Many businesses are increasingly facing severe business disruption and/or liquidity problems as the COVID-19 outbreak spreads. Supply chains are disrupted, workforces quarantined and customer demand is falling. In response, governments across the EU (and the UK) are pledging to do whatever it takes to keep the economy going and help business and are adopting related measures.

Key take-aways

  • The Amended COVID-19 Temporary Framework is significantly more generous than the initial Framework and that adopted to alleviate the impact of the global financial crisis. The Commission has already shown that is more flexible as it was during the financial crisis in helping Member States to support businesses and the economy through the COVID-19 crisis.
  • Whilst the Amended Framework establishes a model for Member States to design measures that will be approved very quickly, the Commission is aware that it will also have to deal swiftly with support that will exceed the limitations of the Amended Framework. The Amended Framework will reduce the number of these cases, but that the Commission refers to the Amendment of 3 April 2020 as "First Amendment" is an indication that the scope of the Amended Framework is set to be further enlarged to yet additional categories of aid.
  • When Member States are found to have breached the State aid rules, the aid recipients pay the price: Member States must recover the aid with compound interest. Recipients remain at risk of repayment with compound interest for 10 years after having benefitted from the aid.
  • Potential beneficiaries of a support measure from an EU Member State or the UK (at least through the end of 2020) should verify at least material compliance with the Amended Temporary Framework or the remaining body of State aid law.

In more detail

Many businesses are increasingly facing severe business disruption and/or liquidity problems as the COVID-19 outbreak spreads. Supply chains are disrupted, workforces quarantined and customer demand is falling. In response, governments across the EU (and the UK) are pledging to do whatever it takes to keep the economy going and help business and are adopting related measures.

But recipient businesses should be aware that where an EU Member State's COVID-19 support does not comply with the EU State aid rules, they run the risk that the State aid will have to be repaid to the EU Member State (with compound interest) for up to 10 years after having benefitted from the State aid.

On 19 March 2020, the EU Commission took an important step to facilitate State aid compliant COVID-19 support (notwithstanding the general State aid prohibition enshrined in the EU Treaties) by adopting a Temporary Framework for State aid measures relating to the COVID-19 outbreak, available here.

On 3 April, the First Amendment to the Temporary Framework expanded the scope of the Temporary Framework to five additional categories of aid including COVID-19 relevant R&D, COVID-19 relevant testing, upscaling infrastructure and investment in COVID-19 relevant products including vaccines, medical equipment and diagnostics, disinfectants and related raw materials. That the EU Commission refers to it as First Amendment indicates that the scope of the Temporary Framework will continue to be expanded in due course. We provide a consolidated convenience version of the Amended Framework as of 3 April 2020 here

The Amended Framework recalls that not all support measures will qualify as State aid and that other measures, which qualify as State aid, may be covered by existing exemptions and approvals. For these aspects please refer to our earlier alert on the Framework as adopted on 19 March, available here.

It is important to note that only Member States can notify State aid measures for approval - not businesses. Nevertheless, businesses may take some comfort from the confirmation provided in the Amended Framework that the Commission will approve and not order recovery of non-notified aid that otherwise meets the conditions of the Temporary Framework (although there remains a residual risk that a national court will have to order recovery of aid that was not notified).

Inevitably, the Commission will also receive notifications of support measures above and beyond the Temporary Framework. It will assess those directly under the provisions of the TFEU. These approvals may take longer (potentially weeks or months) and the Commission may require Member States to adjust them to keep aid proportionate and limit distortions of competition. In these circumstances, businesses should insist that the Member State closely involves them throughout the notification and approval process (beginning with preparing the pre-notification contacts with the Commission) to ensure that approval is obtained as quickly as possible.

Categories of Aid eligible for accelerated approval under the Amended Framework

Already 15 Member States and the UK have taken advantage of the accelerated approval of COVID-19 State aid measures under the Amended Framework (view list of approvals here).

  1. Direct grants, repayable advances and tax advantages under schemes for up to EUR 800,000 per business to address its liquidity needs provided certain conditions are met. This category of aid has now been expanded to also allow this aid to take other forms, including equity.
  2. State guarantees for investment and working capital loans provided they meet certain conditions, including with regard to premiums, loan amounts and maximum durations, to ensure banks keep providing loans to the customers who need them. The minimum threshold (in bps) for premiums remain unchanged. But they now apply staggered (the lowest for the first year, the higher in year 2 and 3 and the highest in year 4 to six). Schemes may modulate premiums as before or (that is new) use a flat premium for the entire duration (which must be higher than the applicable premium for year 1 and adjusted to duration and coverage).
  3. Subsidised interest loans to help businesses cover immediate working capital and investment needs provided the loan meets certain conditions, including in relation to duration, minimum interest rates and loan caps (twice the annual wage bill, or 25 per cent of turnover, or 12 months of liquidity needs for large businesses). The Amended Framework's rules for minimum loan interest rates now allow the same additional flexibility as for guarantee premiums.
  4. Guarantees and loans channelled through credit institutions or other financial institutions: Some Member States plan to build on banks' existing lending capacities, and use them as a channel for support to businesses, in particular SMEs. The Temporary Framework clarifies that when such measures are channelled through financial institutions, they will be considered as direct aid to the institutions' customers, not to the institutions themselves.
  5. Short-term export credit insurance: The Amended Framework reflects the changes to the short-term export credit insurance communication published on 28 March 2020. It provides that until 31 December 2020 all commercial and political risks associated with exports to the 27 EU Member States as well as the UK, Australia, Canada, Iceland, Japan, New Zealand, Norway, Switzerland, and the US are non-marketable. This allows Member States temporarily to provide short-term export credit insurance.
  6. COVID- relevant R&D aid in the form of direct grants, repayable advances or tax advantages is eligible for accelerated approval under the conditions set forth in the new section 3.6 of the Amended Framework. For fundamental R&D, aid intensities can be as high as 100% and for industrial R&D up to 80% (which can be increased by 15% for cross-border or multiple-MS financed R&D).
  7. Investment aid for the construction and upscaling of infrastructures for the development, test and upscale up to first industrial deployment prior to mass production of COVID-19 relevant products (medical devices, vaccines, medicinal equipment, etc.). Aid that takes the form of direct grants, repayable advances or tax advantages can benefit from accelerated approval under the conditions set forth in the new section 3.7 of the Amended Framework. Investments must be completed within 6 months (otherwise 25% of grants or tax advantages must be reimbursed). The maximum aid intensity is 75% for grants but can be increased by 15% for investments implemented within 2 month or if the aid is granted by more than one Member State. Where a repayable advance is granted and the investment is implemented within 2 months the aid intensity can be increased by up to an additional 15%.
  8. Investment aid for the production of COVID-19 relevant products (medical devices, vaccines, medicinal equipment, etc.) in the form of direct grants, repayable advances or tax advantages also benefits from accelerated approval under the Amended Framework provided the conditions of its section 3.8 are met. These include compliance with the maximum aid intensity of 80% for grants, which may be increased by up to 15% for investments implemented within 2 month or if the aid is granted by more than one Member State. If the aid is a repayable advance and the investment is implemented within 2 months the aid intensity can be increased by up to an additional 15%. Under certain conditions, Member States may also grant an additional loss cover guarantee for these projects.
  9. Tax and/or social security deferrals for certain sectors or regions: now also may benefit from accelerated approval under the new section 3.9 of the Amended Framework.
  10. Wage subsidies to avoid lay-offs for certain sectors, regions or types of undertakings may also benefit from accelerated approval under the Amended Framework as set forth in its new section 3.10 provided these subsidies do not exceed 80% of the monthly gross salary. This aid can be combined with other generally available or selective employment support provided this does not lead to overcompensation of wage costs. Combination with tax deferrals and deferrals of social security payments is also possible.
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