Do the EU rules on State aid continue to apply, specially the need to obtain the European Commission’s prior authorization? 

Yes, the general rule of incompatibility with the EU internal market of aid granted by Member States (MS) through State resources which distorts or threatens to distort competition by granting advantages to certain undertakings (Article 107(1) of the Treaty on the Functioning of the EU (TFEU)) continues to apply. 
The granting of benefits falling within the concept of State aid therefore requires notification to, and prior authorization from, the European Commission (EC) to assess its compatibility with the internal market.
However, certain support measures may be granted by MSs because they are not "State aid" under Article 107 of the TFEU or because they fall within the exceptions already provided for in paragraphs 2 and 3 of this Article (see questions below).

As at the time of the financial crisis, the EC has drawn up a Temporary Framework for the granting of aid under the exception of Article 107(3)(b) of the TFEU on the need to remedy serious disturbances in the EU economy, having approved four packages of national measures under this framework up to this date (see questions below).

 

What support measures to undertakings can the State adopt without requiring the prior authorization of the European Commission?

State aid presupposes granting advantages to certain undertakings or certain production units through State resources (revenue reduction or expenditure increase).

As a rule, the State can adopt measures applicable to all undertakings and all sectors, which measures do not consequently fall within the concept of "State aid”. And if they do not fit the definition of aid, such measures must not be previously notified to and approved by the EC.
Examples of such measures are, on certain conditions, the alleviation of wage costs, the suspension of payments of corporate and value added tax or social contributions, as well as financial support granted directly to consumers (e.g. to compensate for the cancellation of services or the cost of tickets not reimbursed by the operators concerned).
MSs may continue to adopt measures under the De Minimis Regulation (Reg. (EU) 1407/2013, of 18.21.2013) or the Block Exemption Regulation (Reg. (EU) 651/2014, de 16.06.2014), which do not require EC prior approval.

 

What support measures to undertakings could the European Commission deem compatible with the internal market?

The EC clarified that it finds that the current framework already allows MSs to take measures subject to the Commission’s prior approval pursuant to Article 107(2)(b) of the TFEU, according to which aid to make good the damage caused by natural disasters or exceptional occurrences are compatible with the internal market.
The EC published on its website a list of the information and data that must be contained in the aid notifications granted under Article 107(2)(b) of the TFEU to cope with the COVID-19 outbreak.
For these measures, which require prior approval, the EC indicated that it is implementing all procedural measures necessary to ensure that these measures are evaluated and the relevant aid approved rapidly, and within a few days of notification.
The notified measures are published on the Commission's website, showing the support granted by the various MSs (sectors and type of aid), which gives an idea of the sectors in crisis and the solutions found to support them.

 

Is there a special State aid scheme to address the COVID-19 outbreak?

Yes. Recognizing that the main response to the pandemic will come  from MS budgets and that the EU economy as a whole is facing a severe disturbance, the EC approved on 19 March 2020 a Temporary Framework under Article 107(3)(b) of the TFEU. Due to the evolution of the pandemic, the Temporary Framework has been subject to several amendments.

The Temporary Framework, as amended, provides for several types of aid:

  • Direct grants, repayable advances or tax advantages, zero-rate loans, guarantees on loans covering 100% of the risk, or capital injections, of up to € 1,8 million per undertaking to address urgent liquidity requirements. Specific rules apply to the agriculture and fishery sectors, namely with regards to maximum amount of aid per company (respectively € 225.000 for primary production of agricultural goods and €270,000 for the fishery and aquaculture sector).
  • Subsidized guarantees on bank loans. MSs may grant State guarantees or set up guarantee schemes for bank loans taken out by undertakings. Some limits to the maximum amount of each loan are established based on the operational expenses of the undertakings, previous year turnover or liquidity needs. Guarantees are limited to a maximum duration of 6 years.
  • Subsidized interest rates subordinated debt. MSs may authorize the grant to businesses of public and private loans to undertakings with subsidized interest rates as well as loans in the form of subordinated debt (in relation to ordinary senior creditors). These loans must be granted at an interest rate at least equal to the base rate in force on 1 January 2020 plus the credit risk margin corresponding to the risk profile of the beneficiary, with different rates for SMEs and non-SMEs with an added surcharge in case of subordinated debt. There are limits to the maximum amount of each loan, based on the operational needs of the undertakings.
  • Safeguard of Banking sector. The Temporary Framework clarifies that, if MSs decide to channel aid to the real economy through banks, this will be considered a direct aid to the banks' customers benefiting from such aid and not to the banks themselves. Banks and financial intermediaries shall operate mechanisms to ensure that the advantages are passed on to the largest extent possible to the final beneficiaries in the form of higher volumes of financing, lower interest rates, lower collateral requirements or lower guarantee premiums.
  • Short-term export credit insurance. The Temporary Framework introduces additional flexibility to MSs on granting export credit insurance covering marketable risks. This is subject to demonstrating unavailability to cover such risks by private players. The fifth ammendment to the Temporary Framework further extended, until 31 December 2021, the temporary removal of all countries from the list of “marketable risk" countries under the Short-term export-credit insurance Communication.
  • Aid for coronavirus related Research and Development (R&D). As a response to the current sanitary crisis, MSs may grant direct grants, repayable advances or tax advantages for R&D activities. A bonus may be granted for cross-borders cooperation projects between MSs.
  • Aid for construction and upscaling of testing infrastructures. MSs may grant direct grants, tax advantages, repayable advances and no-loss guarantees to support investment aids for the construction or upscaling of the necessary infrastructures to develop and test relevant products to fight the virus outbreak, up to their first industrial deployment. This measure covers medicinal products (including vaccines) and treatments; medical devices and equipment (including ventilators and protective clothing as well as diagnostic tools); disinfectants; data collection/processing tools to fight the spread of the virus.
  • Aid for the production of relevant products to face the coronavirus outbreak. To promote the cooperation and facilitate a fast response, undertakings may benefit from a bonus when their investment is supported by more than one MS or when the project in question is completed within two months after the date of the aid granting.
  • Specific aid in the form of deferrals of tax and/or suspension of social security contributions. MSs may grant specific deferrals of tax and social security contributions to sectors, regions or types of undertakings that are particularly affected by the outbreak.
  • Specific aid in the form of wage subsidies for employees. MSs may contribute to wage costs of undertakings of certain sectors or regions, most affected by the outbreak, which, would otherwise lay off personnel.
  • Aid in the form of support for uncovered fixed costs. MSs may grant aid to undertakings that suffer a decline in turnover during the eligible period of at least 30% compared to the same period in 2019, due to the COVID-19 outbreak. The aid will be granted for a part of the fixed costs incurred by undertakings which are not covered by the profit contribution and the overall aid shall not exceed € 10 million per undertaking.

The second amendment to the Temporary Framework, has also allowed MSs to intervene on undertaking’s recapitalization measures, as a last resort in case of inadequacy of the above listed aid measures. Such measures may take the form of equity and/or hybrid capital instruments (convertible debt) but shall be subject to a stricter demonstration regarding the need, adequacy and proportionality of the aid.

In order to ensure the temporary nature of the State intervention and a sufficiently high remuneration for the assumed risk, incentives have been created for the buyback of the shares or the repayment by the undertakings (or their shareholders) through the specific conditions of remuneration, increased participation, conversion, and the State’s entry and exit from the equity of the undertakings. During the State’s intervention and as long as the aid measures have not been fully redeemed, beneficiaries cannot make dividend payments, nor increase remuneration or pay bonus to management officers, nor purchase more than 10% equity in competitive undertakings or other operators in the same area of business. In the following amendments to the Temporary Framework, the Commission has adapted the rules on recapitalization, as a way to encourage the participation of private investors in equity injections, together and under the same conditions as the State. Where private participation is at least 30% of the new equity injected, the duration of the ban on new shareholding acquisitions and the threshold on management remuneration is reduced. Furthermore, the dividend ban is lifted for the holders of both new and existing shares, provided that the holders of such existing shares are altogether diluted to below 10% in the company. On the other hand, the Commission has facilitated the exit of the State from the recapitalisation of the companies in cases where the State was already a shareholder prior the recapitalisation measure. This must be executed through an independent valuation, in order to restore the previous shareholding, whilst maintaining the safeguards to preserve effective competition in the Single Market.

The aids established under the Temporary Framework are aimed at undertakings that were not already in difficulty on 31 December 2019 but are now or will be facing difficulties as a result of the COVID-19 outbreak. The third amendment to the Temporary Framework on 29 June 2020, has however allowed to the eligibility of SMEs qualifying as undertakings in difficulty on 31 December 2019, given their important role in the market and the way they were particularly affected by the pandemic, and provided that they are not subject to collective insolvency procedure under national law and that they have not received rescue aid or restructuring aid.

With the objective of encouraging MSs to opt for repayable instruments as aid, the fifth amendment instruments of the Temporary Framework will also enable the conversion, until 31 December 2022, of repayable instruments (e.g. guarantees, loans, repayable advances) granted under the Temporary Framework into other forms of aid, such as direct grants, provided the conditions of the Temporary Framework, as well as the new maximum amounts of aid (referred to above) are met.

For more information, check the consolidated version of the Temporary Framework approved by the Commission here

 

How long will the Temporary Framework be in force?

The Temporary Framework which was initially set to be in force until the end of December 2020, and has been extended until 31 June 2021, with the exception of recapitalisation measures, which may be granted until 30 September 2021.

SMs are studying Currently a proposal for a further extension of the Temporary Framework until 31 December 2021.

Have other rules on State aid been amended?

In addition to the Temporary Framework, and considering the heavy impact of the pandemic, the Commission has chosen to extend a set of rules on State aid which would otherwise expire by the end of 2020, in order to ensure legal certainty.

The following measures have been extended until the end of 2021: (i) the Guidelines on regional State aid; (ii) the Guidelines on State aid to promote risk finance investments; (iii) the Guidelines on State aid for environmental protection and energy; (iv) the Communication on the Execution of Important Projects of Common European Interest; and (v) the Communication from the Commission on the application of Articles 107 and 108 of the TFEU to short-term export-credit insurance.

The following measures have been extended until 2023: (i) the General Block Exemption Regulation (GBER); (ii) the de minimis Regulations; (iii) the Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty; and (iv) the de minimis Regulations for SGEI.

The Commission also made specific adjustments to the various extended frameworks, in view of the the economic and financial impact of the pandemic on undertakings. In particular, the adjustments allowed the extension of such aid (particularly as regards the GBER) to undertakings in difficulty due to the COVID-19 outbreak.


Can the measures foreseen in the Temporary Framework be cumulated with other aids?

Any aid measure foreseen in the Temporary Framework may, in principle, be cumulated with others under the same Framework. There are only two exceptions to this rule: (i) aids granted in form of subsidized interest rates and guarantees may not be cumulated if the aid is granted for the same underlying loan, and (ii) aids for coronavirus R&D activities, aids for construction and upscaling of testing infrastructures, and aids for the development of relevant products to face the coronavirus outbreak may not cumulated, if the aid concerns the same eligible costs.

Furthermore, measures may be combined with De Minimis aid and aid granted under the GBER


Are
there any national support measures in place under the Temporary Framework? Which undertakings may benefit from them?

The EC has already approved several  packages of national support measures under the Temporary Framework.

  1. On 22 March 2020, the EC approved the Portuguese Government’s first package of four guarantee schemes, with a  total budget of EUR 3 billion, for SMEs and mid-caps affected by the COVID-19 outbreak, operating in the (i) tourism; (ii) restaurant; (iii) mining and manufacturing industry; (iv) event planning, tourist entertainment and travelling agency sectors.
  2. On 4 April 2020, the EC approved a second package of national support measures comprised of two schemes in a total amount of EUR 13 billion, for SMEs and large undertakings, in the form of direct grants of up to €800.000 per undertaking or State guarantees to bank loans, provided that the guarantees are limited to a maximum of six years.
    The support measures foreseen in the first and second packages have been implemented through Linha de Apoio à Economia COVID-19 (COVID-19 Economy Support line) the conditions of which are available for consultation here.
  3. The third package of national aid measures, approved by the EC on 8 April 2020, consists of a credit facility at subsidized interest rates available for SMEs operating in the fisheries and aquaculture sectors. The measure is implemented through Instituto de Financiamento da Agricultura e Pescas, IP (Institute for Agriculture and Fisheries Financing) under the conditions available here . In addition to this measure, a temporary derogatory support was also approved, in the form of salary compensation, for professionals in the fishing industry, as a result of the COVID-19 disease pandemic, pursuant to Decree-Law no. 20-B/2020.
  4. The fourth package, approved on 17 April 2020,  establishes support measures to the investigation, development, testing and production of relevant products to face COVID-19 has also been approved, with a total budget of EUR 140 million. State support will take the form of direct grants and will be made available to any undertaking capable of carrying out such activities, irrespective of the sector. IAPMEI is the entity responsible for granting the support, according to the conditions available at here.
  5. On 12 June 2020, aid in the form of direct grants and a loan guarantee scheme by the Autonomous Region of Madeira was authorised up to a nominal value of EUR 40 million, applicable to any undertakings operating in Madeira.
  6. On 31 August 2020, a EUR 5 million credit line was approved to support SMEs active in Madeira in the agricultural and agri-food sectors, which have been affected by the coronavirus outbreak.
  7. On 20 October 2020, a €9.35 million Portuguese aid scheme was authorized, for preserving employment by compensating the wage costs of companies in the Region of the Azores.
  8. On 30 November 2020, under the Temporary Framework a direct grant scheme was approved, with a total budget of EUR 750 million to covering two measures: (i) Apoiar.PT, applicable to micro and small undertakings operating in retail and services activities open to the public, or in the cultural, hospitality and restaurant sectors, and (ii) Apoiar Restauração aimed at micro, small ou medium undertakings operating in the restaurant sector. The total budget for these measures was increased to EUR 1.2 billion by decision of the Commission dated 21 January 2021, which also  allowed an increase in the maximum amount that can be granted per undertaking, as well as the eligibility of medium and large undertakings already in difficulties at the end of 2019. The amendment has further introduced a new measure Apoiar Rendas, financed by the amended scheme's budget, in the form of direct grants and aimed at supporting undertakings on the payment of rent and providing financial support to them.
  9. On 11 February 2021, a € 35 million Portuguese scheme to support micro, small and medium-sized enterprises with head offices or permanent establishments in the region of the Azores was approved, in the form of direct grants, complemented by a €15 million measure approved in March – Apoiar.PT Açores.
  10. On 31 March 2021, a EUR 500 million Portuguese top-up insurance scheme to support domestic trade credit was approved. The scheme aims to support the availability of trade credit insurance to all companies, therefore reducing the anticipated payment necessities by buyers, reducing their immediate liquidity needs.
  11. On 6 and 16 April 2021, two new packages were approved to support Portuguese companies in the region of the Azores, one consisting of EUR 35 million, and another of EUR 150 million, both in the form of a direct grant and open to companies of all sizes active in the Azores, conditioned on at least 90% of the level of employment was maintained between March 2020 and December 2020.


Are
there measures aimed at the banking sector?

The Temporary Framework of the EC recognizes the important role of banks and other financial intermediaries in channeling aid to the final beneficiaries, in particular to SMEs.
Aid channeled to the real economy through banks will be considered a direct aid to the banks' customers and not to the banks themselves.
Banks and financial intermediaries must implement safeguards and mechanisms to ensure that the benefits are effectively passed on to their final beneficiaries, including through higher volumes of financing, lower interest rates, lower collateral requirements or lower guarantee fees.
Although not included in the scope of the Temporary Framework, the European Commission does not rule out adopting support measures targeting the banking sector, including through recapitalizations or measures related to impaired assets.

 

 

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This information is being updated on a regular basis.

All information contained herein and all opinions expressed are of a general nature and are not intended to substitute recourse to expert legal advice for the resolution of real cases.