Brussels, 26/08/2002 (Agence Europe) - The European Commission has declared the special tax system enjoyed by coordination centres located in the Spanish province of Biscaye (Basque country) illegal. The centres provide banking, marketing, insurance, logistics and other services to the companies of the international group to which they belong. In July, the Commission had opened a large scale investigation against eleven corporate taxation systems in eight Member States, including the coordination centres of Biscaye, as it feared that these systems would distort competition and trade within the European Union (see EUROPE of 12 July 2001, p.11). Since then, the Spanish government has abolished the system but the Commission was compelled under European rules to take a decision. Biscaye's special tax system provided for a different method for calculating income tax for the coordination centres located in the province. Only the companies that fulfilled certain conditions of capital, turnover and number of employees could benefit from the system. This so-called "cost plus" method is an alternative taxation method whereby taxable income of the beneficiary company is calculated as a fixed percentage of its spending. Although it does not in itself constitute State aid, its application may engender such aid in practice, for example when some spending is not taken into consideration when determining the taxable profits or when too small a margin is applied. In the case of the system in Biscaye, the Commission concluded that this system effectively excluded some financial costs from the calculation of the taxable base. As a result, there was relief in the tax burden for companies under this system, which is not compatible with European rules on State aid. Given that at the time of implementing the regime the authorities in Biscaye could legitimately have thought that the system was not State aid, the Commission decided not to demand reimbursement of the tax advantages obtained. Commissioner Mario Monti pointed out that the decision taken was a "further step along the road to eliminating disguised State aid, granted to companies through special taxation regimes". He was delighted that the Spanish authorities had already done away with the system.