Further extension and expansion of the European commission’s temporary framework for state aid

On October 13 last year, the European Commission extended the Temporary Framework on State Aid for the first time, as reported, also expanding the range of public support measures available to Member States.

The previous extension of the Temporary Framework extended the possibility of granting aid under the Temporary Framework until June 31, 2020, with the exception of aid for recapitalization, extended until September 30, 2021. On January 28, the Commission adopted a new extension, which will allow the Temporary Framework to remain in force until December 31, 2021, exactly one year after its initial expiry date. This time the Commission has not set a different date for aid for recapitalization, which is also extended to December 31, 2021. The Commission may also assess the need to further extend the term of the Temporary Framework once again.

This second extension, in turn, entails the fifth amendment to the Temporary Framework since it was adopted on March 19, 2020. We highlight the most significant developments below.

Clarifications on the granting of aid under article 107.2(b) of the Treaty on the Functioning of the European Union

The Commission clarifies that aid granted under article 107.2(b) of the Treaty on the Functioning of the European Union (“TFEU”), under which aid to repair the damage caused by natural disasters or exceptional events is considered to be compatible with the internal market, must be used to compensate the harm suffered as a direct result of the measures adopted to contain the pandemic and that have prevented the beneficiary from developing its economic activity.

Therefore, the Commission states that the measures that entail completely halting an activity (such as the closure of bars, restaurants and non-essential commercial establishments, or the exclusion of some categories of customers for certain businesses, like non-business travelers for hotels or school trips for young people’s accommodation) are restrictive measures under for which compensation can be granted under Article 107.2(b) of the TFEU. The scope of that article also includes restrictions that limit the capacity for activities or events even below the requirements of social distancing rules. However, the Commission insists on the fact that general restrictions, such as social distancing measures or general health restrictions, are not eligible for compensation under article 107.2(b) of the TFEU.

Finally, the Commission clarifies that aid generally aimed at combatting the consequences of the pandemic must be assessed under the Temporary Framework rather than as compensation granted under article 107.2(b) of the TFEU.

Extension of the quantitative ceilings of aid per company

Aware of the persistence of COVID-19 pandemic as well as of the fact that many Member States have already reached the maximum limits of aid grantable to companies in certain sectors, the Commission has doubled the individual maximum amount that companies can receive under the Temporary Framework. The new general limit has therefore been raised to €1.8 million gross per company (previously €800,000), while the specific limits for some sectors have also been extended: from €100,000 to €225,000 per company active in agricultural production and from €120,000 to €270,000 per company in the fishing and aquaculture sector. These new ceilings remain compatible with the possibility of receiving de minimis aid (up to €200,000 in a three-year period in general, and up to €25,000 to €30,000 per company in the agricultural production and fishing sectors, respectively).

Regarding the possibility of the State contributing to covering the fixed costs of companies badly hit by the pandemic, which was introduced with the amendment to the Temporary Framework of October 13, 2020, the State’s maximum coverage of the costs has been extended to €10 million (the initial amount was €3 million).

Aid granted under the Temporary Framework which has been reimbursed to the State before December 31, 2021 will not be taken into account in determining whether the corresponding ceiling has been exceeded, which may allow the company to request aid again up to the new ceilings.

Incentives for granting aid through repayable instruments

To encourage the granting of aid through repayable instruments, such as public guarantees, loans and repayable advances, Member States will be allowed to subsequently convert those aid mechanisms into direct grants (non-repayable) respecting the new ceilings per company. Repayable aid must be converted into direct grants by December 31, 2022 at the latest.

Extension of the temporary removal of all countries from the list of “marketable risk companies” in accordance with the short-term export-credit insurance Communication

As part of the first extension of the Temporary Framework, the Commission amended the list of marketable-risk countries appearing in the annex of the Communication from the Commission to the Member States on the application of articles 107 and 108 of the Treaty on the Functioning of the European Union to short-term export-credit insurance.

The said Communication establishes that risks considered “marketable” may not be covered with export-credit insurance with Member States’ support. As a result of the pandemic, the Commission now considers all marketable risks and policies associated with exports to countries listed in the Communication’s annex to be “temporarily non-marketable,” thus allowing support from Member States.

The Commission has now decided that all countries on that list will remain excluded until Friday, December 31, 2021, remaining “non-marketable” until then.

Member States intending either to extend existing aid up to December 31, 2021, to increase its amount in accordance with the new ceilings or to adapt it to the new provisions of the Temporary Framework can notify those changes jointly, and the Commission will authorize by means of a single decision.

The current consolidated version of the Temporary Framework is available at this link.

Authors: Irene Moreno-Tapia and Pablo García Vázquez