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The European Union Put to the Test by COVID-19 – The Issue of State Aid Remains Topical 

by Jean-Guillaume Follorou, Jacques-Henry de Bourmont

Published: April, 2020

Submission: April, 2020

 



Aware of the political and economic challenges facing by the European Union, the European Commission has decided to act swiftly as part of its task of monitoring state aids under Articles 107et seq.of the Treaty on the Functioning of the European Union, which require Member States to notify, prior to their implementation, measures that are likely to distort competition within the EU.


By allowing the admission of anti-COVID-19 measures in less than 24 hours, the European Commission is reacting to the many social, financial and tax measures adopted by Member States to help their economies addressing the consequences of COVID-19.


On 19 March 2020, the Commission published a “temporary framework” for State aids (EU Commission, 19 March 2020, C(2020) 1863 final) aimed at introducing five types of aid:


  • Direct grants, selective tax advantages and advance payments helping Member States to set up schemes to grant up to EUR 800,000 to a company to address its urgent liquidity needs ;
  • State guarantees for loans taken by companies from banks ;
  • Subsidized public loans to companies in order to help businesses covering immediate working capital and investment needs ;
  • Safeguards for banks that channel State aid to the real economy ; and
  • Short-term export credit insurance.

The framework will be in place until the end of December 2020 and should help businesses to weather the downturn and to prepare a sustainable recovery.


It has already been amended on 3 April to allow the Member States to accelerate research, testing and production of coronavirus-related products, to protect jobs and to further support the economy in the context of the crisis (EU Commission, 3 April 2020, C(2020) 2215 final).


In this respect, France, like most EU countries, has already taken advantage of the framework to implement, after approval from the Commission, a number of crisis schemes, including in particular state-guaranteed loans and the solidarity fund for small businesses.


Although the Commission could be currently viewed as a facilitator in this area, it nevertheless retains its prerogatives and will ensure that prior notifications of state aid by the Member States have been made within the legal deadlines and in the required form. It is therefore essential for the companies that would benefit from such measures to ensure in advance that the Member States concerned have complied with the relevant rules, failing which they may be required to refund the illegal aid received, sometimes years later.


Finally, it should be pointed out that a number of measures adopted by the Member States and intended to mitigate the effects of COVID-19 complement the temporary framework but do not fall under the state aid rules (EU Commission, 13 March 2020, C(2020) 112 final).


These are mainly generally applicable changes in favor of businesses (e.g. deferring taxes, or subsidizing short-time work across all sectors) or compensation to companies for damage suffered due to and directly caused by the COVID-19 outbreak (in particularly affected sectors such as transport, tourism, hospitality and retail).


In the absence of control by the European Commission, the legitimate question then arises of the distortions of competition that may be created by the immediate adoption of these measures by some of the States of the European Union: VAT is a blatant example of said distortion since some Member States (Spain, Italy, Germany, Belgium, etc.) have authorized a system of deferred payment, with or without conditions, to preserve the cash flow of their companies, while others, such as France, have expressly excluded it.


The disparities that can be seen in the aid schemes adopted by the various Member States (i.e. loan vs. subsidy) will also have a medium/long-term impact on the balance sheets of the companies, which may generate inequalities which are difficult to justify from a purely economic perspective.


The European Union is currently facing a crisis whose management by its bodies will be decisive. The EUR 500 billion rescue plan adopted on 9 April by the European Union’s finance ministers, although painfully, is a first encouraging sign in this respect.


Jeantet, through its network of correspondent law firms, can assist you in verifying the legality of the requested aids, in particular tax aids, and thus provide you with greater security in managing the current crisis.


 



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