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State Aid: Temporary Framework for State aid measures to support the economy in the COVID-19 (Coronavirus) outbreak
26/03/2020

On 19 March 2020, the Commission issued a Temporary Framework to enable EU Member States to provide aid in order to support the economy within the framework of the existing State aid rules1. The Temporary Framework is based on Article 107(3)(b) of the Treaty on the Functioning of the European Union, which provides that State aid can be declared compatible with the common market aid if it remedies a serious disturbance in the economy of a Member State.

The Temporary Framework provides for five types of aid:

  • Direct grants, selective tax advantages and advance payments, provided that (i) the  aid does not exceed EUR 800,000 (gross) per undertaking, (ii) the aid is granted on the basis of a scheme with an estimated budget (i.e. individual/ad hoc aid is not covered) , (iii) the aid is granted to undertakings that were not in difficulty on 31 December 2019 but that faced difficulties or entered in difficulty thereafter as a result of the COVID-19 outbreak, (iv) the aid is granted no later than 31 December 2020. Specific conditions apply for the agricultural, fisheries and aquacultural sectors;
  • State guarantees for loans taken by companies from banks, provided that the guarantee premiums have a certain minimum level, varying between 0,25% and 2% depending on the size of the company (SME or large enterprise) and duration (1-year maturity loan, 2-3 years maturity loan or 4-6 years maturity loan). EU Member States may also notify alternative schemes, whereby maturity, pricing and guarantee coverage can be modulated (e.g. lower guarantee coverage offsetting a longer maturity). Additional conditions apply, such as the condition that the guarantee is granted by 31 December 2020 at the latest;
  • Subsidised public loans to companies, i.e. public loans with favourable interest rates, provided that the reduced interest rates are at least equal to the so called base rate (1 year IBOR or equivalent as published by the Commission) plus a credit risk margin, varying (again) between 0,25% and 2% depending on the size of the company and duration. Alternative schemes may also be notified. Again, additional conditions apply;  
  • Safeguards for banks that channel State aid to the real economy, meaning that aid in the form of guarantees and loans channelled through credit institutions or other financial institutions is not considered indirect aid to these institutions, provided that these institutions are able to demonstrate that the advantages are passed on to the largest extent possible to the final beneficiaries;
  • Short-term export credit insurance where Member States demonstrate the lack of market by providing sufficient evidence of the unavailability of cover for the risk in the private insurance market.

Please note that EU Member States still have to notify any of the above State aid measures to the Commission for its approval. A Member State must also show that the proposed measures are necessary, appropriate and proportionate to remedy a serious disturbance in the economy of the Member State concerned and that all the conditions of the Temporary Framework are fully respected. If the Member State manages to do so, the measures can be approved very rapidly upon notification. This is illustrated by the following State aid measures, which were approved by the Commission under the Temporary Framework within 48 hours from receiving the notification:

Denmark notified to the Commission a DKK 1 billion (approx. €130 million) Danish guarantee scheme for small and medium-sized enterprises (SMEs. The scheme aims at limiting the risks associated with issuing operating loans to those companies that are most severely affected by the economic impact of the coronavirus outbreak;
 

France notified (i) two schemes enabling the French public investment bank Bpi france to provide State guarantees on commercial loans and credit lines, respectively, for enterprises with up to 5,000 employees; (ii) a scheme to provide State guarantees to banks on portfolios of new loans for all types of companies. The French plan is expected to mobilise more than EUR 300 billion of liquidity support for companies affected by the economic impact of the COVID-19 outbreak;
 

Germany notified to the Commission two separate support measures, implemented through the German promotional bank Kreditanstalt für Wiederaufbau (“KfW”). Firstly, a loan programme covering up to 90% of the risk for loans for companies of all sizes. Eligible loans may have a maturity of up to 5 years and can reach EUR 1 billion per company, depending on the company's liquidity needs. Secondly, a loan programme in which the KfW participates together with private banks to provide larger loans as a consortium. For this scheme, the risk taken by the State may cover up to 80% of a specific loan but not more than 50% of total debt of a company. Under both measures, the loan amount per company is linked to cover its liquidity needs for the foreseeable future, loans will only be provided until the end of 2020 and are limited to a maximum six-year duration;
Italy notified to the Commission a EUR 50 million support scheme for the production and supply of medical devices and personal protection equipment. Under the scheme, financial support will be available to companies of all sizes which (i) set up new facilities for the production of medical devices and personal protection equipment, (ii) expand the production of their existing structures producing such equipment, or (iii) convert their production line to that effect. The aid will take the form of direct grants or repayable advances;


Portugal notified to the Commission four guarantee schemes for SMEs and midcaps affected by the Coronavirus outbreak, active in four different sectors: (i) tourism, (ii) restaurants (and other similar activities), (iii) extractive and manufacturing industry, and (iv) travel agency activities, touristic animation, event organization (and similar activities). The four schemes cover guarantees on operating loans with a limited maturity and size, while limiting the risk taken by the State to a maximum of 90%. The schemes have a total budget of EUR 3 billion

It nevertheless remains to be seen to which extent the State aid measures which an individual Member State considers necessary in view of the COVID-19 outbreak can be brought within the scope of the Temporary Framework. It is to be expected that Member States will also propose measures which fall outside this scope and will therefore be subject to the normal rules (and may take more time to review). This should especially be relevant for large companies.

Finally, the Temporary Framework does not affect any other options which Member States have to respond to the COVID-19 outbreak without infringing the State aid rules as also described in the Commission’s Communication on the coordinated economic response to COVID-19 of 13 March 2020. Therefore:

  • Member States can take measures which fall outside the scope of EU State aid control, such as measures applicable to all undertakings regarding wage subsidies, suspension of payments of corporate and value added taxes or social welfare contributions, or financial support directly to consumers for cancelled services or tickets not reimbursed by the concerned operators;
  • Member States can design support measures in line with the General Block Exemption Regulation (without the involvement of the Commission);
  • Member States can notify aid schemes to meet acute liquidity needs and support undertakings facing financial difficulties (also due or aggravated by the COVID-19 outbreak) on the basis of Article 107(3)(c) TFEU and as further specified in the Rescue and Restructuring State aid Guidelines;

Member States can compensate undertakings that have been particularly hit by the outbreak (e.g. transport, tourism, culture, hospitality and retail) and/or organisers of cancelled events for damages suffered due and directly caused by the outbreak. These damage compensation measures must be notified to the Commission and will be assessed directly under Article 107(2)(b) TFEU. A first example in relation to the current crisis is a Danish DKK 91 million (€12 million) aid scheme to compensate organizers of events with more than 1,000 participants or targeted at designated risk groups, such as the elderly or vulnerable people, irrespective of the number of participants, which had to be cancelled or postponed due to the COVID-19 outbreak. Under the scheme, operators would be entitled to be compensated for the losses suffered as a consequence of the cancellations or postponement the events, for which, for example, tickets were already sold. The Commission approved the scheme within 24 hours of receiving the notification from Denmark.

 

1. The EFTA Authority seems to be following the Commission in this respect.

Related : Loyens & Loeff Luxembourg S.à r.l.

[+ http://www.loyensloeff.com]


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