The European Commission revised its Temporary Framework for State Aid to support the economy during the coronavirus (COVID-19) pandemic, allowing investment aid to companies involved in the fight against the pandemic, as well as new forms of operating aid for companies in severely impacted sectors or regions.
The European Commission adopted a Temporary Framework for State Aid measures to support the economy in the current COVID-19 pandemic on March 19 (Temporary Framework), which specifies the measures of financial support EU member states can provide to companies, especially small and medium-sized enterprises, in line with EU state aid rules, in order to ensure their liquidity and access to finance. The Commission amended the Temporary Framework on April 3, enabling EU member states to grant three types of investment aid in order to accelerate research, testing, and production of COVID-19 relevant products such as vaccines, antiviral medicines, ventilators, diagnostic tools, disinfectants, and protective equipment. The April 3 amendment also allows EU member states to grant two new types of operating aid that aim at easing the liquidity constraints facing firms in regions particularly affected by the pandemic.
Investment Aid
- Investment aid for COVID-19-related research and development (R&D) in the form of direct grants, repayable advances, or tax advantages for R&D relating to COVID-19 vaccines and other relevant antiviral medicines. EU member states can cover up to 100% of eligible costs for fundamental research, and up to 80% of eligible costs of industrial research and experimental development (95% for cross-border cooperation projects between EU member states). Aid beneficiaries must commit to grant nonexclusive licenses to technology resulting from the financed R&D under nondiscriminatory market conditions to third parties in the European Economic Area (EEA).
- Investment aid for the construction of testing and upscaling infrastructures required to develop, test, and upscale, up to first industrial deployment prior to mass production, the following types of products: medicinal products such as COVID-19 vaccines and antivirals (including their components); medical devices, hospital and medical equipment, and necessary raw materials; disinfectants; and data collection/processing tools (collectively, Relevant Products). Permissible forms of support include direct grants, tax advantages, and repayable advances covering up to 75% of eligible costs. Firms can benefit from a bonus when their investment is supported by more than one EU member state and when the investment is concluded within two months after the granting of the aid. A loss cover guarantee may be granted in addition to a direct grant, tax advantage, or repayable advance or as an independent aid measure under certain conditions.
- Investment aid for the manufacture of Relevant Products in the form of direct grants, tax advantages, and repayable advances covering up to 80% of all investment costs necessary for the manufacture of the Relevant Products and the costs of trial runs of new manufacturing facilities. A loss cover guarantee may be granted in addition to a direct grant, tax advantage, or repayable advance or as an independent aid measure under certain conditions. Firms can benefit from a bonus when their investment is supported by more than one EU member state and when the investment is concluded within two months after the granting of the aid.
Operating Aid
- Deferrals of tax payments and/or suspensions of social security contributions in those sectors or regions or for types of companies that are hit the hardest by the pandemic. (Note that the UK has recently permitted UK businesses to defer VAT payments otherwise due between March 20 and June 30, together with a holiday from business rates for businesses in the retail, hospitality, and leisure sectors.)
- Wage subsidies for employees of those companies in sectors or regions that are severely affected by the pandemic and would otherwise have had to lay off personnel. The monthly wage subsidy shall not exceed 80% of the monthly gross salary (including an employer’s social security contributions) of the benefitting personnel. (Note that the UK’s job retention scheme allows employers that are struggling financially to furlough employees, with the government covering 80% of a furloughed employee’s wage costs, subject to certain limits.)
Proposed support measures under the Temporary Framework and its April 3 amendment must be notified to the Commission and authorized prior to their implementation. See a list of aid schemes that the Commission has already authorized under the Temporary Framework.
Companies interested in receiving financial support by an EU member state should verify independently that the financial support (including its intended use) is in line with EU state aid rules including the Temporary Framework, as amended. Under EU state aid rules, a potential confirmation by an EU member state that a given financial support measure is free of state aid, or that it constitutes permissible state aid, does not absolve the recipient company of any potential liability under EU state aid rules.
Further revisions of the Temporary Framework are anticipated as the COVID-19 pandemic unfolds dynamically.
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Contacts
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
London
Joanna Christoforou
Kate Habershon
Frances Murphy
Omar Shah
Leonidas Theodosiou
Brussels
Christina Renner
Izzet Sinan
Frankfurt
Michael Masling