COVID-19: State Aid as Part of Your Financial Solution – The Questions to Ask

EY’s latest Capital Confidence Barometer survey – see article ‘How do you find clarity in the midst of the COVID-19 crisis?” and a link to the survey – has a distinct negative outlook. Three-quarters (73%) of C-suite respondents expect COVID-19 to have a severe impact on the global economy.

Businesses are facing financial distress. One topic that is being discussed is the extent to which State aid is available. World Trade Organisation Members have a constraint on what subsidies can be paid. The constraint is that subsidies that directly or indirectly operate to increase exports or reduce imports are prohibited, while subsidies that cause adverse effects on another Member’s interests (e.g. the other Member’s industry is injured) are challengeable.

The EU and its Member States and the U.S.A. are among the world’s largest donors of subsidies. Unlike the U.S.A. the EU has a stringent internal subsidies regime. If businesses wish to benefit from State aid in the EU Member countries, then navigating the EU rules is fundamental because unlawful State aid in the EU must be repaid by the recipient.

There are two C-suite discussions concerning the:

short term – State aid per a COVID-19 scheme. Currently such State aid is only available until 31 December 2020. Businesses may be motivated to engage with their respective Member State government to have a scheme created for them (many schemes are sector-specific, so businesses would normally work with the relevant trade body or association or go as part of a major representative group to government and lobby their cause); and

longer term – State aid, for example rescue and restructuring aid could be sought.

In relation to the short term, EU Member States are almost daily notifying new COVID-19 related schemes to the EU for authorisation. In this regard businesses should be addressing the following questions:

• Is there an scheme I can benefit from?
• Is there an scheme in another EU State that would be helpful and that I should encourage my own State to consider a similar scheme?

In the longer term, there are schemes and individual aid measures to be considered (including rescue and restructuring aid). For these the questions to ask are:

• What are the criteria to qualify for State aid?
• What changes will I need to make to my business in order to satisfy the conditions that accompany the State aid?

And if there is a scheme/individual measure that is thought appropriate, then the questions to ask are:

• What are the messages that are more likely to resonate with the State for it to grant State aid?
• How long will the process take?

Brief on the EU State aid regime
• Almost all State aid (grants, soft loans, tax waivers…anything that can be deemed financial aid) is unlawful unless it has prior authorisation by the Commission.
• Unlawful State aid must be repaid by the recipient.
• EU Member States have State aid schemes that have been approved by the Commission. Consequently, any State aid paid under such existing schemes needs no further approval.
• The EU has prompted Member States to design temporary schemes to support the economy in the current COVID-19 crises. Special criteria apply to State aid to banks and State aid in relation to supporting corporations in relation to their borrowings, as well as certain sectors such as agriculture (the measures are evolving as the crisis unfolds).
• The EU procedure to obtain consent normally takes six months for non-contentious matters and up to two years for contentious or complex matters. In contrast, the Commission is approving the temporary COVID-19 schemes created by States within a matter of days.

Examples of State aid
Direct grant – Tax advantages – Guarantees on loans – Subsidised interest rates for loans – R&D funding – Investing aid for upscaling infrastructures – Investment aid for the production of COVID-19 products – Deferral of taxes – Suspension of social security payments – Wage subsidies for employees – Recapitalisation…

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