To mitigate the economic repercussions of the COVID-19 outbreak in the Member States, authorities are considering support measures for citizens and/or companies. The European Commission has already recognized the outbreak as a new downside risk in its Winter 2020 Economic Forecast and is currently in the process of working on measures to support Member States in their efforts to minimize the negative impact. Under certain circumstances, the support measures applied by Member States may lead to State aid within the scope of Article 107(1) of the Treaty of the Functioning of the European Union (TFEU). This creates legal questions for many companies in the EU that might benefit from these COVID-19 outbreak-related support measures. 

What is State aid?

In general terms, any economic advantage granted by Member States from state resources to an undertaking in a selective manner, which may distort competition and affect the trade between EU countries, is unlawful. Yet, this general prohibition does not mean that all kinds of State aid are illegal. Article 107 TFEU also stipulates certain exemptions that might deem the aid compatible with EU law. 

COVID-19 support measures – Is it State aid?

It is hard to give a simple yes or no answer to this question. For the time being, it is not clear what kinds of support measures Member States plan to implement. However, Member States have certain instruments that they can use to provide COVID-19 support without falling under provisions of State aid rules. For example, if Member States choose to adopt general policy measures that are applicable to all enterprises on their territory, this would not fall under Article 107(1) TFEU, since it is not selectively applied. Similarly, Member States might choose to grant small aid amounts (up to €200 000 over a three year period per undertaking) and these small amounts would fall outside the scope of Article 107(1) TFEU as well. Therefore, it is possible that Member States might choose to use one of these instruments to support companies affected from COVID-19 outbreak without falling under Article 107(1) TFEU.

However, it is also very likely that Member States might need targeted measures selectively applied to undertakings, which exceed the minimum aid amount. In that case, these measures might constitute State aid. Afterwards, as a second step, it is necessary to examine whether these measures fall under any of the exemptions that would make them compatible with EU State Aid Law. This does not always mean that there is a notification obligation to the European Commission. The European Commission can exempt certain categories of aid from notification and approval requirement by declaring them compatible with its block exemption rules.

What is the European Commission`s current position?

The European Commission already acknowledged that there might be need for Member States to grant State aid to companies due to the COVID-19 outbreak. The President of the European Commission, Ursula von der Leyen, promised that the European Commission will play its part and they will make sure that State aid can flow to companies that need it, during a videoconference held on March 10, 2020. Accordingly, the European Commission announced that President von der Leyen will present concrete ideas apparently next Monday for the Commission`s measures to support EU countries in their efforts to give State aid to companies. In the meantime, the DG Competition launched a hotline in order to start the conversation with Member States in relation to support measures that they might put in place for the outbreak. 

To summarize, although we do not know exact details of the steps to be taken, the European Commission seems to be focused on easing the process for granting State aid to companies that are negatively influenced by the outbreak.

What are the potential ways to handle COVID-19 support measures?

It is too early to give any answer to this question as it will depend on the Commission`s planned measures to be announced next week and the specific details of the support measures that the Member States plan to implement. Overall, the European Commission might consider handling the outbreak from the following perspectives:

  • The Commission might prefer to rely on the existing legal framework which allows for instance to grant undertakings de-mininis aid over the course of three years. It may also refocus on its rescue and restructuring guidelines for undertakings in difficulty which are based on Article 107 (3) TFEU. These guidelines were already used as an instrument to stabilize financial institutions in the early days of the financial crisis and were later on replaced by more tailor-made instruments.
  • The Commission might also take inspiration from the instruments that it used during the financial crises. Surely, the situation is different now. However, during the period between 2008 and 2013, the Commission learned how to deal with critical economic situations, and how to act flexibly and quickly when there is a pressing need from the economy. Therefore, the Commission might choose to generate new ideas for the COVID-19 outbreak by taking its previous temporary frameworks as an example.
  • The Commission might even prefer to address the support measures related to the COVID-19 outbreak under Article 107(2) of TFEU, where the law grants an automatic exemption for aid that is planned to make good the damage caused by natural disasters or exceptional occurrences. Until now, the Commission has always been very cautious while interpreting ´exceptional occurrences` and has adopted a restrictive approach. Nevertheless, in its first decision with respect to the COVID-19 outbreak the Commission has indeed relied on Article 107(2) TFEU when approving a Danish Scheme to compensate damages caused by cancellations of large public events outbreak (clearance within 24h after notification). The authority also made it clear that financial support granted to health services or other public services to tackle the COVID-19 situation falls outside the scope of State aid control. The same applies to any public financial support given directly to citizens (IP/20/545). 
  • The Commission might choose to adjust the existing framework or even to adopt a more sector-specific approach focusing on certain industries like tourism, hotels and others.. It might hand pick some of the sectors that seem to be worst hit from the outbreak and adopt a wait-and-see approach for the other industries. 

Conclusion - What should companies do?

If there is a possibility that your company might benefit from a COVID-19 related support measure implemented by a Member State, you should make sure that it is in line with EU State aid rules. Unlawful State aid has many negative consequences for the beneficiary company, including recovery of the incompatible aid. Although it is primarily the Member State`s responsibility to make sure that there is no unlawful State aid, companies should always be very cautious as well, bearing in mind the specific legal risks of the beneficiary company.

To that end, it is advisable to follow closely the Commission`s approach to be announced, as well as its practice onwards. The important thing to remember is that this will be a dynamic situation. This means that the legal framework might continue to evolve in the upcoming days, weeks and months; therefore, it is crucial that you are informed and updated. If you would like to hear more about support measures of Member States for COVID-19 outbreak and how EU State aid rules will address these measures, please contact us.

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.