Questions and answers on the Government's proposal to reintroduce business cost support
The first round of support for business costs was open to application until 31 August 2020. In its discussions on 29 September 2020, the Government laid out plans for opening another round of sector-independent business cost support for application, because many sectors are currently still in a difficult situation due to the coronavirus pandemic in the autumn of 2020. The Government proposal was submitted on 29 October 2020 and will next be discussed in Parliament.
Support for business costs is meant for companies that have experienced reductions in turnover due to the coronavirus pandemic and consequently have trouble coping with the inflexible payroll and other costs of their business operations during the support period. According to the Government, the need for support and its amount should be assessed on the basis of sudden losses in turnover caused by the epidemic and the measures for combating it.
The purpose of allocating this second round of support to companies that are still operating and the inflexible costs of such companies, by expanding and specifying the definition of costs eligible for compensation as well as by extending the support period, is to support companies in varying circumstances in adapting their operations, also with a view to the future.
The support will be granted by the State Treasury, which has the systems in place for processing the applications, and is able to recruit staff with the required competencies.
The information gathered by the State Treasury on the distribution of applications and support and the reasons for rejecting applications, as well as the feedback given by the companies to the ministries and State Treasury on the effectiveness of the support, has been used in the preparations for the implementation of the second round of temporary support for business costs.
Extending the support for business costs was made possible when the communication issued by the European Commission on 13 October 2020 (C(2020)7127 final) extended the temporary amendments to State aid rules due to the COVID-19 pandemic until 30 June 2021.
A company can apply for business cost support, even if it has already received other direct forms of support intended to alleviate the consequences of the pandemic.
The maximum amount of business cost support would be €500,000 per company for this support period, provided that the company does not exceed the maximum aid specified in the Temporary Framework adopted by the European Commission (SA.56995(2020/N), i.e. €800,000.
According to the Temporary Framework, all aid granted to an individual company and other companies in its Group under the aforementioned Commission decision is taken into account when calculating the company-specific maximum.
Foundations and associations that engage in business activities would also be eligible for cost support, as during the first round. Companies that were in financial difficulties on 31 December 2019 in accordance with the EU rules on State aid that have neglected their obligations or are bankrupt will not be eligible for cost support.
According to the Government proposal, all companies would be eligible to apply for cost support:
Companies whose main line of business on the first day of the support period is in a sector whose turnover has decreased by at least 10 per cent from the reference period would meet the first general requirement for receiving business cost support.
The comparison would be based on the median of the change in turnover of companies operating in the sector, with the reference period being the corresponding period in 2019. For companies established on or after 1 May 2019, the reference period will be 1 January–29 February 2020.
As in the first application round, the eligible sectors would be listed in a Government decree on the grounds provided for in the Act on Support for Business Costs.
If a company’s sector is not listed in the Government decree, it must present particularly compelling reasons related to the coronavirus pandemic for the decrease in its turnover, in addition to submitting the other information required for granting support.
What are the requirements for being granted business cost support according to the Government Proposal?
One condition for receiving cost support would be a 30% decrease in the applying company’s average monthly turnover from its average monthly turnover in the reference period. No cost support would be paid if its calculated amount would be under €2,000 per month.
The intention is to allocate the support to those companies whose turnover has fallen the most due to the COVID-19 pandemic and to costs that cannot be adjusted in accordance with the drops in turnover. The average monthly costs taken into account when calculating cost support cannot exceed the company’s average monthly turnover during the reference period. The maximum amount of cost support would be 70% of such average monthly costs. Companies whose costs exceed their turnover do not rely on turnover to cover their costs.
The Government’s temporary business cost support model is based on an examination of the turnovers of sectors and companies. Efforts will be made to allocate the support as accurately as possible to the companies that have been most hurt by the coronavirus. Limiting the number of eligible sectors will eliminate some factors that would lead to an inaccurate allocation of support, such as seasonal variations in the sector’s development and decreases in turnover, due to reasons other than the coronavirus.
The Government Proposal may change in Parliament.
According to the Government Proposal, support will not be paid if its amount would be under €2,000. The maximum amount of support is €500,000/period. The sum will be paid in a single instalment. The support is taxable revenue for which the applicant must pay tax.
The State Treasury will announce the exact dates, but it has been estimated that the processing of applications can begin immediately after the Government decree on the eligible sectors has been issued and has entered into force in late 2020.
The electronic application form can be finalised and the necessary changes to the system made as soon as the bill is passed by Parliament.