Anna Kulińska | In Principle

The latest episode explains the issues arising from the EU regulation and the conditions that foreign subsidies must meet for investors within the EU, including Poland.

Pursuant to the EU’s Foreign Subsidies Regulation (2022/2560), the European Commission may, at its own initiative, investigate any foreign subsidy covered by the regulation, in any sector of the economy, relying on information from all available sources. The Commission may also review foreign subsidies based on advance notification by the company, especially in the case of large concentrations and procurement procedures exceeding certain thresholds.

For years, the European defence industry has been oriented towards peacetime production, resulting in low capacity. The war in Ukraine quickly exposed this, as well as the severe underinvestment which the EU’s defence sector has suffered from for years. Optimistically, the growing demand for defence equipment has also quickly raised the awareness that production capacity needs to be increased. But now this conviction must translate into action, first of all in the form of increased financial support.

Granting of state support in the EU, which businesses are increasingly taking advantage of, is based on a set of common principles. Mainly these include compatibility with the internal market, achievement of an objective of common interest, a clear incentive effect, proportionality, and full transparency. Violation of these rules when granting public support may mean a grant of unlawful state aid, incompatible with the common market and subject to recovery.

On 3 May 2024, Poland marked the third anniversary of submission of the first version of its National Recovery Plan to the European Commission. On the eve of that date, information was released on disbursement of the first funds under the plan, in the amount of c. EUR 6.3 billion. But this is not the only good news for those interested in financial support from European funds. Legislative work is also underway to help absorb funds the National Recovery Plan and other European funds.

In 2020, the EU’s General Court held in T-745/17, Kerkosand v Commission, that SME status is determined based on three criteria verifiable in two successive accounting periods (known as the “two accounting years rule”). It has been four years since the General Court issued this ruling, but the authorities acting as intermediate or managing institutions under EU programmes, as well as national administrative courts (albeit with commendable exceptions), continue to take the position that changes in a beneficiary’s corporate ownership structure (acquisition of a majority of its shares) result in automatic loss of SME status on the date of the change.