13/05/2020

Temporary Flexibility of State Aid Rules

The coronavirus pandemic and its consequences have serious impacts on companies. The financial impact of the pandemic has hit the travel and restaurant industries as well as other service industries particularly hard, but it is doubtless being felt in every sector. In order to mitigate the economic effects of the pandemic, the European Commission has issued a temporary state aid framework allowing Member States greater flexibly to support companies during and after the pandemic.

Temporary Framework in Place until the End of 2020

The Commission adopted the Temporary Framework on 19 March to enable Member States to more flexibly support companies. The Framework is based on Article 107(3)(b) TFEU, which allows aid ‘to remedy a serious disturbance in the economy of a Member State’. The Framework provides for the following forms of aid:

  • Aid schemes: direct grants, selective tax advantages and advances (cannot exceed EUR 800,000 per company; lower thresholds provided for the agricultural, fishery and aquaculture sectors)
  • State guarantees for bank loans taken out by companies
  • Interest subsidies for public loans
  • Guarantees and loans channelled through credit institutions or other financial institutions
  • Short-term export credit insurance (e.g. Finnvera in Finland)

Aid is only available to companies facing financial difficulties due to the coronavirus outbreak. The Temporary Framework does not permit aid to companies that were facing difficulties on or before 31 December 2019.

The Commission has expanded the Temporary Framework twice. The goal of the first expansion, which entered into force on 3 April 2020, was to further facilitate coronavirus related research, development and production, and to protect jobs. The expansion permits aid in the following circumstances:

  • Aid for coronavirus related research and development
  • Aid for construction and upscaling of testing facilities needed to respond to the outbreak
  • Aid for the production of products necessary to respond to the outbreak
  • Aid in form of targeted deferrals of tax and/or of social security contributions
  • Aid in form of targeted wage subsidies

The latest expansion to the Temporary Framework entered into force on 8 May. Under the second expansion, Member States will be able to provide companies recapitalisations and subordinated debt provided that certain requirements are met.

Recapitalisation aid is only to be offered as a last resort if no other appropriate solution is available. In order to minimise negative impacts on the single market, the amendment also provides for conditions for grating recapitalisation aid, for remuneration of the state and on the governance of the company receiving aid.

The Temporary Framework will remain in force at least until the end of 2020. With respect to recapitalisation measures, it will remain in force until the end of June 2021. Authorities granting state aid should keep in mind that aid granted on the basis of the Temporary Framework must also be notified to the Commission, and adopting such aid is subject to the Commission’s approval.

The Commission has also highlighted environmental and digitalisation goals. In its latest communication, the Commission states that large companies that are granted recapitalisation aid or subordinated debt are required to report on the use of aid received and compliance with their responsibilities linked to the green and digital transformation.

Member States Entitled to Compensate Damage Suffered Due to the Outbreak

In addition to the Temporary Framework, the exemptions provided for in Article 107 TFEU continue to be applicable. For example, Article 107(2)(b) TFEU, which permits aid to make good the damage caused by natural disasters or exceptional occurrences, could be applied in the current circumstances. It is important to keep in mind that Member States can also make use of other relief measures that are not within the scope of state aid rules. These include general wage subsidies and general relief of taxes and social security contributions.

The Commission has to date approved an estimated EUR 1.9 trillion in state aid. With respect to Finland, the Commission has approved four aid schemes: a EUR 2 billion aid scheme to support the Finnish economy, a EUR 3 billion scheme to support companies impacted by the outbreak and two aid schemes to support the agriculture and fishery sectors.

Where to Apply for State Aid?

In Finland, companies can apply for aid to, for example:

  • Finnvera
  • Business Finland
  • ELY Centres
  • Tesi

The European Investment Bank has also announced a financial response with which it is seeking to mitigate the financial damage to SMEs and mid-caps in partnership with EU Member States and national banks.