COVID-19: Amendment to Temporary Framework to support the economy published

Practical Law UK Legal Update w-024-8710 (Approx. 11 pages)

COVID-19: Amendment to Temporary Framework to support the economy published

by Practical Law Competition

Background

Article 107(3)(b) of the Treaty on the Functioning of the European Union (TFEU) enables the European Commission to approve additional national support measures to remedy a serious disturbance to the economy of a member state. Such disturbance must affect the whole or an important part of the economy of the member state concerned, and not merely that of one of its regions or parts of its territory.

In addition, on the basis of Article 107(3)(c) of the TFEU, member states can notify to the Commission aid schemes to meet acute liquidity needs and support undertakings facing financial difficulties, also due to or aggravated by the COVID-19 outbreak.

Considering that the 2019 novel coronavirus disease (COVID-19) outbreak affects all member states and that the containment measures taken by member states impact undertakings, the Commission considers that state aid is justified and can be declared compatible with the internal market on the basis of Article 107(3)(b) of the TFEU, for a limited period, to remedy the liquidity shortage faced by undertakings and ensure that the disruptions caused by the COVID-19 outbreak do not undermine their viability, especially of SMEs.

On 19 March 2020, the Commission, therefore, adopted a Temporary Framework to support the economy in the context of the COVID-19 outbreak (see Legal update, Commission publishes State aid Temporary Framework to support the economy in the context of the COVID-19 outbreak). The Temporary Framework enables five types of state aid:

Direct grants, selective tax advantages and advance payments: Member states will be able to set up schemes to grant up to EUR800,000 to a company to address its urgent liquidity needs.
State guarantees for loans taken by companies from banks: Member states will be able to provide State guarantees to ensure banks keep providing loans to the customers who need them.
Subsidised public loans to companies: Member states will be able to grant loans with favourable interest rates to companies. These loans can help businesses cover immediate working capital and investment needs.
Safeguards for banks that channel State aid to the real economy: Some member states plan to build on banks' existing lending capacities, and use them as a channel for support to businesses, in particular to small and medium-sized companies. The Temporary Framework makes clear that such aid is considered as direct aid to the banks' customers, not to the banks themselves, and gives guidance on how to ensure minimal distortion of competition between banks.
Short-term export credit insurance: The Framework introduces additional flexibility on how to demonstrate that certain countries are not-marketable risks, thereby enabling short-term export credit insurance to be provided by the state where needed.

On 27 March 2020, the Commission announced that it had sent to member states for consultation a draft proposal to extend the state aid Temporary Framework to cover five further measures (see Legal update, COVID-19: Commission consults member states on extending state aid Temporary Framework to support the economy).

On 3 April 2020, the Commission announced that it had adopted amendments to extend the Temporary Framework to cover five new measures (see Legal update: archive, COVID-19: Commission announces extension to Temporary Framework to support the economy ). On 4 April 2020, the Commission published the full text of a Commission Communication on an Amendment to the Temporary Framework (the Amendment).

The Amendment

The Commission considers that targeted and proportionate application of EU state aid control serves to make sure that national support measures are effective in helping the affected undertakings during the COVID-19 outbreak but also that they allow them to bounce back from the current situation, keeping in mind the importance of meeting the green and digital twin transitions in accordance with EU objectives.

The aim of the Amendment is to identify additional temporary state aid measures that the Commission considers compatible under Article 107(3) of the TFEU in light of the COVID-19 outbreak.

In particular, the Commission considers that beyond ensuring access to liquidity and finance, it is also essential to facilitate COVID-19 relevant research and development, to support the construction and upgrade of testing facilities of COVID-19 relevant products, as well as the setting up of additional capacities for the production for products needed to respond to outbreak.

The Commission also considers that it is also crucial to preserve employment. It notes that deferrals of payment of taxes and social security contributions can be a valuable tool to reduce the liquidity constraints of undertakings and preserve employment. Member states may envisage contributing to the wage costs of undertakings, which, due to the COVID-19 outbreak would otherwise lay off personnel. If such deferrals and support schemes apply to the whole economy, they fall outside the scope of state aid control. However, if they provide undertakings with a selective advantage, which can happen if they are restricted to certain sectors, regions or types of undertakings, they involve state aid within the meaning of Article 107(1) of the TFEU.

The Commission states that it has a positive view in relation to member state measures to increase flex-security and avoid massive layoffs. Temporary lay-off schemes of general application, which aim at providing employees with total or partial compensation for the loss of their remuneration while they are on furlough from their employment, would usually not be selective.

The Commission has also found it necessary to amend the Temporary Framework to introduce additional clarifications and amendments as regards certain of the original provisions.

Clarifications and amendments to original Temporary Framework

In addition to the five new measures introduced by the Amendment (see below), the Amendment amends the text of the Temporary Framework as follows:

Cumulation. Point 20 of the Temporary Framework is replaced with new text that provides that all aid in the different sections may be cumulated with each other except for:
- aid granted under section 3.2 (aid in the form of guarantees and loans) and section 3.3 (aid in the form of subsidised interest rates for loans), if the aid is granted for the same underlying loan and the overall loan amount per undertaking exceeds the thresholds set out; and
- aid granted under section 3.6 (aid for research and development), section 3.7 (investment aid for testing and upscaling infrastructures) and section 3.8 (investment aid for the production of COVID-19 relevant products), if the aid concerns the same eligible costs.
Aid in form of direct grants, repayable advances or tax advantages. The Commission has now clarified that the aid under this heading may be granted in the form of direct grants, tax and payment advantages or other forms such as repayable advances, guarantees, loans and equity provided the total nominal value of such measures remains below the overall cap of EUR 800 000 per undertaking; all figures used must be gross (before any deduction of tax or other charge). In addition, the aid may not be granted to undertakings that were already in difficulty (within the meaning of the General Block Exemption Regulation) on 31 December 2019.
The Commission has amended the specific conditions that apply to the agricultural, fisheries and aquaculture sectors so that they now include similar working to the above as to the form of the aid (within the same caps of EUR 120 000 (for fishery and aquaculture) or EUR 100 000 per agricultural undertaking. The Commission has removed the requirement that all the requirements for granting such aid in other sectors must also apply. It has also removed one of the conditions relating to calculation of aid where the undertaking is active in different sectors to a separate paragraph.
Aid in the form of guarantees on loans. The Commission has revised the text of paragraph 25 of the Temporary Framework which sets out the conditions for aid in the form of guarantees on loans. In particular, the new text now clarifies that:
- The loans must be provided in response to the COVID-19 outbreak.
- The minimum guarantee premiums (as set out in a table) shall increase progressively as the duration of the guaranteed loan increases.
- As an alternative, where member states notify schemes whereby maturity, pricing and guarantee coverage are modulated, such that lower guarantee coverage could offset a longer duration or could allow lower guarantee premiums; a flat premium may be used for the entire duration of the guarantee, if it is higher than the minimum premiums for the 1st year (as in the table) for each type of beneficiary, as adjusted according to guarantee duration and guarantee coverage.
- The conditions relating to the amount of the loan, with a maturity beyond 31 December 2020, apply to the overall amount of loans per beneficiary.
- The duration of the loan is limited to a maximum of six years, unless modulated as above.
- The guarantee may only be granted to undertakings that were not in difficulty on 31 December 2019.
Aid in the form of subsidised interest rates for loans. The Commission has revised the text of paragraph 27 of the Temporary Framework which sets out the conditions for aid in the form of subsidised interest rates for loans. In particular, the new text now clarifies that:
- The state aid must be in response to the COVID-19 outbreak.
- Member states may notify schemes whereby the loan maturity and the level of credit risk margins may be modulated, such as a flat credit risk margin may be used for the entire duration of the loan, if it is higher than the minimum credit risk margin for the 1st year for each type of beneficiary, as adjusted according to the loan maturity.
- The loan contracts must have a duration limited to a maximum of six years, unless modulated as above.
- The stated maximum amount of the loan applies to loans per beneficiary.
- The loan may not be granted to undertakings that were already in difficulty on 31 December 2019.
Short-term export credit insurance. The text in paragraphs 32 and 33 of the original Temporary Framework has been replaced with new text confirming that the Commission has found that there is a lack of sufficient private insurance capacity for short-term export credits in general and that the cover for marketable risks is temporarily unavailable. Therefore, the Commission considers all commercial and political risks associated with exports to the countries listed in the Annex to the Communication on short term export credit as temporarily non-marketable until 31 December 2020 (see Legal update, COVID-19: Commission amends Communication on short term export-credit insurance).
Reporting. Except aid granted under section 3.9 (aid in the form of deferrals) and 3.10 (aid in the form of wage subsidies) of the amended Temporary Framework, member states must publish relevant information on each individual aid granted on the comprehensive state aid website or Commission’s IT tool within 12 months from the moment of granting the aid.

New measures introduced

The Amendment extends the Temporary Framework to cover the following measures

Aid for COVID-19 relevant research and development

Beyond the existing possibilities based on Article 107(3)(c) of the TFEU, it is essential to facilitate COVID-19 relevant research and development (R&D) to address the current emergency health crisis. The Commission will, therefore, consider compatible with the internal market, aid for R&D projects carrying out COVID-19 and other antiviral relevant research including projects having received a COVID-19-specific Seal of Excellence quality label under the Horizon 2020 SME-instrument, provided that all the following conditions are met:

The aid is granted in the form of direct grants, repayable advances or tax advantages by 31 December 2020.
For R&D projects started as of 1 February 2020 or for projects having received a COVID-19-specific Seal of Excellence, the aid is deemed to have an incentive effect. For projects started before 1 February 2020, the aid is deemed to have an incentive effect, if the aid is necessary to accelerate or widen the scope of the project. In such cases, only the additional costs in relation to the acceleration efforts or the widened scope shall be eligible for aid.
Eligible costs may refer to all the costs necessary for the R&D project during its duration, including amongst others, personnel costs, costs for digital and computing equipment, for diagnostic tools, for data collection and processing tools, for R&D services, for pre-clinical and clinical trials (trial phases I-IV), for obtaining, validating and defending patents and other intangible assets, for obtaining the conformity assessments and/or authorisations necessary for the marketing of new and improved vaccines and medicinal products, medical devices, hospital and medical equipment, disinfectants, and personal protective equipment; phase-IV trials are eligible as long as they allow further scientific or technological advance.
The aid intensity for each beneficiary may cover 100 % of eligible costs for fundamental research and shall not exceed 80 % of eligible costs for industrial research and experimental development.
The aid intensity for industrial research and experimental development may be increased by 15 percentage points, if more than one member state supports the research project, or it is carried out in cross-border collaboration with research organisations or other undertakings.
Aid under this measure may be combined with support from other sources for the same eligible costs, provided the combined aid does not exceed the ceilings defined above.
The aid beneficiary shall commit to grant non-exclusive licences under non-discriminatory market conditions to third parties in the EEA.
Aid may not be granted to undertakings that were already in difficulty (within the meaning of the General Block Exemption Regulation) on 31 December 2019.

Investment aid for testing and upscaling infrastructures

Beyond the existing possibilities based on Article 107(3)(c) of the TFEU, it is essential to support testing and upscaling infrastructures that contribute to develop COVID-19 relevant products. Therefore, the Commission will consider investment aid for the construction or upgrade of testing and upscaling infrastructures required to develop, test and upscale, up to first industrial deployment prior to mass production, COVID-19 relevant products (see below) compatible with the internal market provided the following conditions are met:

The aid is granted for the construction or upgrade of testing and upscaling infrastructures required to develop, test and upscale, up to first industrial deployment prior to mass production, COVID-19 relevant medicinal products.
The aid is granted in the form of direct grants, tax advantages or repayable advances by 31 December 2020.
For projects started as of 1 February 2020, the aid is deemed to have an incentive effect. For projects started before 1 February 2020, the aid is deemed to have an incentive effect, if the aid is necessary to accelerate or widen the scope of the project. In such cases, only the additional costs in relation to the acceleration efforts or the widened scope shall be eligible for aid.
The investment project shall be completed within six months after the date of granting the aid. An investment project is considered completed when it is accepted by the national authorities as completed. Where the six-month deadline is not met, per month of delay, 25% of the amount of aid awarded in form of direct grants or tax advantages shall be reimbursed, unless the delay is due to factors outside the control of the aid beneficiary. Where the deadline is respected, aid in the form of repayable advances is transformed into grants; if not, the repayable advance is reimbursed in equal annual instalments within five years after the date of granting the aid.
Eligible costs are the investment costs necessary for setting up the testing and upscaling infrastructures required to develop the products. The aid intensity shall not exceed 75 % of the eligible costs.
The maximum allowable aid intensity of the direct grant or tax advantage may be increased by an additional 15 percentage points, either if the investment is concluded within two months after the date of aid granting or date of application of the tax advantage, or if the support comes from more than one member state. If the aid is granted in form of a repayable advance, and the investment is completed within two months, or if the support comes from more than one member state, an additional 15 percentage points may be granted;
The aid under this measure shall not be combined with other investment aid for the same eligible costs,
A loss cover guarantee may be granted in addition to a direct grant, tax advantage or repayable advance, or as an independent aid measure. The loss cover guarantee is issued within one month after the undertaking applied for it; the amount of loss to be compensated is established five years after completion of the investment. The compensation amount is calculated as the difference between sum of investment costs, reasonable profit of 10 % p.a. on the investment cost over five years, and operating cost on the one hand, and the sum of the direct grant received, revenues over the five year period, and the terminal value of the project.
The price charged for the services provided by the testing and upscaling infrastructure shall correspond to the market price.
The testing and upscaling infrastructures shall be open to several users and be granted on a transparent and non-discriminatory basis. Undertakings, which have financed at least 10 % of the investment costs may be granted preferential access under more favourable conditions.
Aid may not be granted to undertakings that were already in difficulty (within the meaning of the General Block Exemption Regulation) on 31 December 2019.

Investment aid for the production of COVID-19 relevant products

Beyond the existing possibilities based on Article 107(3)(c) of the TFEU, it is essential to facilitate the production of COVID-19 relevant products. Relevant products for these purposes includde relevant medicinal products (including vaccines) and treatments, their intermediates, active pharmaceutical ingredients and raw materials; medical devices, hospital and medical equipment (including ventilators, protective clothing and equipment as well as diagnostic tools) and necessary raw materials; disinfectants and their intermediary products and raw chemical materials necessary for their production; data collection/processing tools.

The Commission will, therefore, consider investment aid for the production of COVID-19 relevant products compatible with the internal market provided the following conditions are met:

The investment aid is granted for the production of COVID-19 relevant products.
The aid is granted in the form of direct grants, tax advantages or repayable advances by 31 December 2020;
Eligible costs relate to all investment costs necessary for the production of the relevant and to the costs of trial runs of the new production facilities. The aid intensity shall not exceed 80% of the eligible costs.
The other conditions are the same as for investment aid for testing and upscaling infrastructures (above).

Aid in form of deferrals of tax and/or of social security contributions

Deferrals of payment of taxes and/or of social security contributions may be a valuable tool to reduce the liquidity constraints of undertakings (including self-employed individuals) and preserve employment. Where such deferrals are of a general application and do not favour certain undertakings, or the production of certain goods, they do not fall within the scope of Article 107(1) of the TFEU. If they are restricted for example to certain sectors, regions or types of undertakings, they involve aid within the meaning of Article 107(1).

The Commission will consider compatible with the internal market on the basis of Article 107(3)(b) TFEU aid schemes that consist in temporary deferrals of taxes or of social security contributions which apply to undertakings (including self-employed individuals) that are particularly affected by the COVID-19 outbreak, for example in specific sectors, regions or of a certain size.

This applies also to measures provided for in relation to fiscal and social security obligations intended to ease the liquidity constraints faced by the beneficiaries, included but not limited to the deferral of payments due in instalments, easier access to tax debt payment plans and of the granting of interest free periods, suspension of tax debt recovery, and expedited tax refunds. The aid shall be granted before 31 December 2020 and the end date for the deferral shall not be later than 31 December 2022.

Aid in form of wage subsidies for employees to avoid lay-offs during the COVID-19 outbreak

To preserve employment, member states may envisage contributing to the wage costs of undertakings (including self-employed individuals), which, due to the COVID-19 outbreak, would otherwise lay off personnel. If such support schemes apply to the whole economy, they fall outside the scope of EU state aid control. If they provide undertakings with a selective advantage, which can happen if they are restricted to certain sectors, regions or types of undertakings, they involve aid within the meaning of Article 107(1) of the TFEU.

If such measures constitute aid, the Commission will consider them compatible with the internal market on the basis of Article 107(3)(b) of the TFEU provided the following conditions are met:

The aid is aimed at avoiding lay-offs during the COVID-19 outbreak.
The aid is granted in the form of schemes to undertakings in specific sectors, regions or of a certain size that are particularly affected by the COVID-19 outbreak.
The wage subsidy is granted over a period of not more than twelve months after the application for aid, for employees that would otherwise have been laid off as a consequence of the suspension or reduction of business activities due to the COVID-19 outbreak, and subject to the condition that the benefitting personnel is maintained in continuous employment for the entire period for which the aid is granted.
The monthly wage subsidy shall not exceed 80% of the monthly gross salary (including employer’s social security contributions) of the benefitting personnel. member states may also notify, in particular in the interest of low wage categories, alternative calculation methods of the aid intensity, such as using the national wage average or minimum wage, provided the proportionality of the aid is maintained.
The wage subsidy may be combined with other generally available or selective employment support measures, provided the combined support does not lead to overcompensation of the wage costs of the personnel concerned. Wage subsidies may further be combined with tax deferrals and deferrals of social security payments.

Source

Commission Communication on Amendment to the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak (OJ 2020 CI122/1).

Informal consolidated version of Temporary Framework, as amended on 3 April

Commission press release IP/20/570 (as updated on 4 April 2020)

Commission web page on state aid rules and coronavirus

End of Document

Also Found In

State Aid

Resource ID w-024-8710

Published on 06-Apr-2020

Resource Type Legal update: archive

Jurisdiction

European Union