Michał Gosek

Tax adviser (Poland)
Associate Partner
Phone: +48 61 624 49 39

State aid in the form of non-returnable EU grants or tax relief is still one of the most attractive sources of capital for enterprise projects in Poland. At present, practically all of the aid for business growth is addressed to small and medium-sized enterprises (SMEs). Large enterprises have access only to a small amount of funds which are earmarked for R&D and energy efficiency projects. In this context, the key aspect for every potential applicant is to identify the status of its enterprise, both at the document preparation and application stage as well as before signing the grant agreement.

How to check the enterprise status

The enterprise status is checked twice during the application process, that is, when you apply for the aid and before signing the grant agreement (before state aid is granted). In the application for EU funds the enterprise size is usually described in the relevant declaration and in the text of the application itself. The status must comply with the project evaluation criteria to receive a positive assessment of the application. However, what is crucial is the assessment of the enterprise status just before the signing of the grant agreement. Once a project is recommended for aid, the applicant compiles all appendices and must document its status declared in the application for aid. Most often this happens in the form of a declaration that the SME criteria have been met. The content of the declaration describes in detail the applicant's relations with other partner enterprises or linked enterprises. Be mindful that institutions which organise calls for proposals or issue the stated aid decision check the content of the above-mentioned declaration very carefully using publicly available business databases, or even engaging external consultants to investigate the content of the declaration. If the organiser of the call for proposals has any doubts as to the accuracy of the declaration, the best case scenario means a delay in signing the grant agreement, and the worst case scenario means withdrawal from the signing and revoked recommendation for funding. Such an approach was presented e.g. by the Provincial Administrative Court in its ruling of 28 August 2018, file no. V SA/Wa 1123/18.

Enterprise size affects the grant amount

The size of the enterprise determines not only the eligibility for funding but also its amount. The table below summarises the enterprise size criteria:

Enterprise category Headcount – annual work units (AWU) Annual turnover Annual balance sheet total
Micro < 10 ≤ EUR 2 million ≤ EUR 2 million
Small < 50 ≤ EUR 10 million ≤ EUR 10 million
Medium-sized < 250 ≤ EUR 50 million ≤ EUR 43 million
Large ≥ 250 ≤ EUR 50 million ≤ EUR 43 million

Data for the determination of the headcount and the financial figures should be taken as of the last approved annual accounts, calculated per annum since the accounts closing date. Capital and personnel relations of the applicant are accounted for by adding the relevant part of the headcount or the annual turnover or the balance sheet total of partner enterprises and linked enterprises:

  1. As regards a partner enterprise (meaning an enterprise which individually or together with at least one other linked enterprise holds at least 25% of the capital or voting rights in the applying company) – the figures of the partner enterprise are added to the figures of the examined enterprise according to the percentage share in the capital or voting rights (whichever is greater); 
  2. As regards a linked enterprise (meaning an enterprise which exercises a dominant influence on the examined enterprise by holding the majority of voting rights, shares, or rights under the constitutional document; relations via individuals are also included if the individuals pursue their own business on the same or related market in the meaning of the Commission Notice on the definition of relevant market for the purposes of Community competition law (OJ EC C 372/5) – the figures of the linked enterprise are added to the figures of the enterprise examined.

Consequences if enterprise status changes

The enterprise status may change in one of two ways. First, an enterprise may naturally grow and exceed the ceilings calculated on the basis of the books of account as of their closing date. In this case, the SME status is considered acquired, changed or lost if this happens in two consecutive accounting periods.

Second, an enterprise may change its status as a result of ownership changes, e.g. acquisition of shares and/or assets. In this case, the status changes on the date of the underlying deal. The User guide to the SME Definition published by the European Commission confirms this (page 14). The European Commission repeated its standpoint in the Commission Decision of 18 December 2012, no. 2012/838/EU. Item 1.1.3 (6e) says that "According to Article 4(2) of the Annex of Recommendation 2003/361/EC, SME status is only lost after exceeding the ceilings stated in Article 2 of the Recommendation over two consecutive accounting periods. This rule is not applicable if an SME is merged or acquired by a larger group, in which case the SME shall lose its status immediately from the date of the transaction. Therefore, applicants who had their validation as SME refused on grounds of having exceeded the ceilings stated in Article 2 of Recommendation 2003/361/EC during the last accounting period shall get the validation reversed if they prove that those ceilings were not reached in the second-last accounting period. This does not apply if an SME has exceeded the thresholds as a result of a merger or acquisition." 

Also the Polish Office of Competition and Consumer Protection (UOKiK) has taken the same position as the European Commission. The letter of the President of the Office of Competition and Consumer Protection (DDO-52-265(2)/11/MM/MMach) of 30 September 2011, which communicates the European Commission's clarifications of 26 September 2011 concerning the interpretation of Annex to Recommendation EC 361/2003 of 6 May 2003, says that if an enterprise having a status of SME is taken over by a large enterprise and consequently becomes a linked enterprise or a partner enterprise, it loses its SME status on the acquisition date. 

Enterprises should also refrain from changing their status while application documentation is reviewed, i.e. before signing the grant agreement, even if the change does not result in the loss of SME status, e.g. if a small enterprise changes into a medium-sized enterprise. Such a change if revealed after submitting the application for aid but before signing the grant agreement may take the project off the list of projects recommended for funding. Confirmations of such an approach may be found in, among other things, rulings of provincial administrative courts (PAC), e.g. ruling of PCA in Poznan of 23 March 2017, file no. III SA/Po 82/17 or of PCA in Szczecin of 5 May 2011, file no. I SA/Sz 384/11.

A different story altogether is the change of enterprise status during the project implementation and sustainability period, which beneficiaries of state aid also need to carefully review. 

We invite you to contact Rödl & Partner's experts who will be glad to support you in this area. Also, fell free to read other articles on grants and subsidies.

Katarzyna Adamiec