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28.07.2014 | KPMG Law Insights

New Union Framework: Those who have the choice of interpretation are spoiled for choice

Dear Readers,

Also during the summer break, we would like to provide you with current topics concerning EU state aid law. And what could be more natural than to report on the contents of the new Union framework? Our first article is about some innovations dealing with the classification of university and research institution activities as “economic” or “non-economic” activities.

As you can already see from the title of the article, however, the innovations do not necessarily lead to more clarity and thus to the long-awaited legal certainty for universities and research institutions. On the contrary, there remain numerous vague regulations and terminology that require interpretation and do not exactly simplify day-to-day dealings with EU state aid regulations.

The German government’s plans to amend the Basic Law in connection with the ban on cooperation between the federal and state governments in the field of education have been and continue to be the subject of extremely controversial debate. If the ban is overturned, the federal government is likely to contribute to university funding in the long term. A cash infusion that brings basic financial security to universities?

As usual, you’ll also find other articles on grants and procurement law.

We wish you interesting reading!

Sincerely yours

Public Sector Team of KPMG Rechtsanwaltsgesellschaft mbH

Mathias Oberndörfer Dr. Anke Empting

On May 21, 2014, the EU Commission published its new Union Framework for State Aid to Research, Development and Innovation. However, the associated innovations do not necessarily facilitate the safe handling of R&D measures at universities and research institutions under EU state aid law.

New definition approach for non-economic activities

Initially, training of more or better qualified human resources, independent R&D to increase knowledge and understanding, and and wide dissemination of research results are recognized as non-economic activities (so-called “primary activities”) and thus exempt from aid.

  • As the former, public education organized within the national education system that is predominantly or fully financed and supervised by the state is now explicitly considered non-economic, such as the pure teaching activities of universities and other educational institutions. Activities that are not predominantly or fully financed and supervised by the state are now expressly not (or no longer) considered non-economic, nor are training activities within the meaning of the state aid rules on training aid.
  • With regard to the non-economic nature of independent R&D activities aimed at expanding knowledge and understanding, the new Union framework clarifies that such R&D activities, which may also be carried out in collaboration with other research institutions, will now only be considered non-economic if they are based on “effective collaboration.” Contract research and other unilateral provision of research services are not included.
  • This must be dissemination “on a non-exclusive and non-discriminatory basis, for example, through teaching, freely accessible databases, generally available publications, or open software.

“Knowledge transfer” as a privileged economic activity

The EU Commission considers knowledge transfer activities to be non-economic whenever they are carried out either by the research institution or research infrastructure or jointly with other research institutions or research infrastructures or on their behalf. Profits from these activities must be reinvested in the primary activities of the research institution or research infrastructure.

Secondary employment and 20% clause

A new provision is the privileged treatment under state aid law for universities, research institutions or research infrastructures that are engaged in both non-economic and economic activities.

According to the new EU framework, there is nothing to prevent (state) funding of economic activities if the research facility or research infrastructure in question is used almost exclusively for non-economic purposes. This requires economic use as a purely ancillary activity that is directly related to and necessary for the operation of the research institution or research infrastructure or that is inseparably linked to the main non-economic activity and the scope of economic use is limited.

It is unclear whether an entity engages in up to 20 percent economic (ancillary) activities while simultaneously engaging in more than 80 percent non-economic activities. Also, the new Union Framework is unclearly defined in terms of the reference “capacity” or “total capacity.” It is also open whether the same inputs must be used for the entire economic activities of the respective institution as for the non-economic activities, or whether this coverage refers only to the respective activity financed with government funds.

Recast of the Guidelines on Aid to EU Enterprises in Difficulty

The guidelines, which come into force on August 1, 2014, apply in principle to all companies in all sectors with the exception of banks and other financial institutions. Under certain – narrow – conditions, the competent authorities in the Member States may grant rescue and restructuring aid.

Principles for rescue and restructuring aid

The so-called rescue aid can only be granted for a maximum period of six months. If a longer period of support is needed, the measure can only be approved if it is subsequently repaid or if a restructuring plan is submitted to the Commission (“restructuring aid”). Restructuring aid may only be granted once in ten years to prevent unprofitable companies from being kept artificially afloat with public money.

When granting state support for restructuring projects, less distortive measures such as loans and guarantees should be used.

Member States must now demonstrate that the respective aid is necessary to avoid hardship and that the situation will improve as a result of the granting of the restructuring aid, for example because more jobs can be safeguarded.

Finally, it is to be ensured in future that part of the restructuring costs will be borne by private investors (“burden sharing”).

The Guidelines for Firms in Difficulty provide an important opportunity for government agencies to implement short-term measures for the benefit of firms that are financially distressed but important for the implementation of significant projects and thus worthy of future support. The new guidelines have also simplified these possibilities with regard to aid to SMEs, which can also be found in the R&D sector in particular.

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Mathias Oberndörfer

Geschäftsführer
Mitglied des Vorstands Service Tax - KPMG AG Wirt­schafts­prüfungs­gesell­schaft

Theodor-Heuss-Straße 5
70174 Stuttgart

tel: +49 711 781923410
moberndoerfer@kpmg-law.com

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