In Luxembourg, any ministry that intends to grant aid or has done so notifies this fact to the European Commission to obtain authorisation to proceed with the aid measure under article 108 of the Treaty on the Functioning of the European Union. The ministry monitors the implementation of the aid measure and ongoing compliance with EU state aid rules.
In accordance with EU rules exempting certain types of aid from the prohibition under article 107 of the treaty, in particular the General Block Exemption Regulation, Luxembourg's law permits the granting of aid for certain types of expenditure under specific conditions. The legislation is complemented by rules setting out the conditions and practical details of implementation and the qualifying criteria for the aid in question.
For each type of aid, it is up to organisations that fulfil the criteria to apply to the relevant ministry for the grant. The ministry will assess what costs are eligible for public funding and how much aid is justified in the circumstances.
On June 2, 2017, Luxembourg published its new legislation (dated May 17, 2017) governing the renewal of aid schemes for research, development and innovation, and on the responsibilities of the national agency for the promotion of innovation and research, amending a previous law from June 2009. The reforms are designed to enable Luxembourg to exploit any leeway on state aid for research, development and innovation permitted by the EU state aid rules, and are highly welcome given the proliferation of public and private initiatives in this field.
The legislation explicitly excludes from eligibility companies in financial difficulty and those subject to a recovery order for illegal or incompatible state aid under EU rules. It covers the following types of aid:
The Luxembourg legislation increases the potential amount of aid as a proportion of eligible costs for process and organisational innovation for SMEs in accordance with the EU General Block Exemption Regulation. From 25% for medium-sized enterprises and 35% for small businesses, the maximum ratio has been increased to 50% for all SMEs.
The maximum aid possible for young innovative enterprises has decreased from €1 million to €800,000, except for a limit of €1.2 million for companies or private research organisations established in assisted areas - which in Luxembourg means the municipalities of Dudelange and Differdange.
Depending on the category of aid, the legislation permits support in the form of repayable advances, interest subsidies, guarantees or loans.
The aim of state aid restrictions is to ensure that government subsidies do not distort competition and intra-EU trade through the granting of economic benefits to some businesses but not others.
Its main consequence is that member states must notify the Commission whenever they grant aid to companies. This can raises complex issues, including categorisation of the measure under consideration and filing with the Commission of a state aid scheme, as well as the recovery of wrongfully-granted aid or claims that state aid granted to competitors is illegal.
Our team is regularly involved in state aid cases, in which we represent a wide range of clients including private sector banks and industrial companies, as well as public bodies. We have developed specialist expertise on state aid in the form of tax measures and compensation for the provision of public services, following the 2003 Altmark case, in which the European Court of Justice ruled that financial support merely representing compensation for public service obligations imposed by member states does not constitute state aid.