Extension of the Temporary Framework on state aid and COVID-19

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The Temporary Framework adopted by the European Commission in March 2020 is based on Article 107(3)(b) TFEU to remedy a serious disturbance across the EU economy. Only companies that encountered difficulties after 31 December 2019 are eligible for aid under this Temporary Framework. This ensures that it is not used for public support unrelated to the COVID-19 outbreak. Micro, small and start-up companies are not submitted to this condition.

The Temporary Framework, amended several times to extend its scope and its duration until June 2021, sets up various categories of aid that can be implemented by Member States:

  1. Schemes of direct grants, tax advantages, public loans and guarantees, etc. to companies to meet urgent liquidity needs;
  2. Subsidised State guarantees of maximum six years on new bank loans, in the form of subsidised premiums, based on a straight-forward table set up by the Commission according to the size of the beneficiairy (SME or large entreprises) and the maturity of the loan;
  3. Loans with subsidised interest rates, including subordinated loans of maximum six years: the interest rate of these loans must be equal to no less than the rates provided for in a straight-forward table set up by the Commission according to size;
  4. Recapitalisation measures under strict conditions of necessity, appropriateness and size of intervention, governance, remuneration, exit strategy, protection of competition, prohibition of cross-subsidisation and acquisition ban, etc.
  5. Selective schemes of temporary deferrals of taxes or of social security contributions as well as aid schemes in the form of wage subsidies granted to employees that would otherwise have been laid off due to the COVID-19 outbreak.
  6. Aid schemes in form of support for uncovered fixed costs covering maximum 70% of the uncovered fixed costs for companies having lost more than 30% of their turnover;
  7. Aid for the research, development and production of COVID-19 products;
  8. More flexible rules on Short-term export credit insurance.

All aid schemes provided for by the Temporary Framework have to be notified by the Member States to the European Commission prior to implementation.

The Commission has encouraged Member States to notify national framework aid schemes, especially when Member States delegate extensive competence in economic matters to their regions. Many Member States have implemented such umbrella aid schemes with various scopes.

Furthermore, Member States have put in place general measures such as wage subsidies and suspension of tax payments for all companies. These do not constitute State aid and need not be notified to the European Commission.

Finally, Member States may provide compensation to companies for damages suffered due to the COVID-19 outbreak. The European Commission suggests that Member States apply this solution to compensate airlines under Article 107(2)(b) TFEU for damages suffered due to the COVID-19 outbreak. It published on 18 March 2020 the list of information to be provided for by Member States for notifications of such aid.

On 1 February 2021, the European Commission published its 5th amendment to the Temporary Framework on state aid and COVID-19.

The main modifications are as follows:

  • Prolongation of the Temporary Framework until the end of 2021;
  • Some corrections and clarifications regarding the modalities of public loans, guarantees and recapitalisation measures (e.g. reference rate applicable, minimum rate for large enterprises, etc.)
  • Increase of the maximum threshold for the limited amounts of aid (i.e. category of aid in the Slovenian scheme): EUR 1.8 million per company, per country instead of EUR 800,000;
  • Increase of the aid scheme in form of support for uncovered fixed costs: maximum EUR 10 million instead of EUR 3 million, covering a maximum of 70% of the uncovered fixed costs between March 2020 and December 2021 for companies having lost more than 30% of their turnover.

The prolongation of the national schemes and umbrella schemes must be notified by each Member State.

Regarding the application of Article 107(2), b) TFEU relating to the compensation of the damage caused by exceptional occurrence, the Commission has restricted its interpretation in order to discourage Member States to opt for this legal ground that allows them to compensate the whole damage suffered by the companies in consequence of the pandemic. The Commission considers that it applies in cases of the complete cessation of an economic activity (e.g. closure of bars, restaurants or non-essential shops), or cessation in certain areas (e.g. restrictions of flights or other transport to or from certain points of origin or destination). The Commission also accepts the exclusion of certain highly material categories of clients (e.g. leisure travellers as far as it concerns hotels and school trips as far as it concerns dedicated youth accommodation) and restrictive measures capping attendance for specific sectors or activities (e.g. entertainment, trade fairs, sports events) at levels demonstrably and materially below those that would be dictated, in that specific setting, by generally applicable social distancing rules or rules on capacity in commercial spaces (e.g. because it does not appear sufficiently certain that protocols can be devised and successfully applied to ensure respect for the generally applicable measures in such settings).

Nevertheless, the Commission will not accept as a measure directly linked to the pandemic other restrictive measures (e.g. general social distancing measures or general sanitary constraints, including measures merely translating such general requirements in terms specific to the characteristics of certain sectors or types of venues).

Regarding the level of compensation, the Commission reminds that such aid must not lead to overcompensation and therefore only the damage resulting directly from the restrictive measures can be compensated and a rigorous quantification of such damage must take place. In practice, the Commission is very strict in the assessment of such aid in the context of a notification, especially if it concerns individual aid. In the case of the notification of an aid scheme, the obligation imposed on the beneficiary to reimburse any surcompensation via a claw-back clause tempers such strictness, but the risk of reimbursement lays on the company. Therefore, it is important to demonstrate that the aid compensates only for the damage directly caused by the measure, up to the level of profits, which could have been credibly generated by the beneficiary in the absence of the measure, for the part of its activity, which is curtailed.

Furthermore, the Commission draws the attention of the Member States to the fact that in view of the prolonged crisis, economic effects of declines in demand or in attendance due to lower aggregate demand or due to greater customer reluctance to gather in public places, transport means or other venues or due to generally applicable restrictions on capacity, social distancing measures, etc. cannot be taken into account in the calculation of damage attributable to the restrictive measure, which can be compensated under Article 107(2), b) TFEU.

CMS keeps you informed of the public measures adopted by Member States in order to support your business enterprises.

We refer you to the Guide published by CMS on public support measures put in place in 21 European countries in the context of the COVID-19 crisis.

CMS has the widest coverage and the broadest team of state-aid specialists in Europe. Furthermore, we have extensive experience in setting up aid schemes and in public interventions in favour of undertakings in difficulty.

Please contact your regular CMS partner or refer to our brochure for the CMS contact in your jurisdiction.