State aid for research and development and innovation

The EU has set the strategic objectives for research, development, and innovation ("RDI") to help it bring about a green and digital transition. The European Commission has therefore decided to encourage state aid for RDI. 

To make it easier for states to grant aid in this area, in October 2022 the European Commission adopted a revised framework for State aid for RDI ("Framework"). 1 In addition, the General Block Exemption Regulation ("GBER"), 2 which complements the provisions of the framework for RDI aid, will also be revised to allow States to continue to grant RDI aid without having to go through the notification process.

As in other areas, State aid rules apply to RDI only if all the criteria of Article 107 (1) TFEU  are met. This may not always be the case, especially when the aid recipients are research and knowledge dissemination organisations ("research organisations") or research infrastructures, as it may be unclear whether they carry out economic activities. 

In the Framework, the European Commission provides guidance on which activities are generally considered non-economic activities.

These are:

1. The primary activities of research organisations and research infrastructures such as:
   1. Education, which is primarily organised within the national educational system, entirely or at least predominantly publicly funded, and supervised by the State.
   2. Independent and collaborative R&D aimed at better knowledge and understanding. This does not entail R&D on behalf of companies. R&D on behalf of companies is an economic activity, where it must be avoided that the company receives aid. The framework provides guidance in this regard.
   3. The wide dissemination of research results on a non-exclusive, non-discriminatory basis. This includes, e.g. teaching, open-access databases etc. 
2. Knowledge transfer activities, 
   1. which are conducted by the research organisation or research infrastructure itself or jointly with or on behalf of such organisations, and 
   2. where all profits from those activities are reinvested in primary activities. 3   

If a research organisation carries out economic and non-economic activities, the public funding of non-economic activities falls outside of the scope of the State aid rules provided that the company implements a separate accounting system for (non)economic activities that prevents cross-subsidisation. 4 In this case, State aid rules apply only to the economic activities of the research organisation or research infrastructure. 

However, the European Commission accepts that the funding of a research organisation or research infrastructure that is used "almost" exclusively for non-economic activity can fall outside of the scope of State aid rules entirely. This is the case if the economic use is purely ancillary, i.e. the activity is (i) directly related and necessary for the operation of the research organisation or research infrastructure, (ii) is intrinsically linked to the main non-economic use and (iii) is limited in scope. In the European Commission's view, this is the case where the same inputs, such as material or equipment, are used for the economic and non-economic activity and the yearly capacity does not exceed 20 % of the annual capacity. 5  

If aid does not fall outside the scope of the State aid rules, it may be exempted from the notification requirement if the provisions of the GBER are met. To qualify for exemption, the common provisions and the specific provisions for RDI must be fulfilled. 

2.1 What do common provisions entail?

The common provisions include rules, e.g. for notification thresholds, incentive effect, aid intensity and cumulation. 6  

The notification thresholds for RDI aid vary according to the different kinds of RDI projects. Notification thresholds are e.g.

• EUR 40 million per undertaking for (predominantly) fundamental research projects
• EUR 20 million per undertaking for (predominantly) industrial research projects
• EUR 15 million per undertaking for (predominantly) experimental research projects
• EUR 20 million for investment aid for research infrastructures per infrastructure
• EUR 7.5 million for innovation clusters
• EUR 5 million for innovation aid for SMEs. 7  

The draft of the revised GBER does not provide for an increase of these thresholds.

According to the GBER, aid intensity is the gross amount of aid expressed as a percentage of the eligible costs, before any deduction of tax or other charges. 8 While the common provisions include general rules for aid intensity, the specific levels for RDI aid are to be found in the specific provisions for RDI aid. 9  

Aid is only deemed to have an "incentive effect" if a written application for the aid was submitted before the project or activity started. If the works started earlier, the aid does (generally) not fall under the scope of the GBER. 10   

2.2 What are specific provisions for RDI state aid?

In this category, the GBER exempts from the notification requirement certain types of aid, namely (i) research and development projects, (ii) investment aid for research infrastructures, (iii) aid for innovation clusters, 11 (iv) innovation aid for SMEs, (v) aid for process and organisational innovation, and (vi) aid for research and development in the fishery and aquaculture sector. 12  

As already mentioned, the GBER is currently being revised. According to the published draft, investment aid for testing and experimentation infrastructures will also be covered by the GBER if the aid-specific conditions are fulfilled. 13

The GBER states eligible costs (e.g. personnel costs, costs of equipment used for the project, certain overheads) 14 and aid intensities (e.g. 100 % of the eligible costs for fundamental research 15 or 25 % of the eligible costs for experimental development) 16 for each of these types of aid.

No. For quite some time this was controversial. The CJEU has clarified that an entity organised under private law, which carries out several activities, including research, but most of whose revenue comes from economic activities, may (also) be regarded as being a research organisation within the meaning of the GBER. This only applies if its primary goal is to conduct completely independent R&D activities, possibly supplemented by activities disseminating the results of those research activities through teaching, publications or other means of knowledge transfer. In such a context, an entity is not required to earn a certain proportion of its revenue from its non-economic activities of research and dissemination of knowledge. 

Furthermore, such an organisation is not required to reinvest the revenue generated by its primary activity in that same primary activity. 17

In this case, it should be evaluated whether it can be exempted based on the De-Minimis Regulation for aid that does not fulfil all the criteria mentioned in Article 107 (1) TFEU. 18 The currently applicable thresholds are quite low, but these are going to be increased during 2023. 

If the aid cannot exempted, and it unavoidably fulfils all the criteria of Article 107 (1) TFEU, it must be notified to the European Commission. The Framework clarifies how the European Commission assesses the compatibility of aid with the internal market. 19

CMS lawyers represent both public authorities and private companies on all aspects of State aid rules.

This includes: 

• Legal assessment of the existence of a State aid and its compatibility; 
• Setting up aid schemes;
• Assisting public authorities in notifying State aid to the European Commission;
• Helping applicants to enforce their funding claims;
• Assisting public authorities or beneficiaries in State aid investigations by the European Commission. 
• Drafting and lodging complaints with the European Commission; 
• Litigation before national and EU courts.

The CMS State Aid Practice Area Group comprises 40 State aid law specialists practising State aid law in 17 jurisdictions located in 20 cities in Europe and beyond – all committed to assist you. 

Find your local contact person in our brochure CMS State Aid Group.