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Covid-19: the temporary framework for fiscal state aid

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The measures which governments wish to give to alleviate the impact of the coronavirus outbreak are subject to EU law, including state aid law, in the usual way. The European Commission has published a temporary framework within which measures may be taken, subject to European Commission approval. A number of substantial measures have been approved, at lightning speed, which concern matters such as providing funding for those suffering losses from cancellation of events, and liquidity measures.

The original version of the framework made reference to aid in the form of direct grants, repayable advances or tax advantages. The European Commission updated the framework on 3 April to provide more detail in relation to tax measures, specifically deferrals of tax and/or social security contributions. They are referred to as potentially ‘valuable tools to reduce the liquidity constraints of undertakings’, in which they include self-employed individuals. 

Measures which fall outside the scope of article 107(1) of the Treaty on the Functioning of the European Union continue not to amount to prohibited state aid, and aid which is given within the scope of an exemption also continues to be permissible, and requires no notification.

However, where measures are selective, i.e. restricted to certain sectors, regions or types of undertakings, they may involve prohibited aid. 

The temporary framework provides guidance on what types of measures it will consider to be compatible with state aid law. The framework is not an exhaustive list; the Commission states that it will consider other measures than those specifically given as examples.

Some of the circumstances in which the Commission will consider measures to be compatible with state aid law are ones which: 

  • are temporary deferrals of taxes/social security contributions for undertakings/self-employed individuals that are particularly affected by the outbreak; and
  • may include specific sectors, regions or undertakings of a certain size.

Measures intended to ease liquidity constraints are also permitted, and the Commission gives the following examples:

  • deferral of payments/payments by instalments;
  • easier access to tax debt payment plans;
  • granting interest free periods;
  • suspension of tax debt recovery; and
  • expedited tax refunds.

Any such measures have to be given by 31 December 2020 and the end date for the deferral must be 31 December 2022.

As with the other measures the European Commission has permitted under its temporary framework, these measures will have to be approved by them, although it should be noted that such approvals are being given within a matter of days, not weeks.

Should taxpayers and HMRC wish to negotiate arrangements which are different to their usual ones, they will need to consider whether the arrangements breach the threshold requirements for the prohibition in article 107, and if so, whether any exemption includes the aid. If no exemption is available, they will need to consider whether the conditions set out in the temporary framework are met, and a case can be made to the Commission that the measure should be approved.