Mr Dermot AHERN T.D. Minister for Foreign Affairs 79-80 St Stephen’S Green Dublin 2 Ireland 2.2

EUROPEAN COMMISSION

Brussels, 19-III-2008 C(2008) 1189

PUBLIC VERSION WORKING LANGUAGE This document is made available for information purposes only.

Subject: N 751/2007 – Ireland Mid-Shannon Corridor Tourism Infrastructure Scheme

Sir,

1. PROCEDURE

(1) By electronic notification dated 14 December 2007, the Irish authorities notified the above-mentioned measure. The Commission requested additional information by letter dated 11 January 2008, to which the Irish authorities replied by letter dated 18 January 2007.

2. DESCRIPTION OF THE AID MEASURE

2.1. Objective of the aid scheme

(2) The scheme aims to encourage the development of new tourism infrastructure and the refurbishment of existing tourism infrastructure in the mid-Shannon area.

(3) Its objective is to contribute to the regional development of areas in the mid-Shannon corridor that are designated as assisted areas according to the Irish regional aid map for 2007-20131 in the framework of the Guidelines on national regional aid for 2007-20132 (hereinafter “RAG”).

1 State aid N 374/2006 – National regional State aid map: Ireland (OJ C 292, 1.12.2006, p. 11).

Mr Dermot AHERN T.D. Minister for Foreign Affairs 79-80 St Stephen’s Green Dublin 2 Ireland 2.2. Legal basis

(4) The scheme is based on Chapter 12 of Part 10 of the Taxes Consolidation Act 1997 (as amended by section 29 of the Finance Act 20073 and section 27 of the Finance Act 2008).

2.3. Authority granting the aid

(5) The scheme is administered by the mid-Shannon Tourism Infrastructure Board (Department of Arts, Sport and Tourism) in consultation with the Office of the Revenue Commissioners (Department of Finance).

2.4. Geographical scope of the scheme

(6) The scheme applies to the qualifying areas within the mid-Shannon corridor as designated within the following NUTS 2 / NUTS 3 level regions:

(a) IE01 - Border, Midland and Western:

– IE012 - Midland:

• IE012 2 03 Offaly: the district electoral divisions of Ballycumber, Banagher, Birr Rural, Birr Urban, Broughal, Cloghan, Clonmacnoise, Derryad, Doon, Drumcullen, Eglish, Ferbane, Gallen, Hinds, Hunston, Killyon, Lumcloon, Lusmagh, Mounterin, Moyclare, Shannonbridge, Shannonharbour, Srah, Tinamuck.

• IE012 2 04 Westmeath: the district electoral divisions of Athlone East Rural, Athlone East Urban, Athlone West Urban, Ardnagragh, Auburn, Ballymore, Bellanalack, Carn, Castledaly, Doonis, Drumraney, Glassan, Killinure, Moate, Mount Temple, Moydrum, Muckanagh, Noughaval, Templepatrick, Tubbrit, Umma, Winetown.

– IE013 - West:

• IE013 3 02 Galway: the district electoral divisions of Abbeygormacan, Abbeyville, Balinasloe Rural, Ballinasloe Urban, Ballyglass, Ballynagar, Bracklagh, Clonfert, Clontuskert, Coos, Derrew, Drumkeary, Drummin, Eyrecourt, Kellysgrove, Killimor (Portumna rural area), Kilmacshane, Kilmalinoge, Kilquain, Kiltormer, Kylemore, Laurencetown, Leitrim, Lismanny, Loughatorick, Marblehill, Meelick, Moat, Pallas, Portumna, Tiranascragh, Tynagh, Woodford.

2 OJ C 54, 4.3.2006, p. 13.

3 See http://www.revenue.ie/pdf/finance_act_2007.pdf.

• IE013 3 04 Roscommon: the district electoral divisions of Athleague East, Athleague West, Athlone West Rural, Ballydangan, Ballynamona, Castlesampson, Caltragh, Cams, Carnagh, Carrowreagh, Cloonburren, Cloonown, Crannagh, Creagh, Culliagh, Drumlosh, Dysart, Fuerty, Kilcar, Kiltoom, Lackan, Lecarrow, Lismaha, Moore, Mote, Rockhill, Roscommon Rural, Roscommon Urban, Scregg, Taghmaconnell, Thomastown, Turrock.

(b) IE02 - Southern and Eastern:

– IE023 - Mid-West:

• IE023 3 01 Clare: the district electoral divisions of Ayle, Ballynahinch, Boherglass, Caherhurley, Cappaghabaun, Carrowbaun, Cloonusker, Coolreagh, Corlea, Derrynagittagh, Drummaan, Fahymore, Feakle, Inishcaltra North, Inishcaltra South, Killaloe, Killokennedy, Killuran, Kilseily, Lackareagh, Loughea, Mountshannon, O’Briensbridge, Ogonnelloe, Scarriff.

• IE023 3 04 North Tipperary: the district electoral divisions of Aglishcloghane, Ardcrony, Ballina, Ballingarry (in Borrisokane rural area), Ballygibbon, Ballylusky, Ballymackey, Ballynaclogh, Birdhill, Borrisokane, Burgesbeg, Carrig, Carrigatogher, Castletown, Cloghprior, Clohaskin, Cloughjordan, Derrycastle, Finnoe, Graigue (in Borrisokane rural area), Greenhall, Kilbarron, Kilcomenty, Killoscully, Kilkeary, Kilmore, Kilnarath, Knigh, Lackagh, Lorrha East, Lorrha West, Mertonhall, Monsea, Nenagh East Urban, Nenagh Rural, Nenagh West Urban, Newport, Rathcabban, Redwood, Riverstown, Terryglass, Uskane, Youghalarra.

(7) These areas are designated under the Irish regional aid map for 2007-2013 as assisted areas eligible for national regional State aid under the derogation of Article 87(3) (c) of the EC Treaty:

– The NUTS 2 level region IE01 – Border, Midland and Western (regions IE012 – Midland and IE013 – West) is eligible at an aid ceiling of 30% gross grant equivalent (GGE) until 31 December 2010 and an aid ceiling of 15% GGE as from 1 January 2011.

– Within the region IE023 – Mid-West, the LAU 1 level local administrative units (counties) of IE023 3 01 Clare and IE023 3 04 North Tipperary are eligible for transitional coverage for the period from 1 January 2007 to 31 December 2008 at an

3 aid ceiling of 10% GGE and for the whole period 2007-2013 for higher rates of SME aid only4.

2.5. Beneficiaries

(8) The scheme applies to all categories of enterprises. The foreseen number of beneficiaries is in the range of 101 to 500.

(9) The scheme does not apply to firms in difficulty in the meaning of the Community guidelines on state aid for rescuing and restructuring firms in difficulty5.

2.6. Sectoral scope of the scheme

(10) Assistance under the scheme is provided to undertakings engaged in one or more of the following activities under the NACE revision 1.1 classification:

– H055 – Hotels and restaurants;

– I0633 – Activities of travel agencies and tour operators; tourist assistance activities n.e.c.;

– O092 – Recreational, cultural and sporting activities.

Assistance under the scheme is also provided to undertakings which own and lease qualifying units to undertakings carrying out tourism activities under the three abovementioned activities. Such activities fall under the following classification:

– K0702 – Letting of own property6

2.7. Nature and form of the aid

(11) Aid is awarded in the form of an accelerated depreciation of capital over seven years in respect of construction and refurbishment expenditure incurred on eligible buildings over a qualifying period of three years (2008-2011). Depreciation is allowed at 15% per annum for six years and 10% in year 7 in comparison with the general rate of 4% per annum over 25 years for industrial buildings.

2.8. Eligible expenses

(12) The aid provided under the scheme applies only to expenditure incurred on the construction of new buildings and structures or on the refurbishment of existing

4 In addition, no aid is permitted in this region for projects with eligible expenditure exceeding EUR 25 million.

5 OJ C 244, 1.10.2004, p. 2.

6 Since these activities (K0702 – Letting of own property) fall outside the definition of tourism activities laid out in Article 2(1)(r) of Commission Regulation (EC) No 1628/2006 (OJ L 302, 1.11.2006, p. 29), the scheme cannot be considered as not being targeted to a specific sector. The measure could not therefore be exempted from notification under Article 7(b) of the above-mentioned regulation.

4 buildings and structures7. For refurbishment projects, the eligible expenditure must exceed 20% of the market value of the property before the start of works.

(13) The nature of the buildings and structures which may qualify as eligible expenditure under the scheme is set out in the certification guidelines issued by the Minister for Arts, Sport and Tourism in consultation with the Minister for Finance.

(14) While the accelerated depreciation of capital will be available over seven years, beneficiaries are required to maintain the qualifying assets for 15 years. If the assets are disposed of within this 15-year period the corresponding aid must be repaid by the beneficiary.

2.9. Necessity of the aid and mechanism for granting the aid

(15) An application for the aid must be submitted before work is started on the projects. Projects must get approval in advance (for which an application must be made within one year of the commencement of the scheme) and also must get formal certification after completion. This approval and certification is given by the mid-Shannon Tourism Infrastructure Board and is carried out in accordance with the certification guidelines.

(16) The aid is granted on a discretionary basis following a decision of the mid-Shannon Tourism Infrastructure Board. In order to qualify for the assistance available under the scheme a project must comply with the criteria laid out in the certification guidelines in relation to the following matters:

(a) The contribution which the project/building or structure would make to tourism development in the mid-Shannon corridor or the qualifying mid-Shannon area;

(b) Coherence with national tourism strategy;

(c) Environmental sensitivity, having particular regard to any area which is a European site (e.g. special area of conservation or special protection area), a natural heritage area, a nature reserve or a refuge for fauna;

(d) The amenities and facilities required to be provided in each type of project;

(e) The nature of, and maximum extent to which, accommodation buildings (if any) are allowable in each type of project;

(f) Specific standards of design and construction in relation to buildings and structures which may qualify for the relief provided under the scheme;

(g) Relevant planning matters, including the need for consistency with the requirements of a development plan or a local area plan;

7 For the purpose of this scheme, “refurbishment”, in relation to a building or structure, means any work of construction, reconstruction, repair or renewal, including the provision or improvement of water, sewerage or heating facilities, carried out in the course of the repair or restoration, or maintenance in the nature of repair or restoration, of the building or structure. This definition therefore does not correspond to that of “replacement investment” which, as indicated in footnote 36 of the RAG, is excluded from the concept of initial investment.

5 (h) The details and information required to be provided in applications for approval and certification in accordance under the relevant sections of Chapter 12 of the Finance Act 2007;

(i) Matters relating to the provision of information, together with any other matters the relevant Ministers consider are required to be included.

(17) Large projects that are subject to the individual notification requirements of the RAG must have received state aid approval from the European Commission of the potential capital allowances involved. The mid-Shannon Tourism Infrastructure Board therefore cannot provide approval in principle or issue certification in relation to such a project, unless the applicant provides a letter from the Department of Finance confirming that the Commission has formally approved the aid relating to the project concerned.

2.10. Aid intensity

(18) The aid element corresponds to the difference between the tax reduction in net present value (NPV) under the standard depreciation rule and under the accelerated depreciation rule (cf. point 15). For determining the maximum aid intensity, the highest rates applicable in Ireland for corporate income tax (12.5%) and for personal income tax (41%) are used. These rates apply across all regions.

(19) The calculation of the difference between the NPV of capital under each depreciation rule as applied to each of the above two tax rates using a discount rate of 5.42%8 produces a maximum aid intensity of 3.68% of eligible expenditure in GGE for corporate income tax and 12.08% GGE for personal income tax.

(20) In the areas designated under the scheme that are located in the NUTS 3 level regions IE012 – Midland and IE013 – West (as part of the IE01 - Border, Midland and Western region) the accelerated depreciation is provided in respect of 100% of eligible expenditure. In the areas designated under the scheme in the IE023 – Mid-West region (within the LAU 1 level local administrative units (counties) of IE023 3 01 Clare and IE023 3 04 North Tipperary) the amount of eligible expenditure is capped at 80% of the investment amount. The aid intensity therefore amounts to 12.08% (for beneficiaries subject to personal income tax) in the Midland and West regions and to 4.99% in the Mid-West region. For beneficiaries subject to corporate income tax this is respectively 3.68% and 1.52%.

(21) In the areas designated under the scheme that are located in the counties of Clare and North Tipperary large enterprises are eligible for assistance under the scheme only for expenditure incurred in the period until 31 December 2008. Assistance provided under the scheme, where qualifying expenditure is incurred in these areas in the period from 1 January 2009 to 31 January 2011, is restricted to SMEs and the level of qualifying expenditure cannot exceed EUR 25 million.

8 Rate prevailing at the time of the notification in accordance with the Commission notice on technical adaptations to the method for setting the reference and discount rates (OJ C 241, 26.8.1999, p. 9). See also: http://ec.europa.eu/comm/competition/state_aid/legislation/reference_rates.html).

6 2.11. Duration of scheme

(22) The notified scheme will apply as from the approval of the measure by the Commission until 31 January 2011.

2.12. Budget of scheme

(23) The overall foregoing of tax revenue caused by the scheme is estimated to be in the order of EUR 35 million to EUR 50 million.

2.13. Cumulation of aid

(24) No assistance is available in relation to expenditure incurred if any part of it has been financed directly or indirectly by aid from other sources (e.g. Business Expansion Scheme). Assistance provided in relation to capital expenditure under the scheme cannot be combined with aid under any other provision of the Tax Acts.

(25) Aid provided under the scheme cannot be cumulated with de minimis support in respect of the same eligible expenses in order to circumvent the applicable maximum aid intensities.

2.14. Other provisions

(26) In order to qualify for aid under this scheme, a qualifying project must take account of environmental sensitivity, having particular regard to its impact, either on its own or in conjunction with other developments and activities, on any area which is a European site (namely a Special Area of Conservation or Special Protection Area), a natural heritage area, a nature reserve or a refuge for fauna.

3. ASSESSMENT

3.1. State aid character of the measure

(27) The aid is provided by means of foregone tax revenue and therefore through State resources within the meaning of Article 87(1) of the Treaty. The measure has the effect of a tax reduction and therefore confers an advantage which may distort or threaten to distort competition. Since the aid will be granted to a limited number of companies, the measure is considered to be selective. As the scheme covers sectors and undertakings involved in trade between Member States, there is a risk that the aid could affect that trade. The proposed aid measure therefore constitutes State aid within the meaning of Article 87(1) of the Treaty.

3.2. Legality of the aid measure

(28) The Irish authorities have fulfilled their obligation according to Article 88(3) of the Treaty by notifying the aid measure before putting it into effect. The Commission takes note of the fact that the scheme will enter into force only after approval by the Commission.

7 3.3. Compatibility of the aid measure

(29) Having established that the notified scheme involves State aid within the meaning of Article 87(1) of the Treaty, it is necessary to consider whether the scheme can be found to be compatible with the common market.

(30) Aid under the scheme is granted in relation to initial investment by enterprises of all sizes located in areas eligible for regional aid. The Commission has therefore examined the proposed aid measure in the light of Article 87(3)(c) and more specifically on the basis of the RAG. This assessment has led to the following observations:

– The scheme aims to contribute to the regional development of assisted areas by supporting investments in tourism related activities.

– Aid under the scheme is granted for the construction or refurbishment of tourism infrastructure facilities. Replacement investment is excluded from the scheme. Such investment can be considered as initial investment in the meaning of the RAG.

– The value of the investment is established on the basis of buildings. The aid can be calculated as a percentage of the investment’s eligible material costs. The eligible expenditure therefore falls within the scope of the RAG.

– The scheme provides for the respect of the obligation foreseen in the RAG to individually notify aid for large investment projects.

– Assistance under the scheme will not be provided to enterprises involved in the production, processing and marketing of all products listed in Annex I to the EC Treaty, in the fisheries sector or in the coal industry. The scheme also respects the prohibition to grant aid to shipbuilding, the steel industry and the synthetic fibres industry. The scheme will not apply to firms involved in the transport sector. Assistance for firms in difficulty is excluded from the scheme.

– The intensity of the aid is in conformity with the Irish regional aid map and the RAG. The aid intensity of the scheme is therefore below the regional aid intensity ceiling applicable in any of the areas covered by the scheme.

– The aid is conditioned by the obligation of maintaining the investment created during at least a minimum period of five years.

– The condition that in all cases at least 25% of the aided investment is financed with the beneficiary’s own funds and that such contributions do not contain any aid is met.

– Cumulation of the accelerated depreciation allowance with other aid is excluded. The measure respects the rules on cumulation of aid as defined in the RAG.

– The notified scheme will expire on 31 January 2011. The duration of the scheme is therefore in line with the duration of the regional map.

8 In view of the above, the Commission considers that the notified aid scheme is compatible with the common market in accordance with Article 87(3)(c) of the Treaty.

4. DECISION

(31) The Commission has accordingly decided to consider the aid scheme compatible with the EC Treaty.

(32) The Irish authorities are reminded that the reporting conditions described in Commission Regulation (EC) No 794/2004 implementing Council Regulation (EC) No 659/1999 laying down detailed rules for the application of Article 93 of EC Treaty have to be respected.

(33) The Irish authorities are further reminded that all plans to modify this aid scheme have to be notified to the Commission.

If this letter contains confidential information, which should not be disclosed to third parties, please inform the Commission within fifteen working days of the date of receipt. If the Commission does not receive a reasoned request by that deadline, you will be deemed to agree to the disclosure to third parties and to the publication of the full text of the letter in the authentic language on the Internet site: http://ec.europa.eu/community_law/state_aids/index.htm

Your request should be sent by registered letter or fax to:

European Commission Directorate-General for Competition State Aid Registry B-1049 Brussels

Fax (32-2) 296 12 42 Yours faithfully, For the Commission

Neelie KROES Member of the Commission