On Thursday 19 March 2020, the European Commission adopted a Temporary Framework to make it easier for Governments to provide State aid in response to the COVID-19 pandemic. Most specifically this emergency measure paves the way to allow public authorities across the EU (plus the UK while still working in the Brexit transition period) to award grants, repayable advances or individual tax or other benefits of a value of up to €800,000 per undertaking, provided certain compatibility conditions are met.
Crucially however the framework by itself is not a State aid block exemption. It does not give automatic approval to make awards of this nature without any further approvals. Member States seeking to avail of this must notify a general aid scheme to the European Commission under the framework, but the assumption must be this will be immediately approved. Furthermore, since the framework allows retrospective effect anyway (for grants awarded since 1 February 2020), and given the unprecedented nature of the emergency, it is expected that government authorities will move to make the awards quickly, in part on an assumption that the scheme compliance will be rubber-stamped in due course.
The Temporary Framework sets out five new State aid compliant options:
The main common requirements for measures to be compatible under the Temporary Framework are:
The exemption which will generate the most interest in the short term is the ability to award aid (in the form of direct grants, repayable advances or tax advantages) of up to €800,000. In order to be used certain conditions must be met. These are:
The maximum aid which can be provided under the cover of this provision of the Temporary Framework is €120,000 for undertakings in the fishery and aquaculture sector and €100,000 for those in the primary production of agricultural products.
The European Commission has sought to improve liquidity to undertakings by publishing generous guarantee premiums (for both investments and working capital loans) which it shall regard to be compatible with the Common Market, provided other conditions are met. These include that the guarantee does not exceed 90% (reduced to 35% where losses are sustained by the State first). The duration of the guarantee must not exceed 6 years.
As with the above, the Commission has approved a more generous credit risk rating for loans, again with the aim of improving liquidity during this challenging time. This provision is limited to loans with a duration of six years or less.
The Temporary Framework expressly states that such funding should "to the largest extent possible" pass on the advantages of a public guarantee or reduced interest rate to the final beneficiaries, these being the recipients of such financial instruments. It also prevents any guarantee fee being charged where a legal obligation exists on the financial institution to extend the maturity period of a loan.
Member States may provide financial assistance to temporarily support the provision of such insurance where it can show that such cover is unavailable.
The European Commission has acted swiftly to respond to the economic crisis arising from the COVID-19 pandemic. A Danish measure, to provide support to organisers of events cancelled due to the outbreak, was approved within 24 hours. This framework was shared in draft form on Friday 13 March and adopted, with significant revisions following comments from Member States, six days later.
The State aid Temporary Framework is based on Article 107(3)(b) of the EU Treaty (TFEU) to remedy a "serious disturbance in the economy of a Member State". As the COVID-19 outbreak is affecting undertakings across all Member States, the Commission considers that State aid is justified in the circumstances and can be declared compatible with the internal market on this basis for a limited period (until 31 December 2020), in order to support undertakings with cash flow difficulties during this unprecedented time.
By way of background, the Commission similarly adopted a Temporary Framework in 2008 based on Article 107(3)(b), in response to the global financial crisis under which the UK successfully implemented the "Short term provision of small amounts of compatible aid (De Minimis) scheme" (N43/2009).
Other than the measures set out in the Temporary Framework, there are a number of actions a Member State can take within the existing State aid rules to support businesses and citizens during the COVID-19 pandemic:
The European Commission's announcement of the Temporary Framework offers very helpful extra flexibility to public authorities seeking to stem the negative effects of the crisis. it may be used particularly in some sectors such as aviation, transport, hospitality and tourism. We therefore expect Member States to move quickly by implementing a wide range of initiatives and adopting and notifying aid schemes under the Framework for widespread use (for example by regional and local authorities in their jurisdiction) in the coming days and weeks.
It would certainly make sense to create the broadest aid schemes the Framework allows without delay. Adopting a scheme allowing aid to be granted does not require that aid be granted (particularly if the source of budget with which to do this is unclear). Individual authorities can of course base their procedures and decisions on whether to go ahead with grants on additional criteria as they may determine.
 This is a legal test which has been a common area of difficulty for organisations awarding public funding. We can assist in providing advice as to the relevant tests and the appropriate audit trail.