(1)

For the purposes of monitoring State aid as required by the EEA Agreement, the EFTA Surveillance Authority uses various parameters, including the reference and discount rates.

(2)

Those rates are used to measure the grant equivalent of aid that is disbursed in several installments and to calculate the aid element resulting from interest subsidy schemes for loans. They are also used in implementing the de minimis rule and for the repayment of illegal aid.

(3)

The reference rates are supposed to reflect the average level of interest rates charged, in the various EFTA States parties to the EEA Agreement, on medium and long-term loans (five to ten years) backed by normal security.

(4)

As from 1 April 2000 the reference rates are fixed as follows:

IT SHOULD ALSO BE NOTED THAT:

(5)

Reference rates will be made known by the EFTA Surveillance Authority on Internet at the following address: www.eftasurv.int.

(1)

Article 14 in Part II of Protocol 3 to the Surveillance and Court Agreement provides that when negative decisions are taken in cases of unlawful aid, the EFTA Surveillance Authority shall decide that the EFTA State concerned shall take all necessary measures to recover the aid from the beneficiary. The aid to be recovered shall include interest at an appropriate rate fixed by the EFTA Surveillance Authority. Interest shall be payable from the date the unlawful aid was at the disposal of the beneficiary until the date of its recovery.

(2)

In a letter to the EU Member States of 22 February 1995 the European Commission took the view that for the purpose of restoring the status quo, commercial rates provide a better measure of the advantage improperly conferred on the recipient of unlawful aid than legal rates. Accordingly, the European Commission informed the EU Member States that in any decisions it might adopt ordering the recovery of aid unlawfully granted, it would apply the reference rate used in the calculation of the net grant equivalent of regional aid measures as the basis for the commercial rate. Thus, for several years it has been the standard practice of the European Commission to include in its recovery decisions a clause requiring interest to be calculated on the basis of the reference rate used for calculating the net grant equivalent of regional aids. On 9 September 1997, the European Commission adopted a notice which set out further details on the reference rates used for the calculation of repayments of illegal aid and other purposes (3), which the EFTA Surveillance Authority partially integrated into the State Aid Guidelines, see the present Chapter 34.1 (4). The question has arisen whether this interest rate should be applied on a simple basis or on a compound basis (5).

(3)

In accordance with a great number of decisions of the Community judiciary (6), recovery is the logical consequence of the illegality of aid. The objective of recovery is to re-establish the previously existing situation. By repaying the aid, the beneficiary forfeits the unfair advantage which it enjoyed over its competitors on the market and the conditions of competition which existed prior to the payment of the aid are restored. In market practice, simple interest would normally be calculated where the beneficiary of the funds does not have use of the interest amount before the end of the period, for example where interest is only paid at the end of the period. Compound interest would normally be calculated if each year (or period) the amount of interest can be considered as being paid to the beneficiary and so accruing to the initial capital amount. In this case, the beneficiary would earn interest on the interest paid for each period.

(4)

In practice, the type of aid which has been granted and the situation of the individual beneficiary may differ. If the aid consists in overcompensation, the benefit which the company took from it can be assimilated to a deposit which would normally attract compound interest. If the aid was an investment aid for a certain eligible cost, the aid may have replaced an alternative source of financing, which would also normally bear compound interest at commercial rates. If the aid was an operating aid, it would have direct effects on the profit and loss accounts, and hence the balance sheet, leading to the availability of funds for deposit. Thus, despite the variety of situations, it appears that the effects of an unlawful aid are to provide funding to the beneficiary on similar conditions to a medium term non-interest bearing loan. Accordingly, the use of compound interest appears necessary to ensure that the financial advantages resulting from this situation are fully neutralised.

(5)

Accordingly, the EFTA Surveillance Authority wishes to inform the EFTA States and interested parties that in any future decisions it may adopt ordering the recovery of aid unlawfully granted, it will apply the reference rate used for calculating the net grant equivalent of regional aids on a compound basis. In accordance with normal market practice, compounding should take place on an annual basis. Likewise, the EFTA Surveillance Authority will expect the EFTA States to apply compound interest in the execution of pending recovery decisions, unless this would be contrary to a general principle of EEA law.’