COVID-19 brings certain questions to centre stage regarding State aid. In this short read, Peter Wytinck, Sophie Van Besien and Michèle de Clerck discuss the possibility of State aid in case of significant financial losses as a result of the spread of the corona virus.
Pursuant to European State aid law, there are certainly situations in which the Belgian and regional government can offer aid to remedy a serious disturbance in the economy. Small “de minimis" aid will always be allowed. General aid measures that are available to all companies such as wage subsidies, the suspension of payments of corporate and value added taxes or social contributions, and direct financial support to consumers for cancelled services or tickets not reimbursed by the concerned operators, do not fall within the scope of State aid control and do not require the Commission's approval under EU State aid rules. For other types of aid above “de minimis" level (e.g., aid to meet acute liquidity needs and support companies facing bankruptcy due to the outbreak of the corona virus), prior approval of the European Commission may be necessary.
Specifically with regard to the corona virus, on 19 March 2020, the European Commission adopted, in record-breaking time, a Temporary Framework for COVID-19 State aid measures (“Temporary Framework”). The European Commission amended the Framework on 3 April 2020.
The (amended) Temporary Framework enables ten types of State aid:
- Aid in the form of direct grants, tax and payment advantages or other forms such as repayable advances, guarantees, loans and equity up to the nominal value of EUR 800.000 per company. This type of aid can be combined with “de minimis” aid (which implies that aid up to EUR 1 million can be given per company) and with other types of aid. The Belgian government already decided to grant compensation to the hotel and catering industry. Additional tax measures (delayed tax payments, etc.) are equally taken and also at regional level there are initiatives;
- Member States will be able to offer State guarantees or set up guarantee schemes supporting bank loans taken out by companies with subsidised premiums. The guarantees may relate to both investment and working capital loans, with limits on the maximum loan amount in specific circumstances. In addition, the guarantees cannot exceed 90% (where losses are sustained proportionally under the same conditions by the credit institution and the State) and 35% (where losses are first attributed to the State and only then to the credit institutions, i.e., a first-loss guarantee) respectively. The duration of the guarantee is limited to a maximum of six years, unless modulated. The Belgian government already adopted a guarantee scheme, which was approved by the European Commission on 11 April 2020;
- Member States can enable public loans to companies with subsidised interest rates. The loans may relate to both investment and working capital loans, with limits on the maximum loan amount;
- If Member States channel aid to the real economy via the banking sector, this does not constitute aid to banks but direct aid to the banks' customers. Safeguards are to be put in place to make sure that the aid is passed on, to the largest extent possible, to the final beneficiaries in the form of higher volumes of financing, riskier portfolios, lower collateral requirements, lower guarantee premiums or lower interest rates;
- The Temporary Framework allows for additional flexibility on how to demonstrate that certain countries are not-marketable risks, thereby enabling short-term export credit insurance to be provided by the State where needed;
- Subject to certain conditions, Member States can grant aid for COVID-19 and other antiviral relevant R&D. The aid can take the form of direct grants, repayable advances or tax advantages. A bonus in the form of 15 percentage points may be granted for cross-border cooperation projects between Member States;
- Member States will be able to grant aid for the construction or upgrade of testing and upscaling infrastructures, until first industrial deployment before mass production of COVID-19 relevant products such as vaccines, medical equipment or devices, protective material and disinfectant. The aid can take the form of direct grants, repayable advances or tax advantages. A bonus in the form of 15 percentage points may be granted upon completion of the investment within 2 months, or if the support comes from more than one Member State;
- Member States can, upon fulfilment of certain conditions, grant aid in the form of direct grants, tax advantages, repayable advances and no-loss guarantees to support investments enabling the rapid production of COVID-19 relevant products such as vaccines, medical equipment or devices, protective material and disinfectant. A bonus in the form of 15 percentage points may be granted upon completion of the investment within 2 months, or if the support comes from more than one Member State;
- Aid in the form of deferral of tax payments and/or suspensions of employers’ social security contributions for companies particularly affected by the COVID-19 outbreak, for example in specific sectors, regions or of a certain size. It also includes other initiatives in relation to fiscal and social security obligations intended to ease liquidity constraints, such as payment due in instalments, easier access to tax debt payment plans, granting of interest free periods, suspension of tax debt recovery, and expedited tax refunds. The end date of the deferral cannot fall beyond 31 December 2022;
- Finally, Member States can contribute to the wage costs of those companies in sectors or regions that have suffered most from the corona virus outbreak, and would otherwise have had to lay off personnel. Wage subsidies cannot exceed 80% of the benefitting personnel’s monthly gross salary. Under certain circumstances, it is possible to combine this aid with other measures.
The State aid offered within the scope of this Temporary Framework - with the exception of selective deferrals of tax payments and social security distributions (9) and wage subsidies (10) - will only be available for companies that were not in difficulty on 31 December 2019, but entered into difficulty thereafter due to the outbreak of the corona virus.
It is important to note that under the Temporary Framework Member States still will first have to adopt generally applicable “schemes" and notify them to the Commission. The Commission then has to examine the compatibility of the proposed schemes with the Temporary Framework. Once the “national scheme" has received the Commission's approval, Member States can grant individual aid immediately without the Commission's approval. The European Commission has already approved over 40 “national schemes” under the Temporary Framework, including the Belgian loan guarantee scheme.
More about the coronavirus
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This article provides some general insights on different legal questions. These insights do not constitute legal advice and may not be relied upon as if they were legal advice. The outcome of any legal analysis will strongly depend both on the specific facts and circumstances of each case and on the particularities of the sector and legal relationship involved. Our legal experts in the various domains concerned are available to assist you with the analysis of your questions and provide specific advice tailored to your case and circumstances.