(October 15, 2014)
On October 15, 2014 the European Commission issued a press release in which it announces that is has ordered Spain to recover additional aid granted through tax benefits for acquisitions of indirect shareholdings in foreign companies.
The European Commission states that after an in-depth investigation, it has concluded that a new interpretation of a Spanish tax scheme benefitting companies acquiring foreign shareholdings is incompatible with EU state aid rules. The scheme allows companies to deduct the "financial goodwill" arising from the acquisition of indirect shareholdings in foreign companies from their corporate tax base. The European Commission states that it has found that the measure provided the beneficiaries with a selective economic advantage which cannot be justified under EU state aid rules, and which they must now repay to the Spanish state.
The European Commission had previously found the initial Spanish scheme that allowed companies to deduct the financial goodwill arising from foreign acquisitions of shareholdings from their tax base incompatible with the state aid rules because it gave the beneficiaries a selective economic advantage over their competitors that carry out domestic acquisitions. In October 2009 and in January 2011, the Commission therefore ordered Spain to abolish the provision. Furthermore, the Commission ordered the recovery of aid granted with the exception of certain cases, taking into account the existence of legitimate expectations for some beneficiaries. Spain committed not to grant the exemption to any new beneficiaries but did not abolish the provision, arguing that the financial goodwill can still be deducted in certain cases where the Commission recognized legitimate expectations or authorized a transitory period.
According to the European Commission, consistent administrative practice shows that from 2002 until 2012 this initial scheme, which was the subject of the Commission's 2009 and 2011 decisions, only applied to direct shareholding acquisitions (first level acquisitions) in non-resident operating companies. According to the European Commission the Spanish authorities adopted a new administrative interpretation in March 2012, which allowed the deduction of financial goodwill deriving from indirect shareholding acquisitions through the acquisition of foreign holding companies, thus extending the initial scope of application of the measure.
The European Commission furthermore states that the Spanish authorities did not notify the European Commission of this new interpretation in advance of application, but only informed the European Commission in April 2012. In July 2013, the European Commission opened an in-depth investigation to verify whether this new interpretation, allowing tax deductions in connection with the acquisition of indirect shareholdings in foreign companies, was in line with EU state aid rules. According to the European Commission, its investigation showed that the amended application constitutes new state aid since Spain is unduly enlarging the scope of an aid scheme. The European Commission furthermore states that in its vies the new interpretation is incompatible with EU state aid rules. The European Commission concluded that beneficiaries of this new interpretation have no legitimate expectations as regards their situation; the receipt of tax benefits derived from the indirect acquisition of shareholdings was not covered by the scope of the original measure at the time of adoption of the European Commission's 2009 and 2011 decisions.
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