COVID-19: EU amend State aid rules to permit more assistance to business including tax deferrals

  • On 19 March 2020, EU adopted a temporary framework to permit five forms of State aid
  • On 3 April 2020, EU extends framework to cover five additional forms of State aid
  • EU Member States may be able to:
    • Defer collection of tax
    • Subsidise employees' wages
    • Support coronavirus R&D
    • Support testing facilities
    • Support production of coronavirus-related products
  • This means that EU governments may support businesses in these additional five ways

Temporary Framework of 19 March 2020 amended and extended on 3 April 2020

The speed of developments in regard to the COVID-19 crisis is typified by the fact that the European Commission's State Aid Temporary Framework to support the economy (the "Temporary Framework") which was adopted on 19 March 2020 had to be amended and extended on 3 April 2020.

Five new types of State aid

The Temporary Framework already covered five types of State aid. The amendment extended the Temporary Framework to cover another five types of State aid:

  • the provision of targeted support in the form of deferral of tax payments and/or suspensions of employers' social security contributions
  • the provision of targeted support in the form of wage subsidies for employees
  • support for coronavirus related research and development
  • the construction and upgrading of testing facilities for products relevant to tackle the coronavirus outbreak
  • the production of products relevant to tackle to coronavirus outbreak

It is useful to give a little more detail on each of the first five types of aid

  1. targeted support in the form of deferral of tax payments and/or suspensions of social security contributions: to further reduce the liquidity constraints on companies due to the coronavirus crisis and to preserve employment, Member States may grant targeted deferrals of payment of taxes and of social security contributions in those sectors, regions or for types of companies that are hit the hardest by the outbreak
  2. targeted support in the form of wage subsidies for employees: to help limit the impact of the coronavirus crisis on workers, Member States may contribute to the wage costs of those companies in sectors or regions that have suffered most from the coronavirus outbreak, and would otherwise have had to lay off personnel
  3. support for coronavirus related research and development (R&D): to address the current health crisis, Member State may grant aid in the form of direct grants, repayable advances or tax advantages for coronavirus and other relevant antiviral R&D. A bonus may be granted for cross-border cooperation projects between Member States
  4. support for the construction and upscaling of testing facilities: Member States may grant aid in the form of direct grants, tax advantages, repayable advances and no-loss guarantees to support investments enabling the construction or upscaling of infrastructures needed to develop and test products useful to tackle the coronavirus outbreak, up to first industrial deployment. These include medicinal products (including vaccines) and treatments; medical devices and equipment (including ventilators and protective clothing, as well as diagnostic tools); disinfectants; data collection and processing tools useful to fight the spread of the virus. To encourage cooperation and to support quick action, companies may benefit from a bonus when their investment is supported by more than one Member State and when the investment is concluded within two months after the granting of the aid
  5. support for the production of products relevant to tackle the coronavirus outbreak: Member States may grant aid in the form of direct grants, tax advantages, repayable advances and no-loss guarantees to support investments enabling the rapid production of coronavirus-relevant products (as listed under ii.). To encourage cooperation and to support quick action, companies may benefit from a bonus when their investment is supported by more than one Member State and when the investment is concluded within two months after the granting of the aid

Legal basis of the amended framework

The Temporary Framework is based on Article 107(3)(b) of the Treaty on the Functioning of the European Union. Article 107(3)(b) provides that aid to remedy a serious disturbance in the economy of a Member State "may" (not "shall" as in Article 107(2)) be considered to be compatible with the internal market (i.e., authorised by the Commission). This means that the Member State proposing to provide the assistance must notify it to the European Commission and then await the latter's approval before the assistance is provided. The European Commission would assess whether the proposed assistance meets the criteria for approval under EU law.

Duration of the Temporary Framework

The amended Temporary Framework will, like the original Framework, be in place until 31 December 2020. The Commission will assess the situation before then with a view to ensuring legal certainty and to see if it needs to be extended.

Analysis of the amendment framework

The Temporary Framework is not an exhaustive scope of possible State aid which may be provided by Member States. The Framework simply complements some possible forms of aid which Member States may grant.

The European Commission's Competition Commissioner, Margrethe Vestager, said that the "amendment to the Temporary Framework will further enable Member States to support companies that develop and manufacture much needed products to fight the coronavirus, such as vaccines, medicines, medical devices, disinfectants and protective equipment. We need to act in a coordinated manner. So additional support may be granted to cross-border projects between Member States and to timely delivery of products. In addition, we have extended the temporary framework to give Member States further possibilities to ease liquidity constraints faced by companies and save jobs in sectors and regions that are hit particularly hard by this crisis.”

The Commission has said that the amended Temporary Framework "expands on the existing types of support that Member States can give to companies in need. For example, it now enables Member States to give zero-interest loans, up to the nominal value of €800,000 per company, guarantees on loans covering 100% of the risk, or provide equity. This can be combined also with so-called de minimis aid (to bring the aid per company to up to €1m) and with other types of aid. It should be particularly useful to address urgent liquidity needs of small and medium-sized enterprises in a very speedy manner."

Given the dynamic nature of the crisis, further amendments are possible and even potentially likely. Indeed, the Commission signalled on 3 April 2020 that it is "continuously assessing if further measures are necessary to complement the toolbox for Member States to support their economy in these difficult times and help companies bounce back strongly after the crisis, including by further amending the Temporary Framework. In this context, the Commission is also analysing existing State rules, to verify consistency with the principles endorsed in the Temporary Framework for State aid measures to support the economy in the current coronavirus outbreak." 

The European Commission's willingness to act and to respond to the crisis is welcome and should help engender support for the EU. 

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

Date published: 6 April 2020