EU adopts temporary State aid rules for the COVID-19 outbreak

With a view to containing the effects of the COVID-19 pandemic on the EU economy, the European Commission adopted temporary State aid measures (the “Temporary Framework”), to increase the flexibility of Member states in supporting their national economies.

This is not an unprecedented step, as the Commission had adopted a Temporary Framework in 2008, in response to the global financial crisis.

The Temporary Framework is complementary to existing State aid rules and comprises 5 types of aid:

1. Direct grants, repayable advances and tax advantages

This type of aid relates to temporary amounts of aid to businesses that find themselves facing a sudden shortage or even unavailability of liquidity can be an appropriate, necessary and targeted solution.

Save for the agricultural, fisheries and aquacultural sectors, for which different provisions apply, the following conditions apply to this type of aid:

  • it must not exceed €800,000 for each undertaking, in the form of direct grants, repayable advancements, tax or payment advancements (in gross, before any tax and other deductions);
  • it will be provided in the context of a scheme with an underlying estimated budget;
  • it will be granted to a business that faced difficulties as a result of the COVID-19 outbreak;
  • it will be granted by 31 December 2020.

2. Guarantees on loans

This type of State aid is in the form of state guarantees on loans for SMEs and large enterprises will be possible and can be granted by 31 December 2020, for a maximum of 6 years.  Such guarantees can cover both investment and working capital loans.

State guarantees on loans shall not exceed:

  • 90% of the loan principal, where losses are sustained proportionally and under same conditions, by the credit institution and the state; or
  • 35% of the loan principal, where losses are first attributed to the state and only then to the credit institutions; and
  • the guaranteed amount will decrease proportionately to the decrease of the principal oan amount.

For loans with a maturity beyond 31 December 2020, the loan principal amount should not exceed:

  • the double of the annual wage bill of the beneficiary undertaking for the last year available; or
  • 25% of total turnover of the beneficiary in 2019; or
  • The amount covering the liquidity needs of the beneficiary for the coming 18 months for SMEs and the coming 12 months for large enterprises (with appropriate justification and based on a self-certification by the beneficiary of its liquidity needs).

Further deviations from the above possible under circumstances.

3. Subsidised interest rates for loans

As with the guarantees on loans, this type of aid aims at ensuring access to liquidity to undertakings facing a sudden shortage. It relates to the state subsidising interest rates for a limited period and loan amount become permissible under the temporary State aid rules. This type of aid cannot be cumulated with aid under 2 above for the same loan amount.

The loans shall be concluded by 31 December 2020 and have a maximum duration of 6 years. For loans with a maturity beyond 31 December 2020, the loan principal amount should not exceed:

  • the double of the annual wage bill of the beneficiary undertaking for the last year available; or
  • 25% of total turnover of the beneficiary in 2019; or
  • The amount covering the liquidity needs of the beneficiary for the coming 18 months for SMEs and the coming 12 months for large enterprises (with appropriate justification and based on a self-certification by the beneficiary of its liquidity needs).

Further deviations from the above possible under circumstances.

4. Guarantees and loans channelled through credit institutions

State aid can also take the form of guarantees and reduced interest rates to suitable businesses through credit and financial institutions.

While such aid is directly targeting undertakings facing a sudden liquidity shortage and not credit institutions, it may also constitute an indirect advantage to the credit institutions. Nevertheless, the Commission’s view is that such indirect aid does not have the objective to preserve or restore the viability, liquidity or solvency of the credit institutions and should not be qualified as extraordinary public financial support, nor should it be assessed under the State aid rules applicable to the banking sector.

5. Short-term export credit insurance

Credit insurance for a short period may be provided by the state where marketable risks cannot be covered by export credit insurance.

The Temporary Framework entered into force on 19 March 2020 and will apply until 31 December (but will be reviewed before then).

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