The COVID-19 outbreak and the measures the government had to put in place to try to contain the coronavirus will certainly have an effect on the Serbian economy. How will the expected state support to businesses be assessed under Serbia’s State aid rules?
Serbia in state of emergency
On March 15, the Serbian government declared a state of emergency and adopted measures aimed at limiting the spread of the coronavirus. The movement of people is restricted and business such as cafes, restaurants, and shopping malls have been ordered to close. While it is too early to say how much damage the outbreak will cause to the Serbian economy, it is certain to be a grave one.
As in other countries, some sectors are expected to suffer more than others. Transport, tourism, and hospitality are among the first ones to come to mind in this context. It would seem it is only a matter of time until Serbia would start rolling out assistance to the businesses most hit by the crisis. When this happens, how will this be assessed under the Serbian State aid rules?
(On how the COVID-19 outbreak is affecting merger control in Serbia, see here.)
COVID-19 outbreak: A test for the new Law on State Aid Control
Last fall, Serbia got a new Law on State Aid Control, which significantly upgraded Serbia’s State aid regime. If you would be interested in the main novelties introduced by the law, you can read about them in our earlier post (Serbia’s New Law on State Aid Control: Five Things to Note).
Perhaps the main novelty introduced by the new State aid legislation is a more independent State aid watchdog – Commission for State Aid Control. Following the adoption of the new law, a new Commission has been appointed (you can read more about the setup of the new Commission here).
The situation surrounding the COVID-19 outbreak could prove to be a rel test for the application of the new law – and for the Commission for State Aid Control, which oversees the application of Serbia’s State aid rules.
How has Serbia’s State aid watchdog reacted to the emergency?
The Serbian State aid watchdog was fairly quick to announce its position on the application of State aid rules in Serbia in the context of the COVID-19 outbreak.
On March 17, just two days after the Serbian government declared a state of emergency, the Commission for State Aid Control published a notice on the application of State aid rules in the new circumstances. The notice was published on the back of a European Commission press release, in which the EU Commission set out its own views concerning the application of EU State aid rule in the wake of the COVID-19 outbreak.
In a nutshell, what is Serbia’s State aid watchdog saying about the application of State aid rules in the context of the coronavirus crisis?
1) Some assistance will not be considered State aid at all
The State aid watchdog has emphasized that some forms of State aid in the context of the crisis will be allowed automatically, as they do not even amount to State aid. According to the Serbian State Aid Commission, these are examples of assistance not amounting to State aid:
- financial assistance for the provision of healthcare services or the provision of other public services aimed at fighting the COVID-19 outbreak;
- assistance given directly to individuals;
- assistance to all undertakings without discrimination (subsidizing salaries, tax reduction, reduction in mandatory social contributions, etc.);
- aid considered de minimis under the Serbian State aid law.
2) State aid for the damage incurred in containing the COVID-19 outbreak
The aid given to make good the damage caused by natural disasters or exceptional occurrences is always compatible with the State aid rules (Serbia’s equivalent of Article 107(2)(b) TFEU). The Serbian watchdog has indicated that the COVID-19 outbreak qualifies as such occurrence and that the assistance given to remedy the damage which a consequence of the COVID-19 emergency will be deemed as permissible State aid.
The intensity of this type of State aid could be up to 100% of the justified costs, but the aid cannot go beyond what is necessary to remedy the damage. State aid for this purpose could be given as a State aid scheme or as individual aid.
3) State aid to remedy a serious disturbance in the economy
This type of State aid is deemed permissible in accordance with Serbia’s equivalent of Article 107(3)(b) TFEU. This provision will be applicable if the consequences of the coronavirus crisis on the Serbian economy will be such to qualify as a ‘serious disturbance in the economy’. Unfortunately, based on how the situation is developing, it would appear the ‘serious disturbance’ thresholds will be met in Serbia.
4) State aid to undertakings facing an acute need for liquidity and/or bankruptcy because of the COVID-19 outbreak
State aid grantors in Serbia will also be able to rely on the Serbian equivalent of Article 107(3)(c). As indicated by the Serbian State aid watchdog, urgent and temporary recovery aid in the form of loans or guarantees to firms in difficulty, or to firms which are not in difficulty but have liquidity problems, will be considered compatible with the Serbian State aid framework.
5) One time, last time principle to be interpreted softly?
Modeled after the EU acquis, the Serbian State aid law also prescribes for a ‘one time, last time’ principle in awarding State aid to firms in difficulty. Under those rules, an undertaking in difficulty can generally receive State aid only once in ten years.
The Serbian State aid watchdog has indicated this principle will not be applicable concerning aid received in the context of the COVID-19 outbreak. In other words, even Serbian companies which have been recipients of restructuring aid in recent years could receive state assistance related to the damage they suffered due to the coronavirus crisis.
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For more information about the application of Serbia’s State aid rules in the context of the COVID-19 outbreak, please contact Dr. Dragan Gajin, Head of Competition at Doklestic Repic & Gajin.