State aid | How can governments support businesses in the midst of the coronavirus crisis?

What is "State aid"?

The concept of State aid includes any advantage granted selectively to certain undertakings by the State or through State resources. This can include, for example: grants, subsidies, loans on favourable terms, State guarantee or tax benefits.

Although State aid is generally prohibited, there are a number of exceptions that allow governments to assist companies facing difficulties as a result of the coronavirus crisis. These rules also apply to the United Kingdom during the transition period for leaving the EU (currently scheduled to end on 31 December 2020).

What can governments do?

The main exceptions available to national governments to support businesses are as follows:

• Governments are able to implement general measures (for example tax reliefs) that apply equally and do not make any distinction between companies. Such measures are likely to fall outside the scope of State aid rules, because they do not selectively benefit certain groups of undertakings.

• Aid granted to undertakings that are not in financial difficulty may benefit from:

• the General Block Exemption Regulation, which permits aid associated with certain policy objectives, such as regional development and aid to support SMES, provided criteria are met; or
• the 'de minimis' Regulation, which permits aid of up to €200,000 to a single undertaking in any 3-year rolling period.

• Member States can adopt aid measures to compensate the damage caused by exceptional occurrences. On 13 March, the European Commission announced that it considers that the emergency brought by the coronavirus, which is an extraordinary and unforeseeable event having an economic impact, qualifies as such an exceptional occurrence. As one of the first examples of this exception being used, the Commission approved, within 24 hours of receiving the notification by the Danish Government, an aid scheme for Denmark amounting to €12 million (DKK 91 million). The aim of this aid scheme is to compensate organisers for the damages suffered for cancellation of events as a result of the coronavirus. The Commission considered that this aid scheme will contribute to addressing the economic damage suffered and that it is proportionate to the results envisaged.

• The Commission has stated that Italy, as the Member State which has been thus far most affected by the corona crisis, can provide aid to remedy a serious disturbance of its economy. The Commission takes a restrictive interpretation of what can be considered a "serious disturbance in the economy", which underlines the seriousness of the emergency facing the country.

• Companies with liquidity shortage might qualify to receive rescue and restructuring aid. Industries such as aviation, tourism, hospitality or financial services may seek this type of support in the coming weeks. The Commission has already indicated it will be flexible in applying the 'one time last time principle' - which normally precludes companies from receiving rescue and restructuring aid more than once in ten years.

It is not the first time that the Commission has used these measures to safeguard the European economy. It took a similar approach during the 2008 financial crisis, issuing specific communications on the application of State aid rules to measures taken in relation to both the financial sector and the other parts of the economy.

The Commission is also preparing a legal framework based on the exception of aid to remedy a "serious disturbance in the economy".

Furthermore, the Commission has set up a specific coronavirus response team helping coordination between Member States and providing assistance. This team can be reached by telephone at: +32 2 296 52 00 and by e-mail at: COMP-COVID@ec.europa.eu.

What can companies do?

The EU State aid rules provide for various exceptions enabling national governments to support business affected by the coronavirus emergency. In order to make effective use of these exceptions, it is crucial for both governments and beneficiaries to take account of the parameters set by the State aid rules at an early stage of the process. Experience shows that aid can often be obtained with full legal certainty, if the measures are designed in the correct way and potential State aid issues are recognised and addressed quickly. It is therefore important to get State aid experts on board as soon as a request for aid is being considered.

Our lawyers across our jurisdictions are keeping up to date on the latest guidance and advice on coronavirus issues and the impact this has on the market. Please contact your usual Osborne Clarke contact for further advice on managing the impact of coronavirus on a global basis or one of our specialist lawyers listed below.