SME subsidy rules set to cover patents

Date: 14/03/1996

By Tim Jones

THE European Commission will soon extend the scope of its inquiries into state aid to small and medium-sized enterprises (SMEs) to cover payments made to acquire patents and licences.

When they approve the revised guidelines on state aids given to SMEs on 27 March, Commissioners will ensure that national schemes providing aid to small firms to buy so-called 'intangible assets' will fall under their supervisory gaze.

The SME aid guidelines were originally adopted in August 1992 to ensure that the Commission's strategy of helping to nurture these job-generating enterprises was not undermined by an excessively rigid reading of the Union's rules to prevent competition-distorting state aids to industry.

At the same time, the Commission could not ignore aid which makes up around 9&percent; of all subsidies to manufacturing. According to the Commission's most recent survey, state aid to SMEs in 1990-1992 amounted to 3.3 billion ecu in the then 12-member Union.

The guidelines provide EU governments with information on the criteria the Commission will use in judging any applications they make to provide aid to small companies.

In drawing up the text, the Commission sought to recognise the problems SMEs have in raising capital and acquiring the kind of up-to-date knowledge which has become crucial in modern manufacturing and marketing.

This kind of 'soft aid' - covering schemes to encourage training, consultancy and one-off support to the underlying business - can be approved and sometimes even co-financed by the Commission through its structural funding initiatives.

For instance, two schemes worth around 20 million ecu each in Mecklenburg-Western Pomerania and rural Scotland were approved in November last year.

Both were geared towards advice on marketing and increasing awareness of the kinds of services that are on offer to small companies, including advanced telecommunications and the pooling of expertise.

This sort of aid package is considered acceptable since SMEs often do not have the resources to finance such activities themselves.

Under the guidelines, member states can grant aid worth up to 50&percent; of eligible costs for this kind of activity, including programmes to provide outside consultancy services in research and development, management and environmental protection.

Another change to the guidelines concerns the removal of the minimum amount of cross-border trade needed to trigger a state aid reference.

This has been pulled out of the text and was published separately in the Official Journal last week.

Aid for investment must be limited to a set proportion of fixed assets owned by the company.

The subsidy will only be cleared by the Commission if the aid does not exceed the set percentage of fixed assets.

DGIV, the Directorate-General for competition, had the proposal for the new guidelines ready last summer but held back from publishing them while officials waited for a promised re-definition of the term 'SME'.

This work was carried out by the Directorate-General for SMEs, DGXXIII, and was not adopted by the college of Commissioners until early February.

DGXXIII was said to have been very careful in trying to win agreement from member states on what the definitions should be, returning to industry ministers three times to win consensus.

As a result, the adoption of the new definitions took far longer than had been expected originally.

While DGXXIII officials extol the “excellent cooperation” between their services and those of DGIV, officials from the latter are a little less effusive.

Under the new definitions, a small firm is one which has fewer than 50 employees and an annual turnover of less than 7 million ecu, while a medium-sized company has fewer than 250 staff and annual revenue from sales of 40 million ecu.