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State aid: Commission requires Greece to recover illegal tax exemptions

European Commission - IP/07/1111   18/07/2007

Other available languages: FR DE EL

IP/07/1111

Brussels, 18th July 2007

State aid: Commission requires Greece to recover illegal tax exemptions

The European Commission has decided under EC Treaty state aid rules that tax breaks granted under Greek Law 3220/2004 are incompatible with the Single Market and need to be recovered from the beneficiaries. Under the Law, approximately €200 million of incompatible aid has been given to thousands of companies. Article 2 of Greek Law 3220/2004 reduced the tax base of companies in certain specific sectors by 35% of their profits, thus giving them an unfair advantage. The sectors included among others the production of textile materials and basic metals, manufacturing, energy production, mining, intensive agriculture and fishery and certain tourism activities. The measure was never notified to the Commission and is therefore illegal. Based on its in-depth investigation, the Commission has now decided that the aid is also incompatible with EC Treaty state aid rules (Article 87) because it distorts competition and trade between Member States and that the Greek authorities must recover the aid, plus interest, from the beneficiary companies..

Competition Commissioner Neelie Kroes said: “When a Member State distorts competition with incompatible state aid, the prior situation has to be re-established. This means that such aid needs to be fully recovered, including interest."

This decision follows one of the first injunctions issued by the Commission requiring a Member State to suspend immediately the granting of state aid before the Commission had taken a final decision on the compatibility of the aid (see IP/05/1325). The Commission at that time considered that the provisional suspension was justified given the continuous application of the tax exemptions by Greece and the increasing distortion of competition in the Single Market.

Following an investigation, the Commission's doubts have been confirmed and it has therefore required Greece to recover the aid from all recipients.

Background:

Article 2 of the Greek Law 3220/2004 allowed companies in the above sectors to deduct up to 35% of profits in 2003 and 2004 from their tax base. The companies had to use their tax exempt income to finance expenses, such as the purchase, construction and expansion of plants and buildings and equipment, the purchase of vehicles, relocation, leasing costs, studies, training and many others. Thousands of companies could claim this benefit directly from the tax authorities as the aid scheme was part of the Greek tax system.

Although many of the activities relate to areas promoted by the EU, the Commission came to the conclusion, that the measure violates the relevant state aid rules in that it gives tax breaks to companies without tying them to the Community objectives that may justify the aid. For regional aid, for example, the beneficiaries are neither obliged to invest strictly into initial investment, nor to maintain the investment in the assisted region.

To re-establish the situation prior to the granting of the aid, the Commission decision requires Greece to immediately and effectively recover the incompatible aid, including interest, from the beneficiaries. Only aid that, at the time of its granting, fulfilled all the conditions of the de-minimis regulations, block exemption regulations or aid programmes previously approved by the Commission does not have to be returned.


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