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On October 13, the European Commission extended the Temporary Framework on state aid until June 31, 2021 and added a further amendment introducing additional measures available to States.
The Temporary Framework, which was due to expire on December 31, is thus extended by a further period of six months and States will be able to notify — and the Commission authorize — public aid aligned with the conditions of the Temporary Framework until June 31, 2020, for now. In any case, the Commission advises that, at the appropriate time, it will assess the need to further extend the Temporary Framework.
This extension applies to the wide range of state aid measures set out in the Temporary Framework and its amendments, including direct subsidies, public guarantees and interest rate subsidies on loans, tax benefits, wage subsidies and recapitalization measures, among others. The only exception in this regard is the aid for recapitalization, which is extended beyond the others, from the initial June 31 to September 30, 2021.
After the extension approved by the Commission, it is expected that Member States will in turn consider extending the duration of the aid already approved by the Commission to align it with the new validity period of the Temporary Framework. For that purpose, States will have to notify a list of all the aid measures they intend to modify so that the Commission can authorise the extension of all of them by a single decision.
As on previous occasions, the Commission has clarified some points of the Temporary Framework that have generated doubts in their application. The Commission thus clarifies that, with regard to aid consisting of direct subsidies, loan guarantees and interest rate subsidies (sections 3.1 to 3.3 of the Temporary Framework), the aid effectively granted must always be within the general limit of 800,000 euros per company. The aid repaid before June 30, 2021 will not be taken into account in applying this limit.
The later means that, if a company receives a repayable advance in the amount of 800,000 euros and that advance is repaid before the Temporary Framework expires, that company may apply for the aid again.
This is also the fourth amendment to the Temporary Framework since its adoption on March 19, 2020. The Temporary Framework was first amended on April 3, 2020, to introduce new aid measures to support the research and manufacture of relevant products to combat the pandemic. It was amended again on May 8, 2020 to allow recapitalization and subordinated debt measures, and for a third time on June 29, 2020, to relax the requirements for the granting of aid to small businesses and promote private investment in the process of recapitalizing companies.
Aid in the form of support for uncovered fixed costs
This fourth amendment introduced the possibility of granting aid for companies’ uncovered fixed costs. These new measures will allow States to contribute to the uncovered fixed costs of companies that have suffered a reduction of at least 30% in their turnover during the eligible period (between March 1, 2020 and June 30, 2021), with respect to the same period of 2019.
The Commission considers to be uncovered fixed costs those fixed costs borne by companies during the eligible period that are not covered by the contribution to profits (that is, the income less the variable costs) during the same period and that are not already covered trough other means, such as insurance or other aid measures under the Temporary Framework. Companies’ losses in their income statements during the eligible period will also be considered uncovered fixed costs.
Aid granted under this measure may consist of direct subsidies, guarantees and loans. The granted aid will not exceed 70% of the uncovered fixed costs except in the case of micro-enterprises and small businesses, where the aid can cover up to 90% of the uncovered fixed costs. In any case, the overall aid cannot exceed 3 million euros per company and other aid may not be claimed for the same eligible costs.
Amendments to recapitalization measures
The Commission also specifies the circumstances under which the State must withdraw after intervening in the share capital of a company in which it was already a shareholder before the recapitalization.
When the State is the only shareholder after the recapitalization, and if at least two years have elapsed since the recapitalization, the competitive sale process (after an open consultation) initially set out in the Temporary Framework for the State’s withdrawal, can be replaced by an independent valuation of the company.
Amendment of the Commission’s Communication on short-term export-credit insurance
Finally, some aspects of the Temporary Framework relating to short-term export-credit insurance have been amended.
Most significantly, an amendment has been made to 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.
That 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 “temporarily non-marketable,” thus allowing support from Member States.
Now the Commission has decided that all countries on that list will remain excluded until June 30, 2021, remaining “non-marketable” until then.
Authors: Irene Moreno-Tapia and Pablo García
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