ERU, Alm.del - 2020-21 - Bilag 392: Orienteringsnotat samt høringssvar vedr. Kommissionens tredje undersøgelse om anvendelse af midlertidige rammebestemmelser for støtteforanstaltninger ved covid-19-udbrud, fra erhvervsministeren

Erhvervsudvalget 2020-21
ERU Alm.del Bilag 392
Offentligt

NOTE

7 July 2021

HT.5938

–

Danish response to the third survey on the use of State aid

in the COVID-19 crisis

The Danish Government welcomes the Commission initiative to consult

the authorities of the Member States on the use of the Covid-19 measures

and the future of the Temporary Framework.

The Covid-19 situation is constantly evolving and the Danish Authorities

appreciates the opportunity to inform of potential challenges in respect of

the use of Temporary Framework in the context of the current Covid-19

situation as well as recovery after the Covid-19 pandemic.

The Temporary Framework has in general been a very useful tool in order

to cope with the negative impact on the economy and undertakings during

the Covid-19 out-break. In particular as a supplement to TFEU article

107(2) b.

Please find below our comments to the Commission’s specific questions

regarding the current set of COVID-19 related State aid rules.

1. Prolongation

We supported the last prolongation of the Temporary Framework until 31

December 2021, which ensured predictability for undertakings in regards

to necessary support in 2021.

It is very difficult to predict the development of the Covid-19 pandemic

and the needs of undertakings in the post Covid-19 pandemic recovery.

A need for prolongation of the Temporary Framework would depend e.g.

on how the infection rates develop after the summer period and on possible

existence Covid-19 variants that may be resistant to the current vaccines.

Furthermore, it will depend on whether undertakings and sectors severely

affected by the pandemic manage to recover during 2021. E.g. in Denmark

ERU, Alm.del - 2020-21 - Bilag 392: Orienteringsnotat samt høringssvar vedr. Kommissionens tredje undersøgelse om anvendelse af midlertidige rammebestemmelser for støtteforanstaltninger ved covid-19-udbrud, fra erhvervsministeren

2/7

the number of visits to cultural institutions is still below the average for a

‘normal’

year.

We therefore find that the Commission and the Member States should as-

sess the situation later in 2021, depending on the development of the pan-

demic and vaccination coverage in the Member States.

2. Adaption of the Temporary Framework and phase out

For the moment, we find that the Temporary Framework should be main-

tained and in principle remain unaltered. Generally, Denmark finds that the

compatibility conditions are well balanced to ensure that the Temporary

Covid-19 aid granted is necessary and proportionate. We find that the Tem-

porary Framework, by its nature, should be phased out.

In some cases, Denmark finds that there is a need for the Temporary Frame-

work to be less strict and allow for more flexibility. Namely in regards to

the aid ceilings in TF 3.1 and TF 3.12, and in respect to the broad notion of

an undertaking, especially in TF 3.12. Furthermore, as regards TF 3.9 the

Danish Authorities find it necessary to prolong the deferral deadline to 31

December 2023 to make the phase out as little burdensome as possible for

the companies.

Aid ceilings

Denmark welcomed the increase of the aid ceilings in section 3.1 and 3.12

in the 5

amendment of the Temporary Framework. However, we find that

the increase in TF 3.1 to 1.8 mil. EUR and TF 3.12 to 10 mil. EUR is in-

sufficient. As aid will still be granted until the end of 2021 or for a longer

period if necessary, we find that there is a need to increase the ceiling fur-

ther. If the ceilings are not increased, it will be very difficult to grant com-

pensation based on the state aid rules to cope with the needs of undertak-

ings. Many undertakings have already received aid up to the ceilings

–

some cases already in 2020

–

while still facing a shortage of liquidity due

to the Covid-19 outbreak. This will especially be the case for sectors that

are most affected by Covid-19.

We would propose to increase the overall ceiling in TF 3.1 from 1.8 mil.

EUR to at least 5 mil. EUR from March 2020 to 31 December 2021. Fur-

thermore, we find that the ceilings for aid under this section to fishery and

agriculture should be increased accordingly. In particular, we believe that

the ceiling for agriculture due to the actual impact of COVID-19 on e.g.

mink farms should be considered increased to around 600.000 EUR pr. un-

dertaking.

3/7

As for the aid ceiling in section 3.12 we would propose to increase the ceil-

ing from the current 10 mio. EUR per undertaking to 4 mio. EUR pr. month

as long as the Temporary Framework is in force.

This is especially important as the notion of an undertaking in the Tempo-

rary Framework is broad and includes all companies belonging to a group.

The application of such a broad notion of an undertaking in respect to

Covid-19 aid means that the several legal entities affected by Covid-19 has

to be covered by the same aid ceiling.

Denmark urges the Commission to increase the ceilings to meet the actual

needs of companies in sectors that since September have been - and well

into 2021 will be - severely affected by continuous containment and lock

down measures.

The main sectors that will be severely affected by a ceiling under Tempo-

rary Framework 3.12 compared to TFEU article 107 (2) b are entertain-

ment, retail, hotels and travels, aviation. These sectors have been and still

are heavily affected by the public Covid-19 measures and halt of tourism

since the autumn of 2020. In Denmark, we have already experienced sev-

eral examples of undertakings that have reached the aid ceilings long before

the expiration of the Temporary Framework.

If the aid ceilings are not substantially increased, the Temporary Frame-

work will only reduce the potential negative impact on undertakings.

TF 3.12 and the broad notion of an undertaking

The text of the Temporary Framework does not define the notion of an

undertaking. The Danish Authorities understands from DG-Comp that the

notion of an undertaking is defined in accordance with Annex 1 in the Com-

mission Regulation (EU) No 651/2014 of 17 June 2014 (General Block

Exemption Regulation).

The definition of an undertaking in the broadest possible way, i.e. on the

level of an entire group, raises a specific challenge in TF 3.12 when Mem-

ber States grant compensation for uncovered fixed costs.

Namely, this means that legal entities that can e.g. provide documentation

that they are directly affected by Covid-19 measures, cannot receive suffi-

cient compensation

–

or cannot even enter the 3.12 based scheme. In par-

ticular, this will be the case when account is also to be taken to a 30 pct.

turnover decline of the group, including also non-linked partner enterprises

that holds more than 25 pct. of their capital or voting rights. We find it

highly problematic that such

‘partner

enterprises’ are included in the notion

of undertaking in respect to Covid-19 compensation. Taking into account

4/7

that Covid-19 compensation needs to provide for legal certainty and reduce

the administrative burden the rules should as a minimum be the same as in

the de minimis regulation where only linked

‘linked enterprises’

are taken

into account.

This is illustrated from the figure below, which shows a simple example of

how common cross-ownership may deter companies (Company 3 and 4 in

the example) who 1) have uncovered fixed costs and 2) experience a sig-

nificant decline in turnover from receiving compensation. In reality, own-

ership structures are much more complicated than shown in the figure,

meaning that companies that are part of the same undertaking will in many

instances only have a periphery or no prior connection and no history of

cooperation.

Hence, it cannot be expected that individual legal entities with no history

of cooperation will opt to cover each others uncovered fixed costs, thereby

significantly increasing the risk of companies becoming financially disa-

bled.

Denmark finds that it creates strong difficulties that the broad definition of

an undertaking is to be applied in the context of rules that are designed to

compensate for losses related to Covid-19 (i.e. uncovered fixed costs). The

losses within a group of undertakings can vary much. With the broad defi-

nition of an undertaking in respect to Covid-19 compensation, the aid will

not be targeted the legal entities in fact affected by the pandemic. Thus,

we find that the situation of compensation for losses directly related to

Covid-19 is fundamentally different

from the “normal” state aid rules, and

5/7

therefore the exceptional situation justifies a deviation from the broad def-

inition of an undertaking in TF 3.12.

The Danish Government has put in place two general compensation

schemes for fixed costs under TF 3.1 and 3.12 and two compensation

schemes under TFEU 107(2)b to cover fixed costs. On a national level, the

beneficiaries of these schemes perceive these as one single aid scheme.

However, depending on the nature of restrictions imposed to the undertak-

ing, the legal base will be either TFEU article 107(2)b (fully prohibited

activities) or Temporary Framework (other restrictions), which creates a

paradox:



The first Danish compensation schemes for fixed costs were introduced

in March 2020 and were based on TFEU article 107(2) b. Within this

legal base compensation can be granted on the level of legal entity. I.e.

when assessing the damage, it is not obligatory to take into account the

situation of the whole group, but the assessment can be focused on the

outcome of the specific activity of a legal entity which is prohibited by

a lockdown.

When the beneficiary then from the period 1 September (9 July in some

cases) and forward had to shift to TF 3.12 as the legal basis for com-

pensation (e.g. for travel restrictions), now the damage/loss, the aid in-

tensity, and the turnover loss of at least 30 pct. is to be decided taking

into account the whole group. This is despite that it is in most cases

equally required under the Danish scheme that the legal entity can doc-

ument a decline in turnover related to a specific Covid-19 measure that

particular affects the legal entity.



The Temporary Framework has been put in place as a response to the

Covid-19 outbreak

–

i.e. a severe public health emergency.

From a Danish perspective it is highly important that the Temporary

Framework takes into consideration the exceptional situation and that the

various containment measures adopted by the Member States affect under-

takings very differently depending on the sectors and the particular activi-

ties of their legal entities.

Therefore, we stress the importance of the need to integrate the principle of

compensation to the legal entity/activity affected in respect to all criteria in

section 3.12 of the Temporary Framework. Otherwise, we do not find that

the Temporary Framework will mitigate the serious disturbance in the Eu-

ropean economy sufficiently and it will not be a real alternative to article

107(2) b.

6/7

We find that this would indeed be justified in the exceptional Covid-19

situation and the specific safeguards in the individual aid schemes of the

member states. Such safeguards are elaborated and exemplified in memo

from the Danish Authorities sent to the Commission 27 April 2021.

Prolonged deferral deadline in TF 3.9

According to TF 3.9, aid in the form of deferral of taxes shall be granted

before 31 December 2021 and the end date for the deferral shall not be later

than 31 December 2022.

The Danish Government has set in place several interest-free credit facili-

ties equivalent to specific VAT rates and specific withholding tax rates in

order to alleviate the liquidity crisis for SMEs. Due to the characteristics of

the interest-free credit facilities, they are similar to deferrals of the VAT

and withholding tax rates, and in its decisions on the compatibility of the

measures the Commission has therefore assessed them under TF.3.9. The

interest-free credit facilities have been successfully used by undertakings

affected by the pandemic

–

especially by undertakings in the restaurant and

hotel sectors. The interest-free credit facilities have different deadlines for

(re)payment, as the deadlines have been fixed at different dates between 1

November 2021 and 1 November 2022.

However, there is already a demand for extending (some of) the deadlines

for (re)payment beyond 31 December 2022. For sectors severely affected

by the pandemic, a period of approximately 18 months from now is un-

likely to be sufficiently long to enable all the undertakings

–

even if their

difficulties are only due to the pandemic

–

to (re)pay the deferred VAT and

withholding tax rates while also paying ordinary tax rates. In order to en-

sure the healthy recovery of such undertakings, the Danish Authorities

therefore propose that the deferral deadline is prolonged to 31 December

2023.

In relation to this, it is important for the Danish Authorities to note that the

proposition above does not mean that granting of the aid will be possible

later than 31 December 2021.

3. Size of the beneficiaries

It is of very high priority for the Danish Government to help small and

medium sized enterprises sufficiently through the Covid-19 pandemic. We

also find that the Temporary Framework has been - and still is - a very good

means to achieve this.

7/7

However, in a pandemic, both SMEs and large companies suffer from the

various lock downs and restrictions introduced to contain the virus. There-

fore, we find that the challenges in respect to the aid ceilings and the notion

of an undertaking will be present for undertakings of all sizes.

4. Further adaptation of the Temporary Framework to prevent

corporate insolvencies

Denmark has no intention to establish new Covid-19 State aid schemes af-

ter the expiration of the current Temporary Framework.

5. Possible need to address specific sectors of the economy and to

facilitate their recovery from the COVID-19 outbreak

Denmark supports the general nature of the Temporary Framework and that

it applies horizontally to all sectors. However, some sectors are in particular

challenged due to Covid-19. This includes e.g. hotels, travel, entertainment,

culture, tourism, aviation, and restaurants. The possible need to extend the

Temporary Framework and to increase aid ceiling would in particular be

related to challenges of these sectors, which includes large undertakings.

6. Possible need for new measures to accompany and speed up re-

covery

Denmark has no plans of granting aid after the expiration of the current

Temporary Framework. We refer to point 1 above about assessing the need

for prolongation later in 2021.