The Seventh COVID-19 Law: Funding for uncovered fixed costs
Author: Jera Majzelj
In the last days of December, the National Assembly adopted a new round of intervention measures (the so-called Seventh COVID-19 Law or PKP7 package). Amongst others, the latter introduced certain changes to the existing scheme of partial funding of uncovered fixed costs, which had been introduced in PKP6.
The changes under PKP7 enter into force on 31 December 2020 and are mainly intended to:
- widen the scope of eligible undertakings: PKP7 considers undertakings that have not suffered a significant drop in turnover (or have even increased their turnover compared to 2019), however, this is due to new investments or increased number of employees in 2020, and
- increase the funding caps: if the undertaking suffered a turnover decrease of more than 70 %, the cap of EUR 1,000 per employee is to increase to EUR 2,000 per employee. Also, the number of employees relevant for this cap will no longer be dependent on indefinite term employees only. Under PKP7, the number will depend on average number of employees, calculated based on methods used for annual reporting.
Below, we provide a basic summary of the support scheme, including the changes introduced in PKP7.
Uncovered fixed costs
PKP6 did not say what exactly are the uncovered fixed costs. Based on the supporting documentation for the proposal, we can assume that these costs are defined as net losses in a particular period (AOP 187 in the profit and loss statement).1 The funding will namely not be based on actual uncovered fixed costs of an undertaking. PKP6 gives an estimate of uncovered fixed costs, which is made based on the revenues of the undertaking in the previous year. This estimate is then the basis for somewhat unclear description of refund calculation, which is further subject to several limitations.
Regardless of some inconsistencies, it seems that an undertaking is not eligible for funding if it does not sustain net losses in the relevant (eligible) period – that is if, despite suffering a material decrease in revenues, the undertaking does not have uncovered fixed costs.
This measure is already available for the period from 1 October to 31 December 2020 (which is also the focus of this summary). However, PKP6 allows the Government to extend this period by no more than 6 months. This had already been done, as the Government adopted a resolution on a 3-months’ extension (i.e., until 31 March 2021).
As with the majority of intervention measures, some entities are excluded per se:
- national or municipality budget users, direct or indirect, whose percentage of income from public sources in 2019 exceeded 70%;
- employers performing financial or insurance services with more than 10 employees;
- foreign diplomatic or consular representations and certain similar institutions.
Basic conditions for beneficiary status
PKP6 further limits the beneficiary status with the following formal conditions:
- the legal or natural person has been registered for performing economic activities at the latest by 1 September 2020;
- on the day PKP6 enters force, this person has at least one employee or is self-employed or a shareholder/founder who is also a manager, included in mandatory insurance (in line with Article 15 or 16 of the Slovenian Pension and Disability Insurance Act).
The main condition for claiming the funding is contained in the requirement that the legal or natural person is only eligible if, due to the consequences of Covid-19 epidemic, this person cannot perform its activities or can only perform them in a materially limited scope. This condition is deemed fulfilled only when the net sales revenues of the beneficiary in the period from October to December 2020 decreased by 30% or more compared to the same period in 2019.2
Based on changes introduced in PKP7, funding will also be possible for undertakings that suffered a relative drop in turnover of at least 30% calculated by comparing the turnover per the average number of employees or per the value of fixed assets, excluding real estate. PKP7 is not very clear on what data exactly to use for this calculation. However, it offers the following example in the explanations: If the turnover of an undertaking drops from EUR 500,000 in 4Q 2019 to EUR 450,000 in Q4 2020, the drop is only 10%. Under current regime, this is not enough to warrant fixed cost support. PKP7 is now proposing to consider the change in value of fixed assets (excluding real estate). If this value was EUR 100,000 end of 2019, but increased to EUR 150,000 by the end of 2020, the drop in turnover per EUR of fixed assets is substantial, i.e. 40% (500,000/100,000 compared to 450,000/150,000. Similar calculation would apply in case of a higher number of employees. If this undertaking would employ 10 employees in average in 4Q 2019 and increased to 12 employees in average in Q4 2020, the drop in turnover could be established based on turnover per employee (500,000/10 compared to 450,000/12). The drop in this case is 25%, which does not meet the 30% support threshold. Having one additional employee (13 in total) would bring the undertaking over the threshold.
Since the filing for the funding will need to be made by the end of 2020, when all financial data will not have been known, potential beneficiaries will need to rely on their own assessments. If these prove to be wrong, the funding received will need to be returned (see below).
Calculation base and funding percentage
The basis for the funding calculation is the yearly turnover for 2019.3 The partial refund for each month of operations in the period from October to December 2020 is to be determined in the following percentage:
|0.6% of the base per month||if the activities (i.e. turnover) decrease by 30 – 70%|
|1.2% of the base per month||if the activities (i.e. turnover) decrease by more than 70%|
Caps and limitations
The refund amount that a beneficiary may receive is capped:
- at EUR 1,000 per employee (or self-employed / shareholder / founder who is also a beneficiary) per month if the turnover decrease is 30% to 70%, or EUR 2,000 per employee per month if the turnover decrease exceeds 70%;
- at 70% (for medium and large enterprises) or 90% (for micro and small enterprises) of net loss of the beneficiary in its profit and loss statement in the eligible period, i.e. October to December 2020.
What the size of the enterprise is, is to be established at the time when the beneficiary makes the request for funding.
The relevant number of employees will be based on the average number of employees (indefinite or fixed-term) in the period from 1 December 2019 until 30 November 2020. This average is to be calculated based on the number of working hours, similarly as this is done in the annual reports.4
Support is further limited by general rules on state aid:
- undertaking may not already be in difficulty as of 31 December 2019 (within the meaning of the General Block Exemption Regulation);
- the beneficiary makes sure that the uncovered fixed costs are not covered by other sources, such as insurance, temporary aid measures or support from other sources;
- funding under this measure together with other support may not exceed the limitations set forth in point 3.1, i.e. EUR 800,000 (for beneficiaries registered on or after 1 October 2019), and point 3.12, i.e. EUR 3,000,000 (for other beneficiaries), of the Temporary Framework for State Aid Measures to Support the Economy in the Current Covid-19 Outbreak, which was issued by the European Commission. This framework also sets forth the maximum amounts that undertakings may receive under such intervention measures in relation to Covid‑19. Undertakings that will only become eligible due to new thresholds that consider investment in fixed assets or new employments in 2020 will be subject to the general EUR 800,000 limitation, regardless of their registration date.
Filing a request
Undertakings that estimate that they will fulfil the conditions for partial funding must submit their filing by using the information system of the Financial Administration of the Republic of Slovenia, namely at the latest on 31 December 2020. The Financial Administration is supposed to pay out the support on the 20th day in the month following the month when the filing will have been made. If filing is made in November or December, the funding will be paid out until 20 January 2021 (or the end of January in case of differences based on PKP7 changes).
Due to the changes in eligibility criteria and funding caps introduced in PKP7, the latter foresees the possibility of amending the initial filing or making a new filing within 15 days following the day PKP7 enters into force. PKP7 also allows undertakings that have already made a filing to keep the number of employees in their filing as it was under PKP6 (i.e. taking into account the number of indefinite term employees on the day of filing), if that is more favourable to the undertaking compared to the new regime under PKP7. The Financial Administration is supposed to publish a new form until 5 January 2021.
If it turns out that the beneficiary has made a wrong assessment in believing that the conditions will be met, it must inform the Financial Administration about this and repay the excess of support in 30 days following a decision from the Administration being served. After the expiry of this deadline, statutory late interest will be charged.
 The Temporary Framework for State Aid Measures to Support the Economy, which was issued by the European Commission and which is the basis for the wording of PKP6, defined uncovered fixed costs as fixed costs incurred by undertakings during the eligible period which are not covered by the profit contribution (i.e. revenues minus variable costs).
 If the beneficiary was only established after 1 October 2019, it shall be deemed that it is eligible for funding if the revenues in the eligible period (October – December 2020) decrease by 30% or more compared to the average monthly revenue from registration until 1 September 2020, adjusted to the same period.
 If the beneficiary was only established after 1 October 2019, the basis is calculated from turnover made until 1 September 2020, readjusted for the same period, i.e. 1 year.
 The number of working hours in the relevant period, for which the employees received salary and salary compensation borne by the employer (whereby hours worked, holidays, leaves and certain sick pay paid by the employer shall be taken into account), compared to the number of possible working hours for this period, rounded to 2 decimal places.