As economies grind to a temporary halt in order to arrest the spread of the coronavirus, the European Commission (the Commission) is swiftly adapting EU state aid laws to allow Member States introduce measures to help firms survive.
In late March, the Commission approved a EUR200m Irish Government scheme to provide financial supports to businesses negatively impacted by the severe economic consequences of the Covid-19 pandemic. The support, in the form of repayable advances, will be accessible by companies that experience or expect to experience a decline in turnover of at least 15% compared to their revenue before the coronavirus outbreak in Ireland. The scheme applies to businesses in Ireland employing 10 or more full time employees in certain manufacturing sectors and/or internationally traded sectors.
Do state aid rules apply to the Irish Government’s scheme?
Yes. Under Article 107(1) of the Treaty on the Functioning of the European Union (TFEU), State aid involves any transfer of State resources to a particular business/sector which has an adverse effect on competition. This would include liquidity support, tax relief, direct loans or other forms of assistance proposed by Governments in response to the ongoing pandemic. State aid, in so far as it affects trade between Member States, is illegal unless it falls under a ‘block exemption’ or has the benefit of an exemption from the Commission.
The TFEU contains at least two potential exemptions which are relevant to the current pandemic. Article 107(2)(b) TFEU provides that aid to make good the damage caused by natural disasters or exceptional circumstances shall be compatible with the internal market. Article 107(3)(b) TFEU stipulates that aid to remedy a serious disturbance in the economy of a Member State may be considered compatible with the internal market. Both provisions are clearly relevant to the current pandemic.
The Commission’s approval of the Irish Government’s scheme
The Irish Government’s scheme, intended to come within the exemption under Article 107(3)(b) TFEU, was approved by the Commission pursuant to the State aid Temporary Framework to support the economy in the context of the COVID-19 outbreak (the Temporary Framework). The Temporary Framework, adopted by the Commission on 19 March 2020, permits Member States to:
- give grants of up to EUR 800,000 to particular companies;
- provide subsidised state guarantees on bank loans;
- facilitate loans with subsidised interest rates;
- treat all aid granted via banks as aid to the banks’ customers and not the banks themselves; and
- provide short-term export credit insurance.
The Temporary Framework’s scope was extended on 6 April 2020. The following additional forms of State aid are now covered:
- support for coronavirus-related research and development;
- support for construction/upscaling of testing facilities;
- support for the production of products relevant to tackle the outbreak;
- tax deferrals/suspension of social security contributions; and
- wage subsidies for employees.
Valid until 31 December 2020, the Temporary Framework sets down how the Commission will deal with notifications by Member States for the approval of State supports in response to the Covid-19 outbreak.
The Commission has swiftly approved several aid schemes to tackle the coronavirus
In addition to the approval of the Irish Government’s scheme, the Commission has swiftly approved other State aid measures taken in response to the coronavirus. On 13 March 2020, a Danish aid scheme was approved within 24 hours of notification.
The Commission has also set up a ‘helpline’ for Member States which will be open seven days a week:
- Telephone number: (+32) 2 296 52 00
- e-mail address: [email protected]
Not all State intervention qualifies as State aid
Finally, it is worth remembering that not all measures in response to the coronavirus constitute State aid. Examples of measures that are not State aid include:
- Direct payments to individuals (e.g., wage supports)
- General measures (e.g., tax relief for all businesses)
- Intervention compatible with the ‘market economy operator principle’ (e.g., loans provided at prevailing market interest rates)