This article was updated on 20 March 2020 to reflect the adoption of the European Commission's Communication setting out a temporary COVID-19 State aid framework on 19 March 2020.
Countries around the world are battling the spread of the COVID-19 pandemic and taking steps to protect their citizens by closing borders and imposing restrictions on travel, gatherings and working hours. An inevitable and, in many cases, immediate impact has been felt in numerous industry sectors, calling for governmental support that will help the affected businesses stay afloat.
Many of the measures governments will be adopting in the coming weeks and months will likely qualify as state aid, triggering the application of State aid rules, notification duty and approvals by the regulators. The need to act urgently without compromising rules and statutory processes is now a challenge facing governments as grantors and regulators.
The need for a swift application of State aid rules was already recognised by the European Commission and the Serbian Commission for State Aid Control promptly followed suit by issuing a notice that aims to clarify how Serbian State aid rules should be applied in the context of COVID-19.
The European Commission adopted the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak on 19 March 2020 (Temporary Framework). The Temporary Framework focuses on aid (to be) granted under the regime of Article 107(3)(b) of the Treaty on the functioning of the European Union (TFEU) – to remedy a serious disturbance in the economy of a Member State and will be applicable until 31 December 2020.
Companies that encounter difficulties as a result of the COVID-19 outbreak after 31 December 2019 are, until 31 December 2020, eligible for the following types of aid under the Temporary Framework:
- direct grants, repayable advances or tax advantages of up to EUR 800,000;
- State guarantees for bank loans with subsidised premiums;
- public loans with subsidised interest rates;
- safeguards for banks that channel support to the real economy; and
- short-term export-credit insurance.
The European Commission clarified that Member States may design support measures in line with the General Block Exemption Regulation thereby avoiding any involvement of the European Commission, or may grant aid under the regime of Article 107(3)(c) TFEU to undertakings facing financial difficulties as a result of COVID-19, or under the regime of Article 107(2)(b) TFEU to compensate undertakings in sectors particularly hit by the outbreak.
The European Commission also approved the first COVID-19 State aid measure even before the adoption of the Temporary Framework, on 12 March 2020 – Denmark's EUR 12 million aid scheme to provide compensation to event organisers was cleared within 24 hours.
For more details on the Temporary Framework and developments at the EU level, please also follow the input published on Law-Now by the CMS Global State aid Group.
The Serbian Commission for State Aid Control (CSAC) has issued a notice on the application of the new Serbian State Aid Law (Law)1 in the context of COVID-19 (Notice).
The Notice clarifies that the following measures will not represent State aid and will not be subject to CSAC's control:
- granting of public funds for health services or other public services aimed at battling the COVID-19 pandemic;
- granting of funds directly to citizens; and
- non-selective measures provided to all undertakings without exception, such as salary subsidies, exemptions from or decrease of certain taxes and social contribution payments.
Aid in the amount of up to RSD 23 million (RSD 11.5 million in the road transport sector) given at any time within three consecutive fiscal years is not notifiable to the CSAC under the general de minimis rule.
Other governmental measures which represent State aid (aid schemes or individual aid) will be notifiable to the CSAC and will need to undergo a review process in line with the Law's procedural rules. The Notice points out that such aid could be compliant with the Law under one of the following regimes prescribed by it and modelled after the regimes of the TFEU discussed in the Temporary Framework:
- Exceptional occurrence under Article 5(1) of the Law (Article 107(2)(b) TFEU). COVID-19 has already been recognised as an exceptional occurrence under Article 107(2)(b) TFEU by the European Commission. The Notice acknowledges this fact and points out that aid granted under this regime will be compliant with the Law if it compensates the damages directly linked to COVID-19 and is proportionate (i.e. limited to what is necessary to compensate the damage so that any distortions of competition are limited). Granting aid under this regime will likely be used in sectors that are especially hit by the crisis – airlines and transport, logistics, tour and venue operators, the HORECA sector.
CSAC clarified that aid granted to banks to enable liquidity of the market and payment and credit capabilities aimed at compensating direct damage undertakings suffered due to COVID-19 will be viewed as preserving the liquidity of the economy as a whole and not of particular banks. Banks will, in these cases, be viewed as means of implementation of the policy and not aid beneficiaries.
- Serious economic disturbance under Article 5(2) of the Law (Article 107(3)(b) TFEU). Aid can be compliant with the Law if it is granted to remove a serious disturbance in the Serbian economy. As the Temporary Framework clarifies, the situation brought about by COVID-19 enables the application of the equivalent regime prescribed in Article 107(3)(b) TFEU and aid provided under this regime has to be necessary, appropriate and proportionate to remedy the disturbance.
- Undertakings experiencing difficulty under Article 5(2)(3) of the Law (Article 107(3)(c) TFEU). Undertakings facing difficulties or in immediate need of liquidity due to exceptional and unforeseeable circumstances (such as COVID-19) can qualify for State aid under the general rules for rescue and restructuring aid.
In the upcoming period, companies trying to fight the impact of COVID-19 with the help of governmental support should carefully assess any potential aid against the applicable regulations in order to secure compliance with the Law and remove the risk of aid recovery. Developments at the EU level should be monitored for clarifications on how relevant rules and standards should be interpreted in the context of COVID-19.
To find out whether your business is eligible for State aid in Serbia, contact your regular CMS advisor or local CMS expert Anja Tasić.
1. The Law was adopted in October 2019 and its application kicked in on 1 January 2020. You can read more about the framework of the Law here.