On 19 March 2020, the European Commission adopted a Temporary Framework for State aid measures to enable EU Member States to support the economy during the current COVID-19 outbreak. The aim is to lay down a framework that allows EU Member States to tackle the difficulties undertakings are currently encountering whilst maintaining the integrity of the internal market in EU and ensuring a level playing field. This newsletter provides a brief overview.
Governments all over the world attempt to handle the effects of the COVID-19 outbreak on the economy. The European Commission has issued a communication with a Temporary Framework for State aid measures to enable EU Member States to support the economy in the current COVID-19 outbreak. The communication sets out the possibilities EU Member States have under EU State aid rules to ensure liquidity and access to finance for undertakings of all types that face a sudden shortage. This allows undertakings to recover from the current situation and to preserve the continuity of economic activity during and after the COVID-19 outbreak. At the same time, a level playing field within the EU is preserved.
Under Article 107 of the EU Treaty, State aid consists of aid granted by an EU Member State or through State resources which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods and which affects trade between EU Member States.
State aid can generally only be implemented after approval by the European Commission which is in charge of ensuring that State aid complies with EU rules.
The European Commission may approve State aid that is considered compatible with the internal market.
For example, Article 107(3)(b) of the Treaty provides that “aid to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State” may be considered compatible with the internal market.
The Temporary Framework sets out temporary State aid measures that the European Commission considers compatible under Article 107(3)(b) TFEU, and which – according to the communication – can be approved very rapidly upon notification to the European Commission by the Member State concerned.
Other options for EU Member States include:
According to the Temporary Framework, the European Commission considers that State aid is justified and can be declared compatible with the internal market on the basis of Article 107(3)(b), 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 small and medium enterprises. This is because the COVID-19 outbreak affects all Member States and the containment measures taken by Member States impact undertakings.
The Temporary Framework sets out the compatibility conditions the European Commission will generally apply to aid granted by EU Member States under Article 107(3)(b) until 31 December 2020.
Member States wishing to grant aid under the Temporary Framework must show that the State aid measures notified to the European Commission are necessary, appropriate and proportionate to remedy a serious disturbance in the economy of the Member State concerned and that all the conditions of the European Commission communication regarding the relevant State aid measure are fulfilled.
The Temporary Framework lists the following possible temporary State aid measures:
Different conditions apply for the different State aid measures mentioned in the European Commission communication.
Undertakings that may receive State aid are encouraged to seek legal advice since the consequences of receiving illegal State aid, i.e. State aid that has not been notified to and approved by the European Commission, can be severe.
In case of illegal State aid, which is subsequently approved by the European Commission, market interests may have to be paid for the period in which the aid was unlawfully implemented.
In case of illegal State aid, which is not subsequently approved by the European Commission, the full amount may have to be repaid with interests.