EUROPEAN COMMISSION. (3) Welsh Government Rural Communities - Rural development programme Rural Community Development Fund.

Transcription

1 EUROPEAN COMMISSION Brussels, C(2016) 8102 final Subject: State aid / United Kingdom (Wales) SA (2016/N) Welsh Government Rural Communities - Rural Development Programme Rural Community Development Fund Sir, The European Commission (hereinafter: "the Commission") wishes to inform the United Kingdom (hereinafter: "UK") 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 that scheme as it is compatible with the internal market pursuant to Article 107(3)(c) of the Treaty on the Functioning of the European Union ("TFEU"). The Commission has based its decision on the following considerations: 1. PROCEDURE (1) The United Kingdom pre-notified the Commission the aid scheme by letter of 29 February 2016, registered by the Commission on the same day. The Commission has requested additional information from the UK authorities by letter of 21 April 2016, which the UK authorities provided on 16 May (2) By letter of 8 July 2016, registered by the Commission on the same day, the UK notified, according to Article 108(3) TFEU, the above mentioned aid scheme. The Commission has requested additional information from the UK authorities by letter of 8 September 2016, which the UK authorities provided on 13 October 2016 and 28 October 2016 registered by the Commission on the same day. 2. DESCRIPTION 2.1. Title (3) Welsh Government Rural Communities - Rural development programme Rural Community Development Fund. The Rt Hon Boris JOHNSON Secretary of State for Foreign and Commonwealth Affairs King Charles Street London SW1A 2AH UNITED KINGDOM Commission européenne/europese Commissie, 1049 Bruxelles/Brussel, BELGIQUE/BELGIË

2 2.2. Objective (4) With the notified aid scheme the UK authorities wish to support the underlying actions of sub-measures 7.1, 7.2, 7.4, 7.5, 7.6 and 7.7 of measure "M07 - basic services and village renewal in rural areas" of the UK Rural Development Programme for of Wales (hereinafter: RDP) 1, which focus on fostering local development in rural areas. Under this measure the Welsh Managing Authority will offer grants primarily aimed at LAGs 2 and other community-based organisations who will apply for support towards projects that aim to tackle poverty. The sub-measures are: 7.1. Support for the drawing up and updating of plans for the development of municipalities and villages in rural areas and their basic services and of protection and management plans relating to Natura 2000 sites and other areas of high nature value, 7.2. Support for investments in the creation improvement or expansion of all types of small scale infrastructure, excluding investments in renewable energy and energy saving, 7.4. Support for investments in the setting-up, improvement or expansion of local basic services for the rural population including leisure and culture, and the related infrastructure, 7.5. Support for investments for public use in recreational infrastructure, tourist information and small-scale tourism infrastructure, 7.6. Support for studies and investments for maintenance, restoration and upgrading of the cultural and natural heritage, 7.7. Support for investments in relocation of activities and conversion of buildings. (5) An environmental assessment of Measure 7 was made as part of the Ex-ante Evaluation of the Welsh Rural Development Programme in order to meet the requirements of Article 55 of the common provisions regulation (EU) No 1303/ The environmental requirements of the notified State aid scheme are identical to the RDP measure. One of the main conclusions of the Strategic Environmental Assessment (SEA) was that the RDP clearly has the potential to protect and enhance ecosystem services and biodiversity values, culture and heritage and climate issues United Kingdom Rural Development programme (Regional) Wales 2014UK06RDRP004 approved by Commission Decision C(2015)3488 of 26 May Local Action Group (LAG). Ex-ante Evaluation of the Welsh Rural Development Programme , final version of July 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. 320). 2

3 (6) The UK authorities have explained that the aid under the various sub-measures of the scheme will support a wide range of interventions and that any impact of the scheme on competition and trade will be minor given the small scale and local nature of the funded activity. The ex-ante evaluation report of the RDP 5 underlines this aspect by expressing the view of the possibility that the funding available is spread thinly and that the impact that can be achieved by any of the measures (or groups of measures) could therefore be limited. The report mentions that the overall impact of the Programme may be limited at a macro level Legal basis (7) The legal basis is: European Communities Act 1972 (Section 2(1)), Government of Wales Act 2006 (Section 80), The Rural Development Programme (Wales) Regulations 2014, 2014 No (W.327) and Measure 07 of the Welsh Government Rural Communities Rural Development Programme adopted in application of Regulation (EU) No 1305/2013 of 17 December Duration (8) From the date of the approval by the Commission until 31 December Budget (9) The overall budget is GBP and the annual budget is GBP (10) The aid will be co-financed at 43.0% by the EAFRD and at 57.0% by national resources (Welsh Government domestic funds) Beneficiaries (11) The following beneficiaries, which must be a legal entity, can apply for aid under the notified sub-measures: Local Action Groups, Local community groups (including charities, trusts and co-operatives), Social enterprises (including Companies Limited by Guarantee), Community interest companies, Mutuals, Local authorities, The Welsh Government, Private companies See footnote 3. 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. 487). The equivalents of these amounts in EUR are respectively EUR and EUR The exchange rate used is 0.8 GBP:EUR, which is the rate applied by the UK authorities for the RDP measures. 3

4 According to the UK authorities, the aid scheme is targeted at beneficiaries, qualifying as small and medium-sized enterprises (SMEs) within the meaning of Annex I to Regulation (EU) No 702/ In addition to SMEs this aid scheme is open to large enterprises, with the exception of sub-measure 7.7 where support is restricted to SMEs. Also under sub-measure 7.7 social enterprises of any scale are not eligible. Private companies are eligible to apply for aid under sub-measure 7.7, however they are not eligible to apply for aid under measures 7.1, 7.2, 7.4, 7.5 and 7.6. (12) The number of beneficiaries is estimated to be over (13) Undertakings in difficulty within the meaning of point 35(15) of the European Union Guidelines for State aid in the agricultural and forestry sectors and in rural areas 2014 to (hereinafter: "the Guidelines") are excluded as beneficiaries. (14) Aid will not be granted to undertakings still having at their disposal an earlier unlawful aid that was declared incompatible by a Commission decision (either concerning an individual aid or an aid scheme) Aid instrument (15) Direct grant Description of the aid scheme (16) The aid scheme consists of six measures in rural areas, which are identical to the underlying RDP sub-measures, except for the investments in renewable energy and energy saving of RDP sub-measure 7.2, which are not covered by the notified scheme Support for drawing up and updating of plans for the development of municipalities and villages in rural areas and their basic services and of protection and management plans relating to Natura 2000 sites and other areas of high nature value (RDP sub-measure 7.1) (17) Under this sub-measure support will be offered for the development or updating of local planning documentation and for the elaboration of management plans for Natura 2000 and other High Nature Value areas. Support will also be given for associated consultation activities during the development/elaboration of the plans and associated awareness raising activities and public consultations to establish the plans once they are produced. (18) The Welsh Government will ensure that environmental considerations are incorporated in the development of village development plans which contain land use elements. These plans will have to be developed in accordance with regional spatial planning controls to respect the environment and control urban pressure. The plans will include the environmental aspect of land use planning and 8 9 Commission Regulation (EU) No 702/2014 of 25 June 2014 declaring certain categories of aid in the agricultural and forestry sectors and in rural areas compatible with the internal market in application of Articles 107 and 108 of the Treaty on the Functioning of the European Union (OJ L 193, , p. 1). OJ C 204, , p. 1, as amended by Commission Notice amending the European Union Guidelines for State aid in the agricultural and forestry sectors and in rural areas 2014 to 2020 (OJ C 390, , p.4). 4

5 demarcate the local bio-corridors and bio-centres that would then represent the limits for investments in the area Support for investments in the creation, improvement or expansion of all types of small scale infrastructure, excluding investments in renewable energy and energy saving (RDP sub-measure 7.2) (19) Under this sub-measure support will be given to small-scale investment in the construction or reconstruction of centres for social services and/or care and educational facilities. (20) The UK authorities have confirmed that the notified State aid scheme does not cover aid for investments in renewable energy and energy savings 10. (21) Support for broadband infrastructure, which is foreseen under sub-measure 7.3 of the RDP, is not covered by the present notified State aid scheme Support for investments in the setting-up, improvement or expansion of local basic services for the rural population including leisure and culture, and the related infrastructure (RDP sub-measure 7.4) (22) Measure 7.4 aims to support investments in the establishment, extension and modernisation of local markets. There are health benefits to be gained by giving access to fresh food, economic and environmental benefits (e.g. reduced transport costs and smaller carbon footprint). There are also social benefits to be gained, which are important for combatting the effects of rural isolation and improving people s quality of life. (23) It is intended to use the measure to support investments associated with local transport solutions to serve the specific needs of rural communities such as Community transport initiatives, dial-a-ride and/or car-share schemes. (24) Measure 7.4 will also provide opportunities to support other services to offer outreach to rural areas, for example, the provision of advice and information regarding financial services (e.g. via credit unions). The measure will not be used to support operational costs for the provision of financial services. (25) Support via the measure will be offered to increase non-statutory services such as childcare and dependent care and to develop options for service delivery through locally-led social enterprise models According to the Welsh authorities investments for sub-measure 7.2 falling within the scope of the RDP of Wales, but outside the scope of the Guidelines will be covered under SA (2015/X) "Welsh Government Aid for Environmental protection Scheme", or under de minimis rules of Commission Regulation (EU) No 1407/2013 of 18 December 2013 (OJ L 352, , p.1). According to the Welsh authorities investments for sub-measure 7.3 falling within the scope of the RDP of Wales, but outside the scope of the Guidelines will be covered under SA (2016/N) "National Broadband Scheme for the UK for " and notified under Article 52 of GBER, or under de minimis rules of Commission Regulation (EU) No 1407/2013 of 18 December 2013 (OJ L 352, , p.1). 5

6 Support for investments for public use in recreational infrastructure, tourist information and small-scale tourism infrastructure (RDP submeasure 7.5) (26) This measure will be used to offer small-scale investment to improve the signposting of touristic sites, to construct and modernise tourism information centres, to provide visitor information and guidance. Support will also be given for the support of the construction of shelters and safety facilities linked to softtourism and the establishment of e-booking systems for tourist services Support for studies and investments for maintenance, restoration and upgrading of the cultural and natural heritage (RDP sub-measure 7.6) (27) Support will be given to studies and investments associated with the maintenance, restoration and upgrading of the cultural and natural heritage of villages, rural landscapes and high nature value sites, including related socio-economic aspects, as well as environmental awareness actions. Possible interventions may be for example: restoration of natural ecosystems including high nature value areas, restoration or creation of wilderness areas creation of regional networks regarding Natura 2000, territorial studies for the design of local agri-environmental measures and information actions on agri-environmental measures, information and awareness raising activities, e.g. visitors centres in protected areas, publicity actions, interpretation and thematic trails, conservation of small scale built heritage (chapels, bridges, public amenities, etc.), inventory actions to list cultural/natural heritage sites, preservation of immaterial heritage like music, folklore, ethnology. For example, support could be given for the creation of a digital archive recording oral history from the inhabitants of an area which would be collated and the collection then made publicly accessible. (28) Aid under this measure will only be granted for heritage formally recognised as cultural or natural heritage by the competent public authorities of the Member State Support for investments in relocation of activities and conversion of buildings (RDP sub-measure 7.7) (29) This measure supports investments to convert buildings or other facilities and to enable the relocation of activities in order to contribute to tackling poverty and to improve the quality of life, or increase the environmental performance of the settlement. These actions aim to improve the attractiveness of the rural areas and eventually to lead to job creation. 12 The competent authority for cultural heritage is the Welsh Government. The competent authority for natural heritage is the Natural Resources Wales (NRW). 6

7 (30) The Welsh Government will examine each application for relocation support to exclude cases concerning businesses that have previously received support for setting up in a low performing urban region. (31) Applications must show how the aid will contribute to the achievement of the development plan in place. The UK authorities undertook that investments under this measure are implemented in accordance with plans for the development of municipalities and villages in rural areas and their basic services, where such plans exist. The actions have to be complementary to or fit with the approved local development strategy. (32) The UK authorities have confirmed that if relocation of activities or conversion of buildings or other facilities, in addition to the dismantling, removal and rebuilding of existing facilities, results in modernisation of these facilities, or in an increase in production capacity, the aid intensities for investments of point 638 of the Guidelines will be applied Common features to the sub-measures (33) The aid applications have to be submitted to the competent authority before the start of the relevant project or activity and must 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. (34) The aid scheme is open to all firms, including small and medium sized enterprises, as well as large enterprises. The UK authorities have notified that large enterprises have to describe in the application the situation without the aid and to submit documentary evidence in support of this situation, which will be checked on its credibility by the granting authority. (35) With regard to investment aid to large enterprises, the Member State has ensured that the aid under the notified scheme is limited to the minimum on the basis of the "net-extra cost approach" and will not exceed the minimum necessary to render the project sufficiently profitable, in accordance with respectively points 95 and 96 of the Guidelines. The aid amount does not lead to an increase of the internal rate of return (hereinafter: "IRR") of the project beyond the normal IRR applied by the undertaking concerned in other investment projects of a similar kind or, if these rates are not available, to an increase of its IRR beyond the cost of capital of the undertaking as a whole or beyond the rates of return commonly observed in the sector concerned. In addition the Member State will ensure that the aid amount corresponds to the net extra costs of implementing the investment in the area concerned, compared to the counterfactual scenario in the absence of aid. The method explained in this recital will be used together with maximum aid intensities as a cap. (36) Value added tax (VAT) is not eligible for support under the scheme except where it is not recoverable by the beneficiary. (37) The aid under the notified scheme can be cumulated with aid received from other local, regional or national schemes. However, the Welsh Government will ensure by means of the application appraisal process that the maximum aid intensities indicated in the scheme are not exceeded. 7

8 (38) Any investments implemented under sub-measures 7.2, 7.4, 7.5, 7.6 and 7.7 have to be in line with the existing plans for the development of villages and their basic services and consistent with the local development strategy for the area. (39) Eligible costs can include capital items, such as: The construction, acquisition including leasing or improvement of immovable property (improvement of property includes refurbishment of existing premises including conversion costs incurred when bringing a property into a new use), The purchase of new machinery and equipment, including computer software up to the market value of the asset, for all beneficiaries, The purchase of second hand equipment on the basis of the following eligibility criteria, that it: 1) is fit for purpose for the proposed project activity, 2) is of good enough quality and with enough working life to be able to meet at least a five year asset retention criteria, 3) represents a sufficient advantage in terms of value for money when compared with new equipment. (40) General costs to a maximum of 12% of the total capital expenditure are also eligible and are costs that are either one-off or time-limited and assist the enterprise overcome a pre-defined and achievable developmental hurdle. These costs can include feasibility studies and the acquisition of patent rights and licences; consultant s and architect s fees, other technical design costs, site survey costs, professional fees, planning costs and other costs associated with any necessary licences and/or consents are also eligible, even if they have been completed and paid for prior to approval, provided they are essential for the delivery of the project. (41) The lease-purchase of new machinery and equipment, including computer software up to the market value of the asset, is also eligible, however other costs connected with the leasing contract, such as lessor s margin, interest refinancing costs, overheads and insurance charges, shall not be eligible expenditure. (42) Maintenance and/or any other type of operational costs are not eligible for support. (43) With regard to the measures 7.2, 7.4, 7.5, 7.6 and 7.7 the eligible costs are related to small-scale infrastructure, which are restricted to EUR 200,000 per application. (44) With regard to the measures 7.2, 7.4, 7.5, 7.6 and 7.7 a minimum limit of grant of EUR 3,000 will apply. For studies under measures 7.1 and 7.6 a minimum limit of grant of EUR 500 will apply. (45) According to the UK authorities, the aid scheme provides that with regard to the sub-measures 7.4, 7.5 and 7.6 any net revenue is deducted from the eligible costs through the operation of a clawback mechanism. (46) The support is given in the form of a grant. 8

9 (47) The aid intensity for investments under measures 7.2, 7.4, 7.5, 7.6 and 7.7 is 80% of the eligible costs and for studies under measures 7.1 and 7.6, 50% of the eligible costs Other commitments (48) The UK committed to respect the transparency requirements set out in point (128) of the Guidelines by the deadline set out in point (131) thereof. The UK national website link for agriculture and fisheries is accessible via the gov.uk website, with the hyperlink going straight through to the Commission transparency search engine. (49) The UK authorities have committed to adapt the aid scheme at hand, after the expiry of the currently applicable State aid rules, to the future State aid rules once these rules start to apply. (50) The UK authorities committed to notify an individual investment aid granted under the notified scheme, if the aid from all sources exceeds the notification threshold specified in point (37)(c) of the Guidelines. 3. ASSESSMENT 3.1. Existence of aid - Application of Article 107(1) TFEU (51) According to Article 107(1) TFEU, "[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". (52) The qualification of a measure as aid within the meaning of this provision therefore requires the following cumulative conditions to be met: (i) the measure 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 measure must distort or threaten to distort competition and affect trade between Member States. (53) The scheme in question confers an advantage on its recipients, as the scheme provides direct grants to the beneficiaries. This advantage is granted through State resources (recitals (9) and (10)), and it favours only certain undertakings in rural areas (recitals (11) and (16)), thus strengthening their position on the market. 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 13. Although it is possible that part of the funds foreseen in the frame of the notified sub-measures could be channelled towards noneconomic activities and possibly could be considered as non-aid, it has to be taken into account that the United Kingdom has notified an aid scheme which will be used in many different situations and that, in certain cases, certain payments can be received by beneficiaries in relation to their economic activity. In these 13 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. 9

10 cases, the payments constitute State aid. In order to allow the Member State to apply the aid scheme in the most flexible manner, it is necessary to assess its authorisation in the light of the applicable State aid rules. (54) 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 14. The beneficiaries of aid operate in a market of services offering social, recreational, cultural, environmental and nature-protection services and similar services in rural areas where intra-eu trade takes place 15. For example, in the notified case, the relocation of activities and conversion of buildings in rural areas might assume an increase of the production capacity of products (including agricultural products) of the beneficiaries. The sector concerned is thus 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 present scheme is liable to distort competition and to affect trade between Member States. (55) In light of the above, the conditions of Article 107(1) TFEU are fulfilled. It can therefore be concluded that the proposed scheme constitutes State aid within the meaning of that Article Lawfulness of the aid Application of Article 108(3) TFEU (56) The aid scheme was notified to the Commission on 8 July It has not been implemented yet. Therefore, the UK has complied with its obligation under Article 108(3) TFEU Compatibility of the aid (57) State aid may only be considered compatible with the internal market if it can benefit from one of the derogations provided for in the TFEU Application of Article 107(3)(c) TFEU (58) Under Article 107(3)(c) TFEU, 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. (59) For this derogation to be applicable, the aid must fulfil the requirements of the relevant Union State aid rules Application of the Guidelines (60) The measures covered by the notified aid scheme are identical to the underlying RDP actions (recital (16)) within the meaning of point 23(c)(i) of the Guidelines 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. In 2012 the service sector accounted for 64.9% of GVA in the predominantly rural regions (GVA is defined as the value of output less the value of intermediate consumption. Output is valued at basic prices, GVA is valued at basic prices and intermediate consumption is valued at purchasers prices), Source: "CAP context indicators : Structure of the economy", European Commission. Published on the web link: 10

11 Part I and Part II, Section 3.2 "Aid for basic services and village renewal in rural areas" of the Guidelines are applicable Common Assessment Principles Contribution to a common objective (61) Pursuant to point 46 of the Guidelines the Commission considers that measures, implemented pursuant to and in conformity with Regulation (EU) No 1305/2013 and its implementing and delegated acts or as an additional national financing in the framework of a rural development programme, are per se consistent with and contribute to the objectives of rural development. The notified aid scheme is part of the Welsh RDP for (recital (4)) and therefore the requirement for contribution to a common objective is complied with. Need for State intervention (62) Since the present scheme fulfils the specific conditions laid down in the relevant sections of Part II of the Guidelines, as analysed below under section , the Commission considers, in line with point 55 of the Guidelines, that the aid is necessary to address the objective of common interest. Appropriateness of aid (63) Pursuant to point 56 of the Guidelines, an aid is appropriate if no other less distortive policy instrument or other less distortive type of aid make it possible to achieve the same contribution to the objectives of rural development. (64) Since the present scheme fulfils the specific conditions laid down in the relevant sections of Part II of the Guidelines, as analysed below under section , in line with point 57 of the Guidelines the Commission considers the policy instrument appropriate. (65) According to point 61 of the Guidelines, the Commission further considers as regards rural development measures, co-financed by EAFRD or granted as an additional financing for such co-financed rural development measures, that aid granted in the form provided for in the respective rural development measure is an appropriate aid instrument. The aid under the notified aid scheme is granted in the form of direct grant, the same as the form of the aid provided under the relevant rural development programme. (66) Therefore the Commission considers the aid to be appropriate. Incentive effect and need for aid (67) Pursuant to point 70 of the Guidelines the Commission considers that aid does not present an incentive for the beneficiary wherever work on the relevant project or activity has already started prior to the aid application by the beneficiary to the national authorities. Point 71 of the Guidelines mentions the information, which must be included in the aid application. It follows from recital (33) above that work on the relevant activity will only start after the beneficiary has submitted an aid application to the national authorities and that the aid application includes the elements required under point 71 of the Guidelines. The conditions of points 70 and 71 of the Guidelines are therefore met. 11

12 (68) In accordance with points 72 and 73 of the Guidelines the UK authorities have ensured that the large enterprises must describe in the application, the situation without the aid, which situation is referred to as the counterfactual scenario or alternative project or activity and submit documentary evidence in support of the counterfactual described in the application. In this regard when receiving an aid application, the granting authority carries out a credibility check of the counterfactual and confirms that the aid has the required incentive effect as described in recital (33) above. (69) According to point 75(o) of the Guidelines, aid for the maintenance, restoration and upgrading of the cultural and natural heritage of villages, rural landscapes and high nature value sites in accordance with point 644(e) is not subject to the requirements on the incentive effect, except in case of investment aid associated with the cultural and natural heritage of villages, rural landscapes and high nature value sites exceeding the notification thresholds set out in point 37(c). As measure 7.6 described in section above falls within the scope of point 644(e) of the Guidelines and the maximum eligible expenditure per application amounts to EUR (recital (43)), which is below the individual notification thresholds set out in point 37(c) of the Guidelines, the derogation from the incentive effect applies with regard to that measure. (70) According to point 75(p) of the Guidelines, aid for the drawing up and updating of plans for the development of municipalities and villages in rural areas and their basic services and of protection and management plans relating to Natura 2000 sites and other areas of high nature value, in accordance with point 644(a) of the Guidelines is not subject to the requirements regarding the need of an incentive effect. As measure 7.1 described in section above falls within the scope of point 644(a) of the Guidelines, the derogation from the incentive effect applies with regard to that measure. (71) In the light of the above, the Commission considers that the conditions regarding the incentive effect according to points 70 to 75 of the Guidelines are met. Proportionality of the aid (72) Pursuant to point 84 of the Guidelines, proportionality is fulfilled if the eligible costs are in line with the specific conditions set out in Part II of the Guidelines and the maximum aid intensities for each type of aid are respected. As shown in section below, the aid intensities and the eligible costs of the notified aid scheme comply with the specific conditions set out in Part II of the Guidelines. (73) As described in recital (36), VAT is not eligible except where it is not recoverable, which is in line with point (86) of the Guidelines. (74) Point 90 of the Guidelines provides conditions for large investment projects in rural areas. As the maximum eligible expenditure for investment aid under the notified scheme is below the threshold laid down in point 35(30) of the Guidelines to qualify as large investment project (recital (43)), that point is not applicable. (75) Points 95 and 96 of the Guidelines stipulates that the Member States must ensure that investment aid granted to large enterprises under the scheme is limited to the minimum on the basis of the "net-extra cost approach" and should not exceed the 12

13 minimum necessary to render the project sufficiently profitable, in accordance with respectively points 95 and 96 of the Guidelines. The aid amount should not lead to an increase of the internal rate of return (hereinafter: "IRR") of the project beyond the normal IRR applied by the undertaking concerned in other investment projects of a similar kind or, if these rates are not available, to an increase of its IRR beyond the cost of capital of the undertaking as a whole or beyond the rates of return commonly observed in the sector. Pursuant to point 97 of the Guidelines the Member State must ensure that the aid amount corresponds to the net extra costs of implementing the investment in the area concerned, compared to the counterfactual scenario in the absence of aid. The method explained in this recital must be used together with maximum aid intensities as a cap. It follows from the information submitted by the UK authorities (recital (35)) that these conditions are fulfilled. (76) According to point 100 of the Guidelines, aid with identifiable eligible costs may be cumulated with any other State aid, in relation to the same eligible costs, partly or fully overlapping, only if such cumulation does not result in exceeding the highest aid intensity applicable to that type of aid under the Guidelines. As specified in recital (37) the aid granted under the notified scheme can be cumulated with aid of other local, regional or national schemes, to the extent that the maximum aid intensities of the scheme are not exceeded. Following recitals (37) and (94) the aid will not exceed the maximum aid intensity. Therefore, this condition is met. (77) On the basis of the foregoing, the Commission considers that the requirement of proportionality is complied with. Avoidance of undue negative effects on competition and trade (78) 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 those Guidelines, the negative effect on competition and trade is limited to the minimum. The notified aid scheme fulfils the conditions laid down in Section 3.2 of Part II of the Guidelines, as shown under section below. (79) In accordance with points 115 and 116 of the Guidelines the UK authorities have furthermore provided sufficient information that any negative effects on competition and trade will be limited to the minimum as they explained that investments will not concern the processing or marketing of agricultural products or the forestry sector, but will be targeted towards improving basic services and village renewal in rural areas as per section 3.2 of the Guidelines (recital (60)). Taking into consideration the limited size of the projects with restricted maximum eligible expenditure (recital (43)), the limitation of cumulation (recital (37)), the respect of the maximum aid intensities (recital (47)) and the deduction of net revenues (recital (45)), the Commission considers that the impact on distortion of competition and trade of the aid granted at the individual level of the beneficiaries is limited. Furthermore the UK authorities have explained that the aid under the various sub measures will support a wide range of interventions and that any impact of the scheme on competition and trade on a cumulative level will be minor given the small scale and local nature of the funded activity. The evaluation report of the RDP underlines this aspect. Due to the fact that the funding available is spread thinly, the overall impact of the Programme may be limited at a macro 13

14 level (recital (6)). Therefore, the Commission considers that the aid scheme does not lead to significant distortions of competition and trade and that the provisions of points 115 and 116 of the Guidelines are met. Transparency (80) The United Kingdom committed to respect the transparency requirements set out in point 128 of the Guidelines by the deadline set out in point 131 thereof (recital (48)) Common provisions applicable to Chapter 3 of Part II of the Guidelines (81) According to point 631 of the Guidelines, the aid must be granted in the framework of a rural development programme either as aid co-financed by the EAFRD or as additional national financing to such aid. The measures at hand form part of the Welsh RDP (recital (4)) and are co-financed by the EAFRD (recital (10)). Therefore, point 631 of the Guidelines is complied with. (82) The notified aid scheme does not cover aid for investments towards energy saving and/or renewable energies (recitals (4) and (20)), which is in line with point 634 of the Guidelines. (83) Point 635 of the Guidelines specifies the eligible investment costs for tangible and intangible assets. As described in recitals (39), (40) and (41) above, the eligible costs of the relevant measures consist of the construction or improvement of immovable property of investment in the intangible assets and of general costs and, thus falling within the scope of point 635(a), (b), (c) and (d) of the Guidelines. (84) Point 636 of the Guidelines provides that other costs connected with leasing contracts, such as lessor s margin, interest refinancing costs, overheads and insurance charges, will not be considered to be eligible costs. As the aid scheme at hand includes this provision (recital (41)), the requirement of point 636 has been met. (85) Pursuant to point 637 of the Guidelines, working capital is not an eligible cost. The aid scheme at hand excludes this type of costs (recital (42)), therefore the condition of point 637 is fulfilled. (86) Since points 648, 649 and 650 of the Guidelines lay down a specific provision on the maximum aid intensity applicable to the notified investment measures (recital (94)), point 638 of the Guidelines is not applicable. (87) As mentioned in recital (50), the UK authorities committed to notify an individual investment aid granted under the notified scheme, if the aid from all sources exceeds the notification threshold specified in point 37(c) of the Guidelines, in line with point 639 thereof. (88) The Commission therefore considers that the common provisions applicable to Chapter 3 of Part II of the Guidelines are complied with. 14

15 Specific assessment according to the category of aid (89) Point 643 of the Guidelines states that the Commission will consider aid for basic services and village renewal in rural areas compatible with the internal market if it complies with the common assessment principles of the Guidelines, with the common provisions applicable to Chapter 3 of Part II of the Guidelines and with the specific conditions of Section 3.2 of Part II thereof. (90) As regards the specific conditions set out in Section 3.2 of Part II of the Guidelines, the activities of sub-measures 7.1, 7.2, 7.4, 7.5, 7.6 and 7.7 covered by the notified aid scheme fall within the scope of respectively point 644(a), (b), (c), (d), (e) and (f) of the Guidelines: 644(a): the drawing up and updating of plans for the development of municipalities and villages in rural areas and their basic services and of protection and management plans relating to Natura 2000 sites and other areas of high nature value, 644(b): investments in the creation improvement or expansion of all types of small scale infrastructure, excluding investments in renewable energy and energy saving, 644(c): investments in the setting-up, improvement or expansion of local basic services for the rural population including leisure and culture, and the related infrastructure, 644(d): investments for public use in recreational infrastructure, tourist information and small-scale tourism infrastructure, 644(e): studies and investments for maintenance, restoration and upgrading of the cultural and natural heritage, 644(f): investments in relocation of activities and conversion of buildings. (91) According to point 645 of the Guidelines, investments under this measure are eligible for aid where the relevant operations are implemented in accordance with plans for the development of municipalities and villages in rural areas and their basic services, where such plans exist and must be consistent with any relevant local development strategy. As described in recital (18), the conditions of point 645 of the Guidelines are fulfilled. (92) Pursuant to point 646 of the Guidelines, aid referred to in point 644(e) should be granted for heritage which is formally recognised as cultural or natural heritage by the competent public authorities of a Member State. As described in recital (28) above, this condition is met. (93) The eligible costs under the notified aid scheme cover the costs of drawing up and updating of development and management plans relating to rural areas and their basic services, and to high nature value sites (recital (17)), investment costs for tangible and intangible assets (recitals (39), (40) and (41)), the costs for the preparation of studies associated with cultural and natural heritage, rural landscapes and high nature value sites and costs linked to environmental awareness actions (recital (27)). Point 647 of the Guidelines is therefore complied with. 15

16 (94) Pursuant to points 648, 649 and 650(a) of the Guidelines the aid intensity for activities under points 644(a), 644(b), 644(c), 644(d), 644(e) and 644(f) must not exceed 100% of the eligible costs. As described in recital (47), the aid intensities foreseen for the sub-measures of the notified scheme are in line with the aid intensities laid down points 648, 649 and 650(a) of the Guidelines. (95) Point 649 of the Guidelines provides that for activities under points 644(c), 644(d) and 644(e), the net revenues must be deducted from the eligible costs ex ante or through a clawback mechanism. The UK authorities have notified that for these activities under the sub-measures 7.4, 7.5 and 7.6 any net revenue will be deducted from the eligible costs through the operation of a clawback mechanism (recital (45)).The requirement of point 649 has been complied with. (96) Furthermore, the UK authorities have confirmed that if relocation of activities or conversion of buildings or other facilities, in addition to the dismantling, removal and re-building of existing facilities, results in modernisation of these facilities, or in an increase in production capacity, the aid intensities for investments of point 638 of the Guidelines will be applied (recital (32)). The requirement of point 650(b) of the Guidelines is therefore complied with. (97) On the basis of the above, the Commission concludes that the specific conditions set out in Section 3.2 of Part II of the Guidelines are complied with Other conditions (98) In accordance with point 719 of the Guidelines the Commission only authorises schemes of limited duration. Aid schemes that can benefit from co financing under Regulation (EU) No 1305/2013 should be limited to the duration of the programming period As specified in recitals (4) and (10) above, the notified aid scheme is co-financed by the EAFRD and is proposed to be in place until 31 December 2023, which corresponds to the duration of the rural development programming period 16. The requirements of point 719 of the Guidelines are therefore met. (99) Furthermore, the UK authorities have committed to adapt the aid scheme at hand to the new Guidelines once they will enter into force after 31 December 2020 (recital 49). (100) The Commission takes note that undertakings in difficulty (recital (13)) and undertakings still having at their disposal an earlier unlawful aid that was declared incompatible by a Commission decision (recital (14)) are excluded from any support in accordance with, respectively, point 26 and point 27 of the Guidelines. (101) The Commission therefore concludes that the notified aid scheme complies with the relevant provisions of the Guidelines. 4. CONCLUSION The Commission has accordingly decided not to raise objections to the notified scheme on the grounds that it is compatible with the internal market pursuant to Article 107(3)(c) TFEU. 16 By virtue of Article 65(2) of Regulation (EU) No 1303/2013 (see footnote 4). 16

17 If any parts of this letter are covered by the obligation of professional secrecy according to the Commission communication on professional secrecy in State aid decisions 17 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 United Kingdom will be deemed to agree to the publication of the full text of this letter. If the United Kingdom 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. 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-aids-notifications@ec.europa.eu. For the Commission Phil HOGAN Member of the Commission Commission communication C(2003) 4582 of 1 December 2003 on professional secrecy in State aid decisions, OJ C 297, , p. 6. Commission Regulation (EC) No 794/2004 of 21 April 2004 implementing Council Regulation (EU) 2015/1589 laying down detailed rules for the application of Article 108 of the Treaty on the Functioning of the European Union (OJ L 140, , p. 1). 17