Commission Regulation (EC) No 1974/2006 (repealed)Show full title

Section 1 Verifiability and controllability of measures and eligibility rules

Sub-section 1 Verifiability and controllability of measures

Article 48

1. For the purposes of Article 74(1) of Regulation (EC) No 1698/2005 Member States shall ensure that all the rural development measures they intend to implement are verifiable and controllable. To this end, Member States shall define control arrangements that give them reasonable assurance that eligibility criteria and other commitments are respected.

2. In order to substantiate and confirm the adequacy and accuracy of the calculations of payments under Articles 31, 38, 39, 40 and 43 to 47 of Regulation (EC) No 1698/2005, Member States shall ensure that appropriate expertise is provided by bodies or services functionally independent from those responsible for those calculations. Provision of such expertise shall be evidenced in the rural development programme.

Sub-section 2 Interest rate subsidies

Article 49

Interest rate subsidies for loans may be co-financed by the EAFRD pursuant to Article 71(5) of Regulation (EC) No 1698/2005. When proposing interest rate subsidies, Member States shall indicate in their programmes the method of calculation of the interest rate subsidy to be used.

Member States may establish a system of capitalisation of the remaining annual instalments of the interest rate subsidy at any time during the period of the loan. Any remaining annual instalment after the final date for payments shall be capitalised and paid out by 31 December 2015 at the latest. For the purposes of claims for payment made to the Commission, the amounts paid out to the intermediary financial institution undertaking the payment of the discounted value of the subsidy shall be considered as expenditure actually incurred.

For the purposes of the second paragraph, an agreement is needed between the Member States’ paying agency and the intermediary financial institution undertaking the payment of the discounted value of the subsidy. Member States shall indicate in the programme the calculation method and future value hypotheses to be used in calculating the capitalised value of outstanding interest rate subsidy as well as the arrangements for continuing transmitting the aid to the beneficiaries.

Member States shall remain responsible for the management of the payment of the discounted value of the subsidy for the entire loan period to the financial intermediary and for any recovery of amounts unduly paid in accordance with Article 33 of Council Regulation (EC) No 1290/2005(1).

Sub-section 3 Other financial engineering actions

Article 50

Pursuant to Article 71(5) of Regulation (EC) No 1698/2005, as part of a rural development programme, the EAFRD may co-finance expenditure in respect of an operation comprising contributions to support venture capital funds, guarantee funds and loan funds (hereinafter ‘the funds’), in accordance with Articles 51 and 52 of this Regulation.

Article 51

1. Those part-financing the funds or their sponsors shall submit a business plan to the managing authority specifying, inter alia, the targeted market or guarantee portfolio, the criteria, terms and conditions of financing, the operational budget of the fund, the ownership and part-financing partners, the requirements as to the professionalism, competence and independence of the management, the fund’s by-laws, the justification and intended utilisation of the EAFRD contribution, the investment exit policy, and the winding-up provisions of the fund, including the re-utilisation of returns attributable to the EAFRD contribution. The business plan shall be appraised and its implementation monitored by or under the responsibility of the managing authority.

2. The funds shall be set up as independent legal entities governed by agreements between the shareholders or as separate block of finance within an existing financial institution. In the latter case, the fund shall be subject to specific implementing rules, providing in particular for the keeping of separate accounts distinguishing the new resources invested in the fund, including those contributed by the EAFRD, from those initially available in the financial institution. The Commission shall not become a partner or shareholder in the fund.

3. The funds shall invest in or provide guarantees to enterprises on their establishment, during their early stages or expansion and only in activities that the fund managers consider potentially viable. The assessment of the economic viability shall take into account all sources of income of the enterprises in question. Funds shall not invest in or provide guarantees for firms in difficulty within the meaning of the Community Guidelines on State aid for rescuing and restructuring firms in difficulty(2).

4. Precautions shall be taken by managing authorities and funds to minimise distortion of competition in the venture capital or lending market. In particular, returns from equity investments and loans, less a pro rata share of the management costs, may be preferentially allocated to the private sector shareholders up to the level of remuneration laid down in the shareholder agreement, and after that, they shall be allocated proportionally between all shareholders and the EAFRD.

5. Management costs of funds shall not exceed 3 % of the paid-up capital, or 2 % in the case of guarantee funds, on a yearly average for the duration of the programme unless, after a competitive tender, a higher percentage proves necessary.

6. The terms and conditions for contributions to funds from rural development programmes, including deliverables, investment strategy and planning, monitoring implementation, investment exit policy and winding up provisions, shall be established in a funding agreement to be concluded between the fund on the one hand, and the Member State or the managing authority, on the other.

7. Contributions to funds from the EAFRD and other public sources and investments made by the funds in or guarantees provided to individual undertakings shall be subject to the rules in Regulation (EC) No 1698/2005 or to the Community rules on State aid.

Article 52

1. As regards financial engineering actions referred to in Article 51 of this Regulation, the expenditure declared to the Commission in accordance with Article 26(3)(a) of Regulation (EC) No 1290/2005 shall be the total expenditure paid in establishing or contributing to such funds.

However, when paying the balance and closing the rural development programme in accordance with Article 28 of Regulation (EC) No 1290/2005, the eligible expenditure shall be the total of:

(a) any payment for investment in enterprises out of each of the funds concerned, or any guarantees provided including amounts committed as guarantees by guarantee funds;

(b) eligible management costs.

The difference between the EAFRD contribution actually paid under financial engineering actions and the eligible expenditure under points (a) or (b) of the second subparagraph shall be cleared in the context of the annual accounts of the last year of implementation of the programme.

2. Interest generated by payments from rural development programmes to funds shall be used to finance financial engineering actions for individual undertakings.

3. Resources returned to the operation from investments undertaken by funds or left over after all guarantees have been honoured shall be reused by the competent authorities of the Member States concerned for the benefit of individual undertakings.

Sub-section 4 Standard costs and assumptions of income foregone, contributions in kind

Article 53

1. Where appropriate Member States may fix the level of support provided for in Articles 31, 37 to 41, and 43 to 49 of Regulation (EC) No 1698/2005 on the basis of standard costs and standard assumptions of income foregone.

2. Member States shall ensure that the calculations and the corresponding support referred to in paragraph 1:

(a) contain only elements that are verifiable;

(b) are based on figures established by appropriate expertise;

(c) indicate clearly the source of the figures;

(d) are differentiated to take into account regional or local site conditions and actual land use as appropriate;

(e) in the case of measures pursuant to Articles 31, 37 to 40 and 43 to 47 of Regulation (EC) No 1698/2005, do not contain elements linked to fixed investment costs.

Article 54

1. For measures involving investments in kind, contributions of a public or private beneficiary, namely the provision of goods or services for which no cash payment supported by invoices or equivalent documents is made, may be eligible expenditure provided that the following conditions are fulfilled:

(a) the contributions consist in the provision of land or real estate, equipment or raw materials, research or professional work or unpaid voluntary work;

(b) the contributions are not made in respect of financial engineering actions referred to in Article 50;

(c) the value of the contributions can be independently assessed and verified.

In the case of provision of land or real estate, the value shall be certified by an independent qualified expert or duly authorised official body.

In the case of unpaid voluntary work, the value of that work shall be determined taking into account the time spent and the hourly and daily rate of remuneration for equivalent work, where relevant on the basis of ex-ante established system of standard costing, provided that the control system provides reasonable assurance that the work has been carried out.

2. Public expenditure co-financed by the EARDF, contributing to an operation which includes contributions in kind shall not exceed the total eligible expenditure, excluding contributions in kind, at the end of the operation.

Sub-section 5 Investments

Article 55

1. In the case of investments, eligible expenditure shall be limited to:

(a) the construction, acquisition, including leasing, or improvement of immovable property;

(b) the purchase or lease-purchase of new machinery and equipment, including computer software up to the market value of the asset. Other costs connected with the leasing contract, such as lessor’s margin, interest refinancing costs, overheads and insurance charges, shall not be eligible expenditure;

(c) general costs linked to expenditure referred to in points (a) and (b), such as fees of architects and engineers and consultation fees, feasibility studies, the acquisition of patent rights and licences.

By way of derogation from point (b) of the first subparagraph, and only for micro, small and medium-sized enterprises within the meaning of Commission Recommendation 2003/361/EC(3), Member States may, in duly substantiated cases, establish the conditions under which the purchase of second-hand equipment may be regarded as eligible expenditure.

2. In the case of agricultural investments the purchase of agricultural production rights, animals, annual plants and their planting shall not be eligible for investment support.

However, in cases of restoration of agricultural potential damaged by natural disasters pursuant to Article 20(b)(vi) of Regulation (EC) No 1698/2005, expenditure for the purchase of animals may be eligible expenditure.

Simple replacement investments shall not be eligible expenditure.

Sub-section 6 Payment of advances for investment support

Article 56

1. By way of derogation from Article 26(5) of Commission Regulation (EC) No 1975/2006(4), beneficiaries of investment support may request the payment of an advance from the competent paying agencies if this option is included in the rural development programme. As regards public beneficiaries, such an advance may be paid only to municipalities and associations thereof and to public law bodies.

2. The amount of the advances shall not exceed 20 % of the public aid related to the investment, and its payment shall be subject to the establishment of a bank guarantee or an equivalent guarantee corresponding to 110 % of the amount of the advance.

However, in the case of the public beneficiaries referred to in paragraph 1, the paying agency may accept a written guarantee from their authority, in accordance with provisions applied in the Member States, covering an amount equal to the percentage specified in the first subparagraph, provided that the authority undertakes to pay the amount covered by that guarantee should entitlement to the advance paid not be established.

3. The guarantee shall be released when the competent paying agency establishes that the amount of actual expenditure corresponding to the public aid related to the investment exceeds the amount of the advance.

(1)

OJ L 209, 11.8.2005, p. 1.

(2)

OJ C 244, 1.10.2004, p. 2.

(3)

OJ L 124, 20.5.2003, p. 36.

(4)

See page 74 of this Official Journal.