GERMANY | EU LAW | State Aid in the Corona Crisis
The measures taken by the EU Member States to support their economies in the wake of the corona pandemic fall under the EU aid regime insofar as the support actions constitute aid within the meaning of Article 107 (1) of the Treaty on the Functioning of the European Union (TFEU). It covers all state measures that selectively confer economic advantages on certain undertakings, groups of undertakings or sectors of the economy, thereby distorting competition between undertakings and trade within the single market. These advantages may be of differing nature. They may take the form of grants, guarantees, tax benefits or loans. The TFEU provides in principle for a ban on state aid. EU state aid control ensures that fragmentation of the EU single market and harmful subsidy races are avoided and fair conditions of competition prevail.
The body granting the aid1 may now consider the following options:
The structuring of the support measure without aid element according to Article 107 (1) TFEU (see under 1), the use of the exceptional circumstances (see under 2) or the notification and approval by the European Commission. For the latter, a “Temporary framework” has recently been created which accelerates and simplifies the approval of a large number of aid measures by state authorities (see under 3). On 30 March the Commission published a proposal to extend the framework by five additional measures.
For applicants, the nature of the support has significant implications in terms of rapid and smooth payment.
1. Support without an aid element under Article 107 (1) TFEU – “no-aid measure“
The concept of aid under Article 107 (1) TFEU has four cumulative prerequisites. They are measures granted by the state or through state resources which selectively favour certain undertakings or sectors of production and thereby distort or threaten to distort competition and affect trade between member states. If one of these elements is removed, the measure does not fall under the state aid regime pursuant to the TFEU.
Financial support from EU or national funds for public health services or other public services to address the COVID-19 situation, based on the principle of solidarity, is not subject to state aid control. The same applies to any public financial support granted directly to citizens. State support measures which are available to all companies and which do not involve a selective advantage, such as wage subsidies and the deferral of corporate and VAT taxes or social contributions, are not subject to state aid control and therefore do not require Commis-sion approval under EU state aid rules. In all these cases, member state authorities can act immediately.
On 13 March 2020, the Commission has published a Communication on a coordinated economic response to the COVID 19 pandemic’ which explains the different options. For example, member states may introduce generally applicable adjustments in favour of companies (e.g. tax deferrals or subsidies for short-time work in all sectors of the economy) which are not covered by the state aid rules. They can also compensate companies for losses incurred as a result of the outbreak of coronavirus.
2. Exceptions to the formal notification of aid
However, if the elements of aid according to Article 107 (1) TFEU are fulfilled, it has to be examined whether the measure can be covered by an exemption from the otherwise formal notification requirement under Article 108 (3) TFEU.
European law provides for a number of exceptions. For instance, the general Block Exemption Regulation (“AGVO”) exempts aid from the formal notification procedure under certain circumstances. Only the granting of aid must be notified electronically.
The Commission has also introduced de minimis rules to reduce administrative burdens. For aid within the scope of application that does not exceed a certain maximum amount, Article 107 (1) TFEU is not applied under certain conditions due to the lack of an appreciable effect on competition and trade between member states. Subsidies to a company below certain thresholds resulting from the de minimis-Regulation (generally EUR 200,000 over a period of three fiscal years), which can be paid to almost all companies for various purposes, do thus not qualify as aid within the meaning of Article 107 (1) TFEU, are referred to as “de minimis aid” (strictly speaking, these are fictitious no-aid measures) and are exempt from notification. Again, there are exceptions to this rule. For instance, export-related activities are not covered by the de minimis rule. Special de minimis regulations and thresholds exist in the area of agriculture and fisheries. In the area of services of general economic interest (within the meaning of Article 106 (2) TFEU) the thresholds are increased to EUR 500,000.
3. Notification and temporary framework
If measures are considered which fulfil all the characteristics of aid under Article 107 (1) TFEU and, moreover, are not covered by any exemption, the European Commission may authorise such aid provided that it is compatible with the single market. Support measures in the field of regional development, energy and environmental policy or research may be approved under certain conditions. Aid must be notified to the Commission under Article 108 (3) TFEU. It may be declared by the Commission to be compatible with the single market if one of the conditions laid down in Article 107 (3) TFEU is fulfilled. The Commission has a wide discretion in this regard. Aid, on the other hand, is necessarily considered compatible with the single market if one of the categories under Article 107 (2) TFEU is fulfilled.
In the case of individual aid, the existence of these characteristics must be assessed in relation to a specific measure; in the case of an aid scheme, the Commission may confine itself to demonstrating that its general characteristics fulfil the conditions of an aid. It is therefore not necessary to assess each individual case of application. Nevertheless, approval takes several months, sometimes more than a year, from the date of notification.
The temporary aid framework which has now been adopted makes an exception to this rule and makes use of the approval criteria provided for in Article 107 (3) (b) TFEU and Article 107 (2) (b) TFEU, which are of little practical relevance under normal circumstances and are now subject to an accelerated assessment.
Article 107 (2) lit. b TFEU provides that “aids compensating for damage caused by natural disasters or exceptional occurrences” are compatible with the single market. On this basis, member states can support losses in sectors that have been particularly hard hit by the crisis (e.g. transport, tourism, culture and retail).
Article 107 (3) lit. b TFEU 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 single market. The temporary framework specifies the catalogue of measures:
3.1 Temporary framework of aid
To support the EU economy in the face of the COVID-19 outbreak, the Commission has adopted a temporary framework which allows Member States to make full use of the room for manoeuvre provided for in the current EU State aid rules and to take additional support measures. Notifications of aid schemes will be assessed much more quickly. The Commission authorises state aid cases seven days a week.
This temporary framework provides for five types of aid that can be granted by member states:
- Direct subsidies, repayable advances or selective tax advantages to cover urgent liquidity needs up to EUR 800,000
- State guarantees for bank loans to companies so that banks can continue to provide loans to corporate customers with liquidity needs
- Loans at preferential interest rates
- Commitments to banks that pass on state aid to the real economy: Some member states plan to support companies – especially small and medium-sized enterprises – through the existing lending capacity of banks. In the temporary framework, it is clarified that such support measures are considered as direct aid to bank customers and not to the banks themselves and it explains how any distortion of competition be-tween banks can be minimised.
- Short-term export credit insurance: The framework makes it easier for member states to demonstrate that certain countries cannot be regarded as countries with marketa-ble risks, so that the state can offer short-term export credit insurance if necessary. The Commission has already made use of the additional option of temporarily remov-ing countries from the list of “countries with marketable risks” (cf. Communication of the Commission of 27 March 2020, (2012/C 392/01)). This will allow member states to respond to the decreasing availability of private insurance capacity for exports in the current corona crisis by offering short-term export credit insurance from the state.
The temporary framework is valid until the end of December 2020 and complements the above-mentioned possibilities for member states to mitigate the socio-economic impact of the coronavirus outbreak in accordance with EU state aid rules. To ensure legal certainty, the Commission will assess before the end of this period whether an extension is necessary.
3.2 Extension of the temporary framework in preparation (as of 1 April 2020)
On 27 March the European Commission forwarded to the member states a draft proposal to extend the temporary economic support framework adopted on 19 March 2020. The Commission aims to bring the amended temporary framework into force this week.
The Commission proposes five further measures: Support for coronavirus-related research and development, for the construction and expansion of test facilities, for the manufacture of products to prevent the spread of coronavirus (vaccines, medical supplies, protective material), targeted tax deferrals and/or deferrals of employers’ social security contributions, and targeted support for workers in the form of wage subsidies.