Brussels, 07/11/2014 (Agence Europe) - Encouraging shareholdings abroad by means of tax benefits, as the Spanish tax system does, is fully compatible with internal market rules, said the EU General Court (ruling in case T-219/10 and T-399/11) on Friday 7 November. The court thus annulled two European Commission decisions which declared this system to be incompatible with the internal market on the grounds of what it claimed was the system's selective nature.
The Spanish law on corporation tax encourages acquisition of shares in foreign companies by companies which are taxable in Spain. The goodwill resulting from such shareholdings may be deducted through amortisation of the basis of assessment for the corporation tax when the shareholding is of at least 5% and is held for at least a year. No such deduction may be made when the holding is acquired by a company taxable in Spain in a company established in Spain.
The Commission took the view twice, in 2009 and in 2011 (for acquisitions of shares both within and outside the EU), that such a tax regime is incompatible with EU state aid rules. It argued this system was selective since it benefitted only a certain group of companies which made certain investments abroad. Thus, according to the Commission, it constituted state aid that Spain had to recover. Three companies established in Spain, Autogrill España, Banco Santander and Santusa Holding, asked the EU General Court to annul the Commission decisions.
The Court found in favour of the three companies. It ruled that the Commission had failed to establish that the Spanish regime was selective because the measure at issue does not favour any particular category of companies, or any specific production of goods but is, on the contrary, available to all companies. While the media may often talk of the cases of Spanish group Telefonica (which bought up UK competitor O2) and of energy group Iberdrola (which bought Scottish Power of the UK) as demonstration that the tax regime favours in the main companies with substantial financial resources, the Court points out that the Spanish government does not set any minimum amount in respect of the minimum 5% shareholding threshold.
The Court also saw dangers if the Commission decisions had to be upheld. Such an approach could lead to every tax measure, the benefit of which is subject to certain conditions, being found to be selective, even though the beneficiary undertakings did not share any specific characteristic distinguishing them from other undertakings, apart from the fact that they were capable of satisfying the conditions to which the grant of the measure is subject. The judges also note that a measure which may confer an advantage on all undertakings without distinction within the state concerned cannot constitute state aid. It is only in cases where a difference in treatment is applied between companies under the legislation of the same member state that selective nature can be established, they state.
Responding to the ruling, the Commission said on Friday 7 November that it is still too early to determine the implications of the judgment on its decision of 15 October (see EUROPE 11177) in which it ordered Spain to recover the aid granted under the amended tax regime on the acquisition, this time, of indirect shareholdings in foreign companies. In March 2012, Madrid extended the scope of its measure, without giving prior notice of the extension to the Commission - a further issue on which the Commission is unhappy. (JK)