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State Aid response to
COVID-19 pandemic

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State Aid response to COVID-19 pandemic

Published: 17th April 2020
Area: Corporate & Commercial
Author(s): Uddalak Datta ,

As well as a public health emergency, the impact of coronavirus has created an economic crisis as economies have gone into lockdown. The EU Commission, which polices the EU state aid rules, has published a communication relaxing the state aid rules in order to mitigate the economic consequences of the pandemic.

The EU state aid rules are in place to regulate the use of subsidies in order to maintain a level playing field and to ensure the internal market is not fragmented. The EU state aid rules already permit governments to use economic tools to respond to the immediate economic consequences of the pandemic.  They also already permit general measures that do not constitute aid (e.g. deferral of payments of VAT or social security contributions). However, public funding which provides support for more targeted measures are usually subject to strict compliance rules. The EU Commission has issued two recent communications which provide that a wide range of government measures to respond to the pandemic are exempt and these will affect educational institutions

What do these communications cover?

Temporary Framework

The EU rules anticipate aid in order to make good the damage caused by “exceptional occurrences”. In its recent Communication described as the Temporary Framework For State Aid Measures To Support The Economy In The Current COVID-19 Outbreak, the pandemic was recognised as an exceptional occurrence.

The Temporary Framework is set out in the Commission’s Communication of 19 March 2020, subsequently amended on 3 April 2020, and applies until 31 December 2020 to all sectors and to all undertakings, except those that were already in difficulty by 31 December 2019.

The Temporary Framework covers schemes which offer direct aid to undertakings (except financial services) in various forms and for various objectives and provides for the following types of aid:

(i)  Direct grants, selective tax advantages and advance payments: Member States will be able to set up schemes to grant up to €800,000 to address urgent liquidity needs.

(ii)  State guarantees for loans taken by undertakings from banks: Member States will be able to provide state guarantees to ensure banks keep providing loans to the customers who need them.

(iii) Subsidised public loans to undertakings: Member States will be able to grant loans with favourable interest rates to undertakings. These loans can help businesses cover immediate working capital and investment needs.

(iv) Safeguards for banks that channel state aid to the real economy: Some Member States plan to build on banks’ existing lending capacities and use them as a channel for support to businesses – in particular to small and medium-sized enterprises. The Framework makes clear that such aid is considered as direct aid to the banks’ customers, not to the banks themselves, and gives guidance on how to ensure minimal distortion of competition between banks.

(v) Short-term export credit insurance.

In addition, to these general economic measures, the Amendment to the Temporary Framework from 3 April also provides exemptions for the certain aid measures for universities, research organisations and their industry partners which are looking to contribute towards finding solutions to the pandemic.

This means that our clients in the education and healthcare sectors can takes advantage of public funding subject to these rules, rather than the more detailed assessment which is usually required under the General Block Exemption Regulation (Regulation 651/2014):

(vi) R&D aid for COVID-19 products

R&D projects carrying out COVID-19 and other antiviral relevant research now benefit from more generous state aid measures, which permit aid of up to:

  • 100% of the eligible costs for fundamental research;
  • 80% of the eligible costs for industrial research and industrial development, with a bonus of 15% if more than one Member State supports the project or there is cross-border collaboration.

This is applicable to all eligible costs related to all necessary costs for R&D (including trial testing, personnel costs, costs for digital and computing equipment, costs for IPR and conformity authorisations).

As part of the conditions for this aid, the recipient must commit to grant non-exclusive licences under non-discriminatory market conditions to third parties in the EEA.

(vii) Aid for testing and upscaling infrastructure for COVID-19 products

The Temporary Framework permits aid for the construction or upgrade of testing, and upscaling infrastructures required to develop, test and upscale COVID-19 relevant medicinal products and treatments.

This provision permits aid up to 75% of eligible costs; and in order to incentivise completion, permits a bonus of 15% if the project finishes within two months of the moment of aid granting (or if more than one Member State supports the project); and, unusually, a penalty of 25% of the aid amount per month of delay, if the project is not completed within six months.

(viii) Investment aid granted for the production of COVID-19 relevant products, such as medicinal products and treatments, medical devices and equipment, is on similar terms to the aid for research projects, other than the aid can be up to 80% rather than 75%.

(ix) Selective aid

While generally applicable measures regarding wage subsidies (e.g. the UK government furlough measure) or tax deferrals are not treated as state aid, selective measures are. The Temporary Framework puts in place rules which permit support schemes which provide a selective advantage, for example, if they are restricted to certain sectors, regions or types of undertakings.

Contact us

To discuss any of these issues or to consider more general commercial please contact Uddalak Datta or another member of the commercial team in your local office.

Shakespeare Martineau has launched a free legal helpline, with a team of experts on hand for any queries on family and private matters. We are also offering bespoke guidance on a range of other subjects, from employment and general business matters, through to director’s responsibilities, insolvency, restructuring, funding and disputes. Available from 10am-12pm Monday to Friday, call 0800 689 4064.

General advice in relation to COVID-19 can be found on our dedicated coronavirus resource hub.

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