Coronavirus disease 2019 (COVID-19) is hurting the world’s economy, through severe disruption of financial markets, supply chains and work forces.
In the EU, member states to varying degrees are contemplating measures to support companies hardest hit by the impact of the virus on the economy, including government loans, tax credits or deferral of tax payments. However, they fear that EU state aid rules might stand in their way.
The general rule under EU state aid rules is that new aid to individual companies or sectors through state resources in any form requires the prior approval of the European Commission for it to be implemented. However, there are a number of exceptions to this general rule. One of these exceptions applies to “aid to make good the damage caused by natural disasters or exceptional occurrences” (Article 107(2)(d) of the Treaty on the Functioning of the EU).
So far, the European Commission has interpreted “natural disaster” to include earthquakes, floods, tornadoes, avalanches, landslides and rockslides; and “exceptional circumstances” to include wars, internal disturbances or strikes, nuclear disasters and wild fires. The perennial problem of “acqua alta” affecting Venice does not qualify, nor does a dramatic rise in fuel prices. Outbreaks of animal diseases or plant pests are also not considered to qualify.
However, the European Commission’s President, Ursula von der Leyen, has now announced that the Commission is exploring ways of extending the interpretation of “exceptional circumstances” to include the economic impact of COVID-19. In particular, the Financial Times reported that “EU officials are drafting recommendations for a menu of targeted options that member states could use to support sectors hardest hit by the coronavirus.”
Pending additional guidance coming from Brussels in the near future, the following bullet points provide a summary of the way in which “COVID-19 state aid” may be assessed under the current rules:
- Aid below certain de minimis thresholds (e.g. €200,000 over a three-year period) can be granted without notification to, and approval by, the European Commission, subject to the provisions of the general De Minimis Regulation.
- Above the de minimis thresholds, COVID-19 state aid may be granted without notification to, and approval by, the Commission, provided that it complies with the substantive and procedural requirements of Article 50 of the General Block Exemption Regulation (GBER).
- COVID-19 state aid that is not de minimis and is not exempted under the GBER may be approved either individually or by an ex ante aid scheme by the Commission.
It is probable that member states will ask the Commission to adopt an ex ante approach setting out how COVID-19 state aid may be granted without the need of prior notification and approval by the Commission. In the meantime, the Commission has recently demonstrated to be ready to approve COVID-19 state aid individually and in record time on a case by case basis. For example, the Commission approved a EUR 12 million Danish aid scheme to compensate organizers for the damage due to the cancellation of large events, within just 24 hours of receiving the notification from Denmark. The European Commission Vice President Margrethe Vestager, in charge of competition policy, said: “With the scheme, Denmark will compensate the organizers of events cancelled due to the Covid-19 outbreak for the losses suffered. This is the first State aid measure notified to us by a Member State in relation to the Covid-19 outbreak. We stand ready to work with all Member States to ensure that possible national support measures to tackle the outbreak of the virus can be put in place as quickly and effectively as possible, in line with EU rules.”
This development is also relevant for aid schemes granted in the UK, which will continue to be subject to EU State aid rules during the Transition Period until the end of the year.
Companies in need of financial relief should seek advice, either individually or through their trade associations, on how to work with member states and the Commission to ensure that any possible measures can be put in place in a timely manner, in line with EU state aid rules.