What Can Member States do to Financially Support their Undertakings Under EU State Aid Rules?
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The Covid-19 outbreak is not only a huge challenge for health care, but also has enormous consequences for the economy. Different sectors (such as the hospitality, tourism and transport sectors and many others) will not be able to overcome the difficult times that we are currently facing without public support.
Many Member States have already adopted exceptional aid measures and many more will follow, but public support for undertakings must still comply with the EU State aid rules.
However, in these exceptional times, the European Commission is determined to provide the necessary support to the Member States in this regard, and is clearly using flexibility in applying its State aid rules.
In its coordinated economic response to the Covid-19 Outbreak of 13 March 2020, the European Commission has given an overview of the support measures that can be granted to comply with the existing State aid rules, which include:
1. Measures that apply to all undertakings, such as wage subsidies and the suspension of payments of corporate and value added taxes or social contributions. As there is no selectivity, these measures will not constitute State aid and can be granted without any intervention by the Commission.
2. Financial support to consumers, such as for cancelled services or tickets that are not reimbursed by the operators involved. Since State aid can only exist for aid granted to an undertaking, this financial support can also be put in place without needing the European Commission’s approval.
3. Aid measures enabling Member States to meet acute liquidity needs and to support undertakings facing bankruptcy due to the coronavirus crisis, can be approved by the European Commission based on Article 107 (3)(c) TFEU, which provides the option of granting aid to facilitate the development of certain economic activities or of certain economic areas. The Commission’s Rescue and Restructuring State aid Guidelines of 2014 offer further specifications in this regard. The aid can take the form of short-term rescue aid (a loan or a loan guarantee that makes it possible to keep an ailing undertaking afloat for the short time needed to work out a restructuring or liquidation plan) or long-term restructuring aid (to restore the beneficiary's long-term viability on the basis of a feasible, coherent and far-reaching restructuring plan).
4. Article 107 (2)(b) TFEU provides the possibility for Member States to grant aid to make good the damage caused by natural disasters or exceptional occurrences. The Covid-19 outbreak is considered such an exceptional occurrence. Measures that could be covered are measures compensating companies in sectors that have been particularly hard-hit (transport, tourism, culture, hospitality and retail) and measures compensating the organisers of cancelled events (concerts, festivals, sports events, commercial fairs, etc.) for the damage that they have suffered as a direct consequence of Covid-19. The aid must be limited to the damage caused by the outbreak (i.e. no overcompensation) and to the damage not covered by an insurance. The assessment of the damage suffered must be as precise as possible, which probably explains why the number of notifications on this ground remains rather limited so far. The principle of ‘one time, last time’ of the Rescue and Restructuring State Aid Guidelines does not cover aid that the Commission declares compatible under Article 107(2)(b) TFEU. Also undertakings that have received rescue or restructuring aid in the past, but were no longer in difficulty at the time of the Covid-19 outbreak (as the restructuring plan has been completed), can thus still benefit from compensation. The aid can also be accumulated with other forms of aid provided there are different eligible costs.
Based on this Article, the European Commission has already approved:
5. A variety of additional measures such as de minimis aid up to a maximum of 200,000 EUR over a 3 year period (such as in Belgium, for example, the respective compensation announced by the Flemish and Walloon governments for shops, bar and restaurants that, under the Federal government’s virus ‘containment’ measures, had to close) or aid measures that are exempted from notification by the General Block Exemption Regulation of 17 June 2014 (such as investment and operating aid in favour of SMEs) also remain possible.
6. Finally, to complement the possibilities above, the Commission has adopted on 19 March 2020 a new Temporary State Aid Framework based on Article 107 (3)(b) TFEU. This Article allows Member States to grant additional support to remedy a serious disturbance to their economy and was also used during the financial and economic crisis of 2008. Based on this Framework, additional temporary State aid measures to remedy the liquidity shortage faced by undertakings and to ensure that the disruptions caused by the Covid-19 outbreak do not undermine their viability, can be approved very rapidly after notification.
The new Temporary Framework initially provided for the following five types of aid:
On 3 April 2020, the European Commission adopted a first amendment extending the Temporary Framework to enable Member States to accelerate the research, testing and production of coronavirus-relevant products, to protect jobs and to further support the economy in the context of the coronavirus outbreak. The first amendment provides for five additional types of aid measures:
The first amendment also expands on the existing types of support that Member States can give to companies in need. For example, it now enables Member States to give, up to the nominal value of EUR 800,000 per company, zero-interest loans, guarantees on loans covering 100% of the risk, or provide equity. This can be combined also with de minimis aid (to bring the aid per company up to EUR 1 million) and with other types of aid.
On 8 May 2020, the European Commission has adopted a second amendment to extend the scope of the Temporary State aid Framework to recapitalisation and subordinated debt measures.
While the possibility of providing national support in the form of equity and/or hybrid capital instruments to undertakings facing financial difficulties due to the Covid-19 outbreak already existed to a certain extent, this amendment was adopted because the cap of 800.000 EUR was found to be too low. The Commission, however, has underlined that such support should only be considered if no other appropriate solution can be found and it is subject to stringent conditions:
The second amendment also clearly places emphasis on the green transition and the digital transformation that, according to the Commission, will play a central and priority role in ensuring a successful recovery. Large undertakings, for example, must report on how the recapitalisation aid received supports their activities in line with EU objectives and national obligations linked to the green and digital transformation. The Commission also welcomes steps taken by Member States to take these challenges into account when designing national support measures.
Only undertakings that have entered into difficulty after 31 December 2019 are eligible for aid under the Temporary State aid Framework. The Framework will be in place until the end of December 2020. With a view to ensuring legal certainty, the Commission will assess before that date if it needs to be extended. As solvency issues may materialise only at a later stage as this crisis evolves, for recapitalisation measures only the Commission has extended this period until the end of June 2021. More details on the compatibility conditions can be found here.
On 12 June 2020, the European Commission has sent to the Member States for consultation a draft proposal to further extend the scope of the Temporary Framework. The proposal would enable Member States (i) to support certain micro and small enterprises, including start-ups that were already in difficulty before 31 December 2019, and (ii) to provide incentives for private investors to participate in coronavirus-related recapitalisation measures.
Based on the Temporary Framework, the European Commission has already approved a huge number of aid measures/schemes in different Member States of which a complete overview can be found via the following link.
As far as Belgium is concerned, it initially remained very quiet, but , but so far, eleven aid schemes have been approved:
It is important to add that financial support from the EU or Member States granted to health services or other services of general interest for overcoming the coronavirus crisis fall outside State aid controls, as they do not constitute economic activities.
Normally, obtaining the European Commission’s approval for the granting of State aid can often take several months. As that time period would be catastrophic in the current circumstances, the European Commission is now taking decisions at a very fast pace, as can be seen from the various approved aid schemes based on the Temporary State aid Framework. They were all approved within a couple of days and sometimes even within 24 hours of the notification.
The Commission has set up a dedicated mailbox and telephone number to assist Member States with any queries they have: Telephone number: (+32) 2 296 52 00; e-mail address: [email protected]
To further facilitate Member States’ swift action, the Commission has also provide templates (for notifications under article 107 (2) (b) and the Temporary Framework). It has also adopted a specific template for state aid measures in a form of recapitalization of non-financial undertakings (section 3.11 of the Temporary Framework).
AlLTIUS will keep you informed about the latest developments in this area and we are available for any questions you might have.
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