EU Commission publishes fifth amendment to its Temporary Framework for state aid in relation to the COVID-19 crisis – Lexology

On 28 January 2021 the EU Commission published the fifth amendment to its 19 March 2020 Temporary Framework on state aid in reaction to the COVID-19 outbreak (see our blog post).

The guidance document was previously amended on 3 April 2020 (see our blog post), on 8 May 2020 (see our blog post), on 29 June 2020 (see our blog post) and on 13 October 2020 (see our blog post).

The EU Commission noted in the fifth amendment to the Temporary Framework that it expects the European economy to barely return to pre-pandemic levels in 2022. It therefore decided to prolong the availability of the measures set out in the Temporary Framework until 31 December 2021, including the instrument allowing governments to cover part of companies' fixed costs and the temporary removal of all countries from the list of "marketable risk" countries under the short-term export-credit insurance Communication (STEC).

Additionally, the fifth amendment raises the aid ceilings for certain instruments and introduces a new possibility to convert repayable aid measures into non-repayable forms of aid.

Lastly, it clarifies the conditions of compensation under Article 107(2)(b) TFEU.

Prolongation until 31 December 2021

Considering Member States positive feedback and the ongoing second wave of the pandemic, the EU Commission adopted a further six-month extension of the Temporary Framework, thereby prolonging it until 31 December 2021. Member States wishing to extend their national aid measures approved by the EU Commission under the Temporary Framework need to notify the EU Commission and provide the required information set out in the fifth amendment's annex.

The EU Commission will evaluate before 31 December 2021 whether the Temporary Framework needs to be further extended or adapted.

Increased aid ceilings

The EU Commission has increased the ceilings set out in section 3.1 (limited amounts of aid) and section 3.12 (aid in the form of support for uncovered fixed costs) of the Temporary Framework. Both had been or were about to be exhausted due to the continued impact of the COVID-19 outbreak.

Therefore, the overall aid ceiling for all industries (excluding primary agriculture, fishery, and aquaculture) is increased from EUR 800 000 to EUR 1.8 million per undertaking.

The aid for companies active in primary agriculture is increased from EUR 100 000 to EUR 225 000.

The ceiling per undertaking active in fishery or aquaculture is increased from EUR 120 000 to EUR 270 000.

As before, the above aid ceilings can be combined with de minimis aid of up to EUR 200 000 per company (up to EUR 30 000 per company operating in fishery and aquaculture and up to EUR 25 000 per company operating in agriculture) over a period of three financial years, subject to complying with the requirements of the relevant de minimis

Additionally, the ceiling for aid in the form of support for uncovered fixed costs is increased. Due to the pandemic, many companies are struggling to cover their fixed costs. To help these companies, the EU Commission introduced a measure allowing governments to contribute to a part of their fixed costs (see our blog post).

The respective aid measures can now be prolonged until 31 December 2021 and cover uncovered fixed costs incurred between 1 March 2020 and 31 December 2021. Compared to the previous ceiling of EUR 3 million, going forward the overall aid shall not exceed EUR 10 million per company and may be granted in the form of direct grants, tax, and payment advantages, or other forms such as repayable advances, guarantees, loans, and equity.

Possibility to convert repayable aid measures into non-repayable forms of aid

To create an incentive to initially choose repayable forms of aid, the EU Commission has provided for the possibility to convert repayable forms of aid (such as repayable advances and loans) into non-repayable forms of financial support such as grants.

The respective aid ceilings (i.e. in most sectors up to EUR 1.8 million per company) will apply in case of a conversion. Member States can convert their measures until one year after the Temporary Framework's expiry, applying transparent and non-discriminatory conditions. These conversion conditions must be notified to the EU Commission.

Extension of temporary removal of all countries from the list of marketable risk countries under the STEC

The EU Commission continues to see a lack of sufficient private insurance capacity for short-term export-credits in general and considered all commercial and political risks associated with exports to the countries listed in the Annex to the STEC as temporarily non-marketable initially until 31 December 2020.

Considering the continuing disruptive impact of COVID-19 on the European economy, the EU Commission has therefore again prolonged the temporary exception of all countries from the list of "marketable risk" countries under the short-term export-credits until 31 December 2021 (previously until 30 June 2021).

Clarification regarding measures allowing compensation under Article 107(2)(b) TFEU

Article 107(2)(b) TFEU allows Member States to grant compensation for damage directly caused by the COVID-19 outbreak. So far, that damage has been defined as caused "by quarantine measures precluding the beneficiary from operating its economic activity."

The updated Temporary Framework extends the definition by including damage caused by "restrictive measures precluding the beneficiary, de jure or de facto, from operating a specific and severable part of its activity."

According to the EU Commission, de facto restrictions comprise, for example, measures capping attendance for specific activities (e.g., events, entertainment, trade fairs). However, less restrictive measures, like general social distancing measures, are not grounds for compensation under Article 107(2)(b) TFEU.

Additionally, guidance to avoid overcompensation has been added to the new Temporary Framework. Compensation can be given only for strictly quantifiable damage resulting directly from the restrictive measure, and is limited to the profit that could credibly have been generated by the beneficiary in the absence of the measure.

"As the coronavirus outbreak persists longer than we were all hoping for, we need to keep making sure that Member States can provide businesses with the necessary support to see it through."

Executive Vice-President Margrethe Vestager

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EU Commission publishes fifth amendment to its Temporary Framework for state aid in relation to the COVID-19 crisis - Lexology