State aid rules and COVID-19 – will you have to repay the received state aid?

State aid rules and COVID-19 – will you have to repay the received state aid?

Author: Matjaž Verbič

Several Member States have already announced support measures for companies in order to mitigate economic impact. Slovenia has also adopted an emergency fiscal stimulus package worth EUR 3 billion, designed to help undertakings and self-employed (so called “Mega COVID-19 Law”). The specific goals of mentioned measures are to preserve jobs and keep businesses in operation. These measures should include, in particular, assistance to employers in the form of compensation for waiting for work and exemption from social security contributions. The emergency law will furthermore try to improve the liquidity of undertakings with several types of aid (deferral of payment, government guarantees, freezing of payment of tax advance, shortening of payment deadlines for public sector payments, etc.). Measures have also been taken to assist scientific research projects (extending project implementation, funding deadlines and equipment purchase deadlines) and to help the self-employed.

Even in the current situation, all measures intended to assist the economy must comply with European state aid rules.

It is interesting that Slovenia, as it seems, has not notified the mentioned state aid scheme to the European Commission, although so far almost all Member States have notified various forms of aid measures. Despite the emergency situation, measures in the form of state aid should, in principle, be notified to the European Commission before they enter into force. The European Commission then assesses whether the planned measure complies with state aid rules. If the measure complies with the rules, it is approved by the Commission and only then can the public authority implement it.

Why Slovenia has not notified the measures described above, which undoubtedly constitute state aid, remains unclear. The reason may be that the State considers the adopted aid measures as available to all companies without exception (non-selective measures). Such measures, for example wage subsidies and deferred payments, do not require prior approval of the European Commission.

On 3 April the European Commission adopted an amendment extending the “Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak”, which was adopted on 19 March on the basis of the exemption referred to in Article 107 (3) (b) TFEU. The Temporary Framework recognizes that the entire EU economy is facing serious disruption, which is why the state aid framework is expanding. With this change, the temporary framework is expanded with five additional types of aid measures: (i) support for research and development (R&D) relating to the coronavirus, (ii) support for the construction and upscaling of testing facilities, (iii) support for the production of relevant products, (iv) targeted support in the form of tax deferrals and/or suspension of social security contributions; and (v) targeted support in the form of wage subsidies for employees.

The extended temporary framework thus enables Member States, in particular, to further support companies developing and manufacturing much needed coronavirus products such as vaccines, medicines, medical devices, disinfectants and protective equipment. Additional support may also be granted for cross-border projects between Member States for the rapid delivery of products.
The temporary framework now provides Member States with additional opportunities to reduce the liquidity constraints faced by businesses and to maintain jobs in sectors and regions particularly hard hit by the crisis. It should be noted that these types of aid can be combined with other types of aid (e.g. de minimis aid). The revised temporary framework will also remain in force until the end of December 2020. The European Commission is constantly assessing whether further action is needed to supplement the range of tools used by Member States to support their economies and analyse existing national rules to verify compliance with the principles endorsed in the provisional framework. On 9 April 2020 the European Commission European Commission sent to Member States for consultation a draft proposal to further extend the scope of the Temporary Framework to the recapitalisation measures.

The extended Temporary Framework also provides for the fulfilment of certain conditions, which are not included in the Slovenian Mega COVID-19 Law. Therefore, undertakings already in difficulty on 31 December 2019 may not benefit from certain types of aid, with regard to the assistance to employers, the total amount of wage subsidies and contributions may not exceed 80% of the monthly gross wage per employee, employees (and self-employed) for whom the aid is intended must maintain permanent employment for the entire period for which the assistance is granted, etc.

It is expected that the required conditions will be included in the amendment to the Mega COVID-19 Law and that Slovenia will, in line with the Temporary Framework, declare state aid for non-selective measures. If this does not happen, there is a risk that the state aid received will have to be recovered, even though the company will be eligible for the grant provided for by the Mega COVID-19 Law.

The Government is now drafting a second anti-corona package, the purpose of which will be in particular to resolve the issue of liquidity in the Slovenian economy. Companies expect liquidity schemes in the form of loans with government guarantees. Indeed, the measures adopted in the first package do not allow many companies to take advantage of key state aid measures, since their revenues will not fell by 20 percent compared to the same period last year, nevertheless, they expect huge business problems. In a third package the legislator will outline the exit strategy for the period following the end of the epidemics.

The European Commission has committed itself to act swiftly in these exceptional circumstances. The first state aid scheme notified to the Commission by Denmark was thus approved within 24 hours.

Regardless of the extraordinary circumstances, it is therefore advisable that companies claiming state aid are cautious, especially in the case of claiming state aid, which is not without exceptions available to all companies. Namely, the consequences of received state aid without the requisite approval (so-called “unlawful State aid”) may be significant. As a general starting point, the amount of aid received must be determined and repaid with substantial interest, which in itself may prove to be financially very burdensome for the enterprise. It is therefore important that both the granting authority and the receiving enterprise carefully consider the state aid aspects of any given measure, even where aid is received in context such as the COVID-19 outbreak.