Brussels, 13/12/2002 (Agence Europe) - The European Commission ha closed the enquiry it had opened over a tax scheme in the Azores through a conditional decision. The scheme in question is characterised by reductions in rates of personal income tax (IRS) and corporate income tax (IRC) payable in the region. These reductions are applicable automatically to all economic operators (individuals and companies) and are intended to allow firms established in the Azores region to overcome the structural handicaps imposed by their location in one of the outermost regions. The budgetary costs of the reductions, as measured by the resulting tax revenue shortfalls, is estimated by the Portuguese authorities at some EUR 26.25 million a year. When it initiated the enquiry, the Commission set out from the idea that these reductions had to be considered as operating aid. The guidelines on national regional aid enshrining the general principle that operating aid is prohibited, but is authorised in the outermost regions as long as it is not progressively reduced and limited in time, and that it contributes to compensating for the additional costs arising in pursuit of economic activity in an outermost region subjected to handicaps (remoteness, insularity, small size, difficult topography and climate, and economic dependence on a few products). Portugal had to provide the necessary proof to justify the existence of the scheme, but the Commission considers that it still has not clearly demonstrated compatibility with the rules in question. On the contrary, granted through State resources, these tax reductions could affect trade between Member States in the sense that they apply to companies that have the edge over other Portuguese companies. The Commission finally concluded that this type of aid could be granted as it satisfied the criteria for regional aid, on condition, however, that it is not granted to companies engaged in financial activities of the "intra-group services" type Co-ordination (accounting and distribution centres) for which the existence of real regional handicaps is of very little relevance when company location decisions are taken. Given that Portugal has already granted tax advantages to such companies, the Commission calls for the corresponding amounts to be recovered..