DG Comp official: state aid amendments will “incentivise” coronavirus research

Charley Connor

14 April 2020

DG Comp official: state aid amendments will “incentivise” coronavirus research

Credit: Suwit Ngaokaew/Shutterstock

The European Commission has introduced additional temporary state aid measures so EU member states can more easily fund research, infrastructure and equipment related to potential covid-19 treatments.

Karl Soukup, director of state aid general scrutiny and enforcement at the European Commission’s Directorate-General for Competition, said last Tuesday that amendments to the temporary state aid framework will “incentivise” rapid research to combat the coronavirus pandemic. He spoke at a Concurrences webinar on enforcement during the covid-19 crisis.

The enforcer adopted a temporary state aid framework on 19 March to give EU member states more “flexibility” during the pandemic. It allows member states to grant up to €800,000 in direct aid to a company struggling due to the crisis, as well as to grant guarantees and safeguard bank loans.

Covid-19 “clearly called” for member states to introduce necessary economic measures, Soukup said last week – a lot of which would fall under the remit of state aid. The temporary framework is very similar to the one adopted during the 2008 financial crisis, he noted.

The temporary framework has a “double objective”, Soukup added: to allow companies to “survive the crisis and still be alive in a few months” but also to ensure they are “alive enough for the bounce back” so the economy can recover as quickly as possible after the pandemic.

However, the enforcer has already made amendments to its framework. On 4 April, it said that member states could now also grant aid for research and development related to covid-19 testing and treatment; for infrastructure related to research; and for investing in the production of coronavirus treatment-related equipment, such as medical devices. 

Member states may grant aid to R&D projects that began after 1 February, provided the aid is “deemed to have an incentive effect” in producing a treatment for covid-19, Soukup said. Projects started before 1 February may receive aid if the aid “leads to an acceleration of the project or a widening of the scope of the project”, he added.

The aid can cover 100% of a project’s fundamental research and 80% of its industrial R&D. However, Soukup said that the latter figure gets a 15% boost if more than one member state participates in the project or if there is “cross-border collaboration”.

Any company that receives aid under this section of the framework must commit to granting non-exclusive licences under non-discriminatory market conditions to third parties in the EU, the DG Comp official noted.

Member states may also cover up to 75% of infrastructure investment that will “get the research closer to the market”, Soukup said. The aid can cover up to 90% of costs if more than one member state is involved or if the project is finished within two months, he said, which is “an incentive to finish investment in infrastructure very quickly”.

If the project in question is not completed within six months of receiving the aid, a penalty amounting to 25% of the aid granted will apply per month of delay, unless the delay is due to factors outside the aid beneficiary’s control.

The amendments to the temporary framework also allow member states to cover 80% – or 95% if more than one country is involved – of a project’s investment in “covid-19 related products”, such as treatments, medical devices and equipment. 

To incentivise such investments, member states may grant “loss cover guarantees” in case a project’s costs and revenues are not profitable after five years, including a 10% profit margin. This is “an instrument that I think we did not have anywhere before,” Soukup said.

The amendments also allow for selective deferrals of tax and social security contributions until December 2022 at the latest, and enable member states to grant wage subsidies to cover up to 80% of a company’s wage costs over no more than 12 months.

The aim of the temporary framework and the amendments is to “strike a balance” between the “two extremes” of giving member states enough flexibility to deal with the coronavirus pandemic and preserving competition and a level playing field in the internal market, Soukup said. As of 7 April, the commission had already adopted 29 decisions covering 39 aid measures granted by 16 EU member states and the UK, which is subject to EU state aid rules until January 2021.

The authority “tried to find the right balance, and whether we succeeded is for everybody to judge – not now, but in a few months’ time,” Soukup said.

Further, the DG Comp official reminded practitioners that a “whole armoury” of state aid guidelines and block exemption regulations already allow member states to grant aid for a variety of different purposes, such as research support. “All of this is still in force and can be used – especially the rescue and restructuring guidelines,” he said. 

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