COVID-19 Legal Update: State aid aspects – 2nd UPDATE

9 April 2020 – need2know

For readers familiar with Christian’s first update, the text in blue shows where updates have been made to account for the 03.04.2020 amendments.

The European Commission extended its temporary COVID-19 aid framework on 03.04.2020. Our partner Christian F. Schneider provides an update on current EU state aid law aspects.

What role does EU state aid law play?

After the corona pandemic spread to the EU Member States, massive economic repercussions were quickly felt, whether as a result of disruptions in supply chains, delays in delivery due to border controls or sanitary measures requiring the closure of plants. Many EU Member States have launched support measures to mitigate these effects. In the case of Austria, the most important of these measures is the COVID-19 Act, Federal Law Gazette I 2020/12 of 15.03.2020, which, as a so-called “Article Act”, provides for the establishment of as COVID-19 crisis management fund and labour market policy measures, among other things; further measures are to follow.

However, it should be noted that such measures constitute State aid in so far as they confer an economic advantage on undertakings with an impact on the internal market. Such aid is generally prohibited under Art. 107 (1) of the Treaty on the Functioning of the European Union (TFEU) and is only permitted by way of exception; as a rule, such aid may only be granted after approval by the European Commission.

Nevertheless, the European Commission reacted quickly and approved a first aid measure of Denmark in the amount of EUR 12 million on 12.03.2020 to compensate for damage caused by the cancellation of major public events; the Commission approved the measure within one day (!) of the notification on the basis of Article 107 (2) lit b TFEU, according to which aid to make good the damage caused by natural disasters or other exceptional measures is compatible with the internal market.

However, in addition to the aforementioned Article 107 (2) lit b TFEU, other provisions of the TFEU may also form the basis for the admissibility of COVID-19 conditional aid measures. In particular, Art 107 (3) lit b TFEU, according to which, inter alia, aid to remedy a serious disturbance in the economy of a Member State may be considered compatible with the internal market. On the basis of this legal basis, Commission Vice-President Margarethe Vestager sent a Commission proposal for a temporary Union framework on aid measures to support the economy in connection with the COVID-19 pandemic to the Member States for consultation on 17 March 2020 and published it definitively on 19.03.2020. On 03.04.2020 the temporary framework was then amended and extended.

The essence of such a Union framework is that it provides the Commission with prior notification of the way in which it intends to exercise its discretion in approving aid granted by Member States in relation to COVID-19, but does not preclude the Commission from approving aid granted by Member States which does not comply with the Union framework.

What are the cornerstones of the Union framework?

The Union framework applies until 31.12.2020 and allows for the following specific actions:

  • Aid to meet urgent liquidity needs: These may be granted until 31.12.2020 under a general aid scheme – usually referred to as “Förderrichtlinie” in Austria – (i.e. not ad hoc as individual aid) with a maximum budget estimated in advance by the Member State as a direct grant, advance or tax or other payment relief of up to EUR 800,000 before tax per enterprise. Since the amendment on 04.03.2020, liquidity aid in the form of guarantees, loans and equity capital is also permitted. For agriculture, special criteria apply that differ in some cases, whereby mixed farms must keep separate accounts.
  • Aid in the form of State premium subsidies on guarantees for loans to finance both fixed and current assets: low minimum premiums for guarantees that increase with the duration of the loan are allowed (e.g. for SMEs, 25 basis points in year 1, basis points in years 2 and 3, in years 4 to 6; for non-SMEs, doubled values apply), whereby the guarantee must be issued by 31.12.2020 at the latest, the credit period must not exceed six years and there are restrictions on the amount of the loan or guarantee (e.g. maximum loan volume must be double the annual wage bill or 25% of turnover for 2019).
  • Aid in the form of interest subsidies on loans to finance both fixed and current assets: this measure is only allowed as an alternative to the premium subsidy referred to above, with a minimum interest rate equal to 1 year IBOR plus a risk premium linked to the duration of the loan (again different for SMEs and non-SMEs, the premiums applied are the same basis points as for guarantee premiums). The loan agreement must be signed by 31.12.2020 at the latest and may have a maximum term of 6 years; the same credit volume restrictions apply as for guarantees. Combining with the aid indicated in the previous bullet point is prohibited if it would result in the respective ceilings being exceeded.
  • As regards guarantee premium and interest rate subsidies, the Union guidelines make it clear that both measures may be granted by the State directly or through a bank, in the latter case there should be no aid to the bank, but that banks are encouraged to pass on the benefits of the measure to the beneficiaries to the maximum extent possible.
  • Short-term export credit insurance: This aid instrument has been simplified as of 04.03.2020 in such a way that until 31.12.2020 all economic and political risks associated with exports to the countries listed in the Annex to the Commission Communication on short-term export-credit insurance are considered temporarily non-marketable risks.

In addition, the following aid measures are newly covered by the Union guidelines since the 03.04.2020 amendments:

  • Aid for research and development concerning COVID-19: Direct or repayable grants or tax advantages granted until 31.12.2020 are permissible, whereby the so-called “incentive effect” is irrefutably presumed if the project is started after 01.02.2020. All costs are eligible, with basic research eligible at 100% and industrial research and experimental development at 80% (+ 15% bonus in the case of support from more than one Member State or cross-border cooperation). The aid recipient must grant non-exclusive licenses to undertakings in the EEA on non-discriminatory market conditions.
  • Investment aid for the production of COVID-19 related products: Such products include pharmaceuticals such as vaccines, therapies, intermediate products, active pharmaceutical ingredients and raw materials, medical devices, hospital and medical equipment and the raw materials required for these, disinfectants (including intermediate products and raw materials), as well as instruments for data collection or processing. Direct subsidies, tax advantages or repayable advances to be granted until 31.12.2020 are permissible. The investment project must be completed within six months of the date on which the aid is granted and up to 75% of the eligible costs may be subsidised (+ 15% bonus if the project is completed within two months or in the case of projects subsidised by more than one Member State; if the six-month period is exceeded, 25% must be repaid), whereby the so-called “incentive effect” is again irrefutably presumed if the project is started after 01.02.2020. Furthermore, the additional granting of a loss compensation guarantee is permissible after 5 years. Combining with other investment aid is not permitted.
  • Investment aid for testing and scaling infrastructure: This refers to facilities required to develop, test or scale up the products mentioned in the previous bullets for first commercial use before mass production. The eligibility conditions are the same as under the previous bullet point, but in addition, the supported facilities must provide their services at market price and grant access to multiple users in a transparent and non-discriminatory manner (however, preferential access for companies that have borne at least 10% of the investment costs is allowed).
  • Aid in the form of deferrals of taxes and social security contributions: The criteria by which the Commission will assess such aid remain vague. The only certainty is that the deferral must be granted by 31.12.2020 and may not extend beyond 31.12.2022.
  • Aid in the form of wage subsidies for workers to prevent redundancies during the COVID-19 outbreak: Such wage subsidies may be granted under an aid scheme until 31.12.2020, with the aid being capped in principle at a maximum of 80% of gross wages plus non-wage labour costs. However, there is no 80% cap if – like the Austrian COVID-19 short-time work model – wage subsidies are not granted selectively to individual companies but to all companies and sectors.

The aid referred to in the first three bullet points of the 3.4.2020 supplement should not be combined where it concerns the same costs.

Where Member States grant aid under Article 107(2)(b) TFEU (see above) to undertakings in difficulty as a result of the COVID-19 crisis, the ‘one time, last time’ principle applicable to aid to undertakings in difficulty should not apply because the aid is not aid to undertakings in difficulty as such.

It is also important to note that Member States may only grant the measures mentioned (except for export credit insurance, tax and social security contribution deferral and wage subsidies) in favour of companies that were not already in financial difficulty on 31 December 2019.

Addition as of 03.04.2020:

What’s the procedure?

The character of the so-called “Union Framework” inevitably means that the aid measures listed there may only be implemented by the Member States with the approval of the European Commission. However, since the Commission approved the aforementioned aid scheme in Denmark within one day (notification on 11.3.2020, approval on 12.3.2020), it can be assumed that the Commission will proceed with similar speed in other cases as well. For example, the Commission approved a French aid scheme within 48 hours on the basis of the new Union framework.

How does the Commission proposal relate to other aid measures?

The Commission proposal does not, however, rule out the possibility that Member States may use other, already known, admissible aid instruments instead or in addition to this.

The Commission has also recently published a checklist for Member States that intend to grant aid under Article 107(2)(b) TFEU to make good damage caused by exceptional measures, in order to allow for a speedy processing.


Author: RA Associate Professor DDr. Christian F. Schneider

Questions? Please contact us:
RA Associate Professor DDr. Christian F. Schneider

Practice Group
Public commercial law

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