Expected new measures: Support for uncovered fixed costs
Expected new measures: Support for uncovered fixed costs
Author: Jera Majzelj, SELIH & PARTNERJI Law Firm
The Slovenian Government has sent a new proposal for intervention measures to the National Assembly, the so called PKP6 package, which is supposed to be subject to parliamentary discussion this week. Amongst the measures that we are already familiar with, an entirely new measure in support of the economy is proposed in the form of partial funding of uncovered fixed costs.
The proposal does not say what exactly are the uncovered fixed costs. Based on the supporting documentation for the proposal, we can assume that these costs are defined as net losses in a particular period (AOP 187 in the profit and loss statement).1 The funding proposal is not based on actual uncovered fixed costs of an undertaking, but gives an estimate of uncovered fixed costs, which is made based on the revenues of the undertaking. This estimate is then the basis for somewhat unclear description of refund calculation, which is further subject to several limitations. The supporting documentation for the proposal will not be of much help to the reader, as it contradicts the wording of the proposed articles. This was already subject to comments from the Legislative and Legal Service of the National Assembly.
The contents of the proposed Articles is summarized below:
Eligible period
This measure will be available for the period from 1 October to 31 December 2020. This period may be extended by no more than 6 months by the Government.
Excluded undertakings
As with the majority of intervention measures, some entities are excluded per se:
- national or municipality budget users, direct or indirect, whose percentage of income from public sources in 2019 exceeded 70%;
- employers performing financial or insurance services with more than 10 employees;
- foreign diplomatic or consular representations and certain similar institutions.
Basic conditions for beneficiary status
The proposal further limits the beneficiary status with the following formal conditions:
- the legal or natural person has been registered for performing economic activities at the latest by 1 September 2020;
- on the day the proposal enters force, this person has at least one employee or is self-employed or a shareholder/founder who is also a manager, included in mandatory insurance (in line with Article 15 or 16 of the Slovenian Pension and Disability Insurance Act).
The main condition for claiming the funding is contained in the requirement that the legal or natural person is only eligible if, due to the consequences of Covid-19 epidemic, this person cannot perform its activities or can only perform them in a materially limited scope. This condition is deemed fulfilled only when the revenues of the beneficiary in the period from October to December 2020 decreased by 40% or more compared to the same period in 2019.2
Since the filing for the funding will need to be made by the end of 2020, when all financial data will not have been known, potential beneficiaries will need to rely on their own assessments. If these prove to be wrong, the funding received will need to be returned (see below).
Calculation base and funding percentage
The basis for the funding calculation is the yearly turnover for 2019.3 The partial refund for each month of operations in the period from October to December 2020 is to be determined in the following percentage:
| 0.6% of the base per month | if the activities (i.e. turnover) decrease by 40 – 70% |
| 1.2% of the base per month | if the activities (i.e. turnover) decrease more than 70% |
Caps and limitations
The refund amount that a beneficiary may receive is capped:
- at EUR 1,000 per regular employee per month;
- at 70% (for medium and large enterprises) or 90% (for micro and small enterprises) of net loss of the beneficiary in its profit and loss statement in the eligible period, i.e. October to December 2020.
How many employees the beneficiary has and what is the size of the enterprise is to be established at the time when the beneficiary makes the request for funding.
Support is further limited by general rules on state aid:
- undertaking may not already be in difficulty as of 31 December 2019 (within the meaning of the General Block Exemption Regulation);
- the beneficiary makes sure that the uncovered fixed costs are not covered by other sources, such as insurance, temporary aid measures or support from other sources;
- funding under this measure may not exceed the limitations set forth in points 3.1 and 3.12 of the Temporary Framework for State Aid Measures to Support the Economy in the Current Covid-19 Outbreak, which was issued by the European Commission. This framework also sets forth the maximum amounts that undertakings may receive under such intervention measures in relation to Covid‑19.
Filing a request
Undertakings that estimate that they will fulfil the conditions for partial funding must submit their filing by using the information system of the Financial Administration of the Republic of Slovenia, namely at the latest on 31 December 2020. The Financial Administration is supposed to pay out the support on the 20th day in the month following the month when the filing will have been made.
Funding returns
If it turns out that the beneficiary has made a wrong assessment in believing that the conditions will be met, it must inform the Financial Administration about this and repay the excess of support in 30 days. The proposal does not elaborate on when exactly does this deadline start running. If the Financial Administration establishes, on its own, that in the period from October to December 2020 the beneficiary is showing a profit and loss statement that does not reflect the actual business events, the beneficiary must return the entire support in 8 days. As regards late interest with such repayments, the proposal is unclear. In Article 110, it is stated that late interest shall be charged after the respective payment deadlines expire. At the same time, Article 112 requires that a beneficiary who does not comply with the obligation of repaying the excess funding shall repay the funds together with late interest, whereby it is not clear whether this applies from the day the funds were received and what is the difference compared to provisions of Article 110.
[1] The Temporary Framework for State Aid Measures to Support the Economy, which was issued by the European Commission and which is the basis for the wording of the proposal, defined uncovered fixed costs as fixed costs incurred by undertakings during the eligible period which are not covered by the profit contribution (i.e. revenues minus variable costs).
[2] If the beneficiary was only established after 1 October 2019, it shall be deemed that it is eligible for funding if the revenues in the eligible period (October – December 2020) decrease by 40% or more compared to the average monthly revenue from registration until 1 September 2020, adjusted to the same period.
[3] If the beneficiary was only established after 1 October 2019, the basis is calculated from turnover made until 1 September 2020, readjusted for the same period, i.e. 1 year.
Author: Jera Majzelj, SELIH & PARTNERJI Law Firm
The Slovenian Government has sent a new proposal for intervention measures to the National Assembly, the so called PKP6 package, which is supposed to be subject to parliamentary discussion this week. Amongst the measures that we are already familiar with, an entirely new measure in support of the economy is proposed in the form of partial funding of uncovered fixed costs.
The proposal does not say what exactly are the uncovered fixed costs. Based on the supporting documentation for the proposal, we can assume that these costs are defined as net losses in a particular period (AOP 187 in the profit and loss statement).1 The funding proposal is not based on actual uncovered fixed costs of an undertaking, but gives an estimate of uncovered fixed costs, which is made based on the revenues of the undertaking. This estimate is then the basis for somewhat unclear description of refund calculation, which is further subject to several limitations. The supporting documentation for the proposal will not be of much help to the reader, as it contradicts the wording of the proposed articles. This was already subject to comments from the Legislative and Legal Service of the National Assembly.
The contents of the proposed Articles is summarized below:
Eligible period
This measure will be available for the period from 1 October to 31 December 2020. This period may be extended by no more than 6 months by the Government.
Excluded undertakings
As with the majority of intervention measures, some entities are excluded per se:
- national or municipality budget users, direct or indirect, whose percentage of income from public sources in 2019 exceeded 70%;
- employers performing financial or insurance services with more than 10 employees;
- foreign diplomatic or consular representations and certain similar institutions.
Basic conditions for beneficiary status
The proposal further limits the beneficiary status with the following formal conditions:
- the legal or natural person has been registered for performing economic activities at the latest by 1 September 2020;
- on the day the proposal enters force, this person has at least one employee or is self-employed or a shareholder/founder who is also a manager, included in mandatory insurance (in line with Article 15 or 16 of the Slovenian Pension and Disability Insurance Act).
The main condition for claiming the funding is contained in the requirement that the legal or natural person is only eligible if, due to the consequences of Covid-19 epidemic, this person cannot perform its activities or can only perform them in a materially limited scope. This condition is deemed fulfilled only when the revenues of the beneficiary in the period from October to December 2020 decreased by 40% or more compared to the same period in 2019.2
Since the filing for the funding will need to be made by the end of 2020, when all financial data will not have been known, potential beneficiaries will need to rely on their own assessments. If these prove to be wrong, the funding received will need to be returned (see below).
Calculation base and funding percentage
The basis for the funding calculation is the yearly turnover for 2019.3 The partial refund for each month of operations in the period from October to December 2020 is to be determined in the following percentage:
| 0.6% of the base per month | if the activities (i.e. turnover) decrease by 40 – 70% |
| 1.2% of the base per month | if the activities (i.e. turnover) decrease more than 70% |
Caps and limitations
The refund amount that a beneficiary may receive is capped:
- at EUR 1,000 per regular employee per month;
- at 70% (for medium and large enterprises) or 90% (for micro and small enterprises) of net loss of the beneficiary in its profit and loss statement in the eligible period, i.e. October to December 2020.
How many employees the beneficiary has and what is the size of the enterprise is to be established at the time when the beneficiary makes the request for funding.
Support is further limited by general rules on state aid:
- undertaking may not already be in difficulty as of 31 December 2019 (within the meaning of the General Block Exemption Regulation);
- the beneficiary makes sure that the uncovered fixed costs are not covered by other sources, such as insurance, temporary aid measures or support from other sources;
- funding under this measure may not exceed the limitations set forth in points 3.1 and 3.12 of the Temporary Framework for State Aid Measures to Support the Economy in the Current Covid-19 Outbreak, which was issued by the European Commission. This framework also sets forth the maximum amounts that undertakings may receive under such intervention measures in relation to Covid‑19.
Filing a request
Undertakings that estimate that they will fulfil the conditions for partial funding must submit their filing by using the information system of the Financial Administration of the Republic of Slovenia, namely at the latest on 31 December 2020. The Financial Administration is supposed to pay out the support on the 20th day in the month following the month when the filing will have been made.
Funding returns
If it turns out that the beneficiary has made a wrong assessment in believing that the conditions will be met, it must inform the Financial Administration about this and repay the excess of support in 30 days. The proposal does not elaborate on when exactly does this deadline start running. If the Financial Administration establishes, on its own, that in the period from October to December 2020 the beneficiary is showing a profit and loss statement that does not reflect the actual business events, the beneficiary must return the entire support in 8 days. As regards late interest with such repayments, the proposal is unclear. In Article 110, it is stated that late interest shall be charged after the respective payment deadlines expire. At the same time, Article 112 requires that a beneficiary who does not comply with the obligation of repaying the excess funding shall repay the funds together with late interest, whereby it is not clear whether this applies from the day the funds were received and what is the difference compared to provisions of Article 110.
[1] The Temporary Framework for State Aid Measures to Support the Economy, which was issued by the European Commission and which is the basis for the wording of the proposal, defined uncovered fixed costs as fixed costs incurred by undertakings during the eligible period which are not covered by the profit contribution (i.e. revenues minus variable costs).
[2] If the beneficiary was only established after 1 October 2019, it shall be deemed that it is eligible for funding if the revenues in the eligible period (October – December 2020) decrease by 40% or more compared to the average monthly revenue from registration until 1 September 2020, adjusted to the same period.
[3] If the beneficiary was only established after 1 October 2019, the basis is calculated from turnover made until 1 September 2020, readjusted for the same period, i.e. 1 year.
