COVID-19: Commission announces extension to Temporary Framework to support the economy | Practical Law

COVID-19: Commission announces extension to Temporary Framework to support the economy | Practical Law

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.

COVID-19: Commission announces extension to Temporary Framework to support the economy

Practical Law UK Legal Update w-024-8551 (Approx. 4 pages)

COVID-19: Commission announces extension to Temporary Framework to support the economy

Published on 03 Apr 2020European 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 3 April 2020, the European Commission announced that it has adopted amendments 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. It covered five types of state aid.
The Commission has now extended the Framework 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 of 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 text of the amendment has not yet been published.

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 2019 novel coronavirus disease (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.
On 27 March 2020, the Commission announced that it had sent to member states for consultation a draft proposal to extend the state aid Temporary Framework to cover five further measures (see Legal update, COVID-19: Commission consults member states on extending state aid Temporary Framework to support the economy).
The Commission has now announced that it has adopted amendments to extend the Temporary Framework.

Extended Temporary Framework

The amendments extend the Temporary Framework by providing for additional five types of aid measures:
  • Support for coronavirus related research and development (R&D): to address the current health crisis, member states can grant 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 co-operation projects between member states.
  • Support for the construction and upscaling of testing facilities: member states can grant aid in the form of direct grants, tax advantages, repayable advances and no-loss guarantees to support investments enabling the construction or upscaling of infrastructures needed to develop and test products useful to tackle the coronavirus outbreak, up to first industrial deployment. These include medicinal products (including vaccines) and treatments; medical devices and equipment (including ventilators and protective clothing, as well as diagnostic tools); disinfectants; data collection and processing tools useful to fight the spread of the virus. To encourage co-operation and to support quick action, companies can benefit from a bonus when their investment is supported by more than one member state and when the investment is concluded within two months after the granting of the aid.
  • Support for the production of products relevant to tackle the coronavirus outbreak: member states can grant 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 in Support for the construction and upscaling of testing facilities, above). To encourage co-operation and to support quick action, companies may benefit from a bonus when their investment is supported by more than one member state and when the investment is concluded within two months after the granting of the aid.
  • Targeted support in the form of deferral of tax payments and/or suspensions of social security contributions: to further reduce the liquidity constraints on companies due to the coronavirus crisis and to preserve employment, member states can grant targeted deferrals of payment of taxes and of social security contributions in those sectors, regions or for types of companies that are hit the hardest by the outbreak.
  • Targeted support in the form of wage subsidies for employees: to help limit the impact of the coronavirus crisis on workers, member states can contribute to the wage costs of those companies in sectors or regions that have suffered most from the coronavirus outbreak, and would otherwise have had to lay off personnel.
The amendment to the Temporary Framework also expands on the existing types of support that member states can give to companies in need. It now enables member states to give zero-interest loans, guarantees on loans covering 100% of the risk, or provide equity up to the nominal value of EUR800,000 per company. This can be combined also with de minimis aid (to bring the aid per company to up to EUR1 million) and with other types of aid.

Comment

The amended Temporary Framework will be in place until the end of December 2020. The Commission will assess before that date if it needs to be extended.
The Commission states that it is continuously assessing if further measures are necessary to complement the toolbox for member states to support their economy during the crisis and help companies bounce back strongly afterwards. In this context, the Commission is also analysing existing rules, to verify consistency with the principles endorsed in the Temporary Framework for State aid measures to support the economy in the current coronavirus outbreak.