COVID-19: European Commission adopts temporary framework to authorize State aid

European Union - 

European Union Alert

On March 19, 2020, the European Commission issued a communication setting out a Temporary Framework that provides for more flexible and quicker authorization of State aid granted to support the economy in the current COVID-19 outbreak. The Temporary Framework is based on article 107(3)(b) of the Treaty on the Functioning of the European Union (TFEU), which makes it possible to authorize aid intended to remedy a serious disturbance in the economy of a Member State.

The Temporary Framework will be applied by the Commission from March 19, 2020 to December 31, 2020. In the case of non-notified aid, it will apply to aid granted after February 1, 2020.

The communication envisages the possibility of authorizing five types of aid to companies that were not in difficulty prior to December 31, 2019.

  • Direct grants, repayable advances and tax advantages: Member States may establish schemes to grant aid up to €800,000 gross per company to cover their urgent needs for liquidity. Specific provisions are set out for the agricultural and fishery sectors.
  • State guarantees on bank loans to companies: the Member States may offer state guarantees to support bank loans granted to companies.
  • Subsidized public loans to companies: the Member States may also grant loans with reduced interest rates. The loans may relate to both investment and working capital needs.
  • Safeguards for banks that channel support to the real economy: the Member States may channel aid through banks. In such case, it will be considered direct aid to the bank’s customers, not to the banks themselves. The Temporary Framework offers guidelines on how to minimize any improper indirect aid to the banks, ensuring that the aid is passed on to the final beneficiary.
  • Short-term export credit insurance: the way to demonstrate that certain countries present non-marketable risks is made more flexible, thereby permitting the Member States to offer, if necessary, short-term export credit insurance.

The aid granted under the Temporary Framework must be granted before December 31, 2020, although, in the tax area, its effects can be verified later (when the tax returns for 2020 are filed).

This Temporary Framework supplements other possibilities that the Member States already have to mitigate the socioeconomic impact of the COVID-19 outbreak. Among others, article 107(2)(b) of the TFEU permits the Member States to indemnify companies against damage caused by exceptional occurrences. This possibility would serve to support companies particularly hit by the outbreak such as those in the transport, tourism, hospitality and retail sectors. In this connection, the Commission has already authorized an aid scheme of €12 million notified by Denmark to compensate for the losses suffered by organizers of events with more than 1,000 participants as a result of COVID-19.

In addition, the Commission Communication of March 13, 2020 on a coordinated response to the COVID-19 outbreak provides, among other things, that the Member States may introduce measures generally applicable to companies (e.g. wage subsidies, suspension of payments of corporate and value added taxes or social contributions) that fall outside the scope of EU State aid rules.

Click here for the Temporary Framework approved by the Commission.