ECJ Confirms Illegality Of Spanish Tax Exemptions

June 22, 2011, 16:30 / Advisory / Jurisdiction: Spain, European Union, Source: Tax-News.com

The European Court of Justice has upheld the European Commission’s finding that tax exemptions granted to newly-established companies in the Basque region of Spain are state aid and incompatible with the common market, and must therefore be recovered by the Spanish government.

On December 20, 2001, the Commission found that fiscal aid schemes granting a 10-year corporate tax exemption for newly created firms in the three Basque Provinces provided a selective advantage to certain companies and ordered Spain to recover aid paid under the schemes. On September 20, 2007, the ECJ held that Spain had failed to fulfil the recovery obligations stemming from these decisions.

The three territories appealed the ECJ's ruling on the grounds that the tax schemes in question were 'existing' state aid and that the Commission had implicitly approved of the schemes for seven years until it received a complaint from a rival company to one of the beneficiary undertakings in 2000. This challenge was rejected however, in a further ruling by the ECJ on June 9. This decision also rejected the appellants' claim that the Court of First Instance (now the General Court) disregarded procedural rules on the collection of evidence and the right to a fair trial.

In addition, the ECJ rejected the appellants assertion that the legal procedure was excessively long because Spain failed to cooperate with the Commission with in respect of a request for information about the tax schemes as far back as 1996, and by failing to notify the EC of the existence of the schemes in the first place.

"The regional authorities involved may not rely on the length of the procedure conducted by the Commission, as they contributed to the situation themselves by failing to cooperate and notify the aid," the court said in a statement.

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