How can Cyprus and the other Member States legally provide liquidity support to businesses?
State Aid defined
The European Commission defines State Aid as an advantage in any form whatsoever conferred on a selective basis to companies by national public authorities. This advantage qualifies as state aid if it distorts competition and is likely to affect trade between Member States.
State Aid may take several forms:
State grants, subsidies, liquidity support, state guarantees, tax or social insurance reliefs etc.
How can the government correctly assist your company?
State aid granted by EU member states can be a valuable and immediate tool to assist affected companies, struggling to cope with the effects of the Coronavirus crisis. However, the EU and national notification and approval requirements should be followed. Otherwise, ex post recovery from a company receiving illegal state aid is always on the table.
1.Provide to all companies generally applicable aid, falling outside the scope of state aid rules.
Aid measures qualify as state aid if they give the recipient an advantage on a selective basis, for example to specific companies or industry sectors. Therefore, subsidies granted to individuals or general measures open to all enterprises are not covered by this prohibition and do not constitute State aid.
Wage subsidies or the general reduction of VAT rates implemented by the Cyprus Government are good examples of such general measures.
2.De minimis support
This is emergency life support for small and medium sized companies.
The government can provide €200,000 to each company in a 3-year rolling period.
No need for prior notification/approval by the European Commission
Written declarations of recipient businesses should be made in Cyprus.
3.Block Exemption Regulations for State aid.
State aid to small and medium size companies for specific issues is exempted from prior notification/approval by the European Commission.
Obligation for prior notification and approval by the Cyprus Commissioner for State Aid Control.
4.State aid measures to compensate the damage caused by exceptional occurrences or to remedy serious disturbances to the economy of member States
On 13 March, the European Commission announced that the emergency brought by the coronavirus qualifies as a damaging exceptional occurrence and a serious disturbance to the economy.
The Commission is ready to approve within days, state aid schemes, such as the one approved on 12 March for Denmark, amounting to €12 million. The aim of this aid scheme is to compensate event organizers for the damages suffered for cancellation of events as a result of the coronavirus.
Obligation of Member State for prior notification/approval by the European Commission, and
In case of Cyprus prior notification to the Cyprus Commissioner for State Aid Control, as well.
5.Rescue and restructuring aid to aviation, tourism or other companies in danger of bankruptcy.
Obligation of Member State for prior notification/approval by the European Commission, and
In case of Cyprus prior notification to the Cyprus Commissioner for State Aid Control, as well.
In the meantime, the European Commission’s Communication for the application of EU State Aid Rules for Covid-19 is eagerly expected by the Member States and businesses.
Michail Kamperis
Partner
Ierotheou, Kamperis & Co. LLC