European Commission extends COVID-19 Temporary State aid Framework

On 3 April 2020, the European Commission (“Commission”) amended the 19 March 2020 Temporary Framework for State aid measures to support the economy during the current COVID-19 outbreak (‘Temporary Framework’). The initial Temporary Framework was covered in the Deloitte Legal newsflash of 20 March 2020.  Within two weeks, over 36 national measures were cleared under the initial Temporary Framework and three national measures were cleared under Article 107 (2) (b) TFEU.

On the one hand, the Commission modified several provisions regarding the types of aid that were already included in the Temporary Framework. On the other, the Commission introduced five new types of aid concerning:

• COVID-19 relevant research and development (R&D);
• testing and upgrading infrastructures;
• the production of COVID-19 relevant products;
• tax deferrals and/or suspensions of employees’ social security contributions; and
• wage subsidies for employees to avoid lay-offs during the COVID-19 outbreak.

Amendments to the existing types of aid

Direct aid to companies

In its amended Temporary Framework, the Commission expanded the possibility of providing direct aid to companies. As of now, any form other than direct grants, tax and payment advantages, such as repayable advances, guarantees, loans and equity may be granted, provided that the total nominal value of such measures remains below the overall cap of EUR 800,000 per company. This type of aid can be combined with de minimis aid, which implies that aid up to EUR 1 million can be given per company.

State guarantees

Under the amended Temporary Framework, minimum guarantee premiums are set per individual loan. In addition, such premiums have to increase progressively as the duration of the guaranteed loan increases. The concept of modulating guarantee duration, guarantee premiums and guarantee coverage is clarified. Finally, a guarantee can now be put in place for longer than six years, provided a modulation was applied.

Subsidized interest rates for loans

Loans may be granted at reduced interest rates, which are at least equal to the base rate applicable on 1 January 2020, plus a credit risk margin. The amended Temporary Framework provides that the credit risk margin will be adjusted progressively in accordance with the duration of the loan. The concept of modulating is clarified, and where there is modulation, the loan’s duration can extend beyond six years.

Short-term export credit insurance

On 27 March 2020, the Commission already amended its Communication on Short-term export credit insurance from 2012, in light of the economic impact of the COVID-19 outbreak. In line with this amended Communication, the Commission reiterates in its amended Temporary Framework that all commercial and political risks associated with exports to certain countries are considered non-marketable until 31 December 2020.

New types of aid covered by Temporary Framework

The Commission extends the scope of the Temporary Framework by introducing five aid measures to combat the effects of COVID-19 more effectively.

COVID-19 relevant R&D

The Commission will approve State aid for COVID-19 and other antiviral R&D to address the current health crisis. A number of conditions are attached, among which is a commitment by the beneficiary to grant non-exclusive licenses under non-discriminatory market conditions to third parties in the European Economic Area. The aid can be in the form of direct grants, repayable advances, or tax advantages. A bonus in the form of 15 percentage points of aid intensity is awarded when cross-border collaboration is involved.

Construction or upgrade of testing and upscaling infrastructures

The Commission will approve State aid granted for the construction or upgrade of testing and upscaling infrastructures, until first industrial deployment before mass production of COVID-19 relevant products. The aid can be in the form of direct grants, repayable advances, tax advantages, and/or a loss cover guarantee. A 15 percentage points bonus of allowed aid intensity is awarded upon completion of the investment within 2 months, or if the support comes from more than one Member State.

Production of COVID-19 relevant products

The Commission will also approve aid for the production of COVID-19 relevant products, if a number of conditions are met. Products to tackle the outbreak of COVID-19 include inter alia vaccines, medical equipment or devices, protective material and disinfectants. The aid can be in the form of direct grants, repayable advances, tax advantages, and/or a loss cover guarantee. A 15 percentage points bonus of allowed aid intensity is awarded upon completion of the investment within 2 months, or if the support comes from more than one Member State.

Tax deferrals and/or suspensions of employees’ social security contributions

The Commission will approve aid in the form of deferral of tax payments and/or suspensions of employers’ social security contributions for companies particularly affected by the COVID-19 outbreak. It also covers other initiatives to ease liquidity constraints, such as payment in instalments, easier access to tax debt payment plans, granting of interest free periods, suspension of tax debt recovery, and expedited tax refunds. This aid can be aimed at particular sectors, regions or to companies of a certain size. The end date of the deferral must not fall beyond 31 December 2021.

Wage subsidies for employees to avoid lay-offs during the COVID-19 outbreak

Finally, the Commission will approve aid in the form of wage subsidies for employees to help avoid lay-offs due to the COVID-19 outbreak in specific regions or sectors that are the hardest hit by the outbreak. Wage subsidies should not exceed 80% of the benefitting personnel’s monthly gross salary. Under certain circumstances, this aid can be combined with other measures.

Beside the specific conditions per aid measure, a general condition remains that aid may not be granted to undertakings that were in difficulty (as defined by the General Block Exemption Regulation) on 31 December 2019. The Commission is expected to swiftly approve the above aid measures as soon as the conditions are fulfilled.