In practice, large parts of the state aid rules and guidelines are now virtually "suspended."

State aid rules open up for rescue packages

| Insight

Many companies are now in crisis due to the Covid-19 outbreak. The European Commission and EFTA Surveillance Authority, therefore, ease state aid rules. In practice, large parts of the state aid rules and guidelines are now virtually "suspended."

ESA has set up its own «task force» in Brussels and the Commission has set forth a proposal that will enable four types of immediate aid:

  1. Direct grants and selective tax advantages,
  2. State guarantees for loans taken by companies from banks,
  3. Subsidized public loans to companies, and
  4. Safeguards for banks.

Although the rules are not yet formally adopted, it is expected that ESA will allow measures within the proposed framework already now as long as aid is not used for taxpayer support unrelated to the Covid-19 outbreak.

In case of particularly severe economic situations, the state aid rules already today allow Norway to grant support to remedy serious disturbance to the economy. This is foreseen under Article 61(3)(b) of the EEA Agreement, which provides that aid to make good the damage caused by «exceptional occurrences» is compatible with the state aid rules.

The main features of the Commission’s package are the following:

  • Aid in the form of direct grant or tax advantage: Member States will be able to set up schemes to grant up to €500,000 to a company to address its urgent liquidity needs. This can be done through a direct grant or a tax advantage.
  • Aid in the form of subsidised guarantees on bank loans: Member States can grant State guarantees or set up guarantee schemes supporting bank loans taken out by companies. These would have subsidised premiums, with reductions on the estimated market rate for annual premiums for new guarantees for SMEs and non-SMEs. There are some limits foreseen on the maximum loan amount, which are based on the operating needs of the companies (established on the basis of the wage bills or liquidity needs). The guarantees may relate to both investment and working capital loans.
  • Aid in the form of subsidised interest rates: Member States can enable public and private loans to companies with subsidised interest rates. These loans must be granted at an interest rate, which is at least equal to the base rate applicable on 1 January 2020 plus the credit risk premium corresponding to the risk profile of the recipient, with different rates for SMEs and non-SMEs. The base rate is fixed in order to provide more certainty on the financing conditions in this volatile context. As with the possibility to provide subsidised guarantees, the are some limits regarding the maximum loan amount, which are based on the operating needs of the companies (established on the basis of the wage bills or liquidity needs). The loans may relate to both investment and working capital needs.
  • The fourth and final measure recognises the important role of the banking sector and other financial intermediaries to deal with the economic effects of the Covid-19 outbreak. The Temporary Framework makes clear that, if Member States decide to channel aid to the real economy via banks, this is direct aid to the banks’ customers, not to the banks themselves. It also gives guidance on how to minimise any undue residual aid to banks and to make sure that the aid is passed on, to the largest extent possible, to the final beneficiaries in the form of higher volumes of financing, riskier portfolios, lower collateral requirements, lower guarantee premiums or lower interest rates.
  • Should direct aid to banks become necessary under Article 107(2)(b) TFEU to compensate for damages resulting directly from the Covid-19 outbreak, such aid will not be considered as extraordinary public support under State aid rules. Similarly, this will also apply to any residual indirect aid granted to banks under the Temporary Framework.
  • General features for all above measures include that companies that entered into difficulty after 31 December 2019 are eligible for aid under this Temporary Framework. This is to ensure that the Temporary Framework is not used for taxpayer support unrelated to the Covid-19 outbreak. Furthermore, the Temporary Framework also foresees general transparency obligations.

Simonsen Vogt Wiig’s experienced EU, EEA and Competition team is ready to advise on all aspects of state aid law related to the ongoing crisis.