Temporary flexibility in State aid measures facilitates granting of support for more companies

In the challenging circumstances EU Member States must take measures to mitigate harmful effects caused by coronavirus (COVID-19) on SMEs and large companies. The European Commission has issued a notice to allow more flexibility in generally strict EU’s State aid rules to help companies and consequently the whole EU’s economy. In the current exceptionally difficult situation State aid measures may improve the viability of companies. 

State aid means an advantage in any form whatsoever conferred on a selective basis to companies or other undertakings by State or other national public authorities. To be State aid, a measure needs to have the following features:

  1. there is an intervention by the State or through State resources (e.g. direct grants, interests, tax reliefs or guarantees, etc.);
  2. the recipient gains an advantage on a selective basis, for example, specific companies or industry sectors, or companies located in specific regions receive an advantage;
  3. competition has been or may be distorted; and
  4. the intervention is likely to affect trade between EU Member States.

According Article 107 (1) of the Treaty on the Functioning of the European Union (”TFEU”) any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain companies or the production of certain goods is incompatible with the internal market and therefore not permitted. Certain exceptions to the general rule are contained in Article 107 subparagraphs (2) and (3) TFEU. Member States have an obligation to notify their State aid measures to the European Commission before such measures are implemented.

As a consequence of COVID-19 outbreak, EU Member States have adopted various containment measures, such as social distancing measures, travel restrictions, quarantines and lock downs. These measures have an immediate impact on both demand and supply, and they have serious effects on companies and employees, especially in the health, tourism, culture, retail and transport sectors, but also in other sectors.

Pursuant to Article 107(3)(b) TFEU the Commission may declare compatible with the internal market aid “to remedy a serious disturbance in the economy of a Member State”. COVID-19 outbreak has caused serious disturbance and the Commission considers that State aid is justified and permissible on basis of Article 107(3)(b) TFEU, for a limited period, to remedy the liquidity shortage faced by companies and ensure that the disruptions caused by the COVID-19 outbreak do not undermine their viability, especially of SMEs.

While the usual possibilities to grant State aid remain in force, the Commission has made application of Article 107(3)(b) TFEU temporarily more flexible.[1] Now aid in form of direct grants, repayable advances or tax advantages is considered permissible on basis of Article 107(3)(b) TFEU, provided that all following conditions are met:

  1. The aid does not exceed EUR 800 000 per company in the form of direct grants, repayable advances, tax or payments advantages.[2]
  2. The aid is granted on the basis of a scheme with an estimated budget.
  3. The aid may be granted to undertakings that were not in difficulty[3] on 31 December 2019. Thus, aid may be granted to companies that are not in difficulty and/or to companies 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.
  4. The aid is granted no later than 31 December 2020.
  5. The aid granted to companies active in the processing and marketing of agricultural products is conditional on not being partly or entirely passed on to primary producers and is not fixed on the basis of the price or quantity of products purchased from primary producers or put on the market by the companies concerned.

Furthermore, the Commission has also improved flexibility concerning aid in the form of guarantees on loans and subsidised interest rates for loans.

The aim of these measures is to facilitate granting of State aid for increased number of companies that face serious difficulties as a result of exceptional circumstances caused by COVID-19 outbreak. The Commission has also approved in record time State aid measures notified to it. The temporary measures described above are intended to be applied only until 31 December 2020. However, the situation can be reassessed before end of 2020.  

[1] Commission Notice  – Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak, C(2020) 1863 final, 19.3.2020.

[2] All figures used must be gross, that is, before any deduction of tax or other charge.

[3] In difficulty within themeaning of the General Block Exemption Regulation (Commission Regulation (EU) N:o 651/2014).

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