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EU to Ease State Aid Rules to Support Businesses

Posted on Mar. 18, 2020

The European Commission has proposed that businesses affected by the coronavirus be allowed to receive direct grants and selective tax advantages of up to €500,000 to address urgent liquidity issues.

“The Commission will enable Member States to use the full flexibility foreseen under State aid rules to tackle this unprecedented situation,” European Commission Executive Vice President Margrethe Vestager said in a  March 17 release on various support measures targeting small and medium-size businesses during the COVID-19 outbreak.

A draft proposal for a state aid temporary framework, which would apply across the entire EU, has been sent to member states for consultation. The commission hopes to have the framework in place in a few days. 

The commission announced March 13 that it intended to implement, propose, or revise measures to lessen the major economic shock the pandemic is having on the EU. It urged member states to work together rather than take unilateral measures. The commission also encouraged member states to take measures such as suspending corporate taxes and VAT payments.

In addition to allowing member states to set up schemes by direct grants or tax advantages, Vestager said the commission will allow aid in the form of guarantee schemes to support bank loans taken out by businesses, subsidized interest rates for private and public loans to companies, and safeguards for banks.

According to the commission's release, the proposed temporary framework makes clear that any aid given by member states to banks is direct aid to the banks’ customers and not the bank itself, and it includes guidance on how to minimize unnecessary residual aid to banks in line with EU rules. Nevertheless, if direct aid to banks is necessary under article 107(2)(b) of the Treaty on the Functioning of the European Union, the aid will not be considered extraordinary public support.

The commission noted that this temporary framework will not replace other member states’ efforts to provide general measures, such as wage subsidies and suspension of tax payments. Instead, it will work in conjunction with other relief packages.

Further, the commission said that member states can provide airline compensation under article 107(2)(b) of the TFEU, even if the airline has already received rescue aid in the past 10 years. This announcement follows a ban on air travel to the United States from 28 European countries because of the coronavirus. Europe’s largest airline association, Airlines for Europe, recently called on governments to waive or defer taxes on the struggling sector.

The release says that aid under the temporary framework will only apply to businesses that experienced difficulties after December 31, 2019, ensuring that this aid is not used for taxpayer support unrelated to the coronavirus. In addition, general transparency obligations are still to be applied.

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