State Aid: State aid and covid-19: practitioners’ perspective
The outbreak of the covid-19 virus has wrought havoc across the world. As governments impose restrictions on daily life, businesses have experienced sharp decreases in liquidity that have seriously threatened their ability to meet payment obligations and ensure their long-term viability. In response to this, governments across the Union have sought to come to their assistance, by mobilising unprecedented amounts of public resources through subsidised schemes and targeted support measures.
As the vast majority of these measures seek to provide targeted support for national economies and the business community, a lot of these efforts fall within the auspices of EU state aid rules. Recognising the need for rapid and decisive action, the Commission has tried to assist the member states by expediting approvals, offering dedicated engagement, and adopting a set of temporary rules in the form of the Temporary Framework that sets specific thresholds for measures to be deemed compatible with (some) state aid rules. To keep pace with the evolving impacts of the pandemic the Temporary Framework has been subject to five sets of amendments to date.
This is not the first time the Commission has reacted this way to a crisis that is perceived as a systemic threat to the economy as a whole. In the wake of the financial crisis in 2008, the Commission adopted a similar approach also introducing a temporary framework allowing member states to assist the ailing financial institutions of systemic importance.
There is an obvious risk for serious distortion to the market from the adoption of state aid support at this scale.
We take a look below at the rules for member states seeking to assist struggling companies and what their experience has looked like in practice.
- What options do member states have to get support to companies affected by covid-19?
The Treaty gives member states three legal bases to justify the grant of state aid to companies in need of support because of the pandemic:
- Option 1. Article 107(2)(b): aid to make good the damage caused by exceptional circumstances. Article 107(2) is an objective concept, meaning that, unlike aid granted under article 107(3), the Commission has no margin of discretion in applying this provision. Instead, it is limited to verifying that the compatibility conditions are met. Thus, its approach to the application of this provision is rather restrictive, strictly examining the causal link between the pandemic and the damage being compensated and the quantification of the damage suffered.
- Option 2. Article 107(3)(b): aid to remedy a serious disturbance in the economy of a member state. Traditionally, this legal basis has been accepted by the Commission rather reluctantly. However, despite some initial resistance, in the context of the financial crisis in 2008, the Commission ultimately invoked this provision for the adoption of temporary rules to assist ailing financial institutions and a temporary framework for the ‘real economy’. This same approach has now been followed in the context of the pandemic with the Commission publishing a covid-19 Temporary Framework to facilitate the adoption of article 107(3)(b) (and some article 107(3)(c)-based) measures.
- Option 3. Article 107(3)(c): aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest. The Temporary Framework provides some specific compatibility rules for certain article 107(3)(c)-based measures, such as aid for research and development. Member states can also rely on the orthodox options under article 107(3)(c), where suitable.
The most appropriate legal basis will depend on a number of factors including the beneficiary, its financial condition, the nature of the problem that the aid is supposed to address, and the form by which the aid is supposed to be granted (direct grants, guarantees, etc). For measures specifically targeted at compensating companies for the costs of cancelled events due to coronavirus restrictions on public gatherings, for example, article 107(2)(b) will often be the most appropriate legal basis as the costs are specific, directly linked to the pandemic, and easy to verify. Measures supporting entire sectors of the economy in the face of the general impacts of the pandemic, by contrast, will fall more naturally within the auspices of article 107(3)(b). See, for example, SA.57198 (Hungary) COVID-19 Crisis Rural Guarantee Programme by AVHGA, a general guarantee scheme to provide guarantees to SMEs to enable them to access financing in the face of liquidity shortages caused by the pandemic.
Member states are also free to grant support that does not constitute state aid without Commission approval. Measures that will not qualify as state aid would include, for example, the provision of loans or state guarantees at market rates, or measures that are available to all companies. This latter measure will not qualify as state aid because it bestows no selective advantage on beneficiaries. Similarly, direct aid to citizens or aid to health services from EU or national funds will not be considered state aid generally and so can be granted without approval (see, for example, the UK Future Fund, discussed further below).
In light of the above, both member states and beneficiaries will invariably have some key strategic choices to make when it comes to both designing a measure and selecting the most appropriate legal basis to ensure a swift approval.
- Compensation for damages: What are the rules for granting covid-19 related state aid under article 107(2)(b)?
Article 107(2)(b) is designed to allow member states to grant aid ‘to make good the damage caused by natural disasters or exceptional circumstances’. Traditionally it has been used to remedy damages incurred as a result of floods, earthquakes and fires under the ‘natural disaster’ limb. The ‘exceptional circumstances’ limb has been used in the past, for example, to justify support for operating losses incurred by airlines in the wake of the September 2011 attacks on the World Trade Centre in New York.
On 12 March 2020, the Commission adopted the first article 107(2)(b) State aid Decision to address damage caused by the pandemic (SA.56685 (Denmark) Compensation scheme for cancellation of events related to COVID-19). The measure is a compensation scheme to provide compensation to event organisers for events cancelled due to the pandemic, confirming that the outbreak can be considered an ‘exceptional circumstance’ for the purposes of article 107(2)(b).
There are no specific technical guidelines associated with article 107(2)(b)-based measures. While not applicable to support granted under article 107(2)(b), the Temporary Framework notes that article 107(2)(b) will be particularly suited to those sectors that have been particularly hit by the outbreak, such as transport, tourism, culture, hospitality, retail and events. To assist with notifications for covid-19 support based on article 107(2)(b), the Commission has published a notification template to help member states to understand what information the Commission will require to approve decisions on this basis. The fifth amendment to the Temporary Framework sought to bring some clarity on the kinds of coronavirus restrictions that might merit article 107(2)(b)-based intervention. For example, the cessation of certain economic activities (eg, the closure of bars, restaurants or non-essential shops), cessations in certain areas (eg, restrictions on flights or other transport to or from certain places or destinations), or the capping of attendance for specific sectors or activities at levels where those caps (due to social distancing rules or restrictions on capacity in certain commercial spaces) entail the cessation of all or a sufficiently substantial part of the affected activity ordinarily carried on there (eg, entertainment, trade fairs and sports events).
In line with previous precedent, the Commission has been particularly focused on member states’ ability to satisfy two notable criteria in verifying measures’ compatibility with article 107(2)(b).
The first is that the member state will need to establish that there is a direct and causal link between the aid granted and the damage resulting from the exception circumstance (ie, the pandemic). General support for investment, for example, would not fulfil this criterion. In SA.57539 (Austria) COVID-19 Aid to Austrian Airlines, for example, the Commission referenced the cancelled and rescheduled flights in Austria as a result of the travel restrictions imposed by the Austrian and other governments to establish that direct causality. The Temporary Framework, again under the fifth amendment, proposes that general social distancing measures or sanitary constraints imposing general requirements would not meet the requirements of article 107(2)(b) for these reasons and aid to address the implications of those restrictions would therefore be more suited to article 107(3)(b)-based interventions.
The second requirement is that the aid must be strictly limited to what is necessary to make good the damage resulting from the pandemic and cannot result in overcompensation. To meet this criterion the Commission will expect to see ’rigorous quantification’ of the damages being compensated. This requirement has thus far seen the Commission require that state aid support based on estimates of damages are reconciled on an ex post basis by the member state to ensure that no overcompensation occurs. In SA.75539 (Austria) COVID-19 Aid to Austrian Airlines, the damages were calculated on the basis of the actual net losses incurred by the beneficiary for the months of April and May 2020, and estimates for incomplete months based on revenues, variable costs and fixed costs. The Austrian authorities also committed to conduct an ex post assessment of the beneficiary’s actual net losses based on audited annual accounts and to submit the results of that assessment to the Commission as a means of ensuring that there is no overcompensation. The Commission’s notification template for article 107(2)(b) measures stipulates that the methodology for assessing damage per beneficiary should be submitted with the notification, including documents submitted by the beneficiary to the granting authority, certification of those documents by independent experts, verification by competent authorities, precise description of the damage/ or eligible costs of each applicant and, if used, an explanation of why any reference period used is relevant and representative. The Temporary Framework makes clear that general economic effects of the pandemic, including declines in demand or in attendance due to lower aggregate demand or greater consumer reluctance to engage in economic activities because of general restrictions (eg, social distancing) should be excluded from the calculation of damages being compensated under article 107(2)(b). Rather, the damages must be specific to restrictions imposed directly on the beneficiary.
In practical terms, any clarification is to be welcomed as a means to enable legal certainty for member states and beneficiaries, but it is at least notable that this approach somewhat conflates the damages caused by “natural disaster or exceptional circumstance” that member states are empowered to compensate undertakings for under article 107(2)(b), with the damages that derive from the restrictions imposed by member states. Undertakings affected by the same exceptional circumstance – the covid-19 pandemic, are therefore limited in terms of the damages for which they may be eligible not by virtue of the extent of the harm they suffer but the extent to which they can demonstrate that such harms derive from government restrictions directly. Notwithstanding this inconsistency, however, the latest amendments at least simplify the process for member states and beneficiaries by making clearer what the Commission is and is not going to find acceptable under article 107(2)(b) in these circumstances.
2.1 How have member states been providing damage compensation in practice?
The Commission has already approved over 30 measures on the basis of article 107(2)(b) in sectors including aviation, tourism, events and media. Article 107(2)(b) measures account for approximately 10 per cent of all covid-19 approvals adopted as of January 2021. The Commission is endeavouring to keep an up-to-date list of all covid-19 measures adopted to date, including those based on article 107(2)(b).
2.2 What are the practical advantages to using the article 107(2)(b) option?
Article 107(2)(b) may be particularly appropriate where beneficiaries are ineligible for other forms of aid or the measures contemplated by the Temporary Framework are unsuitable or inappropriate to remedy the specific issues that a member state is seeking to address. As article 107(2)(b) contains no prescriptions about the form of aid that it can support it is more flexible than the Temporary Framework when it comes to the form of aid granted. Particular features that may be important are set out below.
No limits on direct grants: unlike measures granted under article 107(3)(b), there is no limit on the level of direct grants that can be bestowed under article 107(2)(b). Where the Temporary Framework limits direct grants to €1.8 million per company or €10 million per company for uncovered fixed costs, no such limits apply under article 107(2)(b) provided the aid is limited to the damages incurred and overcompensation is prevented. Therefore, article 107(2)(b) may well be more appropriate for companies who have experienced such serious cash flow impacts that they cannot access finance even with a government guarantee under the Temporary Framework or for whom a direct grant in excess of the Temporary Framework limits is otherwise deemed more appropriate. In SA.57643 (Estonia) COVID-19: Aid to companies active in international maritime passenger transport, for example, Estonia has used article 107(2)(b) to grant total direct grants of up to €20 million to four beneficiaries based on the damages that the pandemic has wrought on the maritime passenger transport sector.
Aid to undertakings in difficulty: similarly, certain undertakings may be excluded from the Temporary Framework if they qualified as ‘undertakings in difficulty’ on 31 December 2019 (ie, before the outbreak). Given almost universal eligibility for aid under the Temporary Framework this criterion is a key ‘safety feature’ of the Temporary Framework in order to address the potentially highly distortive character of these aid measures. In case SA.57026 (Romania) COVID-19 aid to Blue Air, for example, Blue Air, a Romanian airline, already qualified as an undertaking in difficulty on 31 December 2019 and so was excluded from support under the Temporary Framework. As such, Romania designed a support mechanism based dually on article 107(2)(b) and the Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty 2014 (Rescue and Restructuring Guidelines) under article 107(3)(c) to grant a combination of two public guarantees to the airline. Indeed, the Commission has made clear in its Communication on the Temporary Framework that state aid granted in compliance with article 107(2)(b) is not ‘rescue aid, restructuring aid or temporary restructuring aid’. This means that companies that have already received aid under the Rescue and Restructuring Guidelines can still be eligible for article 107(2)(b) state aid support.
While seemingly straightforward, the application of the undertaking in difficulty exclusion in the Temporary Framework can pose some delicate practical challenges when measures are granted in a group, and more specifically a multinational, context.
Aid to financial institutions: financial institutions are also precluded from the Temporary Framework but aid to banks to compensate for direct damage as a result of the covid-19 outbreak can be introduced on the basis of article 107(2)(b).
Support based on article 107(2)(b) does not exclude the possibility that a beneficiary can also benefit from state aid based on another option, including the Temporary Framework, provided the two measures are not targeted at the same eligible costs.
2.3 What about any disadvantages?
Meeting the causality and damages limitation threshold means that article 107(2)(b) is really more suited to targeted individual and sectoral measures than general measures, and will often require commitments from the member state to carry out individualised ex post damages assessments. Given the exceptional nature of article 107(2)(b)-based measures, these requirements are subject to rigorous scrutiny, which can have timing implications for clearance. SA.57026 (Romania) loan guarantee for Blue Air took 127 days from registration to approval (although the decision is yet to be published) and SA.57178 (Romania) Air to Timişoara Airport took 84 days from pre-notification to approval. This is far in excess of the average timescales that Temporary Framework-based decisions are enjoying. The first 20 decisions adopted on the basis of article 107(2)(b), for example, took an average of 11 days to clear from the date of notification (although this figure will exclude any pre-notification discussions).
- Granting state aid under article 107(3)(b) and the Temporary Framework
Article 107(3)(b) generally allows for the grant of state aid ‘to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a member state.’ The Commission has made clear that covid-19 can very much be considered a ‘serious disturbance’. Therefore, in the wake of the outbreak the Commission quickly adopted a ‘Temporary Framework’ of additional, temporary state aid measures that it will consider compatible with article 107(3)(b). The rationale behind the Temporary Framework is to provide a clear set of rules to assist member states in designing schemes that can be cleared quickly such that companies suffering liquidity shortfalls get the support they need as quickly as possible.
3.1 What kinds of state aid can be approved under the Temporary Framework?
The Temporary Framework sets out a range of possible state aid measures based on article 107(3)(b) (and article 107(3)(c)). The measures that can be based on article 107(3)(b) are set out below along with some of the main assessment criteria that the Commission will apply to each form of state aid.
Direct grants, repayable advances and tax advantages
Not to exceed €1.8 million per undertaking or €270,000 and €225,000 for fisheries/aquaculture and agriculture undertakings respectively. The Commission, as of the fifth amendment to the Temporary Framework, is very much seeking to incentivise member states to choose repayable forms of aid, and so has made provision for repayable advances, guarantees and loans to be converted into grants, if required, prior to 31 December 2022.
Guarantees on investment and working capital loans
Guarantee premiums must be set to a minimum level depending on the size of the undertaking with limits on the level of loan principal that can be guaranteed for loans with a maturity beyond 31 December 2021.
Subsidised interest rates for loans
Loans can be granted at a reduced interest rate provided certain credit risk margins are met depending on the size of the undertaking and the maturity of the loan. There are limits on the level of the loan principal for loans with a maturity beyond 31 December 2021 and loan contracts should be limited to a maximum of six years.
Short-term export credit insurance
Short-term export credit insurance can be granted where cover for otherwise marketable risks has temporarily become unavailable due to covid-19.
Tax or social security contribution deferrals
Deferrals not to be granted beyond 31 December 2022.
Wage subsidies to avoid lay-offs
Subsidies not to exceed 80 per cent of gross monthly salaries and granted for a period of not more than twelve months.
Recapitalisation and subordinated debt
Recapitalisation can take the form of equity or hybrid debt/equity instruments. Recapitalisation and subordinated debt instruments can only be granted to undertakings that would otherwise go out of business, or face serious difficulties maintaining operations without assistance, and that cannot access financing on affordable terms on their own.
Capital injections should take place at a price that does not exceed the undertaking’s average share price over the 15 days before the request is made. Any recapitalisation measure must include a step-up mechanism increasing the remuneration of the state to incentivise the beneficiary to buy back the equity.
Aid for uncovered fixed costs
Aid can be granted in the form of direct grants, guarantees and loans for uncovered fixed costs incurred between 1 March 2020 and 31 December 2021 to undertakings that suffer a decline in turnover of 30 per cent or more during that period. The total nominal value of such aid should not exceed €10 million per undertaking.
3.2 Who can be granted state aid under the Temporary Framework?
In principle, any undertaking in any sector can be provided with liquidity support under the Temporary Framework provided (i) they are not a financial institution; and (ii) they were not already in financial difficulty on 31 December 2019. Companies that only began to experience financial difficulty due to the pandemic (ie, during 2020) are, therefore, still eligible for support, as are any micro or small enterprises that were already in difficulty on 31 December 2019, provided they are not subject to insolvency proceedings and have not previously received any rescue or restructuring aid. As mentioned above, the process for determining whether a particular beneficiary fulfils the undertaking in difficulty criterion, particularly in group contexts, can be a complicated exercise in terms of determining the relevant beneficiaries and their eligibility under the Temporary Framework.
Notwithstanding the prohibition on aid to financial institutions, the Temporary Framework is clear that state aid in the form of guarantees or subsidised interest rates channelled through banks as an intermediary will be considered aid to the banks’ customers, not to the banks themselves.
3.3 How long will the Temporary Framework remain in force?
Originally, the Temporary Framework was due to expire on 31 December 2020. It has since been extended, however, and is now due to expire on 31 December 2021. Depending on the future impacts of the pandemic, however, it is within the Commission’s power to extend it further if circumstances so require.
3.4 Have member states been using the Temporary Framework? If so, what kind of support measures have been adopted based on it?
Yes. Temporary Framework-based measures account for the vast majority of covid-19 decisions adopted thus far. Predominantly, the measures have been sectoral or general schemes but there are also examples of targeted individual cases to specific beneficiaries. For example, SA.56809 (Finland) COVID-19 State loan guarantee for Finnair, which is a dedicated state guarantee to Finnair to enable it to access a €600 million loan to cover its working capital needs.
The range and form of measures adopted varies widely. The UK has adopted the largest scheme to date in SA.56794 (UK) Coronavirus Business Interruption Loan Scheme with a total budget of £600 billion. There is no shortage of schemes ranging into the billions, however, with Germany, for example, also implementing a mammoth €500 million scheme in SA.56814 (Germany) COVID-19 measures of the Wirtschaftsstabilisierungsfonds. On the other end of the scale, member states have also introduced smaller, targeted measures. These include, for example, Latvia’s €800,000 direct grant scheme for tour operators that repatriated stranded clients due to the pandemic (SA.57423 (Latvia) COVID-19 grants for the benefit of tourism operators) and Cyprus’ €106,000 scheme (SA.57762 (Cyprus) COVID-19 support to newspapers) to provide direct grants to press publishers that own at least one nationwide newspaper.
Direct grant and guarantee-based measures have been the most popular forms of state aid adopted under the Temporary Framework. Member states have introduced several large schemes of general application but as member states are free to set the limits on these schemes’ operation at a national level, they may not always be suitable for large enterprises with significant financial needs. If individual beneficiaries’ needs exceed the limits set by national schemes, member states may prefer to introduce beneficiary-specific measures under the Temporary Framework.
In recognition of the substantial cash injections that some businesses require due to the pandemic, recapitalisation measures have been added to the Temporary Framework, which allow for more substantial financial contributions that may be maintained for longer periods. Their use to date has been rarer (although there are some examples; eg, SA.57659 (Spain) Recapitalisation Fund and SA.56809 (Finland) COVID recapitalisation of Finnair), which is most likely attributable to the more onerous conditions associated with this form of aid. That said, as more companies run into sharp liquidity issues recourse to these types of measures may well still increase.
Export credit support, by contrast, appears not to have been utilised at all, with member states preferring to guarantee an insurer’s portfolio of insurance claim exposures (eg, SA.57451 (UK) COVID-19 Trade credit insurance support scheme), rather than providing short-term credit insurance to exporters directly. For more on measures such as SA.57451, which are approved directly under article 107(3)(b) see question 3.7).
3.5 What is the process for getting a state aid approval under the Temporary Framework?
The Commission services have been making a concerted effort to clear cases much quicker than typical state aid cases, with simpler measures being cleared in a matter of days (eg, SA.57397 (Netherlands) Dutch temporary guarantee scheme for small bank loans for medium sized and small enterprises due to the COVID-19 outbreak, which was cleared just two days after notification). The Commission has published a template notification form for measures based on the Temporary Framework. DG Competition has also set up a dedicated mailbox ([email protected]) and telephone line (+32 2296 5200) to assist member states with any queries they have or measures they would like to discuss.
3.6 Are there any practical limitations to using the Temporary Framework as an option to grant state aid?
The Temporary Framework encompasses a broad range of measures but does not contemplate every form of measure that might be suitable. Direct provision of equipment and guarantees for credit insurance activities, for example, are not contemplated by the Temporary Framework and so cannot be adopted on this basis.
Similarly, the Temporary Framework does not contemplate state aid to credit or financial institutions or to undertakings (other than SMEs) that were in difficulty before 31 December 2019, so member states will need to rely on other legal bases to adopt measures to assist those undertakings.
There is also something of a limitation in the Temporary Framework in terms of the maximum limits placed on direct grants (€1.8 million under section 3.1 or €10 million under section 3.12 for uncovered fixed costs). For undertakings experiencing significant liquidity impacts from the pandemic, the provision of guarantees is not going to secure access to financing, meaning that support for those undertakings may need to rely on other state aid options.
3.7 Is the Temporary Framework the only option for granting state aid under article 107(3)(b)?
No. The Temporary Framework provides guidance for the measures that it contemplates directly, but for member states looking to provide support not contemplated by the Temporary Framework article 107(3)(b) may still be applicable. There have been a small number of measures adopted on the basis of article 107(3)(b) directly since the outbreak began.
The majority of these have been related to the provision of guarantees on credit insurance activities, which are not covered by the Temporary Framework. Although they are adopted directly, the Commission has referenced the Temporary Framework requirements ‘by analogy’ in assessing the compliance of these measures with article 107(3)(b) when carrying out its assessments (eg, SA.57937 (Italy) COVID-19 State guarantee for the reinsurance of trade credit risks). The Temporary Framework’s requirements therefore still remain relevant, and it would likely be difficult for member states to clear a measure of this nature without complying with the Temporary Framework’s rules.
Analogies with the Temporary Framework have also been drawn to clear a German measure (SA.57741 (Germany) COVID-19 Aid in the form of guarantees on vouchers issued for package tours) that provides vouchers to travellers who booked package tours prior to 8 March 2020 that had to be cancelled because of the covid-19 outbreak. To assist with the design of state aid measures like this, the Commission has also published a Commission Recommendation on vouchers offered to passengers and travellers as an alternative to reimbursement for cancelled package travel and transport services in the context of the covid-19 pandemic. This Recommendation encourages member states to ‘actively consider setting up guarantee schemes for vouchers to ensure that in the event of insolvency of the issuer of the voucher, passengers or travellers are reimbursed’. It acknowledges that such measures are not covered by the Temporary Framework but is clear that they can be notified under article 107(3)(b) and that the Commission will accept state guarantees of up to 100 per cent of the value of any such vouchers.
- What are the options for granting covid-19 related state aid under article 107(3)(c)?
Article 107(3)(c) generally allows for state aid ‘to facilitate the development of certain economic activities or of certain economic areas’. It is the basis of most orthodox state aid rules, and the Commission has acknowledged that it also has a role to play in states’ covid-19 management.
107(3)(c) and the Temporary Framework: the Temporary Framework very much focuses on article 107(3)(b) measures but also lays out the conditions on which:
- aid for covid-19 relevant research and development;
- investment aid for testing and upscaling infrastructure to develop covid-19 relevant products; and
- investment aid for the production of covid-19 relevant products
will be deemed compatible with article 107(3)(c). These measures have proved popular with member states. Twenty decisions have been adopted to date on this basis (eg, SA.57829 (Slovakia) State aid scheme for temporary aid to support COVID-19 research, development and testing).
Undertakings in difficulty: the Temporary Framework is explicit that member states seeking to meet companies’ acute liquidity needs and support undertakings facing financial difficulty can adopt measures based on article 107(3)(c), and in particular on the basis of the Rescue and Restructuring Guidelines. The Temporary Framework does not support the grant of state aid to large enterprises that were in difficulty before 31 December 2019. Therefore, member states seeking to support those undertakings can rely on the normal rules under the Rescue and Restructuring Guidelines. Portugal, for example, has already adopted two measures on the basis of the Rescue and Restructuring Guidelines: SA.57369 COVID-19 Aid to TAP and SA.58101 Rescue aid to SATA Group. That said, the effects of the covid crisis certainly do not enhance the prospects that an undertaking that already is in difficulty has of achieving compliance with the stringent criteria of the Rescue and Restructuring Guidelines.
Further, the Commission has also introduced changes to some of the existing sectoral state aid rules for article 107(3)(c)-based measures, to ensure that undertakings that only experienced financial difficulties due to the pandemic are not excluded from receiving support under these instruments. These include the Guidelines on Regional aid 2014, the Framework for state aid for research development and innovation 2014, the Guidelines on state aid for environmental protection and energy 2014 and the Communication on state aid to promote the execution of important projects of common European interest 2014.
107(3)(c) Direct measures: direct clearances under article 107(3)(c) without reference to either the Temporary Framework or sectoral guidelines are also possible, although comparatively much rarer. The UK, for example, has adopted a scheme to distribute €1.46 billion of personal protective equipment to health and social care providers, community pharmacies and certain public sector organisations (SA.58477 COVID-19: Free distribution of PPE to health and social care services, community pharmacies and public sector organisations). The scheme was found not to fall within the scope of any existing guidelines for the application of article 107(3)(c) and so was assessed, and cleared, directly.
- Non-state aid options for covid-19 support
Measures that do not fall under the state aid definition in article 107(1) TFEU are another (supplementary) option for covid-19 support.
In its Communication on the coordinated economic response to the covid-19 outbreak of 13 March 2020, the Commission set out the various options available to member states outside the scope of EU state aid control. These measures can be put in place without the involvement of the Commission.
No aid measures that are not selective or do not provide aid to undertakings: the Communication gives the example of measures that apply to all undertakings regarding wage subsidies, suspension of payments of corporate/value-added taxes and social security contributions. As such schemes apply to the whole economy, rather than certain sectors, regions, or types of undertakings, they are not ‘selective’ and thus are not considered state aid. The Communication also gives the example of direct financial support paid to consumers, for example, for cancelled tickets not reimbursed by the operators. As measures such as this do not involve aid to ‘undertakings’ they are likewise not considered state aid.
No aid measures that provide no advantage: although not contemplated by the Communication, support measures that conform to market rates in, for example, the provision of loans or state guarantees at market prices, also fall within the category of ‘no aid’ measures. Although there is no state aid decision confirming this analysis, the UK Future Fund likely was not notified on grounds that the fund falls into this category of measure and so does not require a state aid approval.
Services of general economic interest: services of general economic interest (SGEI) are economic activities that public authorities identify as being of particular importance to citizens that would not be supplied (or would only be supplied under different conditions) without state intervention. These services are performed under a public service obligation (PSO). The Commission has acknowledged that to the extent that covid-19 related emergency activities fall within the public remit, the public funding of such activities will not fall under state aid rules. To qualify as no aid, measures such as this are traditionally assessed against the criteria in the Altmark judgment of 2003. In recognition that the exceptional circumstances of the pandemic means that member states may urgently wish to put in place public services to respond to specific needs or to replace commercial services that have become available due to the outbreak, the Commission has published an overview on the state aid rules on PSOs for air transport, land transport and the maritime sector to assist member states with making such assessments. The Commission has also decided to extend the SGEI De Minimis Regulation, the regulation setting out the conditions under which support granted for the provision of SGEIs will not be considered state aid by a further three years, until 31 December 2023. The SGEI De Minimis Regulation has also been adjusted to include a temporary basis on which companies that entered into financial difficulties as a result of the covid-19 outbreak can still receive support.
De minimis aid: support that falls under the thresholds set by the De Minimis Regulation also does not require Commission approval. This can include support of up to €200,000 over three years in most sectors, subsidised loans of up to €1 million and subsidised guarantees on loans of up to €1.5 million. The De Minimis Regulation, which was due to expire on 31 December 2020, has been extended until 31 December 2023 to provide ‘predictability and legal certainty’ during this tumultuous time. Companies that became undertakings in difficulty because of the pandemic will also be allowed to benefit from de minimis aid for a limited time.
Block-exempted aid: support can also be granted in line with the requirements of the General Block Exemption Regulation (GBER) without needing to consult the Commission. The GBER applies to certain categories of aid. Of most relevance to the pandemic will be regional aid, aid for research and development and innovation, and social aid for transport for residents of remote regions. Ordinarily, the GBER excludes companies in difficulty but the Commission has changed the rules to ensure that companies that entered into difficulty because of the pandemic can still be eligible for GBER support. The Commission has also acknowledged that, due to the pandemic, it may not be possible for companies that have previously received regional investment aid under the GBER to avoid job losses. Companies that have received such aid will often have committed not to ‘relocate’ (that is, not to have any job losses in other EEA establishments that perform the same activity as the subsidiary that received aid). The Commission has, therefore, introduced targeted changes to the GBER rules to ensure that companies that have had to temporarily or permanently lay off staff will not be deemed to have breached the ‘relocation’ commitments that they gave when the aid was received (which would ordinarily require the aid be repaid).
- Outlook for the future
Given the circumstances, the general view is that the specific state aid rules applied in response to the crisis have been working reasonably well. The Commission has, in large part, been expediting decisions and the Temporary Framework itself has been evolving as circumstances change; it has been amended five times since its introduction. These iterative amendments make clear that the Temporary Framework is very much a dynamic instrument, capable of reacting to beneficiary and member states’ needs as the experience of the pandemic evolves. The extent to which further changes may be necessary remains to be seen, particularly as much of Europe emerges from its ‘second wave’ and refocuses on recovery support.
One question that arises is whether more systematic recourse to article 107(2)(b) should be made as it recognises the exceptional nature of the circumstances and allows for a straightforward way of providing state support with ‘no strings attached’. That said, mere damage compensation in many cases might not be sufficient to equip companies to meet the financial challenges posed to them by the effects of the crisis. Therefore, article 107(2)(b) would seem to be more of a complementary element than a standalone alternative to the general measures under the Temporary Framework.
In terms of general outlook, the overall level of state aid granted thus far has already exceeded the trillion-euro mark, and is likely to continue at least through the winter. The potential distortive effects of state aid at this scale in light of the quasi-universal eligibility for aid but de facto exclusion of companies with greater resources and higher resilience is more than significant. Arguably this is justifiable given the objective of the support under the Temporary Framework is ‘remedying a serious disturbance to the economy’ as a whole rather than aiding individual undertakings. However, the longer this specific regime remains in place, the bigger the issue may become. This may come to be made particularly clear as different member states’ capacities to finance large-scale measures start to impact the speed with which national economies begin to recover.