The European Commission has announced a series of changes to EU State aid exemptions, recognising the impact of the Covid-19 pandemic. The headline change is the extension of multiple existing exemptions, in some cases until 2023. This is on the basis that the Commission has concluded that in such turbulent times it is easier to extend the current law a little further rather than incur the disruption of potentially significant changes at the end of this year, when many exemptions were otherwise due to expire.
In terms of immediate changes to the details, however, days after the 'undertaking in difficulty' test was relaxed for micro and small enterprises in the (COVID-19) Temporary Framework, the European Commission has created a time limited amendment to the same definition in the General Block Exemption Regulation (GBER), ie. the main instrument for State aid exemptions normally. Those expecting the recent Temporary Framework relaxation for small enterprises to be repeated in GBER will however be disappointed; the change in the GBER is limited only to the date at which the test is to be applied, thereby allowing the test to be backdated to 31 December 2019. Nevertheless, even this is a significant move that will enable multiple investments to happen now as part of the recovery, that might otherwise have been blocked.
These changes to EU State aid law remain relevant to the UK at least until 31 December 2020 when the current Brexit transition period is due to end. The change to undertaking in difficulty assessments to GBER-based awards provided before then is likely to be especially helpful.
Change to definition of an "undertaking in difficulty"
The 'undertaking in difficulty' test, which can be found at Article 2(18) of the General Block Exemption Regulation 651/2014 ("GBER"), precludes companies with certain characteristics, suggesting a likelihood of imminent insolvency, from receiving aid. The policy rationale for the provision is to avoid subsidies being wasted and benefiting creditors rather than the businesses in need.
The newly extended Regulation, which comes into effect on 27 July 2020, provides that companies who are classed as undertakings in difficulty between 1 January 2020 and 30 June 2021, can still receive aid if they were not in difficulty on 31 December 2019. The Regional Investment Aid provisions excluding companies that have closed down activities in another Member State have also been changed, taking account that many businesses have had to lay off staff.
Extending State aid exemptions
Prolongation by 3 years (until 2023):
Prolongation by 1 year (until 2021):
- Guidelines on regional State aid for 2014-2020
- Guidelines on State aid to promote risk finance investments
- Guidelines on State aid for environmental protection and energy
- Communication on the execution of important projects of common European interest (IPCEI)
- Communication on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to short-term export-credit insurance (STEC)
The European Commission has decided to extend many of its regulations and guidelines, whilst making minor changes, because Member States are focused upon addressing the significant economic disturbance arising from the Covid-19 pandemic. This is a sensible move, which means Governments are not grappling with new rules at a time when they need to be able to move quickly and decisively.
The widening of the undertaking in difficulty rule in GBER to allow for retrospective analysis as at 31 December 2019 will also be roundly welcomed in order to avoid freezing out many companies for benefiting from the GBER aids that will be needed to kickstart new investment projects to help the economy move out from the COVID-19 emergency.
DWF has a breadth of expertise in State aid law matters. We are able to draw upon a team of leading experts who have extensive experience in this area, including working within the UK Government on high profile funding matters, defending projects from recovery and designing projects to meet the rules.