IP/06/1848

Brussels, 20^th December 2006

State aid: Commission endorses specific economic and fiscal regimes in Canary Islands worth €7,135 million for period 2007-2013

The European Commission has approved under EC Treaty state aid rules, two regional aid schemes for the Canary Islands, the Economic and Fiscal Regime (REF) and the Special Economic Zone (ZEC). The measures are intended to promote regional development in the Canary Islands by enabling companies established in this outlying region to overcome their natural structural handicaps. The fiscal measures, with a combined planned budget of €7,135 million for the period 2007-2013, offer incentives for investment, job creation and the diversification of the regional economic structure.

Competition Commissioner Neelie Kroes said “The aid will help to compensate the additional costs faced by companies in the Canary Islands through incentives for investment and job creation. Our decision ensures the continuity of two measures which have proved in the past to be stimulating for regional development”.

The purpose of the complementary measures “Economic and Fiscal Regime of Canarias – Law 19/94” (see IP/97/1141) and “Zona Especial Canaria” (see IP/00/40) is to support regional development in an outermost region of the EU.

The Commission has assessed the aid in the light of the Guidelines on national regional aid for 2007-2013 (see IP/05/1653). Under the Guidelines, the Canary Islands are fully eligible for regional aid until the end of 2013, as they have a standard of living below the EU average and suffer severe unemployment (Article 87(3)(a) of the EC Treaty).

• The REF and ZEC schemes provide for a series of tax advantages to companies established in the Canary Islands in order to encourage investment and job creation in this region. The ZEC measure foresees tax advantages in the form of a reduction in the rate of corporate tax, plus a tax exemption from transfer tax and from the Canary Islands' indirect tax. The REF measure foresees tax advantages by exempting companies from paying transfer taxes, plus a fiscal discount on the income derived from the sale of goods produced in the Canary Islands. The REF can also take the form of a tax reduction on profits generated in companies' establishments located in the Canary Islands which are assigned to constitute an investment reserve (RIC).
• Some of the REF measures and all ZEC measures are qualified as operating aid, which is generally prohibited under EU state aid rules. However, Article 299(2) of the EC Treaty recognises the specific permanent handicaps of the outermost regions: remoteness, insularity, small size, difficult topography and climate, and economic dependence on a few products. Therefore, the new Regional Aid Guidelines allow operating aid for such regions as the Canary Islands provided the aid is limited to offsetting the additional costs for pursuing economic activities in the same region.

The Commission’s examination of the REF and the ZEC showed that the aid is targeted at specific handicaps of the Canary Islands and is proportionate to the additional costs resulting from these handicaps. Moreover, the measures have significantly contributed to the regional development of the Canary Islands in the past.