17 March 2020

Statement from the EU about a proposed change to EU state aid rules

As the UK is in transition phase following Brexit, these changes would still apply.

The European Commission has sent to Member States for consultation a draft proposal for a State aid Temporary Framework to support the economy in the context of the COVID-19 outbreak, based on Article 107(3)(b) TFEU to remedy a serious disturbance across the EU economy.

The full statement is available here, but the below provides a summary of the information within, covering a draft proposal for a State aid Temporary Framework to support the economy in the context of the COVID-19 outbreak.

 The aim is to have the new Temporary Framework in place in the next few days.

 The new Temporary Framework will enable Member States to:

1. set up schemes direct grants (or tax advantages) up to €500,000 to a company,
2. (ii) give subsidised State guarantees on bank loans,
3. (iii) enable public and private loans with subsidised interest rates.
4. Finally, the new Temporary Framework will recognise the important role of the banking sector to deal with the economic effects of the COVID-19 outbreak, namely to channel aid to final customers, in particular small and medium-sized enterprises.

 

The Temporary Framework makes clear that aid to banks is viewed as direct aid to the banks' customers, not to the banks themselves. This circumvents other EU financial and state aid rules making it easier to deliver money.

Further Detail:

Aid in the form of direct grant or tax advantage: Member States would 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.

General features for all proposed 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.

Related topics:

Information for businesses - Our overview of information which we think will be of value to members, as it is released.