EUROPEAN COMMISSION. The Commission has based its Decision on the following considerations:

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1 EUROPEAN COMMISSION Brussels, C(2018) 1387 final Subject: State aid / Hungary SA (2016/N) Amendment to the community agricultural marketing support scheme Sir, The European Commission ("the Commission") wishes to inform Hungary that, having examined the information supplied by your authorities on the State aid scheme referred to above, it has decided not to raise any objections to the scheme as it is compatible with the internal market pursuant to Article 107(3) of the Treaty on the Functioning of the European Union ("TFEU"). The Commission has based its Decision on the following considerations: 1. PROCEDURE (1) By letter of 29 September 2016, registered by the Commission on the same day, Hungary notified, according to Article 108(3) TFEU, the above mentioned aid scheme. The Commission sent requests for additional information to the Hungarian authorities on 30 November 2016, 23 February 2017, 12 June 2017, 19 July 2017 and 10 October 2017, which the Hungarian authorities provided by letters of 23 December 2016, 11 April 2017, 10 July 2017, 16 August 2017 and 15 December 2017, respectively. 2. DESCRIPTION 2.1. Title (2) Amendment to the community agricultural marketing support scheme Objective (3) The objectives of the aided activities under the scheme are to support the marketing of agricultural products through promotion measures, aid for knowledge transfer and information actions, aid for advisory services and aid for co-operation in the agricultural sector. His Excellency Péter Szijjártó Minister of Foreign Affairs and Trade Bem rkp.47 HU-1027 Budapest HUNGARY Commission européenne/europese Commissie, 1049 Bruxelles/Brussel, BELGIQUE/BELGIË

2 (4) The notified scheme is amending scheme SA.37599, which has prolonged SA The original scheme and its prolongation only covered promotion; the current amendment adds three further sub-measures (see recital (15)), extends the duration (see recital (7)) and increases the budget (see recital (8)). The Hungarian authorities have originally also intended to add a sub-measure on aid for the participation of producers of agricultural products in quality schemes, which the Commission could not accept as it would also have covered national quality schemes which did not fulfil all the conditions laid down in point (282) of the European Union Guidelines for State aid in the agricultural and forestry sectors and in rural areas 2014 to 2020 (hereinafter: "the Guidelines") 1. The Hungarian authorities have finally agreed to remove this sub-measure after several exchanges of letters (see recital (1)). (5) The Hungarian authorities confirmed that the scheme is designed in compliance with the conditions laid down in Article 33 of Regulation (EU) No 1305/2013 of the European Parliament and of the Council of 17 December 2013 on support for rural development by the European Agricultural Fund for Rural Development (EAFRD) and repealing Council Regulation (EC) No 1698/ No funding of the notified scheme is envisaged under the Rural Development Programme. Nonetheless, the scheme fits into and is consistent with that Programme as it fosters the competitiveness of agriculture and contributes to the maintenance of employment Legal basis (6) The legal basis is the draft Decree on the detailed conditions of the use of community agricultural marketing measures (Rendelet a közösségi agrármarketing támogatások felhasználásának részletes feltételeiről, (hereinafter: "the notified scheme") Duration (7) From the date of adoption of the Commission Decision until 30 June Since the Guidelines are applicable until 31 December 2020 only, the Hungarian authorities took a commitment to align, if needed, the notified scheme with any new Guidelines applicable beyond that date Budget (8) The overall budget is HUF 3,000 million (approximately EUR 10 million), allocated in the Budget to the Ministry of Agriculture. This amount only includes the extension of the original budget due to the prolongation of the scheme and adding new sub-measures. The granting authority is the Agrármarketing Centrum Nonprofit Kft., owned by the State through the Ministry of Agriculture. 1 2 OJ C 204, , p. 1. as last modified by OJ C 390, , p. 4. and by the Corrigendum published in OJ C 265, , p. 5. OJ L 347, , p. 487., as last modified by OJ L 350, , p

3 2.6. Beneficiaries (9) The beneficiaries of the different sub-measures are undertakings active in the agricultural sector, with the limitations described in recitals ((10) to (12)). (10) Where aid for promotion measures is related to the organisation of and participation in trade fairs, exhibitions and similar events, the beneficiaries are limited to small and medium-sized enterprises ( SMEs ) as defined in Annex I of Commission Regulation (EU) No 702/ (11) Undertakings in difficulty as defined in point 35(15) of the Guidelines are excluded from the scope of beneficiaries. (12) Undertakings which are subject to an outstanding recovery order following a previous Commission Decision declaring an aid illegal and incompatible with the internal market are excluded from the scope of the beneficiaries. (13) The number of beneficiaries is expected to be over 1 000, including all sizes of undertakings Aid instrument (14) Direct grant Description of the notified scheme (15) Hungary has set up several sub-measures in order to support the marketing of agricultural products: (d) Aid for promotion measures in favour of agricultural products (Section of the Guidelines); Aid for knowledge transfer and information actions (Section of the Guidelines); Aid for advisory services (Section of the Guidelines);and Aid for co-operation in the agricultural sector (Section of the Guidelines) Aid for promotion measures in favour of agricultural products (Section of the Guidelines) (16) As stated in SA.23532, as amended by SA (see recital (4)), this submeasure covers promotion activities in order to inform the public about the characteristics of agricultural products, or to encourage economic operators or consumers to buy the agricultural product in question by way of promotion campaigns. The promotion activity may be implemented in the internal market and in third countries. 3 OJ L 193, , p. 1. 3

4 (17) Promotion campaigns shall be generic in character and they shall benefit all producers of the type of product concerned, except for those referred to in recital (25). (18) Promotion campaigns shall comply with Regulation (EU) No 1169/2011 of the European Parliament and of the Council 4 and, where appropriate, with specific labelling rules. (19) There were no ongoing promotion campaigns at the moment of notification in Hungary. However, the Hungarian authorities have taken a commitment to provide representative samples of promotion materials before the launching of any promotion campaign, and they already did so regularly before campaigns were launched, on the basis of SA as prolonged by SA (see recital (4)). (20) The Hungarian authorities have confirmed that none of the promotion campaigns will exceed an annual budget of EUR 5 million. (21) Where a promotion activity is undertaken by an organisation, participation will not be subject to membership of that organisation and any contribution in terms of administration fees for the organisation will be limited to the cost of providing the promotion activity. (22) The aid will be granted in the form of subsidised services, paid to the provider of the promotion measures. (23) The aid for symbolic prizes referred to in point (464)(v) of the Guidelines may only be paid to the provider of the promotion measures if the prize has been actually granted and upon presentation of a proof of the award. (24) The promotion activities referred to in recital (41) and promotion campaigns referred to in recital (41)(d), and in particular promotion activities which are generic in character and for the benefit of all producers of the type of product concerned, cannot mention any particular undertaking, brand name or origin. Promotion campaigns referred to in recital (41)(d) cannot be earmarked for products of one or more particular company or companies and will not endanger sales or denigrate products from other Member States. (25) However, the restriction on the reference to origin does not apply to promotion activities and promotion campaigns referred to in recital (41)(d), focussed on products covered by quality schemes as referred to in point (282) of the Guidelines. In such cases, campaigns shall fulfil the conditions laid down in point (466) of the Guidelines. 4 Regulation (EU) No 1169/2011 of the European Parliament and of the Council of 25 October 2011 on the provision of food information to consumers, amending Regulations (EC) No 1924/2006 and (EC) No 1925/2006 of the European Parliament and of the Council, and repealing Commission Directive 87/250/EEC, Council Directive 90/496/EEC, Commission Directive 1999/10/EC, Directive 2000/13/EC of the European Parliament and of the Council, Commission Directives 2002/67/EC and 2008/5/EC and Commission Regulation (EC) No 608/2004 (OJ L 304, , p. 18). 4

5 Aid for knowledge transfer and information actions (Section of the Guidelines) (26) The aid is accessible to all beneficiaries, as defined in recital (9). Where the provision of technical support is undertaken by producer groups or organisations, membership of such groups or organisations is not a condition for access to the service. Any contribution of non-members towards the administrative costs of the group or organization concerned will be limited to the costs of providing the service. (27) The aid covers vocational training and skills acquisitions, as well as the organisation of demonstration activities and information actions Aid for advisory services (Section of the Guidelines) (28) The aid is accessible to all beneficiaries, as defined in recital (9). Where the provision of technical support is undertaken by producer groups or organisations, membership of such groups or organisations will not be a condition for access to the service. Any contribution of non-members towards the administrative costs of the group or organization concerned will be limited to the costs of providing the service. (29) The aid will help the beneficiaries in the improvement of the economic and environmental performance as well as the climate friendliness and resilience of their investment. (30) The advice will be linked to at least one Union priority for rural development and will cover as a minimum one of the following elements: Obligations deriving from the statutory management requirements or standards for good agricultural and environmental conditions provided in Chapter I of Title VI of Regulation (EU) No 1306/ ; the agricultural practices beneficial for the climate and the environment as laid down in Chapter 3 of Title III of Regulation (EU) No 1307/ and the maintenance of the agricultural area as referred to in point of Article 4(1) of that Regulation; measures aiming at farm modernization, competitiveness building, sectoral integration, innovation and market orientation as well as the promotion of entrepreneurship; 5 6 Regulation (EU) No 1306/2013 of the European Parliament and of the Council of 17 December 2013 on the financing, management and monitoring of the common agricultural policy and repealing Council Regulations (EEC) No 352/78, (EC) No 165/94, (EC) No 2799/98, (EC) No 814/2000, (EC) No 1290/2005 and (EC) No 485/2008, OJ L 347, , p Regulation (EU) No 1307/2013 of the European Parliament and of the Council of 17 December 2013 establishing rules for direct payments to farmers under support schemes within the framework of the common agricultural policy and repealing Council Regulation (EC) No 637/2008 and Council Regulation (EC) No 73/2009, OJ L 347, , p

6 (d) (e) (f) (g) requirements defined by Member States for implementing Article 11(3) of the Water Framework Directive 7 ; requirements defined by Member States for implementing Article 55 of Regulation (EC) 1107/2009 of the European Parliament and of the Council 8, and in particular compliance with the general principles of integrated pest management as referred to in Article 14 of Sustainable Use of Pesticides Directive 9 ; where relevant occupational safety standards and safety standards linked to farms; specific advice for farmers setting up for the first time, including advice on economic and environmental sustainability. (31) Advice may cover other issues and in particular the information related to climate change mitigation and adaptation, biodiversity and protection of waters as laid down in Annex I to Regulation 1306/2013 or issues linked to the economic and environmental performance of the agricultural holding, including competitiveness aspects. (32) The aid will be paid to the advisory services provider. (33) The bodies selected to provide the advisory service must have the appropriate resources in the form of regularly trained and qualified staff and advisory experience and reliability with respect to the fields they advise in. (34) When providing advice, the advisory service providers are obliged to respect the non-disclosure obligations referred to in Article 13(2) of Regulation (EU) No 1306/ Aid for co-operation in the agricultural sector (Section of the Guidelines) (35) Aid will be granted in order to promote forms of cooperation involving at least two entities irrespective of whether they are active in the agricultural sector, but subject to the cooperation benefitting only the agricultural sector, and in particular: co-operation approaches among different undertakings in the agricultural sector, food chain (only if the result of the processing is an agricultural product) and other actors active in the agricultural sector that contribute to Directive 2000/60/EC of the European Parliament and of the Council of 23 October 2000 establishing a framework for Community action in the field of water policy ( the Water Framework Directive ), OJ L 327, , p. 1. Regulation (EC) No 1107/2009 of the European Parliament and of the Council of 21 October 2009 concerning the placing of plant protection products on the market and repealing Council Directives 79/117/EEC and 91/414/EEC, OJ L 309, , p. 1. Directive 2009/128/EC of the European Parliament and of the Council of 21 October 2009 establishing a framework for Community action to achieve the sustainable use of pesticides OJ L 309, , p

7 achieving the objectives and priorities of rural development policy, including producer groups, cooperatives and inter-branch organisation; the creation of clusters and networks; the establishment and operation of operational groups of the EIP for agricultural productivity and sustainability as referred to in Article 56 of Regulation (EU) No 1305/2013. (36) The aid can be granted for cooperation relating, in particular, to the following activities: (d) the development of new products, practices, processes and technologies in the agricultural sector and food sector only as far as agricultural products are concerned; co-operation among small operators in the agricultural sector in organizing joint work processes and sharing facilities and resources; horizontal and vertical co-operation among supply chain actors for the establishment and development of short supply chains and local markets; promotion activities in a local context relating to the development of short supply chain and local markets; (37) Aid for the creation of clusters and networks (see recital (35)) will be granted only to newly formed clusters and networks and those commencing an activity that is new to them. (38) Aid for the activities referred to in recital (36) may be granted also to individual actors. Where aid is granted to individual actors, the results of the supported project or activity must be disseminated. (39) Aid for the establishment and development of short supply chains, as referred to in recitals (36) and (36)(d) will cover only supply chains involving not more than one intermediary between farmer and consumer Eligible costs (40) The eligible costs must be supported by documentary evidence which should be clear, specific and contemporary. VAT is not eligible for aid, except where it is not-recoverable under the Hungarian VAT legislation Aid for promotion measures in favour of agricultural products (Section of the Guidelines) (41) The following costs are eligible: Concerning the organisation of and participation in competitions, trade fairs and exhibitions, provided that aid is accessible to all those eligible in the area concerned, based on objectively defined conditions and subject to recital (10): participation fees; 7

8 travel costs and costs for the transportation of animals; costs of publications and websites announcing the event; the rent of premises and stands and costs of their installation and dismantling; symbolic prizes up to a value of EUR 1000 per prize and per winner of a competition; (d) For producers operating in a given region or producing a given product, the costs of publications in print- and electronic media, websites, and spots in electronic media, on radio or television, aimed at presenting factual information about producers from a given region or producers of a given product, provided that the information is neutral and that all producers have equal opportunities to be represented in the publication; the costs for the dissemination of scientific knowledge and factual information on generic agricultural products (nutritional benefits, suggested use); the costs for consumer-targeted promotion campaigns organised in the media or at retail outlets as well as for all promotion material which is distributed directly to consumers Aid for knowledge transfer and information actions (Section of the Guidelines); (42) The aid may cover the following eligible costs: (d) the costs of organising vocational training, skills acquisition actions, demonstration activities or information actions; the costs of travel, accommodation and per diem expenses of the participants of the activities listed in point ; the costs of the provision of replacement services during the absence of the participants of the activities listed in point ; in the case of demonstration projects, the investment costs listed in recital (43). (43) The following investment costs of demonstration projects are eligible: the construction, acquisition, including leasing, or improvement of immovable property, with land only being eligible to an extent not exceeding 10% of total eligible costs of the operation concerned; the purchase or lease purchase of machinery and equipment up to the market value of the asset; general costs linked to expenditure referred to in points and, where, based on their results, no expenditure under points and is incurred; 8

9 (d) acquisition or development of computer software and the acquisitions of patents, licences, copyrights and trademarks. (44) The costs referred to in recital (43) are eligible to the extent used for the demonstration project and for the duration period of the demonstration project. Only the depreciation costs corresponding to the life of the demonstration project, as calculated on the basis of generally accepted accounting principles, are considered as eligible. (45) Bodies providing knowledge transfer and information services must have the appropriate capacities in the form of staff qualifications and regular training to carry out those tasks. (46) Aid referred to in recitals (42), (42) and (42)(d) will be paid to the provider of knowledge transfer and information action Aid for co-operation in the agricultural sector (Section of the Guidelines) (47) The aid may cover the following eligible costs in so far as they concern agricultural activities: (d) (e) the costs for studies of the area concerned, of feasibility studies, and of drawing up a business plan or local development strategy other than the one referred to in Article 33 of Regulation (EU) No 1303/ ; the costs of animation of the area concerned in order to make feasible a collective territorial project or a project to be carried out by an operational group of the EIP for Agricultural Productivity and Sustainability as referred to in Article 56 of Regulation (EU) No 1305/2013. In the case of clusters, animation may also concern the organisation of training, networking between members and the recruitment of new members; the running costs of co-operation; the direct costs of specific projects linked to the implementation of a business plan, environmental plan, a local development strategy other than the one referred to in Article 33 of Regulation (EU) No 1303/2013 or other actions aiming at innovation including testing; direct costs will be limited to the eligible costs of investment aid as specified in Section of the Guidelines (see recital (48)); the costs for promotion activities. (48) The following direct costs referred to in recital (47)(d) are eligible: 10 Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006, OJ L 347, , p

10 (d) the construction, acquisition, including leasing, or improvement of immovable property, with land purchased only being eligible to an extent not exceeding 10% of the total eligible costs of the operation concerned; in exceptional and duly justified cases, a higher percentage may be permitted for operations concerning environmental conservation; the purchase or lease purchase of machinery and equipment up to the market value of the assets; general costs linked to the expenditure referred to in points and, such as architect, engineer and consultation fees, fees relating to advice on environmental and economic sustainability, including feasibility studies; feasibility studies remain eligible costs even where based on their results, no expenditure under point and is incurred; the acquisition or development of computer software and acquisition of patents, licences, copyrights and trademarks. (49) Aid will be limited to a maximum period of seven years except for collective environmental action in duly justified cases Aid intensity, aid amount (50) The aid intensities and amounts are of the sub-measures are detailed below. For all sub-measures, the maximum aid intensity and aid amount will be calculated by the granting authority when granting the aid. For the purposes of calculating the aid intensity and the eligible costs, all figures used will be taken before any deduction of tax or other charge Aid for promotion measures in favour of agricultural products (Section of the Guidelines) (51) As regards the measures falling under recitals (41) to (41), 100% of the eligible costs. (52) As regards generic promotion campaigns falling under recital (41)(d), 100% of the eligible costs. (53) As regards promotion campaigns focussed on products covered by quality schemes, falling under recital (41)(d), 50% of the eligible costs of the campaign, or 80% as regards promotion in third countries Aid for knowledge transfer and information actions (Section of the Guidelines); (54) The aid intensity regarding recitals (42) to (42) is limited to 100% of the eligible costs. As regards recital (43), the maximum aid amount is limited to EUR over 3 fiscal years Aid for advisory services (Section of the Guidelines) (55) The amount of aid is limited to EUR per advice. 10

11 Aid for co-operation in the agricultural sector (Section of the Guidelines) (56) The aid may reach up to 100% of the eligible costs. (57) The aid intensity of direct costs, referred to in recital (47)(d), is limited to 50% of the eligible costs of the investment, except for the region of Central Hungary, where it is limited to 40%. (58) The aid intensity rates referred to in recital (57) may be increased by 20 percentage points for the following: (d) (e) young farmers or farmers who have set up during the five years preceding the date of the application for aid; collective investments carried out by several farmers; investments in areas facing natural or other specific constraints; operations financed in the framework of the European Innovation Partnership (EIP); investments aimed at the improvement of the natural environment, hygiene conditions or animal welfare standards; the increased aid intensity only applies to the additional costs necessary to obtain a level exceeding the Union standards in force and not leading to an increase in production capacity. (59) The aid intensity referred to in recital (57) is limited to 100% of the eligible costs of the investment in the following cases: the achievement of agri-environment-climate objectives, including biodiversity conservation status of species and habitats as well as enhancing the public amenity value of a Natura 2000 area or other high natural value systems defined in the Rural Development Programme, as long as the investments are non-productive; the restoration of agricultural production potential damaged by natural disasters, exceptional occurrences or adverse climatic events which can be assimilated to a natural disaster, animal diseases or plant pests. (60) As regards investment with preventive objectives related to the events listed in recital (59)), the maximum aid intensity is 80%. However, it may be increased up to 100% if the investment is carried out collectively by more than one beneficiary Cumulation (61) The Hungarian authorities confirmed that in the case of cumulation with other public support measures, the total amount and/or intensity of the aid will not exceed the limits laid down in the Guidelines. 11

12 2.12. Applications for aid (62) Applications for aid shall be submitted to the granting authority before the start of the activity, and shall contain the applicant's name, the size of the undertaking, a description of the project or activity including its location and start and end dates, the amount of aid needed to carry it out and the eligible costs. Large enterprises must describe in the application, the situation without the aid i.e. the counterfactual scenario and submit documentary evidence in support of the counterfactual described in the application. The Hungarian authorities took a commitment that when receiving an application the granting authority will carry out a credibility check of the counterfactual scenario and confirm that the aid has the required incentive effect in the cases where an incentive effect is needed Transparency and competition law (63) The Hungarian authorities have informed the Commission that in order to comply with the transparency requirement the publication of the aid scheme and the individual aid awards above EUR will be done through the following web page: Such information will be published after the decision to grant the aid has been taken and will be kept for at least 10 years and will be available for the general public without restrictions. (64) The Hungarian authorities confirmed that aid under Section complies with the relevant provisions of competition law, in particular with Articles 101 and 102 of the Treaty, as they apply by virtue of Articles 206 to 210 of Regulation (EU) No 1308/ Other information (65) The Hungarian authorities confirmed that the scheme is compatible with the provisions governing the common organisation of the market. (66) The Hungarian authorities confirmed their acceptance that the Commission decision is adopted in the English language. 3. ASSESSMENT 3.1. Existence of aid - Application of Article 107(1) TFEU (67) According to Article 107(1) of the Treaty, "[s]ave 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". (68) The qualification of a scheme as aid within the meaning of this provision therefore requires the following cumulative conditions to be met: (i) the scheme 11 Regulation (EU) No 1308/2013 of the European Parliament and of the Council of 17 December 2013 establishing a common organisation of the markets in agricultural products and repealing Council Regulations (EEC) No 922/72, (EEC) No 234/79, (EC) No 1037/2001 and (EC) No 1234/2007, OJ L 347, , p

13 must be imputable to the State and financed through State resources; (ii) it must confer an advantage on its recipient; (iii) that advantage must be selective; and (iv) the scheme must distort or threaten to distort competition and affect trade between Member States. (69) The source of the aid is the Budget and the granting authority is supervised by the Ministry of Agriculture (see recital (8)). Therefore the scheme is imputable to the State and financed through State resources. (70) The scheme in question confers an advantage on its recipients. This advantage is granted through State resources referred to in recital (8), and it favours selectively certain undertakings (see recitals (9)-(12)) in the agricultural sector by strengthening their competitive position when compared to other undertakings in other sectors in a similar situation. According to the case law of the Court of Justice, the mere fact that the competitive position of an undertaking is strengthened compared to other competing undertakings, by giving it an economic benefit which it would not otherwise have received in the normal course of its business, points to a possible distortion of competition. 12 (71) Pursuant to the case law of the Court of Justice, aid to an undertaking appears to affect trade between Member States where that undertaking operates in a market open to intra-eu trade. 13 The beneficiaries of aid operate on the market of agricultural products where intra-trade takes place. The value of intra-eu trade in agri-food products has reached EUR 350,000 million in The sectors concerned are open to competition at EU level and therefore sensitive to any measure in favour of the production in one or more Member States. Therefore, the notified scheme is liable to distort competition and to affect trade between Member States. (72) In light of the above, the conditions of Article 107(1) of the TFEU are fulfilled. It can therefore be concluded that the notified scheme constitutes State aid within the meaning of that Article. The aid may only be considered compatible with the internal market if it can benefit from one of the derogations provided for in the TFEU Lawfulness of the aid Application of Article 108(3) TFEU (73) The scheme was notified to the Commission on 29 September It has not been implemented yet, except for the promotion sub-measure (see recital (4)), which is the prolongation of an earlier authorised scheme. Therefore, Hungary has complied with its obligation under Article 108(3) TFEU Judgment of the Court of 17 September 1980 in Case 730/79 Philip Morris Holland BV v Commission of the European Communities ECLI:EU:C:1980:209. See in particular the judgment of the Court of 13 July 1988 in Case 102/87 French Republic v Commission of the European Communities ECLI:EU:C:1988:391. Source: EUROSTAT 13

14 3.3. Compatibility of the aid Application of Article 107(3) TFEU (74) Under Article 107(3), an aid may be considered compatible with the internal market, if it is found to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest. (75) For this derogation to be applicable, the aid must comply with the relevant Union State aid rules. (76) In the agricultural sector, this derogation specifically applies to aid which complies with the Guidelines. (77) The notified scheme excludes from the scope of the beneficiaries undertakings in difficulties, as well as undertakings which are subject to an outstanding recovery order following a previous Commission Decision declaring an aid illegal and incompatible with the internal market (see recitals (11) and (12)). Therefore, the conditions of points (26) and (27) of the Guidelines are complied with Application of the Guidelines (78) As regards the notified scheme, Part II, Sections (Aid for promotion measures in favour of agricultural products), (Aid for knowledge transfer and information actions), (Aid for advisory services) and (Aid for co-operation in the agricultural sector) of the Guidelines are applicable Common Assessment Principles (79) Contribution to a common objective According to point (47) of the Guidelines, as regards rural development like measures financed exclusively from national funds, in order to ensure coherence with the rural development measures co-financed by the EAFRD under rural development programmes, Member States should demonstrate how the State aid under consideration fits into and is consistent with the relevant rural development programmes. Pursuant to recital (5), Hungary has fulfilled this condition regarding the sub-measures falling under Sections , and of Part II of the Guidelines. Furthermore, in accordance with point (48) of the Guidelines, the Commission considers that the principle of contribution to the objectives of rural development is met regarding the sub-measure falling under Section of Part II of the Guidelines, which is outside the scope of rural development, since the Commission has gained sufficient experience as to the contribution of such measures to the rural development objectives. Additionally, the scheme is not incompatible with the provisions governing the common organisation of the market (see recital (65)). (80) Need for State intervention 14

15 In accordance with point (55) of the Guidelines, the Commission considers that the market is not delivering the expected objectives without State intervention concerning aid schemes fulfilling the specific conditions laid down in Part II of the Guidelines. Therefore, such aid should be considered necessary to achieve the objectives of common interest specified under Section 3.1 of Part I of the Guidelines. The current notified scheme fulfils the specific conditions laid down in Sections 1.3.2, , and (see recitals (88) to (125)), and therefore point (55) of the Guidelines is complied with. (81) Appropriateness of aid According to point (57) of the Guidelines, the Commission considers that aid granted in the agricultural sector, which fulfils the specific conditions laid down in the relevant Sections of Part II of the Guidelines, is an appropriate policy instrument. The current notified scheme fulfils the specific conditions laid down in Sections 1.3.2, , and (see recitals (88) to (125)), and therefore point (57) of the Guidelines is complied with. According to point (60) of the Guidelines, where a specific form is foreseen for an aid measure described in Part II of these Guidelines, such form is considered as an appropriate aid instrument for the purpose of these Guidelines. Pursuant to recitals (95), (106), (112) and (116), this provision is complied with. According to point (62) of the Guidelines, as regards investment aid not covered by Regulation (EU) No 1305/2013 as part of the rural development programme or as additional financing for such a rural development measure, where the aid is granted in forms that provide a direct pecuniary advantage (for example, direct grants, exemptions or reductions in taxes, social security or other compulsory charges, etc.), the Member State must demonstrate why other potentially less distortive forms of aid such as repayable advances or forms of aid that are based on debt or equity instruments (for example, low-interest loans or interest rebates, State guarantees or an alternative provision of capital on favourable terms) are less appropriate. Since grants have the most direct effect to encourage farmers for participation, they are an appropriate form of aid when they are used. (82) Incentive effect and need for aid Pursuant to recital (62), an aid application shall be submitted by the beneficiary before the relevant activity or project has started and the content of the aid application shall meet the minimum requirements laid down in point (71) of the Guidelines. Therefore, the requirement for incentive effect laid down in point (70) of the Guidelines is complied with. According to the same recital, large enterprises will describe in the application, the situation without the aid, which situation is referred to as the counterfactual scenario and submit documentary evidence in support of the counterfactual described in the application. The Hungarian authorities also took a commitment that when receiving an application, the granting authority will carry out a credibility check of the counterfactual and confirm that the aid has the required incentive effect. Therefore, points (72) and (73) of the Guidelines are complied with. Furthermore, according to point (75)(m) of the Guidelines, by way of derogation from points (70) to (74), aid for promotion measures in accordance with point (464), and (d) is not required or is deemed to have an incentive effect. 15

16 (83) Proportionality of the aid Points (82) and (84) of the Guidelines stipulate that if the aid amount does not exceed the eligible costs and that the aid intensity respects the ceilings set out in the Part II thereof, the aid is deemed to be proportionate. The current notified scheme fulfils the specific conditions regarding the eligible costs and the aid intensities and amounts laid down in Part II, Sections 1.3.2, , and of the Guidelines as follows: (d) According to point (82) of the Guidelines, in order for the aid to be proportionate, the Commission considers that the aid amount should not exceed the eligible costs. According to point (84) of the Guidelines, if the eligible costs are correctly calculated and the maximum aid intensities or maximum aid amounts set out in Part II of these Guidelines are respected, the criterion of proportionality is deemed to be fulfilled. Pursuant to Section 2.10, these provisions are complied with. According to point (85) of the Guidelines, the maximum aid intensity and aid amount must be calculated by the granting authority when granting the aid. The eligible costs must be supported by documentary evidence which should be clear, specific and contemporary. For the purposes of calculating the aid intensity and the eligible costs, all figures used must be taken before any deduction of tax or other charge. Pursuant to recitals (40) and (50), these provisions are complied with. Point (86) of the Guidelines stipulates that VAT is not eligible for aid, except where it is not-recoverable under national VAT legislation. According to recital (40), this latter provision is also complied with. (84) Cumulation of aid The Hungarian authorities confirmed that cumulation with other public support measures is excluded (see recital (61)). (85) Avoidance of undue negative effects on competition and trade According to point (113) of the Guidelines, the Commission considers that where an aid fulfils the conditions and does not exceed the relevant maximum aid intensities, laid down in the applicable Sections of Part II of the Guidelines, the negative effect on competition and trade is limited to the minimum. The current notified scheme fulfils the conditions laid down in Sections 1.3.2, , and (see recitals (88) to (125)), and therefore point (113) of the Guidelines is complied with. (86) Transparency The transparency requirement is complied with as shown in recital (63). (87) Revision clause According to point (737), the Guidelines will be applicable until 31 December Pursuant to recital (7), the duration of the proposed scheme lasts until 30 16

17 June 2021, but the Hungarian authorities took a commitment to align, if needed, the notified scheme with any new Guidelines applicable beyond that date Specific assessment according to the category of aid Aid for promotion measures in favour of agricultural products (Section of the Guidelines) (88) According to point (453) of the Guidelines, Section applies to the whole agricultural sector, and the beneficiaries of aid for the organisation of competitions, trade fairs or exhibitions, referred to in point (464) must be limited to SMEs. Pursuant to recitals (9) and (10), this provision is complied with. (89) According to point (454) of the Guidelines, the promotion activity must be designed either to inform the public about the characteristics of agricultural products, for example, by organising competitions, by participating in trade fairs and public relations activities, by the vulgarisation of scientific knowledge, or by publications with factual information or to encourage economic operators or consumers to buy the agricultural product in question by way of promotion campaigns. The promotion activity may be implemented in the internal market and in third countries. Pursuant to recital (16), this provision is complied with. (90) In accordance with point (455) of the Guidelines, promotion campaigns shall be generic in character and they shall benefit all producers of the type of product concerned, be focused on products covered by quality schemes as referred to in point (282) (see recital (17)). (91) In accordance with point (456) of the Guidelines, promotion campaigns shall comply with Regulation (EU) No 1169/2011 of the European Parliament and of the Council and, where appropriate, with specific labelling rules (see recital (18)). (92) In accordance with point (457) of the Guidelines, the Hungarian authorities have informed the Commission that there were no ongoing promotion campaigns when they submitted the notification. They have also taken a commitment to provide representative samples of promotion materials before the launching of any promotion campaign and have provided new promotion materials since then (see recital (19)). (93) In relation to point (458) of the Guidelines, the Hungarian authorities have confirmed that none of the promotion campaigns will exceed an annual budget of EUR 5 million (see recital (20)). (94) In accordance with point (459) of the Guidelines, where the promotion measure is undertaken by producer groups or other organisations, participation is not subject to membership of those groups or organisations and any contribution in terms of administration fees for the group or organisation is limited to the cost of providing the promotion measure (see recital (21)). (95) In accordance with points (460) and (461) of the Guidelines, the aid will be granted in the form of subsidised services, paid to the provider of the promotion measures (see recital (22)). (96) In accordance with point (463) of the Guidelines, the aid for symbolic prizes referred to in point (464)(v) of the Guidelines may only be paid to the provider 17

18 of the promotion measures if the prize has been actually granted and upon presentation of a proof of the award (see recital (23)). (97) The eligible costs correspond to those listed in point (464) of the Guidelines (see recital (41)). (98) In accordance with point (465) of the Guidelines, the promotion activities referred to in point (464) and promotion campaigns referred to in point (464)(d), and in particular promotion activities which are generic in character and for the benefit of all producers of the type of product concerned, will not mention any particular undertaking, brand name or origin. Promotion campaigns referred to in (464)(d) will not be earmarked for products of one or more particular company or companies. The Commission will not declare compatible State aid for promotion which risks endangering sales or denigrates products from other Member States (see recital (24)). (99) Pursuant to recital (25), the provisions of point (466) of the Guidelines are complied with. (100) For measures falling under points (467) and (469) of the Guidelines, the aid intensity will be 100% of the eligible costs (see recitals (51) and (52)); for measures falling under point (468) of the Guidelines the aid intensity will be 50%, or 80% as regards promotion in third countries (see recital (53)), therefore the provision of these points are complied with. Aid for knowledge transfer and information actions (Section of the Guidelines) (101) In accordance with point (289) of the Guidelines, the aid is accessible to all beneficiaries, as defined in recital (9). Where the provision of technical support is undertaken by producer groups or organisations, membership of such groups or organisations is not a condition for access to the service. Any contribution of nonmembers towards the administrative costs of the group or organization concerned is limited to the costs of providing the service (see recital (26)). (102) In accordance with point (291) of the Guidelines, the aid covers vocational training and skills acquisitions, as well as the organisation of demonstration activities and information actions (see recital (27)). (103) The eligible costs correspond to those listed in point (293) of the Guidelines (see recitals (42) and (43)). (104) In accordance with point (294) of the Guidelines, the costs referred to in point (293)(d)(i) to (iv) are eligible to the extent used for the demonstration project and for the duration period of the demonstration project. Only the depreciation costs corresponding to the life of the demonstration project, as calculated on the basis of generally accepted accounting principles are considered as eligible (see recital (44)). (105) In accordance with point (295) of the Guidelines, bodies providing knowledge transfer and information services will have the appropriate capacities in the form of staff qualifications and regular training to carry out those tasks (see recital (45)). 18

19 (106) In accordance with point (296) of the Guidelines, aid referred to in point (293) and and (d) (i) to (iv) will not involve direct payments to the beneficiaries and will be paid to the provider of knowledge transfer and information action (see recital (46)). (107) The aid intensity and amount correspond to the provisions of points (297) and (298) of the Guidelines (see recital (54)). Aid for advisory services (Section of the Guidelines) (108) In accordance with point (289) of the Guidelines, the aid is accessible to all beneficiaries, as defined in recital (9). Where the provision of technical support is undertaken by producer groups or organisations, membership of such groups or organisations will not be a condition for access to the service. Any contribution of non-members towards the administrative costs of the group or organization concerned will be limited to the costs of providing the service (see recital (28)). (109) In accordance with point (300) of the Guidelines, the aid will help the beneficiaries in the improvement of the economic and environmental performance as well as the climate friendliness and resilience of their investment (see recital (29)). (110) In accordance with point (301) of the Guidelines, the advice will be linked to at least one Union priority for rural development and will cover as a minimum one of the elements listed in points (301) to (g) of the Guidelines (see recital (30)). (111) In accordance with point (302) of the Guidelines, advice may cover other issues and in particular the information related to climate change mitigation and adaptation, biodiversity and protection of waters as laid down in Annex I to Regulation 1306/2013 or issues linked to the economic and environmental performance of the agricultural holding, including competitiveness aspects (see recital (31)). (112) In accordance with point (303) of the Guidelines, the aid will be paid to the advisory service provider (see recital (32)). (113) In accordance with point (304) of the Guidelines, the bodies selected to provide the advisory service will have the appropriate resources in the form of regularly trained and qualified staff and advisory experience and reliability with respect to the fields they advise in (see recital (33)). (114) In accordance with point (305) of the Guidelines, when providing advice, the advisory service providers will respect the non-disclosure obligations referred to in Article 13(2) of Regulation (EU) No 1306/2013 (see recital (34)). (115) In accordance with point (307) of the Guidelines, the amount of aid is limited to EUR per advice (see recital (55)). Aid for co-operation in the agricultural sector (Section of the Guidelines) (116) Pursuant to recital (35), the scheme complies with the provisions of point (315) of the Guidelines. (117) Pursuant to recital (36), the scheme complies with the provisions of point (316) of the Guidelines. 19