Entrepreneurs, in particular from a group of small and medium-sized enterprises (SMEs), decide to apply for EU funding from projects planned by them. After meeting the conditions set out in the assumptions of the programme, local, national and even international co-financing is granted to the Applicant under the decision of the institution (e.g. Polish Agency for Enterprise Development, “PARP”).
The issue of the co-financing of business projects from the European Union is quite a complex issue, and I will focus on this article one A very important question is the principle of the sustainability of projects financed by the European Union ("Sustainability Principle").
Definition of the sustainability principle
The sustainability principle refers to projects financed by European Union funds covering investment in infrastructure or production investments. A specific investment in infrastructure or production should have a lasting effect, which exists for a certain period of time.
In view of the above, it should be noted that the duration of the project will depend in principle on two factors: the size of the company and whether the contribution from European funds constitutes State aid within the meaning of Article 2(13) General Regulation
The principle of durability is expressed in Article 71 Regulation (EU) 1303/2013 of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No Regulation (EU) 083/2006 (hereinafter referred to as ‘General Regulation’). According to the ex. Article 71 General Regulations for operations involving investments in infrastructure or production investments shall be reimbursed to the ESI Funds (European Structural and Investment Funds) if during the period five years after the final payment to the beneficiary or during a period determined in accordance with the State aid rules, where applicable, any of the following circumstances:
- (a) the cessation or transfer of production outside the programme area;
- (b) a change in ownership of an element of infrastructure which gives an undertaking or public entity undue advantages;
(c) a substantial change affecting the nature of the operation, its objectives or implementing conditions which could lead to a breach of its original objectives.
Further Article 71(1) General Regulations amount unduly paid for such an operation shall be recovered by a Member State in proportion to the period during which the requirements were not met.
Member States may shorten the period laid down in the subparagraph first to three years in cases relating to the maintenance of investments or jobs created by SMEs.
In addition, according to section 2 section 71 General Regulation for operations involving investment in infrastructure or productive investment shall be reimbursed if, during the period, 10 years after the final payment to the beneficiary, the production activity shall be transferred outside the Union, except where the beneficiary is an SME. Where the contribution from the ESI Funds constitutes State aid, period 10 the years are replaced by the date applicable under the State aid rules.
In view of the above, it should be noted that the duration of the project will depend in principle on two factors: the size of the company and whether the contribution from European funds constitutes State aid within the meaning of Article 2(13) General Regulation.
Reasons for assessing the breach of the sustainability principle
Analyzing whether a given activity of the entrepreneur will affect the assessment of the durability of the project carried out by the entrepreneur over time 3.5, or 10 years after an entrepreneur has completed a project with EU funds, focus on the following questions correlated with the content Article 71 General Regulation, i.e.:
(a) whether production has ceased or is transferred outside the programme area during the shelf life
(b) whether the ownership of an infrastructure element has changed during the lifetime which gives the undertaking or public entity undue advantages;
(c) a substantial change affecting the nature of the operation, its objectives or implementing conditions which could lead to a breach of its original objectives.
With reference to the above question, in first the order must be considered whether the in the framework of the action project, they shall indicate that the projects concerned and the grants they grant have the direct and indirect character of the production investment. It is then necessary to examine whether, as a consequence of the activities undertaken by the entrepreneur, production has ceased or production has been transferred outside the programme area, for example, whether the sale of machinery purchased from Union funds has been made, which has caused the production process to cease with the trader concerned.
Referring to second the above-mentioned questions should focus on the concept of changing ownership of the infrastructure element and on the achievement of undue advantages.
A change of ownership of an infrastructure element shall be considered to be a legal transfer to another entity under a sale, replacement, donation, transfer or other transfer agreement. The term also refers to changes in the ownership structure of a particular entity.
However, the mere change in ownership of an infrastructure element does not violate the principle of sustainability. The sustainability principle is breached if the change in ownership of an infrastructure element results in an unjustified advantage to the undertaking or public body of undue advantage.
The company referred to in the sustainability regulation should therefore be understood as both a beneficiary of the grant and another entity, such as one to which the beneficiary would dispose of the infrastructure free of charge.
With reference to third the above-mentioned questions, the concepts such as the nature of the implementation, the conditions for project implementation and the original purpose of the operation should be clarified.
The nature of the project is understood to mean its general characteristics, that is to say, "a combination of characteristics appropriate to the project, distinguishing it from other projects". In addition, the nature of the project is also the main actions undertaken under the project.
The conditions for the implementation of the project are defined as the circumstances in which the project is implemented, as well as the skills and characteristics of the operator.
These conditions are all elements which do not directly result from the implementation of the financial contribution of the operational programme but have an impact on the implementation of the programme.
These conditions are certainly human resources, including knowledge and skills and objects, as well as the financial resources that the company had before the project, which allowed for direct and indirect implementation. The original purpose of the operation is, on the other hand, indicated in the grant agreement concerned.
In conclusion, the entity that received funding from the European Union, when making business decisions, should each time assess whether the planned projects do not undermine the demands arising from the principle of sustainability. It is necessary to bear in mind the consequences which may be related to a breach of that principle, i.e. the obligation to reimburse the aid granted, which may have a serious impact on the economic situation of the entity concerned.
Written by Hanna Żołnierkiewicz
Lawyer in the Legal Department. From 2017 related to Russell Bedford Dmowski and Associates Law Firm Sp.k. He has experience in legal services to entrepreneurs in terms of merger, division and transformation of companies, bankruptcy, restructuring and capital market law. He runs the day-to-day handling of commercial law companies, including drafting corporate documentation, both in Polish and English. He also represents clients before the general courts in economic and civil law cases.