State Aid
Following the recent outbreak of the COVID-19 virus across Europe, Member States have adopted various public health measures, such as social distancing, travel restrictions, as well as mandatory and voluntary quarantines, all of which have an immediate effect on demand and supply. This has inevitably created a ripple effect, causing a devastating blow to several undertakings and their employees, especially in the health, tourism, culture, retail and transport sectors.
'State aid' is a term that refers to a regulated form of government assistance given to undertakings on a discretionary basis. The laws on state aid enable Member States to take swift and effective action to support individuals and companies, including small and medium enterprises ('SMEs') facing economic difficulties during this time. However, under EU rules, the governments of Member States are allowed to provide state aid only with approval from the European Commission. Furthermore, if state aid is granted illegally the European Commission may order the recovery of that aid from the relevant industry and/or companies it was given to.
The 2020 Temporary Framework
On 19 March 2020, the European Commission announced the adoption of a Temporary Framework to enable Member States to use the full flexibility under state aid rules. This came following a press release on 13 March 2020 indicating to Member States the ample support measures to be taken in line with existing European Union state aid rules. The Temporary Framework (the 'Framework'), implemented by virtue of Article 107(3)(b) of the Treaty on the Functioning of the European Union, allows Member States to provide for five types of aid:
- Direct grants, selective tax advantages and advance payments: Member States will be able to set up schemes to grant up to €800,000 to any single company to address urgent liquidity needs;
- State guarantees for loans taken by companies from banks: Member States will be able to provide guarantees to ensure banks keep providing loans to their customers;
- Subsidised public loans to companies: Member States will be able to grant loans with favourable interest rates to companies, helping businesses cover immediate working capital and investment needs;
- Safeguards for banks that channel state aid to the real economy: Some Member States plan to build on banks' existing lending capacities and use them as a channel for support to businesses. The Framework makes it clear, however, that such aid is directed at helping the customers of the banks, not the banks themselves, and thus also gives guidance on how to ensure minimal distortion of competition between banks;
- Short-term export credit insurance: The Framework introduces additional flexibility on how to demonstrate that certain countries are not-marketable risks, thereby enabling short-term export credit insurance to be provided by the state where needed.
The fundamental aims of these safeguards are to help undertakings to weather the downturn, and to prepare for sustainable recovery. The Framework will be in place until 31 December 2020, with the possibility of it being extended should the need arise.
So far, in Malta, a number of measures have already been announced on 18 March 2020 and revisited on 24 March 2020, targeting critical sectors that were impacted by the health measures taken to counteract the virus. Such sectors include hotels, restaurants, retail outlets, travel agencies, transport operators, entertainment, barbers, and hairdressers. All activities hit by forced closure as a result of public health measures will benefit from the government's new scheme. For more information on the Maltese government's measures to help employers, you may refer to our news item here. These measures will be sustained for three months, but can be reviewed depending on how the situation develops.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
