European Commission approves first State aid measure in relation to the COVID-19 outbreak and announces a flexible application of State aid rules to stabilize the economy

Probably everyone would agree that the COVID-19 outbreak qualifies as an exceptional occurrence, or as an extraordinary, unforeseeable event. From a European law perspective, this qualification has a direct impact on many businesses. Due to the severe economic impact of the pandemic, EU State aid law will play an important role in the European response to the crisis. Already now we can predict that the situation will be comparable with the financial crisis in 2007/2008 where the flexible application of State aid rules was a political instrument of high importance.

It is in this context that the European Commission on 12 March approved the first national aid scheme notified by Denmark to compensate organisers for the damage suffered due to the cancellation of large events with more than 1,000 participants. Denmark set aside DKK 91 million (€12 million) intended to help operators with the losses suffered as a consequence of the cancellations or postponement of events, e.g. for tickets that were already sold.

The Commission had to approve this aid since, in principle, all State aid measures are illegal unless they have been notified to and authorised by the Commission. The notable exceptions are support measures that are de minimis or fall under a block exemption regulation or under an approved State aid scheme. Additional national schemes will be notified to the Commission in the next days as governments in the Member States are working with full speed on responding to the crisis. For instance, Germany announced a “protective shield” for the economy on 13 March that falls partially under existing and approved State aid schemes, and of new schemes that will be notified to the EC. Similarly, the French government announced on 12 March a number of measures aimed at supporting French companies during the crisis, including the possibility to delay tax obligations for all companies unconditionally and State reimbursement of all short-time working costs. While the review of State aid notifications normally can take several weeks or months, in this first “coronavirus State aid” case the Commission approved the aid within 24 hours. The Commission has put a hotline in operation that is accessible 24/7 for the Member States to discuss State aid questions, including aid for individual companies that are particularly affected such as airlines.

As State aid is a fairly broad concept there will be many more cases in the coming months. State aid law does not only apply to direct subsidies but also to indirect financial measures, e.g. waivers of public debts or the non-enforcement of obligations (e.g., to pay taxes and other charges). In fact, such measures account for a large portion of State aid measures and the Commission will have to review a variety of political responses to the pandemic.

There are different legal benchmarks that will apply. Article 107(2)(b) of the Treaty on the Functioning of the European Union (TFEU) will be important for COVID-19 schemes, such as the Danish example, that apply to specific companies or specific sectors for the damages directly caused by exceptional occurrences. Since the Commission decision concluded that the COVID-19 outbreak qualifies as an exceptional occurrence, it can be expected that many Member States will rely on this definition. This means that State interventions to compensate for the damages that are directly linked to the outbreak and proportionate are deemed justified.

However, the establishment of a direct link is not always as easy as for cancelled events. What about businesses that are affected by the downturn of the economy as a whole? For major parts of the business, rescue and restructuring aid according to article 107(3)(c) TFEU will be the instrument of choice as it was during the financial crisis 2008/2009. This provision enables Member States to help companies cope with liquidity shortages and needing urgent rescue aid. In addition, the Commission has already indicated that it views the economic situation currently faced by Italy as “a serious disturbance to the economy” of a Member State which allows aid under article 107(3)(b) TFEU. Commission Vice-President Vestager indicated that other Member States could fall into this category, as well. Therefore, the Commission is now preparing under this provision a temporary framework that will be similar to what has been used during the financial crisis.

In recent years, State aid law has been discussed in the public often in the context of its application to tax schemes and profit allocation questions. Now, it will be used again to flexibly respond to a serious economic crisis. The Commission and the Member States will benefit from the experiences during the financial crisis and President Ursula von der Leyen has announced today that the Commission will handle State aid law with “maximum flexibility”. In order to help the European economy, the Commission will also support particularly affected sectors such as tourism, transport, or hotels and restaurants. Other Commission measures are targeting urgent liquidity needs of SMEs and liquidity in the banking sector.

Companies affected directly or indirectly by the COVID-19 outbreak should take the following steps:

  • Monitor whether your business falls into the scope of any aid schemes implemented by the EU Member State. If it does, assess your eligibility, including those of your subsidiaries and affiliates in other jurisdictions.
  • Make sure to think of State aid law not only for direct financial grants but also any other support measures directly or indirectly attributable to an EU Member State and feel free to contact us, should you have any questions relating to notification requirements since missing notification requirements may trigger an obligation to return the aid.
  • Work with your trade associations to discuss your industry’s positioning vis-à-vis governments, considering aid schemes for the same industry in the other Member States, and aid schemes for other industries in your Member States to avoid unfair advantages for competitors.
  • Stay on the right side of competition law when teaming up with other industry players or working in trade associations. Do not disclose confidential information that could raise competition law issues.

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.