During the COVID-19 outbreak businesses are facing the dilemma of whether to seek state aid or survive the crisis using their own resources. Every company should assess if meeting certain criteria for state aid is justifiable financially and in terms of timing. The state has the tool while the business has the option to use it. State aid is a sensitive topic, since it distorts competition by favouring certain undertakings, but this is allowed to take place when its compatibility with the single market is confirmed by the European Commission (the "EC"). Thus, the EC sets the parameters for the implementation of state aid while the Member States align the incentives with the needs of local business.
On 19 March 2020, the EC adopted a temporary framework for state aid to support the economy in the current COVID-19 pandemic, as amended on 3 April 2020 by an extension to the scope of the measures (the "Temporary Framework"). The Temporary Framework sets out Member States' options to ensure liquidity and access to financing for undertakings – especially small and medium-sized enterprises ("SMEs") – experiencing difficulties due to the pandemic.
The Temporary Framework provides for the following types of aid schemes that the EC is ready to approve:
- Direct grants, selective tax advantages and advance payments of up to EUR 800,000 to a company;
- State guarantees for loans taken by companies from banks;
- Subsidised public loans with favourable interest rates;
- Safeguards for banks that channel state aid to the real economy guaranteeing that such aid is considered as direct aid to the banks' customers, not to the banks themselves;
- Short-term export credit insurance;
- Aid for research and development related to COVID-19;
- Investment aid for the construction or upgrade of testing and upscaling infrastructures required to develop, test and upscale medicinal products (including vaccines), medical devices, hospital and medical equipment relevant for COVID-19;
- Investment aid for the production of products relevant for COVID-19 in the form of direct grants, tax advantages or repayable advances;
- Aid in the form of deferrals of tax and/or of social security contributions; and
- Aid in the form of wage subsidies for employees to avoid layoffs during the COVID-19 pandemic.
The Temporary Framework will be in place until the end of December 2020, as the EC may extend its term in case of necessity. Before certain measures are put into effect, the Member States must notify the EC, which will assess the support scheme or individual measures and approve them as compatible with the single market.
The EC has already approved a BGN 500m (approx. EUR 255m) public guarantee scheme to support SMEs, as the Bulgarian Development Bank AD (having recently increased its capital by state funds) will provide public guarantees on investment loans and working capital loans to SMEs affected by the coronavirus outbreak in Bulgaria ("Intermediated SME Loan Guarantee Programme"). The EC also approved a COVID-19 employment scheme for preserving jobs in the most heavily affected sectors in Bulgaria by providing wage subsidies. The estimated budget under this wage subsidy scheme is BGN 1.5bln (approx. EUR 767m) and the aid may be granted until 31 July 2020.
Given that many companies operate in multiple Member States, the question arises as to whether a company that has applied for state aid, e.g. in Germany (where all group companies will benefit from this aid, including those headquartered outside Germany), can also apply for state aid in Bulgaria through its Bulgarian subsidiary. As long as certain conditions have been met and the mandatory thresholds for the respective state aid have not been exceeded, the answer is yes. However, the authority responsible for granting the state aid in one Member State should assess whether it is compatible (in essence and in amount) with the state aid granted by another Member State.
The Temporary Framework enables Member States to combine different types of state aid, except for loans and guarantees for the same loan and exceeding the thresholds. Member States can also immediately act through public support measures that are available to all companies, such as suspension of payments of corporate and value added taxes or social contributions, which fall outside state aid rules. The idea is that Member States are flexible to use various support tools (state aid or other) as long as excessive accumulation of support measures for the same companies is avoided.
By Silvia Ribanchova, Attorney at Law, Schoenherr