Prison Work Establishments, which may award aid to "the establishments" in the form of a grant and/or a loan on preferential terms Aid intensity (43) With regards to the grant and loan on preferential terms from the State Fund for the Development of Prison Work Establishment devoted to finance the activities relating to the rehabilitation of prisoners, the aid intensity may constitute 100% of the project's expenses. However, the aid amount granted per establishment shall not exceed EUR over a period of three years. (44) As far as the exemption from the corporate income tax is concerned, the aid intensity shall not exceed 75% of the tax due if over the previous tax year the average annual employment of prisoners on a full-time basis accounted for at least 50% of the total of employed persons. (45) With regards to the exemption from non-tax budget charges, the exemption from contributions to the State Fund for the Rehabilitation of Disabled Persons and the exemption from fees for the use or perpetual usufruct of land owned by the Treasury, the maximum aid intensity is limited to 75% tax payment due subject to fulfilment of the detailed conditions already described under recital 37) - 39) of this decision Budget and duration of the scheme (46) The aid amount to be granted to prison work establishments is estimated at PLN million annually (approx. EUR million) 12. However, as the duration of the measure is unlimited, the Polish authorities could not provide estimations on the total budget of the scheme. (47) The scheme will enter into force after its approval by the Commission Cumulation (48) The aid granted under the scheme can not be cumulated with other public support Monitoring of the scheme (49) The Polish authorities confirm, that State aid granted under the notified aid scheme will be monitored according to the general rules for monitoring State aid in Poland that arise from the provisions of Chapter 6 (Monitoring State Aid) of the Act of 30 April 2004 on the state aid procedures 13 and the Council of 12 The exchange rate from the day of notification, i.e. 24 October 2007: EUR 1 = PLN Journal of Laws 2007 No 59, item 404, as amended. 7

8 Ministers Regulation of 12 July 2007 on the reporting of State aid and the reporting of undertakings unpaid receivables due to the public finance sector 14. (50) In accordance with the aforementioned regulations, the President of the Office of Competition and Consumer Protection (OCCP) monitors State aid in Poland, while the minister responsible for agriculture monitors State aid in agriculture and fisheries. The reports submitted to the President of the OCCP cover, among others, information on the legal basis of the granted aid, its value, form and designation. They are drawn up annually and quarterly by the entities granting the aid. The President of the OCCP (or, in case of State aid granted in the sectors of agriculture and fisheries the Minister responsible for agriculture) submit the appropriate annual reports to the European Commission. 3. ASSESSMENT 3.1. Legality of the aid measure (51) By notifying the new draft law before putting it into effect, the Polish authorities respected their obligations under Article 88(3) of the EC Treaty. The Commission takes note of the fact that the scheme will enter into force only after its approval by the Commission State aid character of the scheme (52) Under the scheme, the aid is provided by public authorities and can therefore be considered as awarded through State resources within the meaning of Article 87(1) EC. (53) According to the proposed aid measure grants, preferential loans, tax reductions and other exemptions awarded to the beneficiaries constitute an economic advantage that they would not receive under normal market conditions. The beneficiaries are public and private entities which carry out economic activities. Therefore, the scheme provides an economic advantage to undertakings. (54) The economic advantage granted under the scheme is selective in the sense that it will only benefit the undertakings which enjoy the status of prison work establishments (in Polish - przywięzienne zakłady karne). (55) In view of the fact that the scheme concerns sectors and undertakings which might be involved in trade between Member States, there is a risk that the aid could affect that trade. (56) Consequently, the proposed aid measure constitutes State aid within the meaning of Article 87(1) of the EC Treaty Compatibility of the aid measure (57) Having established that the notified scheme involves State aid within the meaning of Article 87(1) of the EC Treaty, it is necessary to consider whether the scheme is compatible with the common market. (58) Article 87(2) of the EC Treaty lists certain types of aid that are compatible with the EC Treaty. In view of the nature and purpose of the notified scheme, the Commission considers that the subparagraphs (a), (b) and (c) are not applicable to 14 Journal of Laws No 133, item

9 the measure in question, nor have the Polish authorities argued that this may be the case. (59) Article 87(3) of the EC Treaty specifies other forms of aid, which may be regarded as compatible with the common market. In view of the nature and purpose of the notified scheme, the Commission considers that the subparagraphs (a), (b), (d) and (e) of Article 87(3) are not applicable either. (60) Consequently, the Commission has decided to assess the compatibility of the aid in question with the common market on the basis of the derogation provided in Article 87(3)(c) of the EC Treaty, i.e. whether the aid scheme in question aims to facilitate the development of certain economic activities, where such aid does not adversely affect trading conditions to an extent contrary to the common interest. (61) In assessing whether the exemption provided for in Article 87(3)(c) can apply, the Court of Justice has consistently held that Article 87(3) gives the Commission a discretion the exercise of which involves economic and social assessments that must be made in a Community context 15. For certain forms of aid, the Commission has defined how it will exercise these discretionary powers, in the form of block exemption Regulations or by frameworks, guidelines or notices. Where such secondary texts exist, the Commission must follow them in its assessment of aid measures. Compatibility of the scheme with the de minimis BER No. 1998/ (62) Although it is estimated that aid granted in the form of a grant and a preferential loan shall not exceed EUR per "establishment" over a period of three years, the Polish authorities do not wish to bring the scheme under the Regulation 1998/2006, because there is a risk that the overall aid package, composed also of the automatic exemption from the corporate income tax may exceed in some cases de minimis threshold of EUR over the period of three fiscal years. Therefore, the scheme can not be considered compatible with the de minimis Regulation. Compatibility of the scheme with the Employment BER No. 2204/ (63) The Commission notes that the aid under the scheme is not calculated as a percentage of the wage costs over a period of two years relating to the created employment as the aid under the scheme is not directly linked to the creation of new employment that would represent a net increase in the number of employees. Moreover, a prison work establishment may not be able to maintain the employment of persons in detention as required in Article 4.4 b) of the Regulation for two or three years if, for example, the employed convicted persons are removed from work by a penitentiary unit for security reasons, transported to another prison establishment, or released from prison. Although, the scheme also concerns the recruitment of disadvantaged people, within the meaning of the 15 Case C-169/95 Kingdom of Spain v. Commission [1997] ECR I-135. See also C-730/79 Philip Morris v. Commission [1980] ECR I Commission Regulation (EC) No 1998/2006 of 15 December 2006 on the application of Articles 87 and 88 of the Treaty to de minimis aid, OJ L 379, , p OJ L 337, , p. 3, as amended, hereinafter referred to as Regulation 2204/

10 Regulation 2204/ , it does not respect the conditions of recruitment of disadvantaged workers under this Regulation. (64) In the light of above, the scheme does not meet the conditions of the Employment BER No. 2204/2002. Compatibility of the scheme with the rules on Services of General Economic Interest (SGEI) (65) The Polish authorities have decided not to bring the scheme in line under the existing rules concerning SGEI in view of the fact that there is no mechanism for calculating the compensation or mechanism put in place to avoid any overcompensation within the meaning of the SGEI rules. Compatibility of the scheme directly on the basis of Article 87(3)(c) of the EC Treaty (66) In order to be compatible under Article 87(3)(c) of the EC Treaty, an aid must pursue an objective of common interest in a necessary and proportionate way. In particular, the measure should be assessed with respect to the following questions: 1. Is the aid measure aimed at a well-defined objective of common interest? 2. Is the aid well designed to deliver the objective of common interest i.e. does the proposed aid address a market failure or other objective? In particular: o is the aid measure an appropriate instrument, i.e. are there other, better-placed instruments? o is there an incentive effect, i.e. does the aid change the behaviour of firms? o is the aid measure proportional, i.e. could the same change in behaviour be obtained with less aid? 3. Are the distortions of competition and effect on trade limited so that the overall balance is positive? Objective of common interest (67) The Commission notes, that the measure aims at an equity objective in the public interest, i.e. rehabilitation of people who are incarcerated. The scheme's objective to rehabilitate prisoners, to make them acquire a habit to work and to prepare them for life after prison, is clearly in line with the Community objectives of employment policy and promotion of social inclusion supported by the European Social Fund and the Community Initiative EQUAL. In its Communication on "Consultation on action at EU level to promote the active inclusion of the people furthest from the labour market" 19 the Commission has underlined, that the fight 18 Cf. Article 5 of the Regulation 2204/ Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions concerning a consultation on 10

11 against social exclusion is a central concern of the European Union and its Member States and that greater social cohesion is a one of the key element for the success of the Lisbon Strategy. (68) Moreover, according to the European Prison Rules 20, the organization and methods of work in the institutions have to resemble as closely as possible those of similar work in the community in order to prepare prisoners for the conditions of normal occupational life. (69) For all the above reasons, the Commission considers that the rehabilitation of prisoners through work, which corresponds to the primary objectives of the notified measure, is indeed an objective of common Community interest, which contributes to the objectives of employment and social inclusion and which therefore justifies well-targeted and proportional forms of public intervention. Necessity and proportionality of the notified scheme (70) An aid measure is considered necessary and proportional when it constitutes an appropriate instrument to achieve the identified objective of common interest, when it has an incentive effect on the beneficiaries and when it does not introduce unnecessary distortions of competition. (71) The Commission notes that the scheme will provide incentives to establishments to create new working places for particularly vulnerable people, i.e. persons in detention, most of them being young, unqualified, inexperienced and often drugaddicts and whose working productivity is often insufficient in the competitive market economy. Without this incentive, firms with a special status would not be established, as the additional costs resulting from the employment of prisoners are too high (for example, costs of security protection of work places, surveillance and escort costs, training, lower efficiency related to high turnover of convicts), while working productivity of prisoners is normally very low. Thus providing support to the prison work establishments can be regarded as an appropriate instrument to achieve higher employment of prisoners. (72) With regards to proportionality and effects of the scheme on the intra-community trade, the Commission notes that the scheme is designed in such a way as to minimise the State aid involved and potential distortions of competition arising from the measure. (73) In this respect, the Commission notes, inter alia, the following: 1. The amount of aid in the form of a grant and a loan is limited to EUR over three years period per establishment, which is much below the current de minimis threshold set out in the Regulation No. 1998/2006 (i.e. EUR per undertaking per three fiscal years). When dividing the total annual budget of the scheme (approx. EUR 9.6 million) by a number of potential beneficiaries ( ), the total aid amount to be given per "establishment" will be very low (max. EUR ). action at EU level to promote the active inclusion of the people furthest from the Labour market, COM(2006)44 final ( ). 20 Recommendation Rec(2006)2 of the Committee of Ministers to Member states on the European Prison Rules, Council of Europe, , point

12 2. With regards to the aid when granted in the form of an automatic exemption from corporate income tax, in case an establishment wants to benefit from the latter form of aid, it has to fulfil stricter conditions, inter alia, to guarantee that at least 50% of all its employees are persons in detention. 3. In case, when the establishment benefits from all forms of aid, there is a risk of aid intensity overcompensating extra costs for the employment of prisoners. However, as the possibility to receive the exemption from corporate income tax is restricted, even cases where possible overcompensation will occur are limited in practice. Moreover, in these restricted cases, in analogy to the additional costs needed for employment of disabled workers (cf. Article 6 of the Employment BER No. 2204/2002), the compensation is needed, for example, to cover the costs of any reduced productivity resulting from prison workers, costs of adapting premises and hiring additional guarding personnel, due to high security requirements, costs of adapting or acquiring equipment for their use, costs of transporting prisoners to and from their work place in case establishments do not institutionally belong to the Polish penitentiary system and thus are not in the proximity of prisons. 4. As the measure mainly concerns the sectors where qualified work force is not required and which mainly involve activities of local nature, the impact of the measure on competition and trade will not be significant. 5. Although, the law establishing the scheme is not limited in time, the scheme, which foresees the maximum aid amount of EUR per establishment when the aid is granted in the form of a grant and a loan, will be subject to periodical revisions, to take into account effects of the measure with regards to employment of prisoners and also because of inflation. In addition, the Polish authorities confirm to undertake a detailed annual monitoring exercise on the measure at stake. The results of that evaluation, which will also show the effects of the measure on employment of persons in detention, will be submitted to the Commission. 4. CONCLUSION ON COMPATIBILITY (74) Article 87(3)(c) of the EC Treaty requires a balance between positive developments allowed by a given measure and its negative effects on competition. In this context, the Commission considers, that promoting a social inclusion by providing and increasing employment of persons held in detention shall be seen as objectives of common interest. (75) The characteristics of the measure do not entail unnecessary distortions of competition. The distortion is limited, due to the penitentiary nature of the scheme and limited amount of aid under the scheme per beneficiary, and is compensated by its positive effects, namely in terms of promoting of inclusion of vulnerable and marginalised group in reaching the objectives of common interest. (76) Overall, the Commission considers that the positive effects of the measure outweigh the negative effects in terms of actual and potential distortion of competition. 12

13 (77) Accordingly, the Commission concludes that the measure constitutes State aid, which is compatible under Article 87(3)(c) of the EC Treaty. 4. DECISION (78) The Commission has decided on the basis of the foregoing assessment that the notified aid "Scheme for firms employing persons held in detention" is compatible with the EC Treaty. (79) The Commission reminds the Polish authorities that the reporting conditions described in the Commission Regulation (EC) N 794/2004 implementing Council Regulation (EC) N 659/1999 laying down detailed rules for the application of Article 93 of EC Treaty have to be respected. (80) The Commission reminds the Polish authorities that all plans to modify this aid scheme have to be notified to the Commission. (1) If this letter contains confidential information, which should not be disclosed to third parties, please inform the Commission within fifteen working days of the date of receipt. If the Commission does not receive a reasoned request by that deadline, you will be deemed to agree to the disclosure to third parties and to the publication of the full text of the letter in the authentic language on the Internet site: (2) Your request should be sent by registered letter or fax to: European Commission Directorate-General for Competition State Aid Greffe B-1049 Brussels Fax No: Yours faithfully, For the Commission Neelie KROES Member of the Commission 13