The rules on state aid for fostering risk capital investments have, under the Communication of the European Commission (2014/C 19/04), been the subject of new guidelines, which should enter into force by 30 June 2014.
In a context of crisis and retraction in the market granting financing and following the policy that has been developed by the European Union in favour of promoting risk capital, the new Community guidelines review the regime for state support for risk financing.
Taking as its point of departure the recognition of the restrictions SMEs face in access to a risk capital financing framework, together with the restrictions imposed by EU legislation on the scope for state aid and competition rules, the objective is precisely to resolve these restrictions in order to encourage this type of investment and to facilitate access by enterprises.
Thus, in this sense, as regards financial instruments, a series of “risk finance investment” measures may be developed by states, this concept covering equity and quasi-equity investments in a company, directly financed credit investments, including non-financed debt instruments (loans, leases, guarantees), or a combination of these, for eligible companies.
In terms of fiscal instruments, aid in the form of risk capital is covered by the Block Exemption Regulation (RGIC) which limits fiscal incentives to individual investors providing risk finance to SMEs. The Commission’s framework will, under certain conditions, allow for states to adopt measures applying similar fiscal incentives to corporate investors, including financial intermediaries and their managers (acting as co-investors).
The tax measures envisaged may take the form of reductions in the taxation of income and/or capital gains and dividends resulting from the investment made, including the granting of tax credits and deferrals. In addition to investments, reinvestments may also benefit from tax incentives.
In short, considering the content of the recent Commission proposal, the new rules will provide private investors with incentives to invest and states and investors, provided they are aware of and comply with the requirements and criteria required by the regime, will be able to take advantage of the tax benefits therein provided.
It should be noted, however, that notwithstanding the relaxation of the rules in the State Aid Regime, these tax measures are only to be accepted by the Commission when displaying a real incentive effect (capable of boosting investment in eligible companies, i.e. a demonstration of their effectiveness is required), when aimed at addressing a proven market failure and when resulting in low impact incentives avoiding market and competition distortions. This should also note the specific characteristics of the particular national tax system and the incentives already applied by the respective state will also be taken into consideration, all in line with the action plan for combating fraud and tax evasion and recommendations on aggressive tax planning.
in FundsPeople
6th March 2014