COVID-19 and State Aid. Coronavirus: European Commission Upholds Danish State Aid Scheme for Cancellations

Introduction

On 13 March 2020, the European Commission found as being compatible with EU state law a €12m/DKK 91m scheme operated by Denmark to compensate organisers of events for loss or damage caused by cancellations of large public events due to the COVID-19/Coronavirus outbreak.

This was the first and, at the time, the only State aid measure notified by an EU Member State to the Commission in relation to the COVID-19 outbreak.

The Commission stated that the scheme was to compensate organisers of events with either:

(a) more than 1,000 participants; or

(b) targeted at designated risk groups, such as the elderly or vulnerable people, irrespective of the number of participants

which had to be cancelled or postponed due to the COVID-19 outbreak.

Under the scheme, operators would be entitled to be compensated by Denmark for the losses suffered as a consequence of the cancellation or postponement of events, for which, for example, tickets were already sold.

Approval of the Scheme

Remarkably, the Commission approved the scheme within 24 hours of receiving the notification from Denmark. This is in contrast with the normal timeline for approval of State aid which can be months or longer. This rapid turnaround is more like the approach of the Commission during the financial crisis. It also shows how the Commission can be admirably flexible and responsive to developments.

The Commission has stated that it: "stands ready to work with all Member States to ensure that possible national support measures to tackle the outbreak of the COVID-19 virus can be put in place in a timely manner, in line with EU rules. To this end, the Commission has established a dedicated contact point for Member States to provide them with guidance on possibilities under EU rules."

Legal Basis of the Approval

The legal basis for the Commission's decision was article 107(2)(b) of the Treaty on the Functioning of the European Union ("TFEU"). Article 107(2)(b) provides that "aid to make good the damage caused by natural disasters or exceptional occurrences" are automatically "compatible with the internal market".  So in contrast to most forms of aid which require Commission approval, certain limited forms of State aid are automatically lawful and this is one of them.

COVID-19 and State Aid Generally

The Commission said that it considers that the COVID-19 outbreak qualifies as an exceptional occurrence, as it is an extraordinary, unforeseeable event having a significant economic impact. As a result, exceptional interventions by the Member States to compensate for the damages linked to the outbreak are justified. This gives some leeway for Member States to provide aid to deal with State aid. However, it does not give Member States complete freedom because any aid provided by that State must be fully compatible with the State aid rules. This means that the aid must be proportionate, directly linked and necessary to make good the damage. There must be no over-compensation of beneficiaries.

The Commission used the case to make an important statement of general application: "financial support from EU or national funds granted to health services or other public services to tackle the COVID-19 situation falls outside the scope of State aid control. The same applies to any public financial support given directly to citizens."

More generally, the Commission said:

"When State aid rules are applicable, Member States can design ample aid measures to support specific companies or sectors suffering from the consequences of the COVID-19 outbreak in line with the existing EU State aid framework. In this respect, for example:

Public support measures that are available to all companies such as for example the extension of payment deadlines for corporate tax do not fall under State aid control, as they do not provide a selective advantage to specific companies vis-à-vis others in comparable situations. These measures can be implemented by Member States without the need of the Commission's approval under EU State aid rules.

EU State aid rules and more specifically the Rescue Aid and Restructuring Guidelines, which are based on article 107(3)(c) TFEU, enable Member States to help companies cope with liquidity shortages and needing urgent rescue aid. In this context, Member States can, for example, put in place dedicated support schemes for Small and Medium Enterprises (SMEs) including to cover their liquidity needs for a period of up to 18 months. Some Member States already have these type of schemes in place. For example, in February 2019, the Commission approved a €400m support scheme in Ireland to cover acute liquidity and rescue and restructuring needs of SMEs as a Brexit preparedness measure.

Article 107(2)(b) TFEU enables Member States to compensate companies for the damages directly caused by natural disasters and exceptional occurrences.

In case of particularly severe economic situations, such as the one currently faced by Italy, EU State aid rules allow Member States to grant support to remedy a serious disturbance to their economy. This is foreseen under article 107(3)(b) TFEU."

Conclusion

This is an important decision. It sets the approach to be taken by the Commission in dealing with State aid being granted by EU Member States to deal with COVID-19. 

The Commission has recognised COVID-19 as being covered by Article 107(2)(b) of the TFEU. This means that COVID-19 aid can constitute "aid to make good the damage caused by natural disasters or exceptional occurrences" which means that it is automatically valid.

The case demonstrates how the Commission can adopt a flexible and practical approach to difficult issues. It also demonstrates that Governments in the EU Member States have flexibility to provide aid to those affected by the COVID-19 crisis. This is the first, but will not be the last, case of COVID-19-related aid. But the signs are that the Commission are going to be flexible and practical in its approach to the topic.

For more information on this topic please contact Dr Vincent Power, Partner or any member of A&L Goodbody's State Aid team.

Date published: 16 March 2020