Coronavirus: companies can receive state aid in these five categories according to the European Commission’s resolution

author: dr. Katinka TÖLGYES

With respect to the economic damage caused by the coronavirus pandemic, the European Commission has mitigated its position related to state aid and has temporarily amended the framework in the light of the crisis. The competition law expert of Kapolyi Law Firm summarized the most important information in this regard and the opportunities available to companies under EU regulations.

Although, under normal economic conditions, the general rule is that the granting of state aid in favour of certain products, services or undertakings is prohibited, the Commission changed its position due to the deteriorating economic situation caused by the coronavirus pandemic. Dr. Katinka Tölgyes, competition law expert of Kapolyi Law Firm, recalls that, usually, only state aids that are compatible with the European Union’s internal market are authorized, such as non-discriminatory social aids granted for a product or aids for repairing damages caused by extraordinary events. Nevertheless, aids to promote the economic development of certain least-developed areas or to promote the development of certain economic activities or certain economic areas, without prejudice the common market and the common interests of the European Union, may also be authorized. Compliance with the rules related to aid is constantly monitored by the Commission, which checks whether they are compatible with the internal market and that they are not being misused in an abusive manner.

The main frameworks have been laid down in the light of normal economic conditions and they are not applicable, or the application thereof is rather difficult to unexpected, negative and eventually long-term processes affecting the economy, such as those caused by the coronavirus pandemic in certain economic sectors (e.g. tourism, hospitality) – said dr. Katinka Tölgyes. Following this logic, the Commission has also taken the view that changes to the application of the framework need to be done, and has defined five categories of aid under which Member States may grant aid to remedy the serious disturbance in the economy if other conditions set forth in the transitional regime are also met.

Five categories of aid defined by the European Commission

  1. Non-refundable direct aids, selective tax incentives and repayable advances

Member States may grant aid up to a maximum of EUR 800 000 (EUR 120 000 for the fisheries and aquaculture sector and EUR 1 000 000 for primary agricultural production) to satisfy the urgent liquidity needs of an undertaking. The aid is conditional on the economic difficulties of the beneficiary company being caused by the coronavirus pandemic or its consequences, and that the company has not been considered to be in difficulty for any other reason before 31 December 2019. Where an undertaking operates in more than one sector and is subject to different maximum amounts, Member States should ensure that the ceilings are met, for example by means of accounting separation.

  1. Providing a loan guarantee

Member States may provide preferential state guarantees to ensure that banks and other financial institutions can continue to provide credit to customers who need it.

  1. Subsidized lending rates

Member States may, as a general rule, grant loans to enterprises at reduced interest rates for a maximum of 6 years. These loans can help to the enterprises to provide immediate working capital and satisfy investment needs.

  1. Guarantees and loans provided through financial institutions and credit institutions

Member States may also grant the aid referred to in points 2 and 3 to help undertakings, in particular small and medium-sized enterprises, through banks or other financial institutions. According to the European Commission, such aid shall be considered as aid granted directly to banks’ customers and not as aid granted to banks.

  1. Short-term export credit insurance

In the event that the hedges of marketable risks are temporarily unavailable in some countries, the European Commission allows short-term export credit insurance for the state.

Dr. Katinka Tölgyes points out that the European Commission specifically mentions aids for relevant research and development, production of products as well as testing and scaling infrastructures aiming to combat the coronavirus pandemic. In these cases, the aids are considered as aids to promote the development of certain economic activities or certain economic areas, without prejudice the common market and the common interests of the European Union. The European Commission also sets a deadline, meaning that aids to remedy the serious disturbance in the economy of a Member State can only be granted until 31 December 2020. The competition law expert of the Kapolyi Law Firm recalls that the elaboration of detailed rules in relation with the provisions set forth by the European Commission has already started in the Hungarian legislation in the meantime.