EC Authorizes State Subsidies To Hungarian Businesses

by Ulrika Lomas, Tax-News.com, Brussels

29 April 2009

The European Commission has authorised under EC Treaty rules on state aid a Hungarian scheme aimed at providing relief to companies encountering financing difficulties as a result of the credit squeeze in the current economic crisis. The scheme allows authorities to grant aid in the form of subsidised guarantees for investment and working capital loans concluded by December 31, 2010.

The scheme meets the conditions of the Commission’s Temporary Framework for state aid measures to support access to finance in the current financial and economic crisis, as amended on February 25, 2009, because it is limited in time, respects the relevant thresholds and applies only to companies that were not in difficulty on July 1, 2008. It is therefore compatible with Article 87(3)(b) of the EC Treaty, which permits aid to remedy a serious disturbance in the economy of a Member State.

Competition Commissioner Neelie Kroes said: "By facilitating access for firms to loans, the notified measure is an effective way of encouraging business investment and economic recovery, without unduly distorting competition."

The Hungarian authorities designed the scheme on the basis of the rules laid down in the Commission's Temporary Framework on state aid to the real economy during the crisis and in particular the conditions for aid in the form of subsidised guarantees.

The reduction of the guarantee fee can be applied during a period of up to two years for loan guarantees contracted no later than December 31, 2010. Where the duration of the underlying loan exceeds two years, the safe-harbour premiums set out in the Annex to the Temporary Framework, as amended, may be applied for an additional maximum period of eight years. The maximum duration of guarantees granted under the scheme is limited to ten years. The scheme does not apply to firms that were already in difficulty on July 1, 2008 (i.e. before the credit crunch).

The scheme is a national framework scheme allowing aid to be granted at central, regional and local level. It can be applied to small- and medium-sized enterprises as well as to large firms and the guarantee amount can also be higher than EUR2.5m. Therefore, the scope of the scheme is wider than for the guarantee measure the Commission previously approved.

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