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March 24, 2020

EU Emergency State Aid Programs to Enable EU Member States to Support Businesses in the COVID-19 Outbreak

Coronavirus: Antitrust/Competition, Corporate and Finance Advisory
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Updated April 14, 2020

The EU Temporary State Aid Framework

On 19 March 2020, the European Commission adopted a Temporary Framework to enable EU Member States to use European State aid rules to support the European economy in the COVID-19 crisis (see C(2020) 1863). On 3 April 2020, the Commission adopted the First Amendment to the Temporary Framework (see IP/20/570).

The Temporary Framework, which is based on Article 107(3)(b) of the of the Treaty on the Functioning of the European Union (TFEU), recognizes that the entire EU economy is experiencing a serious disturbance. To remedy that, the Temporary Framework provides five types of aid that can be granted by EU Member States:

  1. Direct grants, selective tax advantages and advance payments: EU Member States may establish programs to grant up to €800,000 for companies to address their urgent liquidity needs.
  2. State guarantees for bank loans: Member States may provide State guarantees to ensure banks keep providing loans to the customers who need them.
  3. Subsidised public loans: Member States may grant direct loans with favourable interest rates to companies. These loans can help businesses cover immediate working capital and investment needs.
  4. Safeguards for banks that channel State aid to the real economy: Some Member States plan to build on banks' existing lending capacities and use them as a channel for support to businesses—in particular to small and medium-sized companies. Although such loans will be handled by intermediaries, the Framework makes clear that such aid is considered direct aid to the banks' customers, not to the banks themselves. The Framework also gives guidance on how to ensure minimal distortion of competition between banks.
  5. Short-term export credit insurance: The Temporary Framework introduces additional flexibility on how to demonstrate that certain countries are not marketable risks, thereby enabling short-term export credit insurance to be provided by the State where needed. On 23 March, the Commission launched an urgent public consultation to determine if public short-term export credit insurance should be made more widely available in light of the current crisis. More specifically, the Commission wants to assess the availability of private short-term export-credit insurance capacity for exports to all countries listed as "marketable risk countries" in the 2012 Short-term export-credit Communication (STEC). Marketable risks are commercial and political risks on public and non-public debtors established in countries listed in the Annex to the STEC, with a maximum risk period of less than two years. Depending on the results of the consultation and taking into account the relevant economic indicators, the Commission then may decide to remove countries from the list of "marketable risk countries" as a temporary measure.

The Amendment

On 3 April 2020, the European Commission amended the Temporary Framework to enable EU Member States to accelerate research, testing, and production of coronavirus relevant products, to protect jobs, and to further support the economy (see IP/20/570). The amendment provides five types of additional aid measures:

  1. Support for coronavirus-related research and development (R&D): To address the current health crisis, an EU Member State can provide aid in the form of direct grants, repayable advances, or tax advantages for coronavirus and other relevant antiviral R&D. A bonus may be granted for cross-border cooperation projects among EU member States.
  2. Support for the construction and upscaling of testing facilities: EU Member States can provide aid in the form of direct grants, tax advantages, repayable advances, and no-loss guarantees to support investments enabling the construction or expansion of infrastructure necessary for the development and testing of items such as medicinal products (including vaccines) and treatments; medical devices and equipment (including ventilators and protective clothing, as well as diagnostic tools); disinfectants; and data collection and processing tools. To encourage cooperation and quick action, the program provides companies are eligible for additional aid when their investment is supported by more than one Member State and when the investment is made within two months after the aid is granted.
  3. Support for the production of products: EU Member States can provide aid in the form of direct grants, tax advantages, repayable advances, and no-loss guarantees to support investments enabling the rapid production of coronavirus-relevant products (as listed under 2). As with construction of facilities, companies may be eligible for additional aid when their investment is supported by more than one EU Member State and when the investment is made within two months after aid is granted.
  4. Deferral of tax payments and/or suspensions of social security contributions: To further reduce the liquidity constraints on companies, and to preserve employment, Member States can grant targeted deferrals of payment of taxes and of social security contributions for sectors, regions or types of companies that are hit the hardest by the outbreak.
  5. Wage subsidies: To mitigate the impact of the crisis on workers, EU Member States can contribute to the wage costs of companies in sectors or regions that have suffered most from the coronavirus outbreak, and would otherwise have had to lay off personnel.

In addition, the amendment also expands the existing types of support that EU Member States can give to companies in need. For example, it now enables EU Member States to give provide up to € 800 000 per company in zero-interest loans, loan guarantees, or equity investments. These types of aid can also be combined with other state aid up to a maximum per company of €1 million.

Given the limited size of the EU budget, the main response will come from Member States' national budgets. The Temporary Framework will help target support to the economy, while limiting negative consequences to level the playing field in the Single Market.

The Temporary Framework and its amendment will be in place until 31 December 2020. However, in order to minimize uncertainty, the Commission will assess before that date if it needs to be extended.

The Temporary Framework complements the many other options available to Member States to mitigate the impact of the coronavirus outbreak, in line with EU State aid rules. On 13 March 2020, the European Commission adopted a Communication on a Coordinated economic response to the COVID-19 outbreak setting out these potential responses. For example, EU Member States can make generally applicable changes in favour of businesses (e.g., deferring taxes, or subsidising short-time work across all sectors), which fall outside State Aid rules. They can also grant compensation to companies for damage suffered due to and directly caused by the COVID-19 outbreak.

The Temporary Framework also includes a number of safeguards, including linking subsidised loans or guarantees to businesses to the scale of their economic activity; by reference to their wage bill, turnover or liquidity needs; and to the use of the public support for working or investment capital.

Approved State Aid Programs

Since 12 March 2020, the European Commission has quickly approved a number of State aid programs in a number of EU Member States, and also from the UK. Even though the UK is not an EU Member State anymore, the EU rules relating to State aid still apply. According to the UK Withdrawal Agreement and during the transition period (until at least 31 December 2020), the entire body of EU law continues to apply to, and in, the UK as if it were still a EU Member State.

As of 14 April 2020, almost sixty State aid programs had been approved. The Commission's list of approved programs can be found here.

For more information on these topics please contact the author or any member of Arnold & Porter's Coronavirus Task Force.

© Arnold & Porter Kaye Scholer LLP 2020 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

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