EU State Aid rules: Covid-19 Crisis Response

As the world is grappling with the response to the current COVID-19 crisis, governments have to impose very strict and unprecedented measures to limit contagion. Setting aside the dramatic impact of this pandemic on public health, there are severe economic consequences affecting businesses, across different sectors (health, transport, hospitality and leisure to name a few) and this with imminent effect.

EU Commission’s Response

In a communication dated 13 March 2020, the EU Commission recognized that the main fiscal response to the COVID-19 crisis will come from Member States’ national budgets. In parallel, it also reminded that EU State aid rules need to be respected by all EU Member States when considering mitigation and other support measures to businesses (this includes the United Kingdom until the end of the withdrawal period). Based on Article 107(1) TFEU “any aid granted by a Member State or through State resources in any form whatsoever” will have to be assessed to determine its compatibility with EU rules. However, aid granted by a Member State to rectify damage “caused by natural disasters or exceptional occurrences” can be justified (Article 107(2)(b) TFEU). The same is true for aid which aims at remedying “a serious disturbance in the economy of a Member State” (Article 107(3)b TFEU).

In a recent decision, the EU Commission concluded that the COVID-19 outbreak qualifies as an “exceptional occurrence” in the meaning of the TFEU. The EU Commission’s decision concerned a scheme notified by Denmark that sought to compensate organizers of events in case of cancellation, postponement or substantial modification of the event as a result of the measures adopted by the national government in response to the COVID-19 outbreak.

In addition, on 17 March 2020, the EU Commission issued emergency guidance setting out the information that needs to be provided by the relevant parties in order to have their aid authorized under the exceptional circumstances justification. The EU Commission’s guidance includes a dedicated annex to the transport sector (airlines, airports, ground handling, rail, bus and maritime companies) providing similar information. However, it is stated that a case by case assessment will need to be undertaken in relation to measures in these sectors.

What next?

Not all support by Member States will constitute “State aid” under EU rules and not all State aid measures will require prior authorization by the EU Commission. The determination of the compatibility of the aid and the procedural implications under State aid rules will depend on a number of elements, such as the type of the measure (is it notified under an existing scheme or falling under an exemption or is it individual aid), or its characteristics (does the measure apply for all operators in a sector or is it selective, does it concern a very low amount (de minimis)). Therefore, companies contemplating receiving aid should ensure that this is lawful and compliant with EU State aid rules. Not doing so, will drag not only the Member State but also the beneficiary of the aid into a long administrative process before the EU Commission and expose the beneficiary to the risk of having to repay the aid it received plus interest.

In addition, competitors who consider that a State measure confers an unfair advantage to the beneficiary of the aid may also seek to challenge the aid granted, leading to the recovery of the aid plus interest if successful.

The EU Commission has demonstrated that in emergency cases it can act quickly and deliver decisions within a very short time frame.

The State aid team EY Law can help your company navigate through these uncertainties and offer you timely and tailor-made solutions.

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