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COVID-19: New subsidy schemes for undertakings

The effects of COVID-19 imply a number of considerations for undertakings and public authorities, including the possibility of obtaining economic aid. Public subsidies may, however, be covered by the EU state aid rules, which should always be examined before public aid is granted in connection with COVID-19.
13 March 2020

The Danish Government has in the past days presented a number of measures to help Danish undertakings in connection with the outbreak of COVID-19, including:

  • A compensation scheme in connection with the cancellation of large events due to COVID-19 and
  • Guarantees for small and medium-sized companies (”SMEs”) and large companies.

In addition, the Government has in cooperation with, inter alia, DI, the Danish Chamber of Commerce and the Danish Trade Union Confederation set up the ”Government and Trade Corona Unit”, which is to discuss possible measures in connection with the undertakings’ challenges due to the outbreak of  COVID-19, including the challenges in the transport trade, tourism and the experience economy.

Several of the Government’s measures may be covered by the EU state aid rules, which require that the aid be notified to and approved by the European Commission before it can be granted, unless the aid is covered by specific exemptions. This also applies to any subsidy schemes from e.g. municipalities, which will initially also require notification to and approval by the European Commission.

The general state aid rules

Under article 107 TFEU, state aid exists if:

  • aid is granted
  • through state resources,
  • which distorts or threatens to distort competition,
  • by favouring certain undertakings or the production of certain goods, and
  • affects trade between Member States.

Public subsidies granted on market terms are not considered as state aid and must therefore not be notified to the European Commission. In addition, the European Commission has adopted a general block exemption regulation (GBER) and a De minimis rule according to which certain state aid measures may be exempted from notification.

Whether the conditions for state aid are fulfilled and the aid must thus be notified to the European Commission or is covered by the exemptions in this respect, must be based on a specific assessment of the individual subsidy schemes.

Compensation scheme for cancellation of large events due to COVID-19

On 12 March 2020, the European Commission approved the first compensation scheme in respect of COVID-19 in Denmark and in the EU.

The scheme covers state aid in the amount of EUR 12 million to organizers of events that are cancelled, changed significantly or postponed during the period from 6 to 31 March 2020 due to the Government’s request for cancelling events with more than 1,000 participants and events with more than 500 participants that are targeted at specific COVID-19 risk groups, such as elderly people and people with ill health.

The European Commission has approved this subsidy scheme under Article 107(2), letter b, TFEU, which covers”aid to make good the damage caused by natural disasters or exceptional occurrences”.

The European Commission assessed that COVID-19 is an exceptional occurrence with significant economic effects and that the state aid was directly associated with the damage caused by COVID-19.

The European Commission also assessed that the specific scheme is proportional, as it does not go beyond what is necessary in order to limit the economic effects. Thus, the scheme is in compliance with the EU state aid rules and can therefore be granted.

The European Commission’s press release on the approval is available here.

Guarantees for SMEs and large companies

The guarantee scheme for SMEs includes a state guarantee of 70% of the banks’ new lending to otherwise sound SMEs that can document an operating loss of more than 50% due to COVID-19.

According to the Government, the scheme implies state aid and will thus be subject to the approval of the European Commission.

The guarantee scheme for large companies covers 70% of the banks’ lending to large companies that can document a loss of revenue exceeding 50% due to COVID-19. The scheme for large companies must granted on market terms and will therefore most likely not be subject to the EU state aid rules.

The effects of receiving illegal state aid

The consequences for undertakings of receiving direct or indirect aid that is not subject to a compensation scheme approved by the European Commission may be extensive, as the undertakings risk having to repay the entire compensation amount with interest.

In addition, undertakings may risk having to pay interest if the compensation is approved after the undertaking having received the compensation. Therefore, it is crucial that undertakings and public authorities consider the state aid rules before granting public subsidies in connection with COVID-19.

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