Embargo VISTA illimité (*)

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1 EUROPEAN COMMISSION Brussels, C(2015) Embargo VISTA illimité (*) Subject: State Aid / Czech Republic - Aid No SA (2014/N) - Program Farmer Sir, The European Commission (hereinafter: "the Commission") wishes to inform the Czech Republic that, having examined the information supplied by your authorities on the scheme referred to above, it has decided to raise no objections as the scheme is compatible with the Treaty on the Functioning of the European Union (hereinafter: "TFEU"). In taking this decision the Commission has relied on the following considerations: 1. PROCEDURE (1) In accordance with Article 108(3) of the TFEU, the Permanent Representation of the Czech Republic to the European Union notified the Commission of this scheme by letter of 12 December 2014, registered by the Commission on 15 December (2) By a letter dated 12 February 2015 the Commission asked for supplementary information. The Czech authorities provided additional information on 20 February 2015, registered by the Commission on the following day. (*) Ce timbre porte sur l'ensemble des documents qui composent le dossier. PhDr. Lubomír Zaorálek Ministerstvo zahraničních věcí České republiky Loretánské náměstí Praha 1 Česká republika Commission européenne, B-1049 Bruxelles Europese Commissie, B-1049 Brussel Belgium Telephone: 32 (0)

2 (3) In line with the first sentence of point (732) of the European Union Guidelines for State aid in the agricultural and forestry sectors and in rural areas 2014 to (hereinafter: "the AGRI Guidelines") that entered into force on 1 July 2014, the currently notified aid scheme has to be treated as new aid and has to be assessed under these new Guidelines. 2. DESCRIPTION 2.1. Title (4) Program Farmer Budget (5) Total: CZK Mio (ca 144 Mio); Annual: CZK 650 Mio (ca 24 Mio). (6) The aid scheme will be financed from the State budget Duration (7) From the date of the Commission approval until 31 December Legal basis (8) Act No 252/1997 Coll., on agriculture, as amended. (9) Principles determining the conditions for granting the support by the Support and Guarantee Agriculture and Forestry Fund (hereinafter: "Fund") (in Czech "Podpůrný a garanční rolnický a lesnický fond") in the framework of the Program Farmer (hereinafter: "Principles") Aid beneficiaries (10) Agricultural undertakings (including large enterprises) active in primary agricultural production operating on the territory of the Czech Republic (over 1000 beneficiaries) Form (11) Interest rate subsidy. The chosen form reduces the number of the financial institutions and minimalizes the administrative burden when administrating the aid scheme. 1 OJ C 204, , p. 1. 2

3 2.7. Aid intensity (12) The maximum aid intensity is 50%. In case of purchase of breeding animals 30% Objectives of the aid scheme (13) The notified aid scheme is focused primarily on long-term investment plans with a view of restructuring and improving the efficiency, modernization of agricultural activities, of reducing the production costs, improving quality and of the further development of agricultural undertakings. (14) The overall financial situation in the agricultural sector has deteriorated during the financial crisis. The agricultural undertakings experience difficulties to gain access to the external financial funds (credits and loans in particular). The lack of financial reserves and of external financial funds results in undermining investment projects in the agricultural sector. The aim of the notified aid scheme is to create conditions for the development of primary agricultural producers, whereas the aid beneficiaries will receive incentives to invest in new machinery, agricultural equipment, technological units, construction, acquisition or improvement of immovable property as well as to make investments in the purchase of breeding animals. The supported investments shall lead to the improvement of the overall performance and sustainability of agricultural farms, particularly by reducing production costs and/or improving and further developing the agricultural production of the primary agricultural producers Description of the aid scheme (15) The notified aid schemes aims at encouraging the following types of investments: a) purchase of the following particular technology in the agricultural production, incl. accessories: adapter for combine harvester, packing machine for straw and hay, gates and rotating disk, tank, grain cleaner, milking machine, flail chest, ramming haylage and silage, faecal tank, manure rain, compactor, shredder, tiller, cultivator, press, manipulator, cutter, building machine, straw truck, trailer, vehicle bodies, turner, weeding, trimming machines, wrapping machine, filler silo bags, plow, harrow, sprayer, aerator, compost turner, transporter, digging, soil cylinder, sprayers, tiller, spreader, spreader, cutter, typesetter, collector car, drill combinations, silage wagon, separator, rake, harvester, harvesting, shearing machine application manure, soil preparation machine, machine stone collecting, telescopic loader, shaping beds, processing machine for silage and haylage, toppers, mowers, mower conditioner, reaper; b) Investments concerning the construction, acquisition or improvement of immovable property in agricultural holdings which are related to the agricultural production. Investments for the improvement of real property which shall mean any type of the adjustment or alteration which has a character of a technical improvement pursuant to Act No 586/1991 Coll., on income taxes, as amended. The purchase of land constitutes eligible costs only if it does not exceed 10% of the total eligible investment costs 3

4 associated with construction, acquisition or improvement of the real property; c) Purchases of breeding animals in order to improve the genetic value of the herd whereas the following conditions have to be met: The beneficiary is an "active farmer" within the meaning of Article 9 of Regulation (EU) No 1307/ ; The purchase of animals for breeding will improve the genetic value of the herd of cattle, sheep and goats; The investment concerns both males and females registered in the herd books; In case of replacement of existing livestock the investment aims at replacing those animals not registered in the herd books; In the case of purchases of females, only those females can be purchased which have not yet given birth to first offspring; Purchased animals must remain in the herd for at least 4 years. (16) The following investments will in particular not be supported under the notified aid scheme: Eligible costs routine repairs of technological equipment, buildings and structures, purchase of personal cars, trucks, tractors including automotive lifts, trailers, semitrailers and superstructures. (17) Loan interest rates costs granted by the commercial financial institutions and banks for investment projects described in recital (15). Formal requirements of the aid (18) The applicant shall submit an application form to the awarding authority, which will be the Fund, before the investment project has been launched. (19) The Principles provide that aid cannot be granted in cases where the investment project was already launched before the application has been submitted to the awarding authority. The application shall contain the investment plan and all technical documentation and information clearly identifying works (investment) to be performed. 2 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

5 (20) As large enterprises are also eligible for aid under the notified aid scheme, the Czech authorities confirmed that each applicant who is a large enterprise has to describe in the application the hypothetical situation which would occur if no aid had been granted. This analysis has to be accompanied by a verifiable technical documentation. (21) With regard to the potential distortion of competition, the Czech authorities state that the aid intensity rate was set up within the range of the maximal allowed aid intensity which ensures that no distortion of competition will occur. It follows from their analysis that the present aid scheme does not support any extension of production processes. Support is given with the view of ensuring and promoting the efficient and sustainable primary agricultural production and of its modernisation (recital (13)). The Czech authorities furthermore state that the broad subject of support across the various segments of the industry and the high number of beneficiaries also reduces the risk of concentration of support and negative effects on competition and trade. This structure in overall excludes, therefore, according to the Czech authorities, any potential distortion of competition and trade. (22) The Czech authorities confirm that the notified measure is consistent with rural development objectives under point (10) of the AGRI Guidelines and compatible with the rules on the common organisation of markets in agricultural products. They have explained that the notified aid scheme fits in and is consistent with that Czech Rural Development Programme (23) The Czech authorities have provided an analysis of the potential impact of the present State aid on the environment. It follows from their analysis that the present aid scheme does not support any extension of the production nor will any environmentally unfriendly activities be supported. The aid scheme shall result in decreasing the production inputs, improving the quality of the products, increasing the work efficiency, savings of fuels. The supported modernisation projects will thus in overall contribute to the decrease of environmental burden. (24) The Czech authorities conclude, therefore, that the present aid scheme will have no negative impact on the environment and that it is in line with the EU common agricultural policy. Procedural requirements of the aid application (25) The applicant has to submit the application with the investment plan and all technical documentation and information clearly identifying this investment to the awarding authority. The closure date for applications will be 30 September (26) Each project can be supported only once. The applicant shall submit the loan agreement concluded with a bank within two months from the date of the submission of the application. The awarding authority has discretion with regard to granting the aid. (27) In examining the application, the awarding authority will apply the criteria established in the Principles and national legislation. The awarding authority may ask for additional documents and information necessary for the evaluation of the application. If the conditions of the support scheme have been fulfilled, the Fund 5

6 concludes an agreement on granting the aid with the applicant. The aid will be granted twice a year for the preceding semester. If the conditions to grant an aid have not been fulfilled, the application will be rejected. The applicant may file an appeal to the Fund. (28) The Czech authorities confirm that the awarding authority carries out a credibility check of the counterfactual scenario in case of large enterprises and confirm that the aid will have the required incentive effect. (29) The Fund, its authorized employees and other subjects (Ministry of Agriculture in particular) will carry out regular controls. The beneficiaries shall co-operate with the controlling authorities, to enable on-spot controls in their business premises and to present all relevant documentations, incl. invoices, about the supported investment projects. The banks regularly inform the Fund about the fulfilment of the conditions of the loan agreements concluded with the respective beneficiaries Cumulation (30) The Principles envisage a possibility of cumulating the present grant with aid received from other resources. (31) The same investment projects might be supported under the measures of the Rural Development Programme for the Czech Republic and in case of deminimis aid. (32) To explain the interplay between the support under the Rural Development Programme and that under the notified aid scheme, the Czech authorities stated the following: support under the Rural Development Programme will be provided in the form of a direct subsidy and is planned to be granted to the limited group of applicants; in contrary, under the notified aid scheme the support will be granted in the form of an interest subsidy on commercial loans. Moreover, the support will target a large circle of agriculture undertakings. (33) The Czech authorities committed that it would always be ensured that such cumulation does not exceed the maximum rate or amount of aid allowed under the applicable provisions of the AGRI Guidelines and other requirements following from EU law. In cases of possible cumulation of the support under the notified scheme and the measures provided for in the Rural Development Programme for the Czech Republic a mode for exchange of information between the Fund and aid providers within the Rural Development Programme will be established to avoid any risk of overcompensation. 6

7 2.11. Other commitments (34) The Czech authorities provided assurances that the application procedure, the conditions for obtaining aid and the adherence to the terms of aid are based on the principle of free and equal access for all applicants. No selective approach is allowed. The implementation of the scheme shall be subject to maximum transparency. The Czech authorities commit to respect the transparency requirements under points 128 to 132 of the AGRI Guidelines. (35) Furthermore the Czech authorities commit to suspend the payment of the aid if the beneficiary still has at its disposal an earlier unlawful aid that was declared incompatible by a Commission Decision (either concerning an individual aid or an aid scheme), until that beneficiary has reimbursed or paid into a blocked account the total amount of the unlawful and incompatible aid including the corresponding recovery interest. (36) The Czech authorities have further confirmed that undertakings in difficulty within the meaning of the Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty 3 are excluded from receiving any aid under the present scheme ASSESSMENT UNDER STATE AID RULES 3.1. Presence of State aid within the meaning of Article 107(1) TFEU (37) Pursuant to Article 107(1) TFEU, aid granted by a Member State or through State resources in any form whatsoever that distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods is incompatible with the internal market, insofar as it affects trade between Member States. (38) The aid scheme confers an advantage on selected recipients as it favours certain undertakings economically active in the Czech Republic by providing a support for some investment projects defined in recital (15). (39) The aid measures in question are financed through the State budget. Therefore, the advantage is deemed to be granted from State resources (recital (6)). (40) According to the case law of the Court of Justice, aid to an undertaking is deemed to affect trade between Member States where that undertaking operates in a market open to trade at EU level. 5 The mere fact that the competitive position of an undertaking is strengthened compared with other competing undertakings, by giving it an economic benefit which it would not otherwise have received in its 3 Communication from the Commission Guidelines on State aid for rescuing and restructuring nonfinancial undertakings in difficulty OJ C 249, , p The definition of undertakings in difficulty applied under the AGRI Guidelines is identical with that applied in the Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty. 5 See in particular Judgment of the Court of 13 July 1988, Case 102/87, French Republic v. Commission of the European Communities, ECR 1988, p

8 normal course of business, points to a possible distortion of competition. 6 Therefore an aid granted by a Member State to an undertaking may help to maintain or increase domestic activity, with the result that undertakings established in other Member States have less chance of penetrating the market of the Member State concerned. 7 (41) The sector concerned (primary agricultural production) is open to competition at EU level and therefore sensitive to any measure in favour of the production in one or more Member States. As there is substantial intra-eu trade in agricultural products in general 8, the notified aid scheme is liable to affect trade between Member States. (42) In the light of the above, the conditions of Article 107(1) TFEU are fulfilled. It can therefore be concluded that the notified scheme constitutes State aid within the meaning of that Article Lawfulness of the aid (43) The Czech authorities have notified the aid scheme before its implementation, they have declared (recital (7)) that the aid scheme will be implemented from the date of the Commission approval decision Compatibility of aid pursuant to Article 107(3)(c) TFEU (44) The aid may be regarded as compatible with the internal market only if one of the exemptions provided for in the TFEU applies. (45) The present notified aid scheme covers support for investments in the agricultural sector described in recital (15). Therefore, the State aid rules in the agricultural sector and forestry are applicable. (46) The Commission has examined the proposed aid scheme in the light of Article 107(3)(c) TFEU and of the AGRI Guidelines, therein under Part I, Chapter 3. Common assessment principles and under Part II, Chapter 1, Section Aid for investment in tangible assets and intangible assets on agricultural holdings linked to primary agricultural production Application of the AGRI Guidelines (47) Point (135) of the AGRI Guidelines stipulates that the Commission will consider this type of aid compatible with the internal market under Article 107(3)(c) TFEU if it complies inter alia with the common assessment principles of these Guidelines. 6 Judgment of the Court of 17 September 1980, Case 730/79, Philip Morris Holland BV v. Commission of the European Communities, ECR 1980, p See in particular Judgement of the Court of 15 December 2005, Case C-66/02, Italy v. Commission, ECR 2005, p. I-10968, para. 117; and of 15 June 2006, Joined Cases C-393/04 and C-41/05, Air Liquide Industries Belgium, ECR 2006, p. I-5332, para In 2014 the Czech Republic s import of agriculture products amounted in value of EUR 7.1 billion and the export amounted in value of EUR 6.1 billion (source: Eurostat). 8

9 Common assessment principles (48) According to point (135) of the AGRI Guidelines, the common assessment principles apply to aid granted in accordance with Article 107(3) TFEU. (49) The notified aid scheme contributes to a common objective in line with point (43) of the AGRI Guidelines. As described in recital (13) above, the objective of the present notified scheme is the restructuring and improvement of the efficiency and modernization of agricultural activities, reduction of the production costs, improvement of the product quality and the further development of agricultural undertakings. The documentation provided in the notification also shows that support is targeted to clearly defined objectives (recitals (13) and (14)) reflecting identified structural needs and structural disadvantages of the agricultural sector in the Czech Republic. (50) As the Czech authorities demonstrated by providing the relevant documentation that the notified aid scheme does not form part of the regional framework for rural development and that in overall, it fits into and is consistent with the rural development framework (recital (22)), the conditions of point (47) and (58) of the AGRI Guidelines are met. (51) As demonstrated by the Czech authorities (recital (15)), the aid scheme does not support any extension of the production or environmentally unfriendly technologies. It aims exclusively at encouraging investments projects which would contribute to the improvement of the efficiency and modernization of agricultural activities. Therefore, no negative impact on environment within the meaning of point (52) of the AGRI Guidelines has been identified. (52) It can be in overall concluded that a necessity of a State intervention within the meaning of points (53) and (54) of the AGRI Guidelines exists. The analysis demonstrates that the notified aid scheme can be considered necessary to achieve the objectives of common interest, in particular further encouraging the modernisation of the agricultural production. As explained by the Czech authorities, the aid scheme shall provide for incentive for gaining access to the external financial funds (recitals (13) and (14)). Thus, if complying with the other conditions of the AGRI Guidelines as analysed below, it can be concluded that the conditions of point (55) of the AGRI Guidelines have been met. (53) The Czech authorities analysed different forms of aid and demonstrated in line with points 59 et seq. of the AGRI Guidelines that the selected form of aid interest rate subsidy appears to be the most suitable among available forms of aid (recital (11)). (54) The Czech authorities have demonstrated that the present aid scheme provides an incentive effect for undertakings. As described above (recitals (18) and (19)), the aid cannot be granted in cases where the investment project was already launched before the application has been submitted to the awarding authorities. Thus, it can be concluded that the aid scheme complies with points (70) and (71) of the AGRI Guidelines. (55) The Czech authorities reassured, in line with point (72) of the AGRI Guidelines, that the described incentive effect of the aid will be strengthened as the large 9

10 enterprises are required to submit an analysis of the hypothetical situation which would occur if no aid had been granted (recital (20)). (56) Furthermore, the Czech authorities stated that the aid under the notified scheme might be cumulated with (co-exisiting) support investment measures under the Czech Rural Development Program They, however, explained (recital (32)) the interplay of both schemes and committed that such cumulation will not in any case exceed the aid ceilings or amount of aid allowed under the applicable provisions of the AGRI Guidelines and of the European Union law (recital (33)). It can be, therefore, concluded that the requirement of cumulation has been met. (57) According to point (82) of the AGRI Guidelines, in order for the aid to be proportionate, the Commission considers that the aid amount should not exceed the eligible costs. As demonstrated by the Czech authorities (recitals (12)), the maximum aid intensity was set up within the limits of the AGRI Guidelines. Therefore, the risk of overcompensation appears to be eliminated. As the aid is paid in instalments (recital (27)), they have also confirmed that the aid is discounted to its value at the moment of granting the aid, the eligible costs will be discounted to their value at the moment of granting the aid and as a principle, the interest rate used for discounting purposes will be the discount rate applicable on the date of granting the aid according to point (88) of the AGRI Guidelines. It can be, therefore, concluded that the requirement of proportionality has been met. (58) The Czech authorities have analysed the risk of distortion of competition when implementing the notified aid scheme. As demonstrated in recital (21), support is exclusively given to encourage the modernisation of the agricultural production with the view of ensuring and promoting the efficient and sustainable agricultural production and its modernisation. Moreover, the Czech authorities indicated that the maximum level of aid intensities will be kept (recital (12)). It can, therefore, be concluded that the negative effect on competition and trade will be limited to the minimum in line with point (113) of the AGRI Guidelines. (59) Regarding the transparency requirements stipulated in points (128) to (132) of the AGRI Guidelines, the Czech authorities have committed to comply with these requirements (recital (34)) Aid for investment in tangible assets and intangible assets on agricultural holdings linked to primary agricultural production (60) In line with point (136) of the AGRI Guidelines, the aid will be given for interest rates on loans given for the investment in tangible and intangible asset on agricultural holdings (investment projects as listed in recital (15)) linked to the primary agricultural production. (61) As confirmed by the Czech authorities, the investment pursues the objective of the modernisation, restructuring and improving the efficiency, modernization of agricultural activities (recital (13)). It can be concluded that conditions of point (143)(a) of the AGRI Guidelines are complied with. (62) The eligible costs communicated by the Czech authorities (recitals (15) - (17)) match those listed under point (144)(a) and (b) of the AGRI Guidelines. 10

11 (63) In compliance with point (147) of the AGRI Guidelines the aid will be paid for the purchase of breeding animals. The Czech authorities have demonstrated that the objective of this purchase is the improvement of the genetic quality of the herd and that the conditions listed in point (147) (a) (e) of the AGRI Guidelines have been met (recital (15)(c)). (64) The aid intensity for eligible costs will not exceed the maximum intensity of 50% as according to the Czech Rural Development Program gross domestic product (GDP) per capita of the Czech regions for the period 1 January 2007 to 31 December 2013 was less than 75% of the average of the EU-25. The Czech authorities confirmed that this threshold was exceeded for Prague region. Therefore, the maximum aid intensity for this region will not exceed 40%. The maximum aid intensity for the purchase of breeding animals will not exceed 30%. It can be concluded that the maximum aid intensities provided for in point (152)(d), (e) and (f) of the AGRI Guidelines (recital (12)) are complied with Other conditions Duration of the aid scheme (65) As to the duration of the scheme, pursuant to point 719 of the AGRI Guidelines the Commission shall only authorize schemes of limited duration. Schemes covering State aid for measures that can also benefit from EAFRD co-financing under Regulation (EU) No 1305/ should be limited to the duration of the programming period As stipulated in recital (7), this condition has been met. Outstanding recovery orders (66) The Commission takes note that according to settled case law 10, the Czech authorities commit to suspend the payment of the notified aid if the beneficiary still has at its disposal an earlier unlawful aid that was declared incompatible by a Commission Decision (either concerning an individual aid or an aid scheme), until that beneficiary has reimbursed or paid into a blocked account the total amount of unlawful and incompatible aid including the corresponding recovery interest (recital (35)). Undertakings in difficulty (67) The Commission takes note of the commitment by the Czech authorities that aid will not be granted to undertakings in difficulty within the meaning of the Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty (recital (36)). 9 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 1698/2005, OJ L 347, , p See Judgment of the General Court of 13 September 1995, joined cases T-244/93 and T-486/93, Textilwerke Deggendorf GmbH v. Commission, p. II-2288, paras 51 and 56 et seq.; confirmed by the judgment of the Court of Justice of 15 May 1997, case C-355/95 P, p. I-2575, paras 22 and 26 et seq. 11

12 (68) In view of the above considerations that AGRI Guidelines are complied with, the Commission considers that the notified aid scheme is compatible with the internal market in accordance with Article 107(3)(c) TFEU. 4. CONCLUSION (69) The Commission has accordingly decided not to raise objections to the scheme on the grounds that it is compatible with the internal market pursuant to Article 107(3)(c) TFEU. (70) If any parts of this letter are covered by the obligation of professional secrecy according to the Commission communication on professional secrecy and should not be published, please inform the Commission within fifteen working days of notification of this letter. If the Commission does not receive a reasoned request by that deadline the Czech Republic will be deemed to agree to the publication of the full text of this letter. If the Czech Republic wishes certain information to be covered by the obligation of professional secrecy please indicate the parts and provide a justification in respect of each part for which non-disclosure is requested. (71) Your request should be sent electronically via the secured system Public Key Infrastructure (PKI) in accordance with Article 3(4) of Commission Regulation (EC) No 794/ , to the following address: agri-state-aidsnotifications@ec.europa.eu. For the Commission Phil HOGAN Member of the Commission 11 Commission Regulation (EC) No 794/2004 of 21 April 2004 implementing Council Regulation (EC) No 659/1999 laying down detailed rules for the application of Article 93 of the EC Treaty (OJ L 140, , p. 1). 12