Applying for State Aid in the Time of the COVID-19 pandemic

There are no two ways about it – the COVID-19 pandemic has an enormous impact on the way businesses apply for State aid.

In that regard, and as a part of the overall response to the negative economic effects of the outbreak, the European Commission (“Commission”) issued the Notification under Article 107(2)(b) TFEU (“Notification”).

Fresh out of the Commission’s headquarters, the Notification provides detailed information on the content of State aid notifications under Article 107 (2) b to the Treaty on the Functioning of the European Union (“TFEU”). The article in question enables Member States to provide aid for companies affected by “damage caused by natural disasters or exceptional occurrences” and was used by the Commission to approve, for now, a stand-alone example of State aid granted in response to the virus outbreak[1].

While created to provide assistance to Member States and accelerate the process of providing aid in current circumstances, the Notice may be relevant for candidate countries which have harmonized their State aid legal frameworks with that of the European Union (“EU”).  Thus, Serbian State aid Control Act[2], which uses almost the exact same wording as Article 107 (2) b TFEU, allows aid to “make good the damage caused by natural disasters or other exceptional occurrence in line with the statute on the reduction of risk and emergency management”.

Legal basis for granting State aid in Serbia corresponds, to great extent, to that of the EU. Furthermore, Serbia is obliged to apply the criteria and interpretative instruments of the EU acquis regarding State aid control[3].  Therefore, the latest steps taken by the Commission with respect to State aid measures could be of interest to us. With that in mind, we provide an elaboration of the Notification below.

First of all, when the Commission is notified about a State aid scheme, it should be clear whether the COVID-19 outbreak qualifies as an “exceptional occurrence” for the purpose of legislation currently in force.  The Notification makes a clear point by referring to the Commission Decision dated March 12, 2020.  It also instructs the notifying countries to provide information on country-specific situation, as follows:

  • Data on the COVID-19 outbreak in your country: date of the first case reported in the country; a number of affected persons at the time of notification;

 

  • Data on the economic impact of the Covid-19 outbreak in your country, notably in the sectors covered by the scheme, if available;

 

  • Sequence of (main) events between the occurrence and the adoption of the scheme including any official recommendations or prohibitions decided by the competent authorities.[4]

 

Furthermore, the Notification lays out what kind of information Member States should provide when seeking approval for State aid under Article 107 (2) b TFEU.

 

General description of the aid scheme

Regarding the aid scheme, applicants are required to: (i) voice the objective of the scheme, (ii) make estimates of the budget and (iii) designate beneficiaries of the scheme. For proper notification, applicants also have to provide information on geographical scope of aid to be granted, as well as information on duration of aid, including the date of entry into force and the date until which it will be possible for beneficiaries to submit their applications.

National legal basis for aid is also one of the required items. Interestingly, the only case of the State aid approved in response to the virus outbreak so far used a non-binding act as a legal basis.  Danish compensation scheme approved by the Commission on March 12, 2020, was based on a non-binding COVID-19-related Recommendation adopted by the Danish authorities on March 6, 2020, along with the Danish Budget Law and the Danish Business promotion Act.

 

Description of damage covered & aid measures

Member States seeking approval for aid should make sure that there is a causal chain linking the virus outbreak, damages suffered and the aid to be granted.

Information on damages should be as detailed as possible. In that regard, it would not be enough to indicate that the scheme is to compensate for “economic losses suffered from the COVID-19 outbreak”.  More precise description of damages and how they came about is preferred (for example: “damages for tickets sold in pre-sales and on the day of the event”).

On top of this, all documents supporting the damage assessment are required (such as independent experts’ certificates or competent authorities’ verifications).

Finally, applicants should elaborate on the aid mechanism to make sure that aid reaches only those who encountered difficulties due to the virus outbreak and that the aid amount does not exceed the damage suffered.

 

Commitments

A significant part of the Notification is the provision of specific commitments to the Commission by the State aid applicant.  While suffering damage caused by the COVID-19 outbreak, State aid beneficiary will receive payment up to the amount of damage suffered, while the payment needs to be net of any amount recovered by whatever source for the same damage, thereby assuring that the beneficiary does not receive the remedy twice.

It is expected that benefit of aid would not be provided to a beneficiary who is responsible for the damage suffered or whose behaviour is not in line with applicable legislation. In case that aid is co-financed by any of the EU Funds, the beneficiary also has to confirm that they will also adhere to regulations of relevant funds.

To conclude, commitments will include a guarantee of non-cumulation with other aid for the same eligible costs and a provision of report no later than one year after the date of the Commission decision, specifying the amount of compensation and recoverable advances granted.

Present Notification follows the new Temporary Framework, lex specialis for State aid measures.

 

The new Temporary framework for State aid measures 

In order to complement the current State aid framework, the Commission adopted additional measures through the new Temporary Framework. Whilst envisaged as a tool to keep national support measures effective and proportionate, the New Temporary Framework also strives to preserve the EU Internal market from fragmentation.

As elaborated in detail in one of our previous articles (available here), the new Temporary Framework introduces five types of aid to undertakings facing lack of liquidity: (i) direct grants, selective tax advantages and repayable advances up to EUR 800,000 per company, (ii) state guarantees for bank loans to both SMEs and large enterprises; (iii) subsidized public loans under favorable interest rates; (iv) safeguards for banks and other financial institutions when used as funnels for the real economy (such aid is designed for bank’s customers and not the bank itself); and (v) short-term export credit insurance.

Finally, in other circumstances, “one time-last time” principle would apply, however, given the nature of effects of the spread of the COVID-19 pandemic, in the current situation the “one time-last time” principle is not in the driver’s seat.

Serbian Commission for State Aid Control has followed the Commission’s footsteps by publishing its own Notice regarding the application of State aid rules whilst battling the spread of COVID-19.  In light of these developments, we are staying the course and keeping track of the Serbian Commission and its next steps to get a load of any new regulations, and in particular taking note of the previously mentioned Commission’s new Temporary Framework and Notification.

 

[1]Decision of 12.3.2020, SA.56685 (2020/N) – DK – Compensation scheme for cancellation of events related to COVID-19. https://ec.europa.eu/competition/state_aid/cases1/202011/285054_2139535_70_2.pdf

[2] State aid Control Act (Official Gazette of the Republic of Serbia, No 73/2019).

[3] In line with the Stabilisation and Association agreement between the European Communities and their Member States of the one part, and the Republic of Serbia, of the other part, Art 73. https://ec.europa.eu/neighbourhood-enlargement/sites/near/files/pdf/serbia/key_document/saa_en.pdf

[4] Notification under Article 107(2)(b) TFEU, p1.  https://ec.europa.eu/competition/state_aid/what_is_new/Notification_template_107_2_b_PUBLICATION.pdf

 

 

For more information, please contact us via covid19@geciclaw.com