Enter to open, tab to navigate, enter to select
COVID-19: Commission consults member states on extending state aid Temporary Framework to support the economy
Practical Law UK Legal Update w-024-7213 (Approx. 4 pages)
COVID-19: Commission consults member states on extending state aid Temporary Framework to support the economy
| Published on 30 Mar 2020 • European Union |
On 27 March 2020, the European Commission announced that member states have been consulted on a draft proposal to extend the state aid Temporary Framework to support the economy in the context of the COVID-19 outbreak.
Speedread
On 27 March 2020, the European Commission announced that it has sent to member states for consultation a draft proposal to extend the state aid Temporary Framework to support the economy in the context of the 2019 novel coronavirus disease (COVID-19) outbreak.
The Temporary Framework, adopted on 19 March 2020, is based on Article 107(3)(b) of the TFEU, which enables the Commission to approve national support measures to remedy a serious disturbance to the economy of a member state.
The Temporary Framework currently covers five types of state aid. The Commission is proposing extending it to cover five further measures. Three of these measures relate to the provision of more support for coronavirus related research and development, the construction and upgrading of testing facilities for products relevant to tackle the coronavirus outbreak, and the production of products relevant to tackle to coronavirus outbreak. The other two proposed measures relate to the provision targeted support in the form of deferral of tax payments and/or suspensions of employers' social security contributions, and in the form of wage subsidies for employees.
The Commission is aiming to adopt the extended Temporary Framework during the week beginning 30 March 2020.
Background
Article 107(3)(b) of the Treaty on the Functioning of the European Union (TFEU) enables the European Commission to approve additional national support measures to remedy a serious disturbance to the economy of a member state. Such disturbance must affect the whole or an important part of the economy of the member state concerned, and not merely that of one of its regions or parts of its territory.
Considering that the COVID-19 outbreak affects all member states and that the containment measures taken by member states impact undertakings, the Commission considers that state aid is justified and can be declared compatible with the internal market on the basis of Article 107(3)(b) of the TFEU, for a limited period, to remedy the liquidity shortage faced by undertakings and ensure that the disruptions caused by the COVID-19 outbreak do not undermine their viability, especially of SMEs.
On 19 March 2020, the Commission, therefore, adopted a Temporary Framework to support the economy in the context of the COVID-19 outbreak (see Legal update, Commission publishes State aid Temporary Framework to support the economy in the context of the COVID-19 outbreak). The Temporary Framework enables five types of state aid:
- Direct grants, selective tax advantages and advance payments: Member states will be able to set up schemes to grant up to EUR800,000 to a company to address its urgent liquidity needs.
- State guarantees for loans taken by companies from banks: Member states will be able to provide State guarantees to ensure banks keep providing loans to the customers who need them.
- Subsidised public loans to companies: Member states will be able to grant loans with favourable interest rates to companies. These loans can help businesses cover immediate working capital and investment needs.
- 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. The Temporary Framework makes clear that such aid is considered as direct aid to the banks' customers, not to the banks themselves, and gives guidance on how to ensure minimal distortion of competition between banks.
- Short-term export credit insurance: The 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.
Proposed extension of Temporary Framework
As at 27 March 2020, the Commission has taken 14 state aid decisions based on this Temporary Framework to approve 22 national measures that provide much needed liquidity to European businesses in these difficult times.
On the evening of 27 March 2020, the Commission sent to member states for consultation a draft proposal to extend the Temporary Framework. It is now proposing to extend the Temporary Framework by adding additional support possibilities for five types of aid measures:
- More support for coronavirus related research and development (R&D) to address the current health crisis. Even more aid can be granted, if member states co-operate across borders.
- More support for the construction and upgrading of testing facilities for products relevant to tackle the coronavirus outbreak, such as vaccines, medical equipment or devices, protective material and disinfectants. Member states can also grant no-loss guarantees to provide incentives for companies to invest. Even more aid can be granted, if member states co-operate across borders.
- More support for the production of products relevant to tackle to coronavirus outbreak, such as vaccines, medical equipment or devices, protective material and disinfectants. Member states can also grant no-loss guarantees to provide incentives for companies to invest. Even more aid can be granted, if member states co-operate across borders.
- Targeted support in the form of deferral of tax payments and/or suspensions of employers' social security contributions to help avoid lay-offs due to the coronavirus crisis in specific regions or sectors that are hardest hit by the outbreak.
- Targeted support in the form of wage subsidies for employees to help avoid lay-offs due to the coronavirus crisis in specific regions or sectors that are hit hardest by the outbreak.
Member states have been given the opportunity to comment on the Commission's draft proposal. The Commission aims to have the amended Temporary Framework in place during the week beginning 30 March 2020.
Comment
The Commission considers that these targeted support possibilities give member states more flexibility to intervene selectively on the basis of greatest need. This possibility complements that of taking general measures available to all companies, which would fall outside the scope of EU state aid control (as already clarified in the Commission Communication of 13 March 2020 and the existing State aid Temporary Framework).
The Commission has also decided to temporarily remove all countries from the list of “marketable risk" countries under the Communication on short-term export credit (see Legal update, COVID-19: Commission amends Communication on short term export-credit insurance). This enables member states to make available public short-term export credit insurance in light of the increasing insufficiency of private insurance capacity for exports to all countries in the current coronavirus crisis.