Regulation (EU) 2021/697 of the European Parliament and of the Council of 29 April 2021 establishing the European Defence Fund and repealing Regulation (EU) 2018/1092 (Text with EEA relevance)

TITLE I

COMMON PROVISIONS APPLICABLE FOR RESEARCH AND DEVELOPMENT

Article 1

Subject matter

This Regulation establishes the European Defence Fund (the ‘Fund’), as set out in point (c) of Article 1(2) of Regulation (EU) 2021/695, for the period from 1 January 2021 to 31 December 2027. The duration of the Fund is aligned with the duration of the MFF 2021-2027.

This Regulation lays down the objectives of the Fund, its budget for the period from 1 January 2021 to 31 December 2027, the forms of Union funding and the rules for providing such funding.

Article 2

Definitions

For the purposes of this Regulation, the following definitions apply:

(1) ‘legal entity’ means a legal person created and recognised as such under Union, national or international law, which has legal personality and the capacity to act in its own name, exercise rights and be subject to obligations, or an entity which does not have legal personality as referred to in point (c) of Article 197(2) of the Financial Regulation;

(2) ‘applicant’ means a legal entity that submits an application for support from the Fund after a call for proposals or in accordance with point (e) of the first paragraph of Article 195 of the Financial Regulation;

(3) ‘recipient’ means a legal entity with which a funding or financing agreement has been signed or to which a funding or financing decision has been notified;

(4) ‘consortium’ means a collaborative grouping of applicants or recipients that is subject to an agreement and constituted for the purpose of carrying out an action under the Fund;

(5) ‘coordinator’ means a legal entity which is a member of a consortium and has been appointed by all the members of the consortium to be the principal point of contact for the purpose of the consortium’s relations with the Commission;

(6) ‘control’ means the ability to exercise a decisive influence on a legal entity directly, or indirectly through one or more intermediate legal entities;

(7) ‘executive management structure’ means a body of a legal entity, appointed in accordance with national law, and, where applicable, reporting to the chief executive officer, which is empowered to establish the legal entity’s strategy, objectives and overall direction, and which oversees and monitors management decision-making;

(8) ‘system prototype’ means a model of a product or technology that can demonstrate performance in an operational environment;

(9) ‘qualification’ means the entire process of demonstrating that the design of a defence product, tangible or intangible component or technology meets the specified requirements, providing objective evidence by which particular requirements of a design are demonstrated to have been met;

(10) ‘certification’ means the process by which a national authority certifies that the defence product, tangible or intangible component or technology complies with the applicable regulations;

(11) ‘research action’ means an action consisting primarily of research activities, in particular applied research and where necessary fundamental research, with the aim of acquiring new knowledge and with an exclusive focus on defence applications;

(12) ‘development action’ means an action consisting of defence-oriented activities primarily in the development phase, covering new defence products or technologies or the upgrading of existing ones, excluding the production or use of weapons;

(13) ‘disruptive technology for defence’ means an enhanced or completely new technology that brings about a radical change, including a paradigm shift in the concept and conduct of defence affairs such as by replacing existing defence technologies or rendering them obsolete;

(14) ‘small and medium-sized enterprises’ or ‘SMEs’ means small and medium-sized enterprises as defined in Article 2 of the Annex to Commission Recommendation 2003/361/EC (¹);

(15) ‘middle capitalisation company’ or ‘mid-cap’ means an enterprise that is not a SME and that employs a maximum of 3 000 persons, where the headcount of staff is calculated in accordance with Articles 3 to 6 of the Annex to Recommendation 2003/361/EC;

(16) ‘blending operation’ means an action supported by the Union budget, including within a blending facility or platform as defined in point (6) of Article 2 of the Financial Regulation, that combines non-repayable forms of support or financial instruments from the Union budget with repayable forms of support from development or other public finance institutions as well as from commercial finance institutions and investors;

(17) ‘pre-commercial procurement’ means the procurement of research and development services involving risk-benefit sharing under market conditions, and competitive development in phases, where there is a clear separation of the research and development services procured from the deployment of commercial volumes of end-products;

(18) ‘project manager’ means a contracting authority established in a Member State or an associated country, appointed by a Member State or an associated country or a group of Member States or associated countries to manage multinational armament projects on an on-going or ad-hoc basis;

(19) ‘results’ means any tangible or intangible effect of a given action, such as data, knowhow or information, whatever its form or nature and whether or not it can be protected, as well as any rights attached to it, including IPRs;

(20) ‘foreground information’ means data, knowhow or information generated in the operation of the Fund, whatever its form or nature;

(21) ‘classified information’ means information or material, in any form, the unauthorised disclosure of which could cause varying degrees of prejudice to the interests of the Union, or of one or more of the Member States, and which bears an EU classification marking or a corresponding classification marking, as established in the Agreement between the Member States of the European Union, meeting within the Council, regarding the protection of classified information exchanged in the interests of the European Union (²);

(22) ‘sensitive information’ means information and data, including classified information, that is to be protected from unauthorised access or disclosure because of obligations laid down in Union or national law or in order to safeguard the privacy or security of a natural or legal person;

(23) ‘special report’ means a specific deliverable of a research action summarising its results, providing extensive information on the basic principles, the aims, the outcomes, the basic properties, the tests performed, the potential benefits, the potential defence applications and the expected exploitation path of the research towards development, including information on the ownership of IPRs but not requiring the inclusion of IPR information;

(24) ‘non-associated third-country entity’ means a legal entity that is established in a non-associated third country or, where it is established in the Union or in an associated country, that has its executive management structures in a non-associated third country.

Article 3

Objectives

The Fund shall have the following specific objectives:

(a) to support collaborative research that could significantly boost the performance of future capabilities throughout the Union, aiming to maximise innovation and introduce new defence products and technologies, including disruptive technologies for defence, and aiming to make the most efficient use of defence research spending in the Union;

(b) to support the collaborative development of defence products and technologies, thus contributing to the greater efficiency of defence spending within the Union, achieving greater economies of scale, reducing the risk of unnecessary duplication and thereby fostering the market uptake of European defence products and technologies and reducing the fragmentation of defence products and technologies throughout the Union, ultimately leading to an increase in the standardisation of defence systems and a greater interoperability between Member States’ capabilities.

Such collaboration shall be consistent with defence capability priorities commonly agreed by Member States within the framework of the Common Foreign and Security Policy (CFSP) and in particular in the context of the CDP.

In that regard, regional and international priorities, when they serve the security and defence interests of the Union as determined under the CFSP, and taking into account the need to avoid unnecessary duplication, may also be taken into account, where appropriate, where they do not exclude the possibility of participation of any Member State or associated country.

Article 4

Budget

The distribution of the amount referred to in paragraph 1 shall be:

(a) EUR 3 151 000 000 for research actions;

(b) EUR 6 302 000 000 for development actions.

In order to respond to unforeseen situations or to new developments and needs, the Commission may reallocate the amount allocated to research or development actions, by up to a maximum of 20 %.

Article 5

Associated countries

The Fund shall be open to the participation of the following third countries (associated countries):

(a) members of the European Free Trade Association which are members of the EEA, in accordance with the conditions laid down in the Agreement on the European Economic Area;

(b) Ukraine, in accordance with the conditions laid down in the EU-Ukraine Association Agreement.

Article 6

Support for disruptive technologies for defence

Article 7

Ethics

Ethics screening and assessment shall be carried out by the Commission with the support of independent experts appointed in accordance with Article 26. Those independent experts shall have a variety of backgrounds, in particular recognised expertise in defence ethics, and shall be nationals of as broad a range of Member States as possible.

The conditions under which the activities with ethically sensitive issues are to be carried out shall be specified in the funding agreement.

The Commission shall ensure that the ethics procedures are as transparent as possible and shall include them in its interim evaluation report in accordance with Article 29.

Article 8

Implementation and forms of Union funding

Article 8a

Cumulative funding and transfers of resources

Article 9

Eligible legal entities

By way of derogation from paragraph 3, a legal entity established in the Union or in an associated country and controlled by a non-associated third country or a non-associated third-country entity shall be eligible to be a recipient or subcontractor involved in an action only if guarantees approved by the Member State or the associated country in which it is established in accordance with its national procedures are made available to the Commission. Those guarantees may refer to the legal entity’s executive management structure established in the Union or in an associated country. If considered to be appropriate by the Member State or associated country in which the legal entity is established, those guarantees may also refer to specific governmental rights in the control over the legal entity.

The guarantees shall provide assurances that the involvement in an action of such a legal entity would not contravene the security and defence interests of the Union and its Member States as established in the framework of the CFSP pursuant to Title V of the TEU, or the objectives set out in Article 3 of this Regulation. The guarantees shall also comply with Articles 20 and 23 of this Regulation. The guarantees shall in particular substantiate that, for the purposes of an action, measures are in place to ensure that:

(a) control over the legal entity is not exercised in a manner that restrains or restricts its ability to carry out the action and to deliver results, that imposes restrictions concerning its infrastructure, facilities, assets, resources, intellectual property or knowhow needed for the purposes of the action, or that undermines its capabilities and standards necessary to carry out the action;

(b) access by a non-associated third country or by a non-associated third-country entity to sensitive information relating to the action is prevented and the employees or other persons involved in the action have national security clearance issued by a Member State or an associated country, where appropriate;

(c) ownership of the intellectual property arising from, and the results of, the action remain within the recipient during and after completion of the action, are not subject to control or restriction by a non-associated third country or by a non-associated third-country entity, and are neither exported outside the Union or outside associated countries nor accessible from outside the Union or outside associated countries without the approval of the Member State or the associated country in which the legal entity is established and in accordance with the objectives set out in Article 3.

If considered to be appropriate by the Member State or the associated country in which the legal entity is established, additional guarantees may be provided.

The Commission shall inform the committee referred to in Article 34 of any legal entity considered to be eligible in accordance with this paragraph.

The costs related to those activities shall not be eligible for support from the Fund.

There shall be no unauthorised access by a non-associated third country or other non-associated third-country entity to classified information relating to the carrying out of the action and potential negative effects over security of supply of inputs critical to the action shall be avoided.

The costs related to those activities shall not be eligible for support from the Fund.

Article 10

Eligible actions

An eligible action shall relate to one or more of the following activities:

(a) activities that aim to create, underpin and improve knowledge, products and technologies, including disruptive technologies for defence, which can achieve significant effects in the area of defence;

(b) activities that aim to increase interoperability and resilience, including secured production and exchange of data, to master critical defence technologies, to strengthen the security of supply or to enable the effective exploitation of results for defence products and technologies;

(c) studies, such as feasibility studies to explore the feasibility of new or upgraded products, technologies, processes, services and solutions;

(d) the design of a defence product, tangible or intangible component or technology as well as the definition of the technical specifications on which such a design has been developed, including any partial tests for risk reduction in an industrial or representative environment;

(e) the system prototyping of a defence product, tangible or intangible component or technology;

(f) the testing of a defence product, tangible or intangible component or technology;

(g) the qualification of a defence product, tangible or intangible component or technology;

(h) the certification of a defence product, tangible or intangible component or technology;

(i) the development of technologies or assets increasing efficiency across the life cycle of defence products and technologies.

Moreover, actions for the development of lethal autonomous weapons without the possibility for meaningful human control over selection and engagement decisions when carrying out strikes against humans shall not be eligible for support from the Fund, without prejudice to the possibility of providing funding for actions for the development of early warning systems and countermeasures for defensive purposes.

Article 11

Selection and award procedure

In certain duly substantiated and exceptional circumstances, Union funding may also be granted without a call for proposals in accordance with point (e) of the first paragraph of Article 195 of the Financial Regulation.

Article 12

Award criteria

Each proposal shall be assessed on the basis of the following criteria:

(a) its contribution to excellence or potential of disruption in the defence domain, in particular by showing that the expected results of the proposed action present significant advantages over existing defence products or technologies;

(b) its contribution to the innovation and technological development of the European defence industry, in particular by showing that the proposed action includes ground-breaking or novel concepts and approaches, new promising future technological improvements or the application of technologies or concepts previously not applied in defence sector, while avoiding unnecessary duplication;

(c) its contribution to the competitiveness of the European defence industry by showing that the proposed action is a demonstrably positive balance of cost-efficiency and effectiveness thus creating new market opportunities across the Union and beyond and accelerating the growth of companies throughout the Union;

(d) its contribution to the autonomy of the EDTIB, including by increasing the non-dependency on non-Union sources and strengthening security of supply, and to the security and defence interests of the Union in line with the priorities referred to in Article 3;

(e) its contribution to the creation of new cross-border cooperation between legal entities established in Member States or associated countries, in particular SMEs and mid-caps with a substantial participation in the action, as recipients, subcontractors or as other legal entities in the supply chain, and which are established in Member States or associated countries other than those where the legal entities cooperating within a consortium which are not SMEs or mid-caps are established;

(f) the quality and efficiency of the carrying out the action.

Article 13

Co-financing rate

By way of derogation from paragraph 1 of this Article:

(a) for activities referred to in point (e) of Article 10(3), support from the Fund shall not exceed 20 % of the eligible costs;

(b) for activities referred to in points (f), (g) and (h) of Article 10(3), support from the Fund shall not exceed 80 % of the eligible costs.

For development actions, the funding rates shall be increased in the following cases:

(a) an action developed in the context of a project of PESCO, as established by Council Decision (CFSP) 2017/2315 (⁶), may benefit from a funding rate increased by an additional 10 percentage points;