EU State aid rules in times of Covid-19 crisis

In the context of the Covid-19, the European Commission (the "Commission") has been very fast in giving guidance and updating EU State aid rules to address the different and rising needs. On 13 March 2020, it published a communication which, together with its annex, provide guidance on the application of existing EU State aid rules to national support measures aimed at tackling the Covid-19 outbreak. To complement existing possibilities, the Commission adopted on 19 March a Temporary Framework, which enables Member States to grant emergency aid measures to ensure that sufficient liquidity remains available to all companies. This crisis Framework has been broadened on 3 April to enable Member States to support companies that develop, test and produce much needed products to fight the coronavirus, but also sectors and regions severely hit by the outbreak. 

Financial support measures which do not need to be notified

As recalled by the Commission, a number of measures do not fall under State aid control rules or are exempted and can therefore be put in place by Member States immediately, without prior notification to the Commission. These include:

• public support measures that are available to all companies, e.g. wage subsidies and tax deferrals;
• public financial support granted directly to consumers, e.g. for cancelled services or tickets that are not reimbursed by the operators concerned;
• public aids which fall under the de minimis rules;
• public aids which fall under the General Block Exemption Regulation ("GBER").

Financial support measures which need to be approved

Subject to the Commission's prior approval, Member States can design a number of other measures which will be considered compatible under EU State aid rules. Depending on the type of measure envisaged, Member States can rely mainly on three different legal basis.

First, Member States can adopt measures under Article 107(2)(b) TFEU to compensate notably companies in sectors that are particularly hard hit (e.g. transport, tourism and hospitality) as well as organisers of cancelled events for the damages suffered due to the outbreak. The Commission has recognised that Covid-19 outbreak qualifies as an 'exceptional occurrence' under this article, as it is an extraordinary, unforeseeable event having a significant economic impact.

To be compatible under this provision, any aid must be (a) directly linked to the damage caused by the Covid-19 outbreak; and (b) proportionate. Under these conditions, the Commission has no discretion but to declare the aid compatible with the internal market. Examples of recent aid authorised under Article 107(2)(b) include: 

• EUR 12 million Danish scheme to compensate event organisers for the damage caused by the cancellation and postponement of events.
• EUR 1.3 billion Danish scheme to compensate self-employed through direct grants.
• a French scheme deferring payment by airlines of certain taxes to mitigate economic impact of coronavirus outbreak.
• EUR 5.4 billion Danish scheme that compensates companies particularly affected by the coronavirus outbreak.
• Danish public guarantee of up to EUR 137 million to compensate airline SAS for damage caused by Covid-19.

Second, as it did during the 2008 financial crisis, the Commission adopted on 19 March a Temporary Framework on the basis of Article 107(3)(b). This provision enables the Commission to approve national support measures to remedy a serious disturbance to the economy of a Member State. The Temporary Framework initially provided for four types of aid aimed at ensuring that sufficient liquidity remains available to all companies:

• direct grants, selective tax advantages and repayable advance up to EUR 800,000 to a company;
• State guarantees for loans taken by companies from banks;
• aid in the form of subsidised interest rates for loans; and
• aid in the form short-term export credit insurance, (the Commission amended on 27 March 2020 its Short-term export-credit insurance Communication to further facilitate this type of aid).

After consulting the Member States, the Commission amended on 3 April its Temporary Framework to expand on the existing support mechanisms. Moreover, this revised version provides for additional types of aid that should enable Member States to accelerate research, testing and production of Covid-19 relevant products, to protect jobs and to further support sectors and regions severely hit, namely:

• support for Covid-19 related research and development (R&D);
• support for the construction and upscaling of testing facilities;
• support for the production of products relevant to tackle the Covid-19 outbreak;
• targeted support in the form of deferral of tax payments and/or suspensions of social security contributions;
• targeted support in the form of wage subsidies for employees.

To date, over 50 national schemes have been authorised (all within a few days from notification) by the Commission under the Temporary Framework. Many more are expected in the near future.

Third, Member States can rely on the Rescue Aid and Restructuring Guidelines, which are based on article 107(3)(c) TFEU, to grant urgent and temporary assistance (e.g. in the form of loans or loan guarantees) to companies facing acute liquidity needs or bankruptcy due to the Covid-19 outbreak. Given the unprecedented circumstances, the Commission announced that these rules can be applied with flexibility. In particular, subject to an individual assessment, companies that have already received such support in the past 10 years may be eligible for further aid. 

In this crisis context, the Commission proves to be particularly reactive and keen on guiding Member States in the design of their aid measures. It also stands ready to revise and ease its State aid rules to adapt to the rising needs. The Ashurst competition team is closely monitoring the rapid developments in the State aid field. See our more detailed guide on Covid-19 related State aid which is regularly updated to capture the latest developments.

With thanks to Jessica Bracker of Ashurst for her contribution.