Network of Regional Hubs for EU Policy Implementation Review Implementation Report Fourth Consultation, on State Aid SGEIs, Regional State aid Framework and Temporary Framework for State aid ReRegHubgHub The content of this report has been approved by the European Committee of the Region's Subsidiarity Steering Group on 6 November 2020. More information on the Subsidiarity Steering Group is available on http://portal.cor.europa.eu/subsidiarity/Pages/default.aspx. Table of contents 1. Executive summary ............................................................................................................... 1 1.1 Two consultations and a study ................................................................................................ 1 1.2 Key findings ............................................................................................................................ 1 1.2.1 SGEIs............................................................................................................................... 1 1.2.2 The regional State aid framework ................................................................................... 2 1.2.3 Temporary State aid Framework ..................................................................................... 3 2. Introduction ........................................................................................................................... 4 2.1 Why an implementation report on State aid? .......................................................................... 4 2.2 How did this report come about? ............................................................................................ 5 3. State aid framework in the area of SGEIs .......................................................................... 7 3.1 The notion of economic activity .............................................................................................. 8 3.2 The notion of undertaking ..................................................................................................... 13 3.3 The notion of manifest error .................................................................................................. 16 3.4 The notion of reasonable profit ............................................................................................. 18 3.5 The notion of normal market conditions ............................................................................... 21 3.6 De minimis aid ...................................................................................................................... 22 3.7 Social housing ....................................................................................................................... 25 3.8 The relation between the use of State aid rules and the use of public procurement rules ..... 27 3.9 Awareness about key guidance documents in the area of SGEI ........................................... 30 3.10 Involvement in the reporting exercise ................................................................................... 30 3.11 Overall assessment of the State aid framework in the area of SGEIs ................................... 32 3.12 Other challenges reported by the hubs .................................................................................. 36 3.13 Summary of main difficulties reported in the Country Reports, the EC consultation and interviews .............................................................................................................................. 38 4. Regional State aid framework ........................................................................................... 42 4.1 Draft Regional Aid Guidelines .............................................................................................. 43 4.2 Regional aid maps ................................................................................................................. 45 4.3 Overall population coverage ................................................................................................. 48 4.4 Assessment of the eligibility conditions to grant aid under GBER ....................................... 51 4.4.1 Aid to large enterprises in ‘a’ areas ............................................................................... 51 4.4.2 Aid to large enterprises in ‘c’ areas ............................................................................... 51 4.4.3 Aid to SMEs in ‘a’ and ‘c’ areas ................................................................................... 52 4.4.4 Assessing the conditions on eligibility and compatibility under GBER ....................... 52 4.5 Maximum permissible levels of aid ...................................................................................... 53 4.6 Type of investments .............................................................................................................. 54 4.7 Type of companies ................................................................................................................ 55 4.8 Incentive effect ...................................................................................................................... 55 4.9 Relocation .............................................................................................................................. 57 4.10 Simplified Cost Options ........................................................................................................ 58 4.11 Other challenges reported by the hubs .................................................................................. 58 5. Assessing the flexibility in State aid allowed in light of COVID-19 ................................ 61 5.1 Role of the Temporary Framework in helping public authorities address the socioeconomic impact of the pandemic ......................................................................................................... 62 5.2 Extending the Temporary Framework beyond December 2020 ........................................... 62 5.3 Adapting other State aid rules to make them compatible with the flexibilities allowed under the Temporary Framework .................................................................................................... 62 6. Conclusions .......................................................................................................................... 64 7. Annexes ................................................................................................................................ 68 1. Executive summary 1.1 Two consultations and a study In 2020, the European Committee of the Regions' (CoR) network of Regional Hubs (RegHub) has carried out two stakeholder consultations on the topic of State aid: The first one ran from 3 April 2020 to 31 May 2020 and covered the implementation of the rules on Services of General Economic Interest (SGEIs) and the Regional State aid Framework. The second one ran from 18 June 2020 to 10 August 2020 and dealt with covid-19 related measures at the EU level, among which the Temporary State aid Framework (TF). As was the case for previous RegHub consultations, both consultations were aimed at gathering the views of relevant stakeholders, to identify the difficulties they face when they implement these rules and to identify options for their improvement. In addition, the CoR ordered a study on SGEIs, encompassing: an analysis of Member State reports, the Commission's consultation on SGEIs in the health and social sectors and interviews conducted for the study. 1.2 Key findings 1.2.1 SGEIs It should be pointed out that the study confirms the findings of the relevant consultation and thus identifies three categories of recurring difficulties: uncertainty and lack of clarity about some basic concepts, lack of appropriateness of the current SGEI legislation for the market contexts and excessive administrative burden. The consultation shows that overall, the hubs have a positive view of all key notions1 covered by the concept of SGEIs, although they expressed reservations or concerns pertaining to the actual application of those notions. These concerns are triggered by the public authorities' obligations to provide public services. Some hubs argue that this makes it difficult to define when a public authority provides a public service in line with the key values defined in Protocol 26 to the TFEU2 or whether it performs an economic activity in the pursuit of profit. A difficulty that was regularly mentioned by the hubs is administrative capacity. They explain how the complexity of rules often requires difficult investigations and specialist knowledge. This is a heavy burden on administrations, especially in small regions, cities and municipalities, due to limited resources. Another key finding in the report is the need to recognise that market failure is a dynamic concept. This has consequences for the definition of 'economic' and for public authorities' flexibility to react to market changes. A telling example is the definition of social housing in the 2012 SGEI Decision, which seems to contradict the reference to market failure as a legitimate criterion to define SGEIs and their target group and thus limits the ability of public authorities to provide services in line with the EU values 1 Key notions (e.g. economic activity, undertaking, manifest error, reasonable profit, etc) are used by public authorities and the Commission in the area of SGEIs, when assessing whether a given public service can qualify