EU facilitates state support for businesses affected by COVID-19 crisis
At a Glance…
EU member states are planning support measures to help businesses affected by the spread of the novel coronavirus (COVID-19) to continue operating. Most of these measures, including direct grants/subsidies, tax advantages, capital injections, loans and guarantees, are likely to involve ‘state aid’ and will require prior approval from the European Commission (EC) under the EU State aid rules.
Authors: Christian Filippitsch, Geert Goeteyn, Isabelle Rahman and Max Seuster
On 13 March 2020, EC President Ursula von der Leyen and EC Executive Vice President and Competition Commissioner Margrethe Vestager announced that the EC stands ready to “use the full flexibility of the State aid rules” to help member states mitigate the consequences of the COVID-19 outbreak. The EC has already approved the first COVID-19 state aid, by the Danish state, in record time (within 24 hours) and has dedicated significant resources to deal with the expected load of state aid notifications in the weeks to come. On 19 March 2020, the EC adopted a state aid ‘Temporary Framework’ to support the economy in the context of the COVID-19 outbreak. It complements the many other possibilities already available to member states to mitigate the impact of the COVID-19 outbreak in line with state aid rules. At the same time the EC emphasises that, despite the COVID-19 crisis, support for businesses must not undermine competition law, including the state aid rules. For any public advantage received, full compliance with the state aid rules is therefore of outmost importance. This alert provides an overview of the EC’s response to the urgent need for member states’ support for businesses during the COVID-19 crisis. It outlines possibilities for state aid already available under the EU rules and for state aid under the new Temporary Framework and highlights the impact on businesses. Next steps and where we can help:
First COVID-19 state aid approval in record timeOn 12 March 2020, the EC approved a €12 million Danish scheme under EU state aid rules to compensate organisers for the damage suffered due to the cancellation or postponement of large events with more than 1,000 participants due to the COVID-19 outbreak. This is the first state aid measure notified by a member state to the EC in relation to the COVID-19 outbreak so far. The EC assessed the measure under Article 107(2)(b) of the Treaty on the Functioning of the European Union (TFEU), which allows state aid measures to compensate for damages directly caused by exceptional occurrences, and approved it in record time – within 24 hours of receiving the notification from Denmark. The EC based its approval on the following grounds:
The EC is expecting that member states will continue seeking to grant aid to tackle the outbreak of the COVID-19 virus under Article 107(2)(b) TFEU. To facilitate this process, the EC has published a template for member state notifications for COVID-19 state aid under Article 107(2)(b) TFEU on its website.1 Existing possibilities for COVID-19 supportThe main fiscal response to the COVID-19 outbreak will come from member states’ national budgets and governments are currently putting in place wide-ranging COVID-19 state aid plans for businesses. These plans may include support schemes for specific industry sectors or types of companies (e.g., small and medium-sized enterprises (SMEs)) and packages to support individual companies (e.g., airlines). On 13 March 2020, the EC adopted a communication setting out the possibilities for state aid support to businesses to tackle the COVID-19 crisis and its commitment to assist member states to ensure that possible national support measures can be put in place in a timely manner. The EC also highlighted support measures that do not require notification. Possible state aid to tackle COVID-19 crisis
Other support measuresMost of the member states’ COVID-19 support measures are likely to involve state aid and require prior EC approval. In its recent announcements on 12 and 13 March 2020, however, the EC also highlighted the flexibility for member states to design support measures not requiring notification, including the following:
The new Temporary FrameworkOn 19 March 2020, the EC adopted a state aid Temporary Framework to specifically support the economy in the context of the COVID-19 outbreak to remedy any serious disturbance across the EU economy. The Temporary Framework will initially be in place until the end of December 2020. The new Temporary Framework will enable member states to (i) set up schemes providing direct grants (selective tax advantages and advance payments) of up to €800,000 to individual companies; (ii) give subsidised state guarantees on bank loans; (iii) enable public and private loans with subsidised interest rates; (iv) safeguard banks that channel support to end customers, in particular SMEs; and (v) grant short-term export credit insurance more flexibly. The new rules are applicable as of 19 March 2020 (even if the measures were notified prior to that date). The new framework complements (and does not replace) other existing possibilities available to member states in line with state aid rules (see above). For instance, compensation can be granted to airlines under Article 107(2)(b) TFEU for damages suffered due to the COVID-19 outbreak, even if they have received rescue aid in the last 10 years. Eligible for aid are:
The specific measures available to member states under the draft Temporary Framework are described in more detail below:
Impact on businessesThe disruptive impact of the COVID-19 outbreak requires urgent member state support for businesses. As mentioned above, companies should closely monitor whether they, including subsidiaries and affiliates across the EU, could benefit from and are eligible for any aid scheme implemented by member states. In addition, businesses seeking public support in EU member states should ensure that any state aid support is given in compliance with EU state aid rules to avoid the risk of recovery at a later stage. COVID-19 state aid can include direct grants/subsidies, tax advantages, capital injections, loans or guarantees, etc. and take the form of support schemes (e.g., sectoral support for the tourist or events industries), cross-sectoral support for SMEs or state aid packages for individual companies (e.g., airlines). The EC has already anticipated upcoming COVID-19 state aid-related challenges for member states and is prepared to deal with new state aid quickly through dedicated resources (including a hotline and notification template), to provide immediate help to member states. The new Temporary Framework is specifically designed to enable COVID-19 state aid and provides member states (including the UK, which remains bound by the EU state aid rules until the end of 2020) and businesses with significant additional flexibility in dealing with the massive economic impact resulting from the COVID-19 crisis. It complements many other possibilities for member state support already available. |
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If you have questions or would like additional information on the material covered in this Alert, please contact one of the authors – listed below – or the Reed Smith lawyer with whom you regularly work. |
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ABU DHABI |
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Client Alert 20-116 |
March 2020 |
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