Temporary state aid framework to support the economy in the current COVID-19 outbreak

The European Commission (Commission) has recently adopted a Temporary state aid framework (Framework) in order to tackle the economic issues related to the current COVID-19 outbreak. The Framework enables Member States to support SMEs and large enterprises hit by the current COVID-19 outbreak in various state aid forms (e.g. direct grants, tax advantages, subsidised guarantees, and subsidised interest rates).

The Framework serves as an additional, temporary tool of the state aid toolbox, therefore these temporary state aid measures could be accessed independently from the existing ones. Exact schemes and rules are to be adopted by each Member State, and to be approved by the Commission before entering into force. However, flexible and quick approval by the Commission are likely due to the current economic situation.

Under the Framework, temporary state aid measures are available until December 31, 2020 (loan and guarantee contracts are to be signed, and direct grants and tax advantages are to be granted until this date), however, it may be prolonged. State aid measures are only available for undertakings experiencing difficulties due to the COVID-19 outbreak, and but not being in difficulty on December 31, 2019 (for other reasons).

The state aid measures available under the framework are summarized below. 

1. Aid in the form of direct grant, repayable advances or tax advantage

In the form of direct grant, repayable advances or tax advantage, the aid shall not exceed EUR 800,000 per undertaking (including affiliated companies). For the fisheries and agriculture sectors, a maximum of EUR 120,000 and 100,000 of aid could be made available, respectively.

We would like to highlight that aid received under the Framework does not interfere with aid under de minimis rules. Therefore, de minimis aid (as a rule up to EUR 200,000 over 3 financial years) shall not be included in the cap of EUR 800,000 under the Framework. Also, future de minimis aid are not affected by aid received under this Framework.

2. Aid in the form of subsidised guarantees on bank loans

Member States could offer guarantees for both investment and working capital loans contracted until December 31, 2020. Guarantee premiums are set at minimum levels for SMEs and large enterprises for different maturities (maturity, pricing and guarantee coverage can be modulated).

The maximum duration of the guarantee is six years, and the public guarantee shall not exceed 90% of the loan principal (35%, in case of losses first attributed to the State). The amount of the loan principal shall not exceed the double of the annual wage bill of the undertaking OR the 25% of the total turnover in 2019. In special liquidity needs, the amount of loan principal may be higher for the coming 12 months for large enterprises, with appropriate justification.

3. Aid in the form of subsidised interest rates on bank loans

Member States could offer subsidised interest rates - based on the size of the undertaking and maturity - for both investment and working capital loans contracted until December 31, 2020.

As above, the loan contracts are limited to maximum six years. The amount of the loan shall not exceed the double of the annual wage bill of the undertaking OR the 25% of the total turnover in 2019. In special liquidity needs, the amount of loan may be higher, with appropriate justification.

Please note that in case of the same loan, either guarantees or interest rates could be subsidised, therefore the measures cannot be combined.

4. Aid in the form of guarantees and loans channelled through credit institutions or other financial institutions

The Framework enables Member States to provide public guarantees and subsidised interest rates on loans detailed in points 2 and 3 through banks and credit institutions. The benefits should be passed to the final beneficiaries to the largest extent possible. Also, the aid cannot have the objective to preserve or restore the viability, liquidity or solvency of the credit institutions.

5. Short-term export credit insurance

The Framework also includes the effects of the COVID-19 outbreak on the short-term export credit insurance schemes. The Commission stipulates that marketable risks cannot be covered by export-credit insurance with the support of Member States, however, as a consequence of the current outbreak, in certain countries cover for marketable risks could be temporarily unavailable. Therefore, Member States may demonstrate the lack of market by providing sufficient evidence of the unavailability of cover for the risk in the private insurance market (whether a risk is marketable may depend from Member State to Member State).

State aid measures under the Framework may support undertakings in immediate difficulty, resulting in limited operation or close-down due to the current COVID-19 outbreak. The measures may cover temporary liquidity problems, help in maintaining and restarting operations with e.g. financing wage costs, maintaining workforce. As these temporary measures are independent from the already existing aid measures and aid schemes in each Member State, it may be possible to access and combine temporary and existing schemes simultaneously.

While the Framework provides for general rules it will depend on Hungary whether and if so, what type of measures it would introduce under the Framework. As the Framework was made public on March 19, Hungarian aid schemes and measures are yet to be developed about which we will inform you as they become available.

The Communication from the Commission on the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak is available in English.

Should you have further questions on the state aid issues related to the current COVID-19 outbreak and other aspects, please contact our professional on the contact details below.

This piece has been originally developed by Deloitte Hungary.