State Aid will be a feature of the response to the COVID-19 crisis so the European Commission adopts “it will do whatever it takes” approach

Some businesses in Ireland, the UK and various European Union member states may require State aid and State support to deal with the current crisis.

Like the Financial Crisis, State aid will be a feature of the support for companies and citizens alike. However, unlike the Financial Crisis, it could be a wide variety of businesses in different sectors which will require assistance.

European Commission response

The European Commission has already responded quickly. For example, Denmark notified the European Commission on Wednesday (11 March 2020) a €12m fund to compensate those businesses affected by the cancellation of certain events due to Covid-19. State aid notifications often take months to approve. The European Commission approved the scheme on Thursday (12 March 2020) – in 24 hours. 

The system worked quickly:

• the European Commission regarded the scheme as not even involving State aid but rather it was support responding to "natural disasters or exceptional occurrences"
• Denmark and the European Commission dealt with the whole case through English (not Danish as would be the norm) so as to expedite matters
• the European Commission signalled a flexibility generally which will be welcomed by all

For further details, see link.

If businesses need State support then there is no legal reason not to ask Governments for it. Their competitors across the world will be asking their governments for assistance. They need to be mindful of various legal issues including:

(a) State aid law (if approaching the EEA Governments and the UK during its transition period); and

(b) local laws (e.g., if approaching the Irish Government, the Regulation of Lobbying Act 2015). 

It is useful to be aware of the State aid dimension.

State aid law dimension

In terms of State aid law, it is worth recalling:

• Governments may give assistance to all consumers (business or personal) of a product on a non-discriminatory basis without it being State aid – so all consumers could be given some products for free or at a reduced price with the suppliers compensated by the State without it being State aid because there is no selectivity involved
• If there is selective assistance involved then provided the assistance by the Member State is limited to dealing with the Covid-19 issue, then the European Commission may well regard the assistance as not amounting to "aid" where it is covered by, for example, Article 107(2)(b) of the Treaty on the Functioning of the European Union – which is the "natural disasters or exceptional occurrences" exception used in the Danish case mentioned above. There are many other legal bases on which aid may be also approved
• It is important that State aid is approved or authorised otherwise it is deemed illegal and the recipients have to repay the aid to the Member State Government and often with interest.

Assistance to businesses could come from the EU directly (in which case there is usually no State aid law as such) or from Government (using EU funds or their own Government funds in which case there could be State aid issues).

Flexible European Commission response

On Friday 13 March 2020, the European Commission identified some possible responses by Governments:

"Member States can design ample support measures in line with existing EU rules. First, they can decide to take measures, such as wage subsidies, suspension of payments of corporate and value added taxes or social contributions. In addition, Member States can grant financial support directly to consumers, for example for cancelled services or tickets that are not reimbursed by the operators concerned. Also, EU State aid rules enable Member States to help companies cope with liquidity shortages and needing urgent rescue aid. Article 107(2)(b) TFEU enables Member States to compensate companies for the damage directly caused by exceptional occurrences, including measures in sectors such as aviation and tourism."

(Article 107(2)(b) provides that State aid "to make good the damage caused by natural disasters or exceptional occurrences" is automatically authorised/ compatible with EU law and does not need authorisation.)

But the Commission has gone further:

"Currently, the impact of the COVID-19 outbreak in Italy is of a nature and scale that allows the use of Article 107(3)(b) TFEU. This enables the Commission to approve additional national support measures to remedy a serious disturbance to the economy of a Member State.

The Commission's assessment for the use of Article 107(3)(b) for other Member States will take a similar approach. The Commission is preparing a special legal framework under Article 107(3)(b) TFEU to adopt in case of need.

The Commission stands ready to work with all Member States to ensure that possible national support measures to tackle the outbreak of the COVID-19 virus can be put in place in a timely manner."

(Article 107(3)(b) provides that State aid "to remedy a serious disturbance in the economy of a Member State" may be authorised by the European Commission but the Member State providing the assistance must notify it to the European Commission.)

Procedure

If a business needs State aid or assistance then it should approach Governments or avail of any Government scheme in existence. If the assistance or scheme needs to be notified to the European Commission then it is the Government (not the beneficiary) which notifies the assistance to the European Commission. While the dialogue on State aid matters is primarily between the European Commission and the Member State, the beneficiary needs some involvement in the process.

Conclusion

What we have seen in the last few days is that the Ursula von der Leyen's European Commission is responding to the Covid-19 Crisis, like Mario Draghi's European Central Bank responded to the Financial Crisis and saying that it will do "whatever it takes". It will now be up to Member State governments to devise schemes and regimes to respond to the crisis but the European Commission is saying that, within reason, it will not be an obstacle to their operation and application.

For more information on this topic please contact Dr Vincent Power, Partner or any member of A&L Goodbody's State Aid team.

Date published: 16 March 2020