Brussels, 28 th October 2009
State aid: Commission requires Spain to abolish tax scheme favouring acquisitions of other European companies
The European Commission has requested Spain, under EC Treaty state aid rules, to abolish a Spanish corporate tax provision that allows Spanish companies to amortise goodwill (i.e. write off over a period of time the excess price paid for the acquisition of a business over the market value of the assets composing it) deriving from acquiring a stake in non-Spanish companies. After an in-depth investigation, opened in October 2007 (see ), the Commission concluded that the scheme distorts competition within the Single Market because it confers an unjustified advantage to Spanish companies especially in the context of competitive takeover bids. The Commission has therefore ordered Spain to recover any unlawful aid granted under this provision as regards European acquisitions since 21 December 2007. As regards the application of this provision to acquisitions outside the EU, the Commission will continue its investigation.
Competition Commissioner Neelie Kroes said: “This tax provision gives a discriminatory advantage to Spanish companies when acquiring shares in other European companies. To preserve a level playing field in the Single Market, Spain must put an end to this measure and recover unlawful aid given since December 2007. The Commission is still waiting for additional information from Spain on acquisitions outside the EU, where differentiated treatments may be justified. "
In October 2007, the Commission initiated a formal investigation of the fiscal measure at stake (see ), following questions from Members of the European Parliament and complaints alleging that the Spanish scheme was unlawful and had damaging effects in a number of takeover bids by Spanish companies: O2 by Telefónica, Scottish Power by Iberdrola, and bids by Sacyr, Albertis and Cintra for the concession of highways in France.
Article 12(5) of the Spanish income tax code provides that a Spanish company may amortise the financial goodwill resulting from the acquisition of a significant shareholding in a foreign company during the 20 years following the acquisition. This results in an economic advantage, amounting to the difference between the acquisition cost of the shares and the market value of the underlying assets of the target.
This is a clear exception from the general Spanish tax system that applies to Spanish-Spanish transactions, as it allows the amortisation of goodwill even where the acquiring and the acquired companies are not combined into a single business entity. Taking into account the legislative harmonisation achieved within the EU, mainly through the Directive on cross-border mergers (2005/56/EC) and on the tax mergers Directive (90/434/EEC), the Commission found that the favourable treatment of Spanish acquisitions in other Member States was discriminatory and therefore unjustifiable. These advantages cannot be justified by the general logic of the Spanish tax system, as they constitute a clear, unjustified exception to the common rules applicable to acquisitions.
The Commission concludes that the scheme constitutes state aid as it provides selective advantages to Spanish companies engaged in acquiring non-Spanish European companies as compared to Spanish companies acquiring shares in other Spanish companies.
Spain did not notify the scheme to the Commission before it started implementing it in 2002. The Commission has nevertheless decided to limit the scope of the recovery obligation and order Spain to recover the incompatible aid granted only as of 21 December 2007, when the Commission decision to initiate the in-depth investigation was published due to the existence of legitimate expectations.
As regards acquisitions in non-EU countries, the Spanish authorities contend that specific obstacles to mergers persist and additional elements in that regard will be submitted to the Commission in the near future. The investigation therefore continues on this part of the measure. Constructive discussions are also ongoing with Spain as regards the design of a future regime.
The non-confidential version of the decision will be made available under the case number in the State Aid Register on the DG Competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News .