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COVID-19: EU State Aid Considerations

With the outbreak of the COVID-19 pandemic, global economies are inevitably facing and experiencing a major shock. In response to this, the EU Commission has set out a European coordinated response to counter the economic impact of this epidemic.  As part of its response, the Commission has examined State Aid rules, as an attempt to aid European businesses during this crucial time.

As a general rule, state aid, an advantage which may take any form and granted on a selective basis to undertakings by national authorities, is prohibited unless it is justified by reasons of general economic development. By Article 107(3)(b) state aid is allowed where the aid is aimed at remedying a serious disturbance in the EU Member State’s economy.

Consequently, on 19 March 2020 in the wake of the Covid-19 pandemic the European Commission has made use of the flexibility afforded by EU State Aid rules and adopted a new Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak . This Framework aims to clarify the conditions which render state aid permissible so as to ensure that businesses are afforded the necessary liquidity and support in this time of need. In this regard, the Framework sets out five temporary aids which may be granted by national EU governments:

1) Aid in form of direct grants, repayable advances or tax advantages

This measure permits Member States to set up schemes to aid the urgent liquidity needs of companies through a grant up to €800,000, provided that it is granted on the basis of a scheme with an estimated budget and the recipient company was not facing difficulties, prior to the Coronavirus outbreak. The Framework also provides further conditions specifically dealing with the agricultural, fisheries and aquacultural sectors.

2) Aid in the form of guarantees on loans

The Framework allows Member States to provide guarantees so as to ensure that banks keep providing loans to companies to cover both immediate working capital and investment needs. This is subject to a number of conditions such as the duration of the guarantee may not exceed six years.

3) Aid in the form of subsidised interest rates for loans

This measure essentially caters for the possibility of Member States to grant loans with favourable and reduced interest rates in order to help companies cover immediate working capital, as well as, investment needs. As with other measures a number of conditions would need to be satisfied for this measure to be availed of.

4) Aid in the form of guarantees and loans channeled through credit institutions or other financial institutions

This measure applies to Member States which use banks to provide aid. Thus, it aids the beneficiaries which are experiencing sudden liquidity shortage and not the bank itself. Aimed at aiding companies experiencing sudden liquidity shortage, this measure is intended to pass onto the beneficiaries. This aid can take the form of higher volumes of financing, riskier portfolios, lower collateral requirements, lower guarantee premiums or lower interest rates.

5) Short-term export credit insurance

This measure can be availed of by Member States which can show that there is a lack of cover for marketable risks. Thus, this enables governments to provide short-term export credit insurance where required.

By the Framework the aforementioned state aid can be granted to undertakings which faced difficulty after 31 December 2019. This Framework will apply to a set of measures put in place from 1 February to 31 December 2020, with the possibility of an extension, if required. Notwithstanding that these measures must still be notified to the EU Commission, the latter has committed itself to hasten the process of approving these measures. In fact, to date, the Commission has already approved a number of schemes in very short timeframes, such as the approval of an Italian €50 million aid scheme for the production and supply of medical equipment within 48 hours.

Apart from the various acceptable types of aids announced in the Framework, Member States may also resort to other existing aid, as permitted by the TFEU. In this regard, the Commission has confirmed the Covid-19 outbreak to fall within the definition of “exceptional occurrence” as provided for under Article 107(2)(B) TFEU.

Should you require further information or assistance in connection with the above, please do not hesitate to contact us on info@dfadvocates.com

Photo: Reuters

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