The Hungarian Government's response to the coronavirus crisis: state aid measures in Hungary under new EU regulation

Hungary

Apart from the key health issues resulting from the COVID-19 pandemic, addressing the serious disturbance across the EU economy is becoming increasingly urgent, raising material Competition Law and State aid questions. The European Commission has acknowledged the need for certain, specifically directed state intervention, therefore a new regime has been introduced under the State aid Temporary Framework dated 19 March 2020, granting further ammunition to Member States to compensate for those adverse effects. The Hungarian Government announced an action plan on 18 March 2020 to support the economy. The Hungarian Prime Minister emphasised that these were just the first steps and others will follow soon.

1. The conceptual measures of the Temporary Framework

On 19 March 2020, the European Commission adopted the Temporary Framework, based on Article 107(3)(b) TFEU, to enable Member States to use the full flexibility allowed under State aid rules to support their economies during the COVID-19 pandemic. To help Member States to take swift and effective action to support their citizens and businesses, in particular SMEs, facing economic difficulties, the Temporary Framework sets out five types of aid.

For further information, please click here: Coronavirus crisis: the European Commission adopt its State aid Temporary Framework to support the economy

2. The government decree on state aid measures in Hungary

The government decree, released on early 19 March 2020 before the official adoption of the Temporary Framework, already contained a few elements from the above listed types of aid (see our Law-Now Article on this). These provisions primarily focus on and are limited to the most affected economic sectors, such as tourism, hospitality, and cultural services. The economic package includes grace periods on capital repayment and interest payment obligations for corporate and residential loans and financial leasing agreements, the maximisation of the annual percentage rate (APR) for new non-secured consumer loans, a freeze on rents, certain tax breaks, and changes in employment law.

The first steps will be followed by further temporary state aid regulations in Hungary. Considering the adopted Temporary Framework based on Article 107(3)(b) TFEU, regarding the future measures Member States must show that the granted State aid is necessary, appropriate and proportionate to remedy serious disruption of the economy of the Member State concerned and that all the conditions in the Temporary Framework are fully respected.

3. Large undertakings and past state aid

The Government has not reflected yet on further specific conditions or related subsidy requirements concerning shutdowns or production drop-offs in large factories, especially car manufacturers, which severely affect Hungarian workers.

Recently, car manufacturers have announced that production will be suspended for two to three weeks in most plants in Europe, including Audi in Győr, Suzuki in Esztergom, Opel in Szentgotthárd and Mercedes in Kecskemét. Manufacturers from other sectors have also stressed the need for action not only because of the imminent danger of the pandemic increasing, but also because of the collapse in trade and supply chains. As the workforce must be reduced temporarily due to COVID-19, a clarification on the requirement to keep the workforce at a certain level might also be necessary and the related national regulations would be of key importance in this respect.

This scenario raises further questions affecting subsidies in a wider context. As a plausible example, large undertakings enjoyed a corporation tax advantage as compensation for paying wage costs and contributions for employee salaries. This obligation might be endangered by the major shutdowns and production decreases, which should also be reflected by the state aid regimes.

How the Hungarian State will react to these issues is unclear due to the unpredictable and exceptional effects of COVID-19. As the situation is changing rapidly with the spread of the virus, the Hungarian Government will most likely need to bring in further measures to balance the economic slowdown.

CMS will keep you informed of further state aid changes in Hungary to support your business enterprises. For more information, please contact: Dr Dóra Petrányi, Dr Szabolcs Szendrő, or Dr Gábor Kutai.