State aid: Commission requests phasing out of Spain’s tax incentives for investment abroad
European Commission - IP/06/355 22/03/2006
Brussels, 22nd March, 2006
The European Commission has formally requested Spain under EC-Treaty state aid rules to abolish tax incentives in favour of Spanish companies investing abroad. The Commission requests that the incentives are gradually eliminated by the end of 2010, as they are distorting competition and trade within the Single Market. Spain has one month to accept this request, failing which the Commission may open a formal state aid investigation.
“I am sure that Spain will cooperate with the Commission and rapidly abolish these long-standing incentives, which seriously distort trade and competition in the Single Market. I would not hesitate to act in case Spain does not fully comply with these recommendations” commented Competition Commissioner Neelie Kroes.
Overview of the incentives
The scheme offers Spanish companies a yearly tax credit of 25% of the amount invested to establish a foreign branch, to acquire a substantial shareholding of a foreign company and to explore or penetrate new markets (including other Member States), provided such investments are linked to the export of goods or services from Spain. The incentives also include a temporary tax allowance totalling 25% of the expenses incurred to acquire control of an active business outside the EU, provided it is a new business venture unrelated to activities already exercised in Spain.
The incentives fulfil all criteria for constituting state aid. Companies investing or acquiring existing businesses abroad receive a tax advantage, financed from state resources, which is liable to seriously distort competition and evidently affects trade because it is targeted to favour Spanish exporters. The incentives satisfy none of the criteria set out in the EC Treaty (Articles 87(2) and 87(3)) under which state aid may be authorised.
The Commission request
The vast majority of the incentives were in force when Spain joined the Community in 1986 and therefore constitute existing aid. The Commission accordingly initiated the cooperation procedure for existing aid measures with a view to abolishing the incentives and eventually obtained Spain’s commitment to gradually eliminate them by 2010. On 10 March, the Spanish Government presented a draft bill to Parliament providing for the elimination of the 25% tax allowance as of 1st January 2007, and phasing out the remaining tax advantages by the end of 2010.
In order to ensure the effective repeal of the incentives, the Commission requests Spain to formally accept the following measures:
- reduction of the tax credit from 25% to 12% as of 1st January 2007
- further reduction of the tax credit by 3% per year until its complete elimination by 1st January 2011
- immediate termination of any aid to export or to favour domestic over imported products within the meaning of Council Regulations 69/2001 and 70/2001 on the application of state aid rules to the de minimis aid and to small and medium enterprises respectively.
Unless Spain’s accepts the appropriate measures proposed within one month, the Commission will open a formal investigation.
 OJ L 10 of 13.1.2001, p. 30.