Subsidy control: guidance

Guidance to help public sector bodies to understand and comply with subsidy control.


Special drawing rights

Similar to the de minimis threshold available under EU law, Article 364(4) of the TCA exempts subsidies where the total amount granted to a single economic actor is below 325,000 Special Drawing Rights (SDR) over any period of three fiscal years. For ease of understanding we shall refer to these small measures of support as Special Drawing Rights (SDR) throughout this section. SDR are units of account, used by the International Monetary Fund. SDRs are not a currency – their value is based on a basket of five currencies. 

The SDR rate of 325,000 is static, however, the conversion rate for this to £ sterling can fluctuate on a daily basis and therefore, just like its EU predecessor the conversion rate is that applicable on the date of the offer. 

Giving small measures of support under SDR when conversion rates fluctuate, may make some calculations tricky. The only way to address this is to ensure that the sums paid out in £ sterling are converted to SDR equivalents at the date the offer letter issues. The aggregation should be calculated in SDR to establish how much more may be paid. 

At the time of payment in £ sterling, the payment would need to be converted into SDR to show how much of the threshold remains available to the beneficiary (see example below). Records of payment will therefore need to show SDR values.

Taking account of previous EU de minimis aid in calculations for TCA purposes

We need to account for any previous small measures of support provided over the three-year fiscal period (current financial year and two previous full financial years). We should not assume that previous de minimis aid can be disregarded. 

Under the EU de minimis regulations, the pounds sterling conversion of €200,000 was used and stated in the offer letter. It may be too onerous a task for granting authorities to convert every offer of grant provided under EU de minimis rules into SDR using the SDR conversion rate that applied at the time those grants were given. 

Therefore, to calculate previous EU de minimis funding, you should use the SDR conversion rate available at 1 January 2021 (1.0 SDR = 1.0254 Pound/1 Pound = 0.9483 SDR), unless it is possible to establish the rate at the time of payment, in which case that rate should be used. This will show that previous funding now converted into SDR’s has been taken into account before proceeding with the scope afforded under the new rules, which have the potential to be more favourable to grantees.

SDR funding does not require reporting on the transparency database.

Here is a worked example of this conversion and accounting process:

On 5 October 2020 under EU de minimis rules, A Company Ltd received £100,000. To calculate it’s SDR value, we use the rate as of 1 January 2021 and so multiply £100,000 by 0.9483 = 94,830 SDR.

On 18 August 2021 under Special Drawing Rights, A Company Ltd received £75,000. The SDR rate at this time is 1 Pound = 0.9692 SDR. Therefore £75,000 multiplied by 0.9692 = 72,690 SDR.

On 21 February 2022, A Company Ltd is applying for further SDR funding and has to declare previous EU De Minimis/SDR funding received within the three-year fiscal period in order to calculate what available balance remains. Looking at the above information, A Company Ltd has already received (94,830 + 72,690 =) 167,520 SDR. If we subtract this from the 325,000 SDR maximum allowance, A Company Ltd could receive a further 157,480 SDR. Using the exchange rate for 21 February 2022 (1 SDR = £1.03) this equates to approx. £162,204 available balance. 

Keeping any funding below this number ensures that the TCA is adhered to, protecting the recipient and funding body from potential legal challenge. 

Date

Funding awarded (£)

3-year drawn total (£)

SDR conversion

SDR available

Remaining balance available £

05/10/2020 100,000 100,000 100,000 x 0.9483 = 94,830

325,000 – 94,830

=230,170

230,170 x 1.0254

=236,016

18/8/2021 75,000 175,000

75,000 x 0.9692

= 72,690

230,170 – 72,690

= 157,480

157,480 x 1.0317

=154,755

Prospective award (21/2/2022) 150,000 325,000

150,000 x 0.9749

= 146,235

157,480 - 146,235

= 11,245

11,245 x 1.0258

= 11,535 

Text for offer letters using SDR

Should you choose to fund a project using SDR subsidies under the TCA then you are required to include the following text in your grant offer letter:

The Grant is awarded as an exempt subsidy under Article 364(4) of the EU-UK Trade and Cooperation Agreement. There is a ceiling of 325,000 Special Drawing Rights for subsidies provided to any one economic actor under this Article over a three-year period. Any Article 364(4) subsidies (or similar aid, including “de minimis” aid granted prior to 31 December 2020 under Commission Regulation (EU) No 1407/2013) awarded to the Grantee will be relevant if the Grantee wishes to apply, or has applied, for any Article 364(4) subsidies. 

The Grantee must retain this Agreement for three years from the date of receipt and produce it on any request by UK public authorities. (The Grantee may need to keep this Agreement for longer than three years for other purposes).

Contact

subsidycontrol@gov.scot

Back to top