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14 April 2020
Client Alert | EU | Competition & International Trade
Version updated on 14 April with information available at that time.
"The main fiscal response to the Coronavirus will come from Member States' national budgets."[1] "Member States can design ample aid measures to support specific companies or sectors suffering from the consequences of the Covid-19 outbreak in line with the existing EU State aid framework."[2]
Various types of aid can be granted by Member States to support companies affected by the Covid-19 outbreak. The granting conditions and compatibility conditions of these different supports vary according to the legal basis used.
The following developments relate to State aids within the meaning of Article 107(1) TFEU which are subject to the obligation of prior notification imposed on States by Article 108(3) TFEU.
Member States have however a range of options to increase liquidity of affected companies that do not qualify as State aid and thus do not require State aid approval from the Commission. These include:
In order to expedite the State aid procedure and the approval of notified State aid, the Commission has established a dedicated mailbox and "hotline" to Member States questions related to financial support in the context of the Covid-19 outbreak[5] as well as a State aid and Covid-19 web page[6] that includes guidance on how Member States can quickly provide liquidity to affected undertakings.
(1) These temporary liquidity aids can only take the form of loan guarantees or loans. Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty of 2014 lay down the rules governing the grant of those aids.[7]
(2) This support may also be granted to undertakings that are not considered as an "undertaking in difficulty" within the meaning of the Guidelines but that are facing acute liquidity needs due to exceptional and unforeseen circumstances.
(3) The aid scheme for "temporary restructuring support" for SME and smaller State-owned undertakings. Member States may introduce an aid scheme of "temporary restructuring support" to restore long-term viability of the companies. Temporary restructuring support may only be granted to SMEs and to smaller State-owned undertakings.
(4) The amount of such aid shall not exceed 10 million euros per undertaking and the maximum duration of the support is set at 18 months. Its grant is conditioned by submission of restructuring plan to restore the beneficiary's long-term viability within six months of the date of grant.
(5) Individual rescue aid. Rescue aid is by nature urgent and temporary assistance. Its primary objective is to make it possible to keep an ailing undertaking afloat for the short time needed to work out a restructuring or liquidation plan. This aid also provides a temporary support to an undertaking facing a serious deterioration of its financial situation, involving an acute liquidity crisis or technical insolvency.
(6) Rescue aid can be granted to all undertakings to keep the beneficiary in business for maximum six months. Before the end of this period, the loan must have been repaid or the guarantee must have been terminated and the Member State must have approved a restructuring or liquidity plan for undertakings in difficulty.
(7) Article 107 (2) (b) of the TFEU enables Member States to compensate companies for the damage directly caused by exceptional occurrences.
(8) This legal basis enables the Commission to approve State aid measures granted by Member States to compensate specific companies or specific sectors in the form of schemes for the damages directly caused by the Covid-19 outbreak. All sectors can benefit from this aid, including transport, retail, hospitals, events and tourism.
(9) The Commission considers that the Covid-19 outbreak qualifies as an exceptional occurrence, as it is an extraordinary and unforeseeable event having a significant economic impact. The Commission has approved under this legal basis the first aid scheme linked to Covid-19, set up by Denmark to compensate companies organising public events for losses caused by cancellations[8].
(10) On the same basis, it authorised two other Danish aid schemes, one to compensate self-employed workers for the loss of turnover[9] and the other to cover the fixed costs of companies having lost 40% of their income between 9 March and 9 June 2020 [10] as well as the first State aid scheme for the airline sector, implemented by France[11].
(11) The grant of an aid on this basis is conditioned to the demonstration by the State of the existence of a direct causal link between the Covid-19 outbreak and damage suffered and between damage and the proposed aid. The State will have to provide detailed information on the type of damage to be compensated (loss of revenue, additional costs, etc.) and on the methodology used for assessing the damage.
(12) The amount of the aid may cover up to 100% of eligible costs related to the damage. The aid must be proportional to the damage caused by the exceptional occurrence. Aid must not result in overcompensation of damage; it may not be cumulated with other aid in respect of the same eligible costs.
(13) Such aid may be cumulated with other forms of aid (e.g. aid under Article 107 (3) (b) TFEU, see below) provided that there are concerning different eligible costs.
(14) It may also be granted to companies that have received rescue or restructuring aid in the last ten years. In other words, the use of this legal basis makes it possible to derogate from the "one time, last time" principle, which prohibits the granting of new rescue or restructuring aid for ten years.
(15) In order to help Member States in the implementation of such aid, the Commission has published a notification template with all relevant mandatory information that should be provided for compulsory notification of aid under Article 107 (2) (b) TFEU.
(16) With regard to the transport sector (airlines, airports, ground handling, rail and bus undertakings, maritime companies, etc.), the assessment of support to the sector will be made on a case-by-case basis.
(17) In particular, States are required to provide precise justifications for (i) loss of income and costs not incurred, directly related to the Covid-19 outbreak, (ii) the definition of a reference period (comparable situation in the absence of the outbreak) and (iii) the definition of the damage caused by comparing the situation related to the outbreak with the reference period.
(18) On 17 March 2020, Vice-President of the European Commission M. Vestager announced that the Commission adopted a "Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak" (hereafter the "Framework").[12]
(19) This Framework sets out the exceptional financial measures that States may grant to undertakings on the basis of Article 107 (3) (b) TFEU to remedy a serious disturbance in their economy caused by the Covid-19 outbreak and Article 107 (3) (c) TFEU to facilitate the development of certain economic activities.
(20) Its scope has been extended on 3 April 2020 [13]. In practical terms, the Framework allows Member States to set up the following aid:
a) Up to EUR 800,000 per undertaking (except the agriculture, fisheries and aquaculture sectors)[14] in the form of direct grants, repayable advances, tax and payments advantages, guarantees (covering 100% of the risk), loans (at zero interest) and equity on the basis of a scheme;
b) Public guarantees on individual loans in response to the COVID-19 outbreak. The Framework sets minimum guarantee premiums according to the size of the company (SMEs or large companies), which shall increase progressively as the duration of the guaranteed loan increases. The duration of the guarantee is normally limited to maximum six years and the public guarantee does not exceed 90% of the loan principal where losses are sustained proportionally and under same conditions, by the credit institution and the State or 35% of the loan principal, where losses are first attributed to the State and only then to the credit institutions.
c) Subsidised interest rates for loans, which are at least equal to the base rate (1 year IBOR) applicable on 1 January 2020 plus the credit risk margin as provided by the Framework. The duration of the loans should in principle be a maximum of six years.
For guarantees (b) and reduced interest rate (c), the maximum loan amount depends on the maturity date. For loans with a maturity beyond 31 December 2020, the amount of the loan may not exceed double of the beneficiary's annual wage bill for 2019 or 25% of its total turnover in 2019 or be increased to cover the firm's liquidity needs for 12 to 18 months following the date on which the loan is granted to SMEs and large companies respectively.
d) Short-term export credit insurance can be provided especially if there is evidence of the unavailability of cover for non-marketable risks. In this respect, the Commission has amended its Communication on short-term export-credit insurance by temporarily removing (until 31 December 2020) all countries from the list of "marketable risk" countries in order to increase the availability of public short-term export-credit insurance.
e) Deferrals of payment of taxes and/or of social security contributions in the framework of schemes. The end date for the deferral shall not be later than 31 December 2022.
f) Wage subsidies for employees in the framework of schemes. Such aid shall be aimed at avoiding lay-offs during the COVID-19 outbreak and shall be granted for a maximum period of 12 months. The subsidy covers a maximum of 80% of the monthly gross salary (including employers' social security contributions) of the beneficiary personnel. During this period, the employment of the personnel benefiting from the subsidy must be maintained.
g) Aid for R&D projects carrying out Covid-19 and other antiviral relevant research [15] , in the form of direct grants, repayable advances or tax advantages.
h) Investment aid, in the form of direct grants, tax benefits or repayable advances, for the construction or upgrade of testing and upscaling infrastructure required to develop, test and upscale, up to the first industrial deployment prior to mass production, Covid-related products.
i) Investment aid, in the form of direct grants, repayable advances or tax benefits, for the production of Covid-19 relevant products (medicinal products, active pharmaceutical ingredients and raw materials, hospital and medical equipment etc.).
(21) The Commission is planning to widen the scope of Framework by enabling Member States to to provide recapitalisations to companies in need. A draft proposal is under consultation by the Member States[16].
(22) All these aid measures may be cumulated between each other, except for (i) the State guarantees referred to in (b) above and the reduced interest rate loans referred to in (c) above, if they concern the same loan and the overall loan amount exceeds the thresholds laid down in the Framework and (ii) the measures for R&D and investment in projects or products related to Covid-19 (referred to in g), h) and i) above) when the aid concerns the same eligible costs.
(23) All these measures may also be cumulated with "de minimis" aid.
(24) Aid in the form of guarantees and loans channelled through credit institutions or other financial institutions may also constitute an indirect advantage to the latter. The Framework makes clear that such aid is considered as direct aid to the banks' customers, not to the banks themselves. In any event, the credit institutions should, to the largest extent possible, pass on the advantages of the public guarantee or subsidised interest rates on loans to the final beneficiaries (higher volumes of financing, riskier portfolios, lower collateral requirements, lower guarantee premiums or lower interest rates).
(25) The Commission has published the notification template for aid that Member States may wish to grant on the basis of Article 107(3)(b) of the TFEU.
(26) The Framework is applied by the Commission from 19 March 2020, having regard to the economic impact of Covid-19 outbreak. It will not be applied after 31 December 2020.
(27) State aid granted on this legal basis are granted no later than 31 December 2020.
(28) Only undertakings that entered into difficulties after 31 December 2019 are eligible for aid under the Framework in order to ensure that it is used to support cases directly linked to the Covid-19 outbreak.
(29) The aid schemes notified by the Member States and authorised by the European Commission to date on the basis of the Temporary Framework are listed in Annex 1. The aid schemes introduced by France are summarized in Annex 2.
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[1] Excerpt from the Commission press release "COVID-19: Commission sets out European coordinated response to counter the economic impact of the Coronavirus*" of 13 March 2020.
[2] Excerpt from the Q&A published by the Commission concerning the "European Coordinated Response on Coronavirus" of 13 March 2020.
[3] Commission Regulation (EU) No 1407/2013 of 18 December 2013 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid , OJ L 352, 24.12.2013, p. 1.
[4] For undertakings active in the road freight transport sector for hire or reward, the ceiling is fixed at 100,000 euros. In addition, there are three other de minimis aid schemes with individual ceilings of 15,000 euros for the agriculture sector (Regulation 1408/2013); 30,000 euros for the fisheries and aquaculture sector (Regulation 717/2014); and 500,000 euros for undertakings providing services of general economic interest (SGEI) (Regulation 360/2012).
[5] T. +32 2 296 52 00 | E-mail: COMP-COVID@ec.europa.eu
[6] State aid rules and Covid-19, available at: https://ec.europa.eu/competition/state_aid/what_is_new/covid_19.html
[7] JO C 249 du 31.7.2014, p. 1
[8] Commission decision of 12 mars 2020, SA.56685 - DK - Compensation scheme for cancellation of events related to Covid-19.
[9] Commission decision of 25 mars 2020, SA.56791 - DK - Temporary compensation scheme for self-employed financially affected by Covid-19.
[10] Commission decision of 8 April 2020, SA.56774 - DK.
[11] Commission decision of 31.03.2020, SA.56765 - France.
[12] Statement by Executive Vice-President Margrethe Vestager of 17 March 2020 is available at: https://ec.europa.eu/commission/presscorner/detail/en/statement_20_479
[13] Communication from the commission - Amendment to the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak, JOUE C 112I , 4.4.2020, p. 1.
[14] For these sectors, the amounts are reduced and the conditions for granting aid are stricter.
[15] Research into vaccines, medicinal products and treatments, medical devices and hospital and medical equipment, disinfectants, and protective clothing and equipment, and into relevant process innovations for an efficient production of the required products.
[16] See the press release of the Commission on 09.04.2020: https://ec.europa.eu/commission/presscorner/detail/en/statement_20_610
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