State aid: Commission approves €2 billion Hungarian investment support scheme towards a sustainable recovery

State aid: Commission approves €2 billion Hungarian investment support scheme towards a sustainable recovery

The European Commission has approved a €2 billion Hungarian scheme aimed at providing investment support towards a sustainable recovery. The scheme was approved under the State aid Temporary Framework.

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “This €2 billion scheme will help Hungary overcome the investment gap left behind by the crisis and set the path for a faster and more sustainable recovery. We continue working in close cooperation with Member States to ensure that national support measures to kick-start and crowd-in private investment can be put in place as quickly and effectively as possible, in line with EU rules”.

The Hungarian support measure

Hungary notified to the Commission under the Temporary Framework a €2 billion scheme aimed at providing investment support towards a sustainable recovery.

Under this measure, the aid will take the form of subsidised interest rate loans for small, medium and large enterprises to finance sustainable investments in tangible and intangible assets, in line with EU and national environmental objectives.

The measure will be open to companies of all sectors, with the exception of credit and financial institutions, companies active in the real estate sector and companies performing certain activities considered as potentially harmful to the environment such as exploration, production or use of fossil fuels for energy production, destruction of forests or endangerment of biodiversity.

The public support will come with strings attached to limit undue distortions of competition, including safeguards to limit the risk of possible indirect aid in favour of the financial intermediaries channeling the support.

The scheme is expected to benefit from 500 to 1000 companies.

The Commission found that the Hungarian scheme is in line with the conditions set out in the Temporary Framework. In particular, (i) the aid amount per beneficiary will not exceed 1% of the total budget; (ii) the aid will benefit investments in tangible and intangible assets but not financial investments; and (iii) the public support will be granted no later than 31 December 2022.

The Commission concluded that the Hungarian scheme is necessary, appropriate and proportionate to foster investment for certain economic activities of importance for a sustainable recovery, in line with Article 107(3)(c) TFEU.

On this basis, the Commission approved the aid measure under EU State aid rules.

Background

The Commission has adopted a Temporary Framework to enable Member States to use the full flexibility foreseen under State aid rules to support the economy in the context of the coronavirus outbreak. The Temporary Framework, as amended on 3 April, 8 May, 29 June, 13 October 2020, 28 January and 18 November 2021, provides for the following types of aid, which can be granted by Member States:

(i) Direct grants, equity injections, selective tax advantages and advance payments of up to €290,000 to a company active in the primary agricultural sector, €345,000 to a company active in the fishery and aquaculture sector and €2.3million to a company active in all other sectors to address its urgent liquidity needs. Member States can also give, up to the nominal value of €2.3 million per company zero-interest loans or guarantees on loans covering 100% of the risk, except in the primary agriculture sector and in the fishery and aquaculture sector, where the limits of €290,000 and €345,000 per company respectively, apply.

(ii) State guarantees for loans taken by companies to ensure banks keep providing loans to the customers who need them. These state guarantees can cover up to 90% of risk on loans to help businesses cover immediate working capital and investment needs.

(iii) Subsidised public loans to companies (senior and subordinated debt) with favourable interest rates to companies. These loans can help businesses cover immediate working capital and investment needs.

(iv) Safeguards for banks that channel State aid to the real economy that such aid is considered as direct aid to the banks’ customers, not to the banks themselves, and gives guidance on how to ensure minimal distortion of competition between banks.

(v) Public short-term export credit insurance for all countries, without the need for the Member State in question to demonstrate that the respective country is temporarily “non-marketable”.

(vi) Support for coronavirus related research and development (R&D) to address the current health crisis in the form of direct grants, repayable advances or tax advantages. A bonus may be granted for cross-border cooperation projects between Member States.

(vii) Support for the construction and upscaling of testing facilities to develop and test products (including vaccines, ventilators and protective clothing) useful to tackle the coronavirus outbreak, up to first industrial deployment. This can take the form of direct grants, tax advantages, repayable advances and no-loss guarantees. Companies may benefit from a bonus when their investment is supported by more than one Member State and when the investment is concluded within two months after the granting of the aid.

(viii) Support for the production of products relevant to tackle the coronavirus outbreak in the form of direct grants, tax advantages, repayable advances and no-loss guarantees. Companies may benefit from a bonus when their investment is supported by more than one Member State and when the investment is concluded within two months after the granting of the aid.

(ix) Targeted support in the form of deferral of tax payments and/or suspensions of social security contributions for those sectors, regions or for types of companies that are hit the hardest by the outbreak.

(x) Targeted support in the form of wage subsidies for employees for those companies in sectors or regions that have suffered most from the coronavirus outbreak, and would otherwise have had to lay off personnel.

(xi) Targeted recapitalisation aid to non-financial companies, if no other appropriate solution is available. Safeguards are in place to avoid undue distortions of competition in the Single Market: conditions on the necessity, appropriateness and size of intervention; conditions on the State’s entry in the capital of companies and remuneration; conditions regarding the exit of the State from the capital of the companies concerned; conditions regarding governance including dividend ban and remuneration caps for senior management; prohibition of cross-subsidisation and acquisition ban and additional measures to limit competition distortions; transparency and reporting requirements.

(xii) Support for uncovered fixed costs for companies facing a decline in turnover during the eligible period of at least 30% compared to the same period of 2019 in the context of the coronavirus outbreak. The support will contribute to a part of the beneficiaries’ fixed costs that are not covered by their revenues, up to a maximum amount of €12 million per undertaking.

(xiii) Investment support towards a sustainable recovery to support private investment as a stimulus to overcome an investment gap accumulated in the economy due to the crisis. This tool can be used by Member States to accelerate the green and digital transitions.

(xiv) Solvency support to leverage private funds and make them available for investments in small and medium-sized enterprises (SMEs), including start-ups, and small midcaps.

The Commission will also enable Member States to convert by 30 June 2023 repayable instruments (e.g. guarantees, loans, repayable advances) granted under the Temporary Framework into other forms of aid, such as direct grants, provided the conditions of the Temporary Framework are met.

The Temporary Framework enables Member States to combine all support measures with each other, except for loans and guarantees for the same loan and exceeding the thresholds foreseen by the Temporary Framework. It also enables Member States to combine all support measures granted under the Temporary Framework with existing possibilities to grant de minimis to a company of up to €25,000 over three fiscal years for companies active in the primary agricultural sector, €30,000 over three fiscal years for companies active in the fishery and aquaculture sector and €200,000 over three fiscal years for companies active in all other sectors. At the same time, Member States have to commit to avoid undue cumulation of support measures for the same companies to limit support to meet their actual needs.

Furthermore, the Temporary Framework complements the many other possibilities already available to Member States to mitigate the socio-economic impact of the coronavirus outbreak, in line with EU State aid rules. On 13 March 2020, the Commission adopted a Communication on a Coordinated economic response to the COVID-19 outbreak setting out these possibilities. For example, Member States can make generally applicable changes in favour of businesses (e.g. deferring taxes, or subsidising short-time work across all sectors), which fall outside State Aid rules. They can also grant compensation to companies for damage suffered due to and directly caused by the coronavirus outbreak.

The Temporary Framework will be in place until 30 June 2022, with the exception of investment support towards a sustainable recovery, which will be in place until 31 December 2022, and of solvency support, which will be in place until 31 December 2023. These two tools introduced with the sixth amendment to the Temporary Framework enable Member States to create direct incentives for private investments to kick-start the economy for a faster, greener and more digital recovery.

The Commission will continue to monitor closely the developments of the COVID-19 pandemic and other risks to the economic recovery.

Source: Commission approves €2 billion Hungarian investment support (europa.eu)

Photo Credit : https://pixabay.com/nl/photos/hongaars-parlement-kasteel-buda-4128007/

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