Table of Contents:
1. When Does Ownership of Infrastructure Change?
2. How to Assess SME Status?
3. Sale of Shares or Acquisition of Another Enterprise
4. Is It Possible to Depart from the Two Accounting Period Rule?
5. What Are the Consequences of Breaching the Sustainability Principle?
In projects co-financed by the European Union involving infrastructure investment or production investments, the so-called sustainability principle applies. The project sustainability period is the time during which a project cannot undergo significant modifications. This particularly pertains to maintaining the goals and the output and result indicators specified in the funding application. The sustainability period lasts five years or three years for entrepreneurs classified as SMEs. This period starts from the date of the final payment to the beneficiary.
The grounds for breaching the project sustainability principle are specified in the Guidelines on the Eligibility of Expenditures for 2021–2027. According to subsection 2.6, a breach occurs if, during the sustainability period, any of the following occurs:
- Production activity is ceased or relocated outside the NUTS 2 region where the project received support;
- Ownership of an infrastructure element changes, granting undue benefit to a business or public entity;
- A significant modification affecting the project’s nature, objectives, or implementation conditions occurs, potentially undermining its original goals.
Additionally, a sustainability breach occurs if a business bankruptcy results from fraud confirmed by a final court judgment, or if the entrepreneur ceases production activities without declaring bankruptcy.
When Does Ownership of Infrastructure Change?
A particular case of breaching the project sustainability principle occurs with changes in infrastructure ownership. This includes scenarios such as the sale of a business that was the beneficiary. In such cases, the SME status may also change from an SME to a large enterprise. If holding SME status was a condition for receiving funding, losing this status is treated as a breach of the sustainability principle. This is supported by administrative court rulings (e.g., NSA ruling of May 17, 2017, ref. II GSK 5186/16; final WSA Szczecin ruling of August 29, 2018, ref. I SA/Sz 620/18; final WSA Białystok ruling of December 18, 2020, ref. I SA/Bk 861/20).
How to Assess SME Status?
SME status is assessed according to Annex I to Commission Regulation (EU) No. 651/2014 of June 17, 2014, declaring certain categories of aid compatible with the internal market under Articles 107 and 108 of the Treaty. SMEs include enterprises with fewer than 250 employees and an annual turnover not exceeding EUR 50 million or an annual balance sheet total not exceeding EUR 43 million. Importantly, when assessing SME status, linked and partner enterprises, as defined in Annex I, are also considered. The data used to determine staff numbers and financial thresholds refers to the most recently approved accounting period and is calculated annually. If, at the closing of accounts, a business exceeds or falls below the thresholds for employment or financial criteria outlined in Article 2, the acquisition or loss of SME status occurs only if this situation persists for two consecutive accounting periods. In general, the two-year rule applies for consolidating enterprise status.
Sale of Shares or Acquisition of Another Enterprise
In the context of determining SME status, particular attention is paid to cases of share disposal by the beneficiary or the acquisition of shares in another enterprise, potentially creating a linked enterprise and affecting SME status. The European Commission’s “User Guide to the SME Definition” states: “Enterprises whose ownership has changed should be assessed based on their shareholding structure at the time of the transaction, not at the time of the last accounts closing. Therefore, the loss of SME status can be immediate.”
In other words, the EC recognizes that in cases such as share sales or acquisitions, the two-year rule for consolidating SME status does not apply. Upon acquiring another enterprise, the beneficiary may automatically obtain the status of a large enterprise, which would constitute a breach of the sustainability principle. This stance is largely respected by Polish public aid authorities and administrative courts.
Is It Possible to Depart from the Two Accounting Period Rule?
Beneficiaries who have made changes to their ownership structure and are required to return all or part of the public funds received often invoke the CJEU ruling of September 9, 2020, in Case T-745/17 (Kerkosand). The Court examined a challenge to a European Commission decision on the compliance of investment aid granted to an entity that, as a large enterprise, was not eligible for such aid (the beneficiary sold 100% of its shares to a large enterprise).
In the Kerkosand ruling, the Court explicitly stated that the assessment of SME status should adhere to Article 4(2) of Annex I to the GBER regulation, which specifies the two-year accounting period rule.
Article 4 of Annex I to Regulation No. 651/2014 provides a calculation method based on the most recently approved accounting period and annual data to establish the three criteria defining an SME under Article 2(1) of the same Annex: fewer than 250 employees, a maximum annual turnover of EUR 50 million, and an annual balance sheet total not exceeding EUR 43 million.
The Court emphasized that: “The User Guide to the SME Definition is not legally binding and cannot derogate from the mandatory application of Article 4(2) of Annex I to Regulation No. 651/2014 or limit its scope. Thus, the two-year consolidation rule is absolute and cannot be waived even in cases such as share disposals.”
This CJEU position, expressed in the Kerkosand ruling, is not widely accepted by Polish administrative courts. However, some rulings have departed from traditional interpretations, endorsing the principles outlined in the CJEU ruling (e.g., NSA ruling of July 12, 2022, ref. I GSK 1019/22).
What Are the Consequences of Breaching the Sustainability Principle?
A beneficiary who breaches the project sustainability principle may face significant consequences. If project sustainability is not maintained, the beneficiary is required to return the funding proportionate to the period during which sustainability was not upheld. The refund is executed as per Article 207 of the Public Finance Act of August 27, 2009. Given the above, changes in ownership during the sustainability period of EU-funded projects should be approached with particular caution.
