COVID-19: European Commission opens consultation on extending State aid Temporary Framework

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Introduction to an amended Temporary Framework

The European Commission launched a consultation process on 30 September 2021, sending a proposal to Member States on a sixth draft amendment to the Temporary Framework on State aid measures to support the economy in the current COVID-19 outbreak. The Framework was first adopted on 19 March 2020 and has already been amended five times to provide for new categories of aid and extend its application, currently until 31 December 2021. The new draft amendment’s main purpose is to extend the Temporary Framework to at least 30 June 2022 and include new post-pandemic economic investment and solvency support measures.

The Temporary Framework is based on Article 107.3, b) of the TFEU to remedy a serious disturbance across the EU economy. Only companies that encountered difficulties after 31 December 2019 are eligible for aid under the Temporary Framework to ensure that it is not used for public support unrelated to the COVID-19 outbreak.

What aid categories are covered by the Temporary Framework?

The Temporary Framework sets out various categories of aid that can be implemented by Member States:

  1. Schemes for direct grants, tax advantages, public loans and guarantees, etc. to allow companies to meet urgent liquidity needs.

  2. Subsidised State guarantees of up to six years on new bank loans, in the form of subsidised premiums, based on a simple table devised by the Commission according to the size of the beneficiary (SMEs or large undertakings) and the maturity of the loan.

  3. Loans with subsidised interest rates, including subordinated loans of up to six years: the loan interest rates must be no less than the rates set out in a simple table devised by the Commission according to size.

  4. Recapitalisation measures under strict conditions of necessity, appropriateness and size of intervention, governance, remuneration, exit strategy, protection of competition, prohibition of cross-subsidisation and acquisition ban, etc.

  5. Selective schemes of temporary deferrals of taxes or of social security contributions as well as aid schemes in the form of wage subsidies granted to employees that would otherwise have been laid off due to the COVID-19 outbreak.

  6. Aid schemes to finance up to 70% of uncovered fixed costs for companies whose turnover has reduced by more than 30%.

  7. Aid for the research, development and production of COVID-19 products.

  8. More flexible rules on short-term export credit insurance.

It should be stressed from the outset that all aid schemes provided for by the Temporary Framework must be notified by Member States to the Commission prior to implementation and the Commission must confirm its approval.

What is new in the draft Temporary Framework?

In June 2021, the Commission organised a public consultation of Member States on the future of the Temporary Framework. The aim was to establish the potential need to extend these specific exceptional support measures or to adopt specific sectorial measures for sectors more significantly impacted by the outbreak (such as tourism and air transport).

On this basis and looking ahead, the Commission duly recognises that no business should be artificially kept afloat by granting aid measures that make no economic sense. Indeed, the proposed amendment to the Temporary Framework sets out the process for scaling back aid measures as the economy is gaining traction. It therefore anticipates the need for an extension until only 30 June 2022.

The constant learning curve created by the pandemic has resulted in several adjustments on substance and duration of the Temporary Framework (please see our articles of 7 April 2020, 13 May 2020, 10 July 2020, 16 October 2020 and 3 February 2021). Following these changes, it is now clear that across sectors not all types of business have been adversely affected to the same extent.

As to the material scope of the draft amendment, it would include forward-looking investment and solvency support measures for a limited duration, even beyond 30 June 2022, as abruptly cutting off all aid measures at once would disrupt many economic activities still in recovery while they are settling down in a post-pandemic economic landscape. In particular, while ensuring that a level playing field and competitive market conditions are maintained, the draft proposal would allow for aid measures based on Article 107.3, c) of the TFEU to be granted after 30 June 2022 and in the form of:

  • investment support measures until 31 December 2022, filling the private investment gap created by the crisis, on condition that they (i) target a wide group of beneficiaries and (ii) are granted in limited proportions; and

  • solvency support measures until 31 December 2023, to leverage private funds and investments by means of equity financing in undertakings that are smaller and hence more financially affected by the pandemic.

The draft proposal also aims at adapting the aid thresholds of the uncovered fixed cost measure to address the prolonged economic effects of the pandemic and to clarify and amend the conditions for certain temporary State aid measures that the Commission considers compatible under Article 107.3, b) of the TFEU. Finally, the Commission proposes to extend until 30 June 2022 the temporary removal of all countries from the list of “marketable risk countries” under Annex 1 of the Communication on short-term export credit insurance.

What does this entail for your business?

Member States are now invited to provide comments on the Commission’s draft sixth amendment to the Temporary Framework. Based on the feedback received, the Commission will decide how to proceed and whether all proposed amendments will be retained.

CMS will keep you informed of the public measures adopted by Member States in order to support your business enterprises. In this regard, do refer to the Guide published by CMS on public support measures that were put in place in 21 European countries in the context of the COVID-19 crisis.

Please contact your regular CMS partner or refer to our brochure for the CMS contact in your jurisdiction.