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Michał Gosek

Tax adviser (Poland)
Associate Partner
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The point of departure in every project is an interesting idea. The next step in the project implementation is finding an appropriate source of funds. It is a key aspect at the initial stage of applying for EU aid and, at the same time, the one that gives Polish enterprises a headache. Why? Mainly because in the current financial framework the mere idea for a project, even the best one, is not enough – it must fulfil the conditions of the aid schemes offered by EU funds. There are four main aspects which should be taken into consideration when applying for EU aid. 

Expected project results

This aspect is particularly demanding in the context of investment projects. Apart from the fact that currently non-repayable investment support is available practically only to the SME sector, virtually every operational programme requires specific results of the implementation of such projects, i.e. an introduction of innovation to the market, i.e. a new or significantly improved product/service/process as a result of previous R&D work. This sets specific requirements for the project to be considered eligible for the aid. In this context not every product change which is implemented as a result of the project will be considered a significant improvement, and thus an innovation. 

According to the Polish innovation portal (http://www.pi.gov.pl), innovation can be defined as a change in an enterprise made to develop a new product, a new service or new quality. It can be a radical change resulting in a completely new product, but also a partial one leading to product improvement. The change must be clearly visible to customers in terms of the product features or methods of application, e.g. in terms of the functionalities, components and materials, embedded software, user-friendliness. A significant improvement of the existing products may consist in changing materials, components and other features enhancing their performance. Therefore, it must be a novelty on the product's target market. New or improved product implementation should be connected with R&D work carried out by the enterprise itself or by a scientific unit by order of the enterprise. In this respect, projects based on results of dedicated research carried out by a scientific or research unit, including universities (such as a university of technology), stand a better chance for aid. So innovations do not include small improvements, routine updates, or regular seasonal changes. When it comes to innovations in the production process, it can be defined as significant changes in technology, equipment or software. A process innovation can be aimed at reducing the costs of production or service provision, increasing the quality of the production process or, as mentioned above, launching new or significantly improved products on the market. 

Aid intensity

When it comes to investment projects, aid intensity is calculated on the basis of two criteria: enterprise size and investment location. Aid intensity is defined on the basis of the so-called regional aid map which specifies the maximum aid (as a percentage value) for each region. The aid for SMEs ranges from 10% (in Warsaw) up to as much as 70% in the eastern regions of the country, i.e. in the so-called Eastern Poland. If an enterprise plans to expand its business, it is worth considering investment projects in the regions with the highest aid intensity, all the more so because a separate operational programme is dedicated to those regions, namely the Operational Programme Eastern Poland 2014-2020, which also provides for investment support for SMEs. 

As far as R&D projects are concerned, aid intensity is the resultant of the type of R&D carried out (industrial research and experimental development) and the enterprise size. The former aspect is the most problematic. Industrial research and experimental development are defined mainly in such legal instruments as the Science Funding Act (of 30 April 2010) or the Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty. Types of R&D work can be additionally specified in more detail on the basis of the so-called technology readiness levels (TRLs). Their descriptions explain what industrial research and development work are all about. They comprise nine levels of advancement of research work. Level 1 is allocated to basic research, levels 2–6 to industrial research and levels 7–9 apply to experimental development with the lowest aid intensity. The correct matching of R&D work under the project to the individual types of research will have a key influence on the aid intensity, which ranges from 25% to as much as 80% and is in no way connected with the business being located in Poland

Public procurement

Are private businesses bound by public procurement procedures? Yes, if they apply for EU aid or implement a project co-funded by the EU. However, the tender procedures will not be carried out in compliance with the public procurement act but according to the so-called competitiveness principle. Beneficiaries of EU aid use state aid so they are obliged to observe fair competition rules and the principle of equal treatment in selection of project contractors. This means that they have to meet certain requirements and follow certain procedures (depending on the contract value). The requirements concerning the bid selection procedure are detailed in "Guidelines on the eligibility of costs incurred under the European Regional Development Fund (ERDF), the European Social Fund (ESF) and the Social Fund (SF) for the years 2014–2020", i.e. in the so-called horizontal guidelines. They define the preparation method of the tender documents, publishing procurement announcements, bid evaluation and selection. For the vast majority of operational programmes these are the only rules and principles describing the minimum requirements for steps to be taken in the course of the tender procedure. However, some institutions, such as the National Centre for Research and Development (in Polish: NCBiR) have additional rules for tender procedures which are based on horizontal guidelines and which provide more details on the specific nature of specific project types, e.g. research projects. That is why, when planning to apply for EU aid under a certain aid scheme, the applicant should always verify the tender documentation requirements in terms of possible additional procurement guidelines. Selecting the contractors in compliance with the competitiveness principle is key for the project's success. Negligence in this regard will result in applying assessments to the project, i.e. fines of up to 100% of eligible costs related to the contract. The assessments have been sanctioned in the Regulation of the Minister of Development (of 29 January 2016 on the conditions for reducing financial adjustments and incorrectly incurred expenses connected with contract awarding). It says that the value of the financial assessment caused by an irregularity discovered in a given contract is equal to the amount of the expenses co-funded by the EU and incurred under the contract. Bearing that in mind, before incurring any expenses under a project, you should plan and then carry out the correct contract selection procedure (in compliance with the competitiveness principle).

Project durability

Although at the stage of applying for the aid project durability seems to be a remote issue, it is very important for the potential consequences for the EU aid beneficiary. If an inspection authority concludes that project's durability has been compromised, it may demand repayment of the grant amount (even in full) plus interest calculated in the same way as penalty interest on tax arrears. Project's durability period commences after receiving the final payment under the project, i.e. the last tranche of the grant. That payment is usually preceded by the beneficiary finishing the project finance-wise and work-wise, as well as by carrying out the final inspection of the project. Therefore, this can take place after as long as 6 months after project completion. Project durability is governed by Article 71 Regulation (EU) No 1303/2013 of the European Parliament and of the Council (of 17 December 2013). It says that durability is compromised if within five years (or three years in cases concerning the maintenance of investments or jobs created by SMEs) of the final payment to the beneficiary any of the following occurs: 

  • the beneficiary ceases or relocates a productive activity outside the programme area;
  • there is a change in ownership of an item of infrastructure which gives to the enterprise or a public body an undue advantage;
  • there is a substantial change affecting the nature of the project, its objectives or implementation conditions, which would result in undermining its original objectives.

Summing up, when applying for EU aid, the applicant should be aware of the limits in disposing of the assets acquired under the project which are caused by the obligation to ensure project durability. This will help avoid situations which may cause the inspection authorities to conclude that the beneficiary violated that principle and thus must repay the aid amount.

If this subject has caught your interest or you have any questions about the European grants, state aid or investment advice in Poland, Rödl & Partner experts will be happy to help you. They are available in our offices in Cracow, Gdansk, Gliwice, Poznan, Warsaw and Wroclaw.

18.06.2018