High energy prices are greatly impacting economies around the world. Recognising the state of crisis, the European Union is introducing a number of amendments to the law to mitigate the effects of high electricity prices. In Poland, support instruments are governed by the Electricity Price Act and are intended to benefit electricity end users such as households and SMEs. Thus for companies it is crucial to assess their own size.
The Electricity Price Act (Act on Emergency Measures to Restrict Electricity Prices and Support Certain Consumers in 2023 of 27 October 2022) implements Poland’s mandate to introduce support mechanisms in relation to the energy crisis and high electricity prices. The basis for this power is Council Regulation (EU) 2022/1854 of 6 October 2022 on emergency intervention to address high energy prices. Among other things, the Polish act sets maximum prices for sales to eligible users. Entities eligible to benefit from the price cap for electricity include micro, small and medium-sized enterprises (collectively, SMEs).
The Electricity Price Act takes the relevant definition of SMEs from the Business Law of 6 March 2018. Meanwhile, Regulation 2022/1854 uses the definition of SMEs from Annex I of the General Block Exemption Regulation (Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain types of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty). However, Regulation 2022/1854 and the GBER, including Annex I, are directly applicable EU laws and do not require implementation by an act of national law. This may be relevant in determining the appropriateness of a given definition of SMEs for the purposes of Poland’s Electricity Price Act.
The definition of an SME in Annex I of the GBER is in principle narrower than in the Polish Business Law. This could significantly affect the determination of the group of entities eligible to benefit from the preferences under the Electricity Price Act. Additionally, under the Polish act, the declaration on the size of an entity is submitted under penalty of criminal liability, and thus could have direct consequences for persons making such a declaration.
Under Art. 7(1) of the Business Law, micro, small and medium-sized enterprises are defined as follows:
A micro enterprise is a business which in at least one of the last two fiscal years met both the following conditions:
- Employed fewer than 10 employees on average per year, and
- Achieved an annual net turnover from the sale of goods, products and services, as well as from financial operations, not exceeding the PLN equivalent of EUR 2 million, or the total assets on its balance sheet prepared at the end of one of those years did not exceed the PLN equivalent of EUR 2 million.
A small enterprise is a business which in at least one of the last two fiscal years met both the following conditions:
- Employed fewer than 50 employees on average per year, and
- Achieved an annual net turnover from the sale of goods, products and services, as well as from financial operations, not exceeding the PLN equivalent of EUR 10 million, or the total assets on its balance sheet prepared at the end of one of those years did not exceed the PLN equivalent of EUR 10 million
and is not a micro enterprise.
A medium-sized enterprise is a business which in at least one of the last two fiscal years met both of the following conditions:
- Employed fewer than 250 employees on average per year, and
- Achieved an annual net turnover from the sale of goods, products and services, as well as from financial operations, not exceeding the PLN equivalent of EUR 50 million, or the total assets on its balance sheet prepared at the end of one of those years did not exceed the PLN equivalent of EUR 43 million
and is not a micro or small enterprise.
At first glance, the definition of an SME in GBER Annex I is analogous to the Polish definition. In particular, it is based on the same employment and financial indicators. However, for purposes of GBER Annex I, the status of an enterprise requires that all possible links with other entities (as defined in the annex) be taken into account, so that the result of such verification takes into account the actual economic situation of a given enterprise, giving preference to those that actually constitute SMEs and are affected by the restrictions and barriers inherent in this group.
There are four categories of companies whose data are taken into consideration in calculating financial and personnel ratios:
- Independent enterprises
- Partner enterprises
- Linked enterprises
- Public entities.
The data for calculating the SME ceilings (the employment criterion and the financial criterion) are determined solely on the basis of the enterprise’s own books of account only if it is an independent enterprise. If an enterprise is not independent, in order to calculate the ceilings for determining its status as an SME, the data of related enterprises (100%) and the data of partner enterprises (calculated pro rata to the percentage of capital or voting rights, whichever is greater) must be added to the data of the enterprise under study. At the same time, Annex I contains (rather complicated) definitions of linked enterprises and partner enterprises, as well as independent enterprises and public entities.
Regardless of the wording of GBER Annex I, the European Commission and member states aim to apply a functional interpretation of the SME definition which takes into account the broad economic and personal links between enterprises. In other words, to establish the status of an enterprise as an SME, it is not necessarily enough to meet the conditions arising from the literal wording of Annex I.
Undoubtedly, application of the definition of an SME in GBER Annex I increases the risk of an enterprise being classified as a non-SME. At the same time, it is associated with the need to carry out a thorough and quite complicated study of the size of the enterprise (details we discuss in the article “Enterprise size and state aid: SME or large company?”).
Considering that the deadline for submitting a declaration on the size of an enterprise to benefit from the cap on electricity prices under the Electricity Price Act is 30 November 2022, there is little time left for such a study.
Joanna Prokurat, State Aid practice, Wardyński & Partners