COVID-19: A state-aid problem?

3.13.2020

COVID-19 (new corona virus) keeps on setting the global agenda. The EU and Denmark are no exceptions. A series of precautionary measures aimed at containing the risk of infection have been taken by the authorities but are not without consequences for businesses, and stock markets have already been affected. If any measures are offered by authorities in an attempt to address those consequences, it is important to consider the EU State aid rules.

Launched: Aid package to Danish businesses

The Danish government just presented a first aid package to Danish businesses. The package includes (i) deferred pay-ment of tax and VAT to promote liquidity, (ii) (partial) compensation to enterprises having cancelled events attracting over 1,000 guests, and (iii) establishment of a task force charged with developing aid proposals targeting the hardest-hit sec-tors.

It is possible that the package will be extended to include additional measures. When plans for the aid package were originally announced, the government said it would particularly benefit the tourist, transportation and experience indus-tries, all of which have been hit very hard by the COVID-19 outbreak.

In other countries - Germany and Belgium, for example - there are schemes in place under which the authorities can offer aid in the form of salary compensation to enterprises forced by extraordinary circumstances to cut back on activities for a period of time. In Germany the scheme is called “kurzarbeit”, and the German authorities, in the wake of the COVID-19 outbreak, have now made it easier to use the scheme in the present situation.

State aid legal framework

The EU State aid rules require, as a clear starting point, that any form of aid from public bodies to selected private enter-prises be notified to and approved by the European Commission prior to granting. It is important in this regard to consider that for State aid purposes indirect aid, such as the allowing of postponed or deferred payment of taxes or duties, may also qualify as an economic advantage.

Measures like the ones currently being considered to mitigate commercial consequences of the COVID-19 outbreak may fall foul of State aid conditions, unless the advantages are non-selective and available to more or less the full spectrum of businesses. The selectivity problem, in general, also arises in the context of aid to individual industries, although certain sector-specific exemptions do exist, which under certain conditions will allow sectoral support.

In concrete terms, State aid rules offer a number of possibilities for having specific aid measures approved, i.a. also for the benefit of distressed companies. There are criteria to be met, though, and the compatibility of a given measure with State aid rules, a requirement for approval, will always depend on a concrete assessment. Whatever the circumstances, there are, however, formal rules of procedure which must always be met in order for aid to be lawful.

The consequences of receiving State aid without the requisite approval (so-called “unlawful State aid”) may be significant and could be extremely costly for the recipient enterprise. As a general starting point, the amount of aid received must be determined and repaid, with substantial interest, which in itself may prove to be financially very burdensome for the en-terprise. It is important, therefore, that both the granting authority and the receiving enterprise carefully consider the State aid aspects of any given measure, even where aid is received in a “force majeure”-like context such as the COVID-19 outbreak. 

State aid in “force majeure”-like situations

Specifically, Article 107(2)(b) TFEU allows the granting of State aid to make good the damage caused by natural disasters or “exceptional occurrences”. In practice, though, the provision has primarily been applied in the context of actual natural disasters, and the extent of its applicability also in cases of outbreaks of disease therefore remains to be seen. For exam-ple, the European Commission has previously approved German authorities’ use of the “kurzarbeit” scheme in connec-tion with floods in 2013, whereas the Italian authorities’ plans for aid following an earthquake in 2009 were not approved (nor set aside on appeal).

Most recently, the President of the European Commission, Ursula von der Leyen, has said the Commission is working hard to make sure that State aid can flow to companies that need it. Exactly what measures the European Commission will initiate remains to be seen, though.

Kromann Reumert’s assistance

Kromann Reumert’s State aid specialists have extensive experience advising both granting authorities, recipients, and complainants from a range of different industries.

We are also at your service for any advice you need on matters pertaining to COVID-19, including for a preliminary and information talk.

See our other news articles on COVID-19: