Avoiding the Pitfalls: What Companies Need to Know About EU State Aid Rules and the Commission's Temporary Framework During the Coronavirus Crisis
The global economy has come to a standstill and governments around the world have had to intervene massively to support their domestic economies during the Coronavirus crisis. Government support to industry is only likely to increase as companies face ever-greater financial difficulties due to the continuing public health restrictions.
In the EU, government aid (State aid ) to companies is in principle forbidden as it distorts competition in the Single Market, but there are specific exceptions foreseen in the EU Treaty. The damage caused by the coronavirus pandemic clearly falls within these exceptions. However, any aid (or aid scheme) falling within the EU State aid rules is subject to notification and prior approval by the European Commission (‘Commission’) if the aid is not to be illegal and subject to possible recovery – i.e., clawback.
The Commission has introduced a Temporary Framework (‘TF’), which it last amended on 3 April 2020, to cover Member State aid to locally based industries during the coronavirus crisis (see earlier Baker Botts Alert). To date, the Commission has approved approximately 90 aid schemes worth several hundreds of billions of euros under the TF.
Many companies will be receiving State aid in the EU for the first time or will consider applying for such aid, but will have limited experience or insight into the rules. Beneficiaries (or potential beneficiaries) need to familiarise themselves with certain key elements of the State aid rules. Recent court rulings confirm that it is the beneficiaries of aid and not the granting authorities that are exposed to significant risks if there are failings. Two important categories of government failings which can impact beneficiaries are procedural failures and failure to observe relevant conditions when implementing aid schemes.
This Alert flags up some of the basic EU State aid rules that should not be overlooked by potential beneficiaries and highlights the consequences and risks if the rules are not respected. It concludes with a short checklist of key take-aways.
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