COVID-19 and its Impact on State Aid in Ukraine
The COVID-19 pandemic has caused an unprecedented amount of state support to a broad range of businesses. Governments all around the world are spending billions now to support business sectors that have been forced to close their doors due to the pandemic outburst. This resulted in a significant increase of state aid-related work for competition authorities in numerous jurisdictions.
In March 2020, the European Commission adopted the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak. The Framework set out temporary State aid measures that the European Commission considered compatible with the EU internal market. During the COVID-19 pandemic, the European Commission adopted more than 230 state aid measures in the form of loans, guarantees, tax exemptions, reduction of lease payments, etc.
Ukrainian state is still in the process of introducing proper functioning of the state aid regulations and control mechanisms as provided by Ukraine-EU Association Agreement. Despite being criticized for the lack of state aid support to Ukrainian businesses, the Ukrainian government has implemented a number of state aid measures aimed at SMEs, creative industries, etc. In particular, on March 30, 2020 the Parliament adopted the so-called COVID-19 Law (Law No. 540-IX) which introduced state aid measures related to certain taxes, lease of property, unemployment benefits and state aid regulation itself.
The COVID-19 Law introduced a number of exemptions from VAT, income tax, ecological, real estate, land tax and excise tax. Eventually, it turned out that the real estate and land tax exemptions were more targeted at large businesses, for which such exemptions were not so critically essential. Furthermore, the relevant tax exemptions have been revised and corrected.
At the same time, municipal authorities have the right to change the unified tax rates during the COVID-19 quarantine without state aid notification and approval of the Antimonopoly Committee of Ukraine. The wording of the relevant provisions was quite unclear and, thus, one could have even interpreted them in a way that all decisions of municipal authorities had been excluded from the state aid regulations.
As experience shows, the Ukrainian state has been very slow in terms of providing state aid and has ultimately introduced selected support for the local business, although certain experts have raised the issue of appropriateness of certain state aid measures taken by the state. Moreover, a significant part of state aid was provided outside the state aid regulation through the adoption of relevant laws by the Parliament. In contrast to the practice of the European Commission, the Committee’s engagement into evaluation of the impact the anticipated state aid may have on competition in Ukraine was quite restricted.
Another aspect of COVID-19-related state aid in Ukraine is at the very least ambiguous practice of adopting laws that stipulate the exclusion of the state support measures from the scope of the Law On State Aid to Business Entities. Instead of accelerating and improving the relevant interactions with the Committee, the Parliament regularly decides to launch state support measures which are formally excluded from the state aid regulations by virtue of the direct norms in the relevant laws.
It is worth mentioning that the Committee has tried to address some of the mentioned concerns. In late March 2020, the Committee announced that it would be ready to promptly (not under a standard long-lasting procedure) consider the notifications on state aid directed against the spread of COVID-19 and aimed at ensuring critical areas of business activity. However, to our best knowledge, such announcement has not had a considerable effect on state aid providers.
It was only in June 2020 that the Parliament adopted changes to the State Aid Law regarding specifics of state aid granting during the COVID-19 pandemic and the scope of the Law was notably expanded. The new version of the State Aid Law provides that state aid aimed at support of culture, creative industries and tourism (in contrast to previously much narrower support and preservation of national cultural heritage) may now be approved as compatible by the Committee.
Moreover, the Law introduced a special consideration procedure for notifications on state aid aimed at the implementation of national development programs or resolving nationwide social and economic problems. Such procedure will be in effect at least till the end of 2020. The mentioned notification shall be considered within 15 days from the date of receipt of the notification by the Committee, otherwise, the state aid would be considered as approved. It is a challenging timing for the Committee, as notification consideration has usually taken several months.
The Committee is now de facto deprived of the right to commence a state aid case or to decide on the termination and recovery of such unlawful state aid during the COVID-19 quarantine. Therefore, it is not clear what legal remedies the Committee will be able to apply in case state aid is granted without a relevant decision of the Committee.
The recently introduced changes were intended to accelerate and improve the Committee state-aid-related workflow in COVID-19 circumstances. Despite certain constructive steps in state aid regulations, Ukrainian legislators continue their doubtful way of exclusion of an entire type of state aid from the scope of the State Aid Law. Currently, there are a number of draft laws in the Parliament that provide for a state aid to individual entities or entire sectors of the economy, but which are not anyhow analyzed by the Committee for the admissibility of such aid and its impact on competition.
We hope that both Ukrainian Parliament and Government will change and improve their approach to the evaluation and provision of state aid in Ukraine and will appropriately engage the Committee in the evaluation of draft laws on compatibility with state aid regulations. Furthermore, the current situation with state aid in COVID-19 circumstances perfectly displays that the State Aid Law requires not just fragmented changes, but also conceptual improvement and update. Such update will help Ukrainian state to efficiently allocate available, but still deficit, public funds vitally needed for Ukrainian economy to be back on track of development.
By Oleksandr Aleksyeyenko, Partner, Marchenko Partners;
Yaroslav Korniienko, Associate, Marchenko Partners