EN Official Journal of the European Union L 135/1

COMMISSION DECISION

of 12 January 2011

on the tax amortisation of financial goodwill for foreign shareholding acquisitions No C 45/07 (ex NN 51/07, ex CP 9/07) implemented by Spain

(notified under document C(2010) 9566)

(Only the Spanish text is authentic)

(Text with EEA relevance)

(2011/282/EU)

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union, and in particular the first subparagraph of Article 108(2) thereof,

Having regard to the Agreement on the European Economic Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments pursuant to the provisions cited above (1) and having regard to their comments,

Whereas:

I. PROCEDURE

(1) By written questions addressed to the Commission (No E-4431/05, E-4772/05 and E-5800/06) several MEPs indicated that Spain had enacted a special scheme allegedly providing an unfair tax incentive for Spanish companies that acquired significant shareholdings in foreign companies, pursuant to Article 12(5) of the Spanish Corporate Tax Law (‘Real Decreto Legislativo 4/2004, de 5 de marzo, por el que se aprueba el texto refundido de la Ley del Impuesto sobre Sociedades’ (2), hereinafter ‘TRLIS’).

(2) By written question No P-5509/06, Mr David Martin MEP complained to the Commission about the hostile takeover bid by the Spanish energy producer Iberdrola involving purchasing shares of the UK energy generator and distributor Scottish Power Ltd According to Mr Martin, Iberdrola had unfairly benefited from State aid in the form of a tax incentive for the acquisition. Mr Martin asked the Commission to examine all the competition issues arising from the acquisition, which had been notified on 12 January 2007 for review by the Commission pursuant to Article 4 of Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (3) (hereinafter ‘the Merger Regulation’). By Decision dated 26 March 2007 (Case No COMP/M.4517 — Iberdrola/Scottishpower, SG-Greffe(2007) D/201696) (4), the Commission decided not to oppose the notified operation and to declare it compatible with the internal market under Article 6(1)(b) of the Merger Regulation.

(3) By letters dated 15 January and 26 March 2007, the Commission asked the Spanish authorities to provide information in order to assess the scope and the effects of Article 12(5) TRLIS with respect to its possible classification as State aid and its compatibility with the internal market.

(4) By letters dated 16 February and 4 June 2007, the Spanish authorities replied to these requests.

(5) By fax dated 28 August 2007, the Commission received a complaint by a private operator alleging that the scheme set up by Article 12(5) TRLIS constituted State aid and was incompatible with the internal market. The complainant asked for his identity not to be divulged.

(6) By decision of 10 October 2007 (hereinafter ‘the opening Decision’), the Commission initiated the formal investigation procedure laid down in Article 108(2) of the Treaty on the Functioning of the European Union (hereinafter ‘TFEU’) (former Article 88(2) of the EC Treaty) in respect of the tax amortisation of financial goodwill provided for by Article 12(5) TRLIS, because it appeared to fulfil all the conditions for being considered State aid within the meaning of Article 107(1) TFEU. The Commission informed Spain that it had decided to initiate the procedure laid down in Article 108(2) TFEU. The Opening Decision was published in the Official Journal of the European Union (5), inviting interested parties to submit their comments.

(7) By letter dated 5 December 2007, the Commission received comments from Spain on the opening Decision.

(8) Between 18 January and 16 June 2008, the Commission received comments on the opening Decision from 32 third parties. The third parties that did not ask to remain anonymous are listed in Annex I to this Decision.

(9) By letters of 9 April, 15 May and 22 May 2008 and 27 March 2009, the Commission forwarded the above-mentioned comments to the Spanish authorities, in order to give them the opportunity to react. By letters of 30 June 2008 and 22 April 2009, the Spanish authorities gave their reactions to the third parties’ comments.

(10) On 18 February 2008, 12 May 2009 and 8 June 2009, technical meetings took place between the Spanish authorities and the Commission representatives to clarify, among others matters, certain aspects of the application of the scheme in question and the interpretation of the Spanish legislation relevant for the analysis of the case.

(11) On 7 April 2008, a meeting took place between the Commission’s representatives and Banco de Santander S.A.; on 16 April 2008 a meeting took place between the Commission’s representatives and the law firm J&A Garrigues S.L. representing various interested third parties; on 2 July 2008 a meeting took place between the Commission’s representatives and Altadis S.A.; on 12 February 2009 a meeting took place between the Commission’s representatives and Telefónica S.A.

(12) On 14 July 2008, the Spanish authorities submitted additional information regarding the contested measure, in particular data extracted from 2006 tax returns, which provided a general overview of the taxpayers benefiting from the contested measure.

(13) By e-mail dated 16 June 2009, the Spanish authorities provided additional information and argued that Spanish companies still faced a number of obstacles to cross-border mergers within the European Union.

(14) On 28 October 2009, the Commission adopted a negative decision (6) with recovery concerning aid granted to beneficiaries on the basis of the contested legislation when making intra-EU acquisitions (hereinafter ‘the previous Decision’). As indicated in paragraph 119 of this Decision, the Commission maintained the procedure, as initiated by the opening Decision, open for extra-EU acquisitions since the Spanish authorities undertook to provide new details concerning the obstacles to cross-border mergers outside the EU.

(15) On 12, 16 and 20 November 2009, the Spanish authorities submitted summary information concerning direct investment by Spanish companies in non-EU countries.

(16) On 16 December 2009, the Commission sent a request for information to the Spanish authorities concerning transactions in non-EU countries which it deemed necessary in order to make the State aid assessment of the scheme along the lines suggested by the Spanish authorities.

(17) By letter dated 3 January 2010 the Spanish authorities submitted detailed information on 15 non-EU countries in which the vast majority (approximately 70 %) of Spanish foreign direct investment was located. More precisely, the Spanish authorities presented two reports prepared by the law firm Garrigues and by KPMG, which include an analysis of the alleged fiscal and legal obstacles in these third countries.

(18) By letter of 27 January 2010 the Commission received comments from Banesto, a member of the Santander Group.

(19) By e-mail of 3 March 2010, the Spanish authorities answered a technical question addressed to them on 26 February 2010.

(20) By letter of 9 July 2010 the Commission received comments from Banco Santander.

(21) By letter of 25 November 2010 the Commission received comments from Telefónica.

(22) On 27 November 2009, 16 June 2010 and 29 June 2010, technical meetings took place between the Commission and the Spanish authorities.

II. DETAILED DESCRIPTION OF THE CONTESTED MEASURE

(23) The measure in question provides for tax amortisation of the financial goodwill arising from the acquisition of a significant shareholding in a foreign target company.

(24) The measure is governed by Article 12(5) TRLIS (hereinafter ‘the contested measure’). More precisely, Article 2(5) of Law 24/2001 of 27 December 2001 amended the Spanish Corporate Tax Law 43/1995 of 27 December 1995, by adding Article 12(5). Royal Legislative Decree 4/2004 of 5 March 2005 provides a consolidated version of the Spanish Corporate Tax Law.

(25) The Commission is aware that the Spanish legislation has evolved since the date of the opening Decision (7). Nonetheless, the Commission considers that the latest amendments cannot modify or alter the doubts expressed in the opening Decision. For the sake of consistency, the Commission will refer in the present Decision to the numbering of the Spanish legislation as given in the opening Decision, even though it may have been modified. Any new legal provision will be expressly identified as such.

(26) Article 12(5) TRLIS, within Article 12 TRLIS ‘Value adjustments: loss of value of assets’, entered into force on 1 January 2002. It essentially provides that a company which is taxable in Spain may deduct from its taxable income the financial goodwill deriving from the acquisition of a shareholding of at least 5 % of a foreign company, in yearly instalments, over not less than the 20 years following the acquisition.

(27) Goodwill is understood to represent the value of a well-respected business name, good customer relations, employee skills, and other such factors expected to translate into greater than apparent earnings in the future. Under Spanish accounting principles (8), the price paid for the acquisition of a business in excess of the market value of the assets constituting the business is termed ‘goodwill’ and should be booked as a separate intangible asset as soon as the acquiring company takes control of the target company (9).

(28) Under Spanish tax principles, with the exception of the contested measure, goodwill can only be amortised following a business combination that arises either as a result of acquisition or contribution of the assets constituting independent businesses or following a merger or de-merger operation.

(29) ‘Financial goodwill’, as used in the Spanish tax system, is the goodwill that would have been booked if the shareholding company and the target company had merged. The concept of financial goodwill under Article 12(5) TRLIS therefore introduces into the field of share acquisitions a concept that is usually used in transfers of assets or business combination transactions. According to Article 12(5) TRLIS, the financial goodwill is determined by deducting the market value of the tangible and intangible assets of the acquired company from the acquisition price paid for the shareholding.

(30) Article 12(5) TRLIS provides that the amortisation of financial goodwill is conditional upon meeting the following requirements, as set by reference to Article 21 TRLIS: (a) at least 5 % of the foreign company must be held directly or indirectly by the Spanish acquiring company for an uninterrupted period of at least 1 year (10); (b) the foreign company must be subject to a tax similar to that applicable in Spain. This condition is presumed to be met if the country of residence of the target company has signed a tax convention with Spain to avoid international double taxation and prevent tax evasion (11) with a clause on exchange of information; (c) the revenue of the foreign company must derive mainly from business activities carried out abroad, or revenue that can be treated as such. This condition is met when at least 85 % of the income of the target company: (i) is not included in the taxable base under Spanish international tax transparency rules and is taxed as profits earned in Spain (12). Income is specifically considered to meet these requirements when it derives from the following activities: — wholesale trade, when the goods are made available to the purchasers in the country or territory of residence of the target company or in any country or territory other than Spain, — services provided to clients that do not have their tax domicile in Spain, — financial services provided to clients that do not have their tax domicile in Spain, — insurance services relating to risks not located in Spain; (ii) is dividend income, provided that the conditions on the nature of the income from the shareholding provided for in Article 21(1)(a) and the level of direct and indirect shareholding of the Spanish company are met (Article 21(1)(c)(2) TRLIS) (13).

(31) In addition to the contested measure, it is worth presenting briefly the following TRLIS provisions to which the present Decision will refer: — Article 11(4) TRLIS (14), (Article 11 is entitled ‘Value adjustments: amortisation’ and is contained in Chapter IV of the TRLIS, which defines the tax base) provides for a minimum of 20 years’ amortisation of the goodwill deriving from an acquisition under the following conditions: (i) the goodwill results from an acquisition for value; (ii) the seller is unrelated to the acquiring company. The amendments made to this provision subsequent to the opening Decision and brought in by Law No 16/2007 of 4 July 2007, clarified that if condition (ii) was not met, the price paid used for calculating the goodwill will be the price paid for the share acquired by a related company to an unrelated seller, and, in addition, required (iii) a restricted reserve to have been set up for an amount at least equivalent to that deducted under Article 12(5) TRLIS, — Article 12(3) TRLIS, which is contained in Chapter IV TRLIS, permits partial deduction for depreciation of domestic and foreign shareholdings, which are not listed on a secondary market, up to the difference between the theoretical accounting value at the beginning and the end of the tax year. The contested measure can be applied in conjunction with this article of the TRLIS (15), — Article 89(3) TRLIS (Article 89 is entitled ‘Holdings in the capital of the transferring entity and the acquiring entity’), is contained in Title VII, Chapter VIII on the ‘Special system for mergers, divisions, transfers of assets and exchanges of shares and change of domicile of a European company or European cooperative society from one European Union Member State to another’. Article 89(3) TRLIS provides for the amortisation of goodwill arising from business restructuring. Under this provision, the following conditions must be fulfilled in order to apply Article 11(4) TRLIS to the goodwill arising from a business combination: (i) a shareholding of at least 5 % in the target company before the business combination; (ii) it must be proven that the goodwill has been taxed and charged to the seller (iii) the seller is not linked to the purchaser. If condition (iii) is not met, the amount deducted must correspond to an irreversible depreciation of the intangible assets, — Article 21 TRLIS, entitled ‘Exemption to avoid international double taxation on dividends and income from foreign sources arising from the transfer of securities representing the equity of entities not resident in Spain’, is contained in Title IV TRLIS. Article 21 lays down the conditions under which dividends or income from entities not resident in Spanish territory are tax exempt when received by a company which is tax domiciled in Spain, — Article 22 TRLIS, entitled ‘Exemption of certain income obtained abroad via a permanent establishment’, is contained in Chapter IV TRLIS. Article 22 TRLIS lays down the conditions under which income generated abroad by a permanent establishment not situated in Spain is tax exempt.

(32) For the purposes of this Decision: — transfer of assets shall mean an operation whereby a company transfers, without being dissolved, all or one or more branches of its activity to another company, — business combination shall mean an operation whereby one or more companies, on being dissolved without going into liquidation, transfer all their assets and liabilities to another existing company or to a company that they form in exchange for the issue to their shareholders of securities representing the capital of that other company, — share acquisition shall mean an operation whereby one company acquires a shareholding in the capital of another company without obtaining a majority or the control of the voting rights of the target company, — target company shall mean a company not resident in Spain, whose income fulfils the conditions described in paragraph 30(c) and in which a shareholding is acquired by a company resident in Spain, — intra-EU acquisitions shall mean shareholding acquisitions, which meet all the relevant conditions of Article 12(5) TRLIS, in a target company which is formed in accordance with the law of a Member State and has its registered office, central administration or principal place of business within the Union, — extra-EU acquisitions shall mean shareholding acquisitions, which meet all the relevant conditions of Article 12(5) TRLIS, in a target company which has not been formed in accordance with the law of a Member State or does not have its registered office, central administration or principal place of business within the Union.

III. GROUNDS FOR INITIATING THE PROCEDURE

(33) In the opening Decision, the Commission initiated the formal investigation procedure laid down in Article 108(2) TFEU (former Article 88(2) of the EC Treaty) in respect of the contested measure, because it appeared to fulfil all the conditions for being considered State aid within the meaning of Article 107(1) TFEU. The Commission also had doubts as to whether the contested measure could be considered compatible with the internal market, as none of the exceptions provided for in Article 107(2) and (3) seemed applicable.

(34) In particular, the Commission considered that the contested measure departed from the ordinary scope of the Spanish corporate tax system, which is the tax system of reference. The Commission also held that the tax amortisation of the financial goodwill arising from the acquisition of a 5 % shareholding in a foreign target company seemed to constitute an exceptional incentive.

(35) The Commission observed that the tax amortisation applied only to a specific category of undertakings, namely undertakings which acquire certain shareholdings, amounting to at least 5 % of the share capital of a target company, and only in respect of foreign target companies provided that the criteria in Article 21(1) TRLIS are fulfilled. The Commission also underlined that, pursuant to the case law of the Court of Justice of the European Union, a tax reduction favouring only exports of national products constitutes State aid (16). The contested measure therefore seemed selective.

(36) In this context, the Commission also considered that the selective advantage did not appear to be justified by the inherent nature of the tax system. In particular, it considered that the differentiation created by the contested measure, which departed from the general rules of the Spanish accounting and tax systems, could not be justified by reasons linked to technicalities of the tax system. Indeed, goodwill can only be deducted in the case of a business combination or transfer of assets, except under the provisions of the contested measure. The Commission also considered that it was disproportionate for the contested measure to claim to attain the neutrality objectives pursued by the Spanish system because it is limited solely to the acquisition of significant shareholdings in foreign companies.

(37) In addition, the Commission considered that the contested measure implied the use of state resources, as it involved the Spanish Treasury foregoing tax revenue. Finally, the contested measure could distort competition in the European business acquisition market by providing a selective economic advantage to Spanish companies engaged in the acquisition of a significant shareholding in foreign companies. Nor did the Commission find any grounds for considering the contested measure compatible with the internal market.

(38) The Commission therefore concluded that the contested measure could constitute incompatible State aid. If this were the case, recovery should take place according to Article 14 of Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the Treaty. The Commission accordingly invited the Spanish authorities and interested parties to submit their observations as to the possible presence of legitimate expectations or any other general principle of Union law which would permit the Commission to exceptionally waive recovery pursuant to the second sentence of Article 14(1) of the above-mentioned Council Regulation.

IV. THE FIRST PARTIAL NEGATIVE DECISION

(39) In the previous Decision, the Commission concluded that Article 12(5) TRLIS constitutes an aid scheme within the meaning of Article 107(1) TFEU when it applies to intra-EU acquisitions.

(40) The Commission also found that, since the contested measure had been implemented in breach of Article 108(3) TFEU, it constituted an unlawful aid scheme to the extent that it applied to intra-EU acquisitions.

(41) The Commission maintained the procedure, as initiated by the opening Decision of 10 October 2007, open for extra-EU acquisitions in the light of the new elements which the Spanish authorities undertook to provide as regards the obstacles to cross-border mergers outside the EU.

V. COMMENTS FROM THE SPANISH AUTHORITIES AND INTERESTED THIRD PARTIES

(42) The Commission received comments from the Spanish authorities (17) and from 32 interested third parties (18), eight of which were associations.

(43) To summarise, the Spanish authorities consider that Article 12(5) TRLIS constitutes a general measure and not an exception to the Spanish tax system since this provision allows the amortisation of an intangible asset, which applies to any taxpayer who acquires a significant shareholding in a foreign company. In the light of Commission practice and the relevant case law, the Spanish authorities conclude that the contested measures cannot be considered State aid within the meaning of Article 107 TFEU. In addition, the Spanish authorities consider that a different conclusion would be contrary to the principle of legal certainty. The Spanish authorities also contest the competence of the Commission to challenge this general measure as they consider that the Commission cannot use State aid rules as the basis for harmonising tax issues.

(44) In general, 30 interested third parties (hereinafter ‘the 30 interested parties’) support the views of the Spanish authorities, whereas another two third parties (hereinafter ‘the two parties’) consider that Article 12(5) TRLIS constitutes an unlawful State aid measure incompatible with the internal market. Hence, the arguments of the 30 interested parties will be presented together with the position of the Spanish authorities, whereas the arguments of the two parties will be described separately.

A. Comments from the Spanish authorities and the 30 interested parties

(45) As a preliminary remark, the Spanish authorities stress that direct taxation lies within the competence of Member States. Therefore, the Commission’s action in this field should be in line with the subsidiarity principle stated in Article 5 EC Treaty (now replaced in substance by Article 5 TFEU). Moreover, the Spanish authorities recall that Article 3 EC Treaty (now replaced in substance by Articles 3 to 6 TFEU) and 58(1)(a) EC Treaty (now replaced by Article 65 TFEU) allow Member States to establish different tax systems, according to the location of the investment or the tax residence of the taxpayer, without this being considered a restriction to the free movement of capital.

(46) The 30 interested parties also maintain that a negative Commission decision would breach the principle of national fiscal autonomy laid down in the TFEU, as well as Article 56 EC Treaty (now replaced by Article 63 TFEU) prohibiting restrictions on the free movement of capital.

A.1. The contested measure does not constitute State aid

(47) The Spanish authorities and the 30 interested parties consider that the contested measure does not constitute State aid within the meaning of Article 107(1) TFEU since: (i) it does not confer an economic advantage; (ii) it does not favour certain undertakings; and (iii) it does not distort or threaten to distort competition between Member States. In line with the logic of the Spanish tax system, they consider that the contested measure should be considered a general measure applying indiscriminately to any type of company and to any activity.

A.1.1. The contested measure does not confer an economic advantage

(48) Contrary to the Commission’s position as expressed in the opening Decision, Article 12(5) TRLIS does not constitute an exception to the Spanish corporate tax system since (i) the Spanish accounting system is not an appropriate point of reference on which to base the existence of an exception to the tax system; and (ii) even if it were, the characterisation of financial goodwill as a depreciable asset over time has historically been a general feature of the Spanish accounting and corporate tax system.

(49) Firstly, because of the lack of harmonisation of accounting rules, the accounting result cannot serve as a reference point for establishing the exceptional nature of the contested measure. Indeed, in Spain, the tax base is calculated on the basis of the accounting result, adjusted according to tax rules. Therefore, in the case at hand, accounting considerations cannot, in Spain’s view, serve as a reference point for a tax measure.

(50) Secondly, it is incorrect to consider goodwill amortisation not to be within the logic of the Spanish accounting system since both goodwill (19) and financial goodwill (20) can be amortised over periods up to 20 years. These empirical rules reflect the loss of value of the underlying assets, whether tangible or not. Therefore, Article 12(5) TRLIS would not constitute an exception as it does not depart from the rules on amortisation of goodwill established in the Spanish accounting and tax systems.

(51) Thirdly, the Spanish authorities point out that the contested measure does not constitute a true economic advantage since, in case of sale of the acquired shareholding, the amount deducted is recovered by taxation of the capital gain, thus placing the taxpayer in the same situation as if Article 12(5) TRLIS had not been applied.

(52) Fourthly, the Commission incorrectly refers to Articles 11(4) and 89(3) TRLIS to establish the existence of an advantage. In the opening Decision, the Commission states that neither a business combination nor takeover of the target company is necessary to benefit from Article 12(5) TRLIS. This statement reflects a misunderstanding of the Spanish tax system since these two articles do not prevent a group of companies that jointly acquires control of a target company from deducting a corresponding fraction of the goodwill resulting from the operation. Hence, application of these two articles does not require individual control of the target company in order to benefit from the contested measure. In this context, it would be inappropriate to consider that Article 12(5) TRLIS offers more favourable treatment than Articles 11(4) or 89(3) TRLIS as regards the controlling position of the beneficiaries. Finally, it should be noted that the 5 % shareholding criterion is consistent with the conditions laid down in Article 89(3) TRLIS and also with Commission guidelines and practice (21).

(53) The Spanish authorities point out that the Commission also incorrectly refers to Article 12(3) TRLIS to establish an alleged advantage under Article 12(5) TRLIS: Article 12(3) applies to situations of depreciation in case of an objective loss recorded by the target company, whereas Article 12(5) TRLIS complements this provision and reflects the loss of value attributable to depreciation of the financial goodwill.

(54) Fifthly, the Commission Notice on the application of the State aid rules to measures relating to direct business taxation (22) (hereinafter ‘the Commission Notice’) explicitly states that amortisation rules do not imply State aid. Since the current amortisation coefficient for financial goodwill over a minimum of 20 years is the same as the amortisation coefficient for goodwill, the rule does not constitute an exception to the general tax system.

(55) Finally, the 30 interested parties also consider that if the contested measure constituted an advantage, the ultimate beneficiaries would be the target company’s shareholders since they would receive the price paid by the acquiring company benefiting from the contested measure.

A.1.2. The contested measure does not favour certain undertakings or the production of certain goods

(56) Firstly, Spain maintains that Article 12(5) TRLIS is a general measure since it is open to any Spanish company whatever its activity, sector, size, form or other characteristics. The only condition for the taxpayer to be able to benefit from the contested measure is to be tax resident in Spain. The fact that not all taxpayers benefit from the measure in question does not make it selective. Therefore, Article 12(5) TRLIS is neither de facto nor de jure selective within the meaning of Article 107(1) TFEU. Accordingly, by letter dated 14 July 2008 (23), the Spanish authorities provided data extracted from the 2006 Spanish tax returns which show that all types of companies (SMEs and large undertakings), as well as companies active in different economic sectors, had benefited from the contested measure. The Spanish authorities also stress that in a recent judgment (24), the General Court indicated that a limited number of beneficiaries is not sufficient in itself to establish the selectivity of the measure since that group can actually represent all of the undertakings in a particular legal and factual situation. In particular, the Spanish authorities stress that the contested measure bears similarities with a recent case (25) that the Commission considered to be a general measure and they therefore request the same treatment.

(57) Secondly, according to the Spanish authorities and the 30 interested parties, in its opening Decision the Commission mixed up the concept of selectivity and the objective conditions of the contested measure which refer only to certain transactions (i.e. shareholding in a foreign target company). Indeed, the Commission alleges that Article 12(5) TRLIS is selective since the same treatment is not granted to comparable investments in Spanish companies. However, the Commission fails to recognise that the selectivity criterion is not determined by the fact that the beneficiary of the contested measure is a group of companies or a multinational company that has a share in a target company. The fact that a measure benefits only companies that comply with the objective criterion laid down in the contested measure does not in itself make it selective. The selectivity criterion implies that subjective restrictions should be imposed on the beneficiary of the contested measure. The selectivity criterion created for this procedure is inconsistent with previous Commission practice and too vague and broad. Taking this concept further would lead to the erroneous conclusion that most tax-deductible expenses fall within the scope of Article 107(1) TFEU.

(58) The Spanish authorities add that the fact of limiting the amortisation of financial goodwill to that resulting from the acquisition of a significant shareholding in a target company is not sufficient to remove the general character of the contested measure, since it applies indiscriminately to any company that is tax resident in Spain with no further requirements. In line with the case law of the Court of Justice (26), a measure which benefits all undertakings in national territory, without distinction, cannot therefore constitute State aid.

(59) Thirdly, as regards the 5 % threshold, this level does not set a minimum amount to be invested and therefore the contested measure does not benefit only large undertakings. As for the fact that there is no requirement for the seller to pay for capital gains in order for the contested measure to apply, the Spanish authorities consider this to be irrelevant since control of income received abroad by a seller who is not liable for tax in Spain lies outside their field of competence. Lastly, limiting the scope of a measure — for fiscal technical reasons — to shareholding acquisitions in target companies is consistent with the situation resulting from the implementation of various Community Directives.

(60) Fourthly, the introduction of the contested measure is in any case justified by the principle of neutrality, which underlies all Spanish tax legislation. This principle implies that the tax treatment of an investment should be neutral irrespective of the instruments used, whether transfer of assets, business combination or share acquisition. Therefore, the tax amortisation of an investment should be identical whatever the instrument used to carry out the acquisition in question. The final aim of the contested measure, in this broader perspective, is to ensure the free movement of capital by avoiding discriminatory tax treatment between transactions with target companies and purely domestic transactions. Given that acquisitions of significant shareholdings in resident companies could lead to a business combination of the acquiring and the acquired companies with no legal or fiscal barriers, the goodwill that would ensue for tax purposes as a result of the combination could be amortised (27). However, goodwill of cross-border operations cannot arise because harmonisation at Community level is not complete or — even worse — because there is no harmonisation outside the European Union.

(61) Moreover, in the course of the investigation, the Spanish authorities and some of the 30 interested parties provided a very detailed description of the legal obstacles that existed in the legislation of 15 third countries. The technical information contained in the submissions presented by the Spanish authorities and the 30 interested parties are summarised in Annexes II and III to this Decision (hereinafter ‘the reports’). These descriptions have to be read more broadly in the context of the following statement by the Spanish authorities (28): ‘the Spanish tax system thus provides for different tax schemes, as in the case of shareholding acquisitions in foreign companies compared with acquisitions in Spanish companies (impossible to undertake merger operations, risk assumption, etc.), in order to achieve the tax neutrality sought by the Spanish domestic legislation and EU law itself and also in order to ensure that the Spanish tax system is consistent and efficient’. According to those authorities and the 30 interested parties, the barriers described in the reports make business combinations between companies from different Member States impossible. Therefore, the aim of the contested measure is to remove the negative impact of these barriers, for whose existence Spain is not answerable. Consequently, limiting the scope of the contested measure to cross-border acquisitions is necessary to enforce the neutrality principle. In this way, still according to the Spanish authorities, the Spanish tax system treats differently taxpayers who are in different situations (29), thereby ensuring that the Spanish tax system is neutral as required by the Spanish tax system itself and by the TFEU.

(62) To conclude, the contested measure is designed to remove the tax barriers that the Spanish tax system generates in investment decisions by penalising share acquisitions in foreign companies as opposed to acquisitions in domestic companies. The contested measure guarantees the same tax treatment for both types of acquisition (direct acquisitions of assets and indirect acquisitions by purchasing shareholdings): goodwill arising from both of them (direct goodwill and financial goodwill) can thus be identified in order to promote the integration of the different markets, until factual and legal barriers to cross-border business combinations have been removed. The Spanish authorities thus ensure that taxpayers can opt to invest at local or cross-border level without being affected by these barriers. Article 12(5) TRLIS basically restores fair conditions of competition by eliminating the adverse impacts of the barriers.

A.1.3. The contested measure neither distorts competition nor affects Union trade

(63) The Spanish authorities state that the Commission has not established, to the requisite legal standard, that Article 12(5) TRLIS restricts competition, as (i) the alleged ‘market for the acquisition of shares in companies’ does not constitute a relevant market for the purposes of competition law; and (ii) even if this were the case, the amortisation of financial goodwill does not in itself affect the competitive position of Spanish undertakings.

(64) First, the Commission qualified the contested measure as an anti-competitive advantage on the grounds that Article 12(5) allows Spanish taxpayers to obtain a premium for the acquisition of significant shareholdings in a target company. However, the Commission did not carry out any benchmarking study on the economic circumstances of Spanish and international companies.

(65) Second, since the contested measure is open to any Spanish company with no restrictions, it cannot distort competition. Indeed, any company in the same situation as a beneficiary of the contested measure can benefit from the measure, thus reducing its tax burden, which cancels any competitive edge that might derive from it. In addition, a lower rate of taxation in a Member State that can increase the competitive edge of local companies should not come under the State aid rules as long as it is of a general nature.

(66) Finally, the Commission has already examined, in the light of the Merger Regulation (30), many Spanish cross-border operations that could have benefited from the contested measure. Yet the Commission did not raise any concerns about potential distortions of competition in any of these cases.

(67) The Commission’s allegations are not only far removed from reality but also out of touch with the investment situation of Spanish companies. The contested measure neither distorts competition nor adversely affects intra-EU trading conditions to an extent contrary to the common interest.

(68) In a non-harmonised market, as a result of competition between tax systems, identical operations have a different fiscal impact depending on where traders are resident. This situation distorts competition even if the national measures at stake are general measures. In other words, this distortion is not the result of State aid but of a lack of harmonisation. If the Commission’s reasoning were followed through, it would have to open formal investigations into hundreds of national measures, which would create a situation of legal uncertainty that is highly detrimental to foreign investment.

A.2 Compatibility

(69) Even if the Commission considers that Article 12(5) TRLIS constitutes State aid within the meaning of Article 107(1) TFEU, this provision is compatible with Article 107(3) TFEU since it contributes to the Union interest of promoting the integration of international companies.

(70) As stated in the State Aid Action Plan (31), a measure can be considered compatible if it addresses a market failure, if it fulfils clearly defined objectives of common interest and if it does not distort intra-EU competition and trade to an extent contrary to the common interest. In the case at hand, the market failure is the difficulty (or virtual impossibility) of carrying out cross-border business combinations. The effect of Article 12(5) TRLIS is to promote the creation of pan-European undertakings, by putting domestic and cross-border acquisitions on the same footing.

(71) Therefore, for the Spanish authorities, Article 12(5) TRLIS is compatible with the internal market since, in the absence of European tax harmonisation, it achieves the objective of breaking down barriers to cross-border investment in a proportionate manner. The contested measure is effectively aimed at removing the adverse impact of obstacles to cross-border business combinations and aligning the tax treatment of cross-border and local business combinations in order to ensure that the decisions taken as regards such operations are based not on tax considerations but exclusively on economic considerations.

A.3 Legitimate expectation and legal certainty

(72) Finally, and in the event that the Commission declares that Article 12(5) TRLIS constitutes State aid incompatible with the internal market, the Commission must acknowledge the existence of certain circumstances that justify the non-recovery of the alleged State aid received pursuant to Article 12(5) TRLIS. The beneficiaries should have the right to complete the exceptional amortisation of the financial goodwill corresponding to acquisitions made before the date of publication of the final decision.

(73) Firstly, the Commission seems to recognise, in the opening Decision, the probable existence of legitimate expectations. Therefore, in line with the case law of the General Court (32), this statement constitutes a clear indication of the existence of legitimate expectations. Since the opening Decision does not prejudge the outcome of the formal investigation, legitimate expectations should be recognised for all the operations that took place before the date of publication of the final decision.

(74) Secondly, in its answers to written questions from MEPs (33), the Commission stated that Article 12(5) TRLIS does not constitute State aid. This statement constitutes a clear position from the Commission which offers obvious legitimate expectations to the Spanish authorities and the beneficiaries of the contested measure.

(75) Thirdly, in line with the conclusion reached by the Commission in similar cases (34), the Commission has provided a series of indirect evidence that Article 12(5) TRLIS does not constitute State aid. Taking into account these decisions, a prudent undertaking would not have been able to predict that the Commission could take an opposite position.

(76) Finally, the contested measure should continue to apply to all operations prior to the publication date of a negative decision until amortisation of the financial goodwill is completed. The contested measure corresponds to a right to deduct a given amount, determined at the time of the acquisition, whose deduction is spread over the following 20 years. Moreover, because of the position taken by the Commission in similar cases (35), it is justified to assume that the legitimate expectations should remain until the date of publication of the final decision.

B. Comments from the two parties

(77) According to the two parties, Article 12(5) TRLIS constitutes State aid. They maintain that there are no legitimate expectations in the case at hand and therefore call on the Commission to order recovery of any unlawful aid granted. Their arguments are summarised below.

B.1. The contested measure constitutes State aid

B.1.1. The contested measure confers an economic advantage

(78) According to the two parties, Article 12(5) TRLIS is exceptional in nature because the Spanish tax system, with the exception of this provision, does not allow any amortisation of financial goodwill but only a deduction in the event of an impairment test. Until the introduction of Article 12(5) TRLIS the Spanish corporate tax legislation did not allow the amortisation of shareholdings regardless of whether or not there had actually been an impairment. They stress that Article 12(5) TRLIS is probably unique in the European context, as no other Member State has a similar system for cross-border transactions not involving the acquisition of controlling shares.

(79) Under the Spanish tax system, goodwill can be amortised only if there is a business combination — the sole exception is the contested measure, which allows amortisation in an exceptional case: if a minority shareholding is acquired in a target company. This diverges from the general tax system since amortisation is possible not only without there being a business combination but also in cases where the purchaser does not even acquire control of the foreign target company. Article 12(5) TRLIS thus confers a benefit on certain Spanish companies vis-à-vis (i) other Spanish companies that operate only at national level and (ii) other EU operators that compete internationally with the Spanish beneficiaries of the contested measure.

(80) From an economic point of view, the Spanish authorities are not only providing an interest-free loan that will be drawn over a period of 20 years (interest-free tax deferral), but also effectively leaving the repayment date of the interest-free loan to the discretion of the borrower — if indeed the loan is repaid. If the investor does not transfer the significant shareholding, the effect is the same as cancellation of the debt by the Spanish authorities. In this case, the measure turns into a permanent tax exemption.

(81) One of the two parties estimates that, as a result of the contested measure, Spanish acquirers, for instance in the banking sector, are able to pay some 7 % more than they would otherwise be able to. However, it also recognises that as the offer price is a combination of various additional elements, the contested measure is not the only factor, although probably one of the most decisive factors behind the aggressiveness of potential Spanish bidders benefiting from the contested measure. This party considers also that the measure provides a definite advantage to Spanish bidders in international auctions.

B.1.2. The contested measure favours certain undertakings or the production of certain goods

(82) There is a clear parallel between the case at hand and the circumstances which led to the Court of Justice judgment of 15 July 2004 (36). Despite the arguments put forward by the Spanish authorities that the contested measure in the latter case is not selective because Article 37 TRLIS applies to all Spanish undertakings that invest internationally, the Court concluded that the measure constituted State aid since it was limited to one category of undertakings, namely undertakings making certain international investments. This same reasoning can be applied to Article 12(5) TRLIS. The selectivity of Article 12(5) TRLIS is therefore due to the fact that only companies acquiring shareholdings in foreign companies are eligible for this provision.

(83) Furthermore, only enterprises of a certain size and financial strength with multinational operations can benefit from Article 12(5) TRLIS. Although the company’s balance sheet discloses the book values of assets, it is unlikely that it also reflects the tacit market values of assets. Therefore, in practice, only operators with a controlling interest in target companies have sufficient access to a company’s records to ascertain the tacit market value of the company’s assets. Consequently, the 5 % threshold favours companies that perform multinational operations.

(84) Moreover, only a Spanish operator with existing business in Spain has a Spanish tax base and can benefit from the depreciation. Therefore, only companies resident in Spain with a significant Spanish tax base can in practice benefit from it, since the potential benefit is linked to the size of the Spanish operation rather than of the acquisition. Although Article 12(5) TRLIS is drafted to apply to all operators established in Spain, in practice only a limited and identifiable number of companies with a Spanish tax base, which make foreign acquisitions in the relevant tax year and have a sizeable tax base against which to offset the financial goodwill deduction, can benefit from the application of the measure on an annual basis. As a result, the contested measure in fact gives a different tax treatment even to Spanish operators in the same position of making acquisitions abroad.

(85) The two parties consider that they have not been able to identify any objective or horizontal criterion or condition that justifies the contested measure. On the contrary, they are of the view that the basic intention of the measure is to give a benefit to certain Spanish operators. In addition, if the contested measure is inherent in the Spanish tax system, foreign shareholdings acquired prior to that date should also qualify for the measure, which is not the case since the tax relief is granted only for shareholdings acquired after 1 January 2002.

(86) Accordingly, and in the light of Commission policy (37), the contested measure must be considered selective.

B.1.3. The contested measure distorts competition and affects EU trade

(87) The contested measure is clearly discriminatory as it gives Spanish operators a clear fiscal and monetary benefit that foreign operators are not able to enjoy. In a situation of an auction or other competitive procedure for the acquisition of a company, such an advantage makes a significant difference.

(88) Takeover bids usually presuppose the payment of a premium over the share price of the target company that would almost always result in financial goodwill. On several occasions, the financial press has reported on large acquisitions by Spanish companies and the respective tax benefits accruing from the Spanish tax rules on the amortisation of financial goodwill. For one of those acquisitions by an investment bank, the tax benefit resulting from Article 12(5) TRLIS was estimated to be EUR 1,7 billion, or 6,5 % of the offer price. Another report indicated that the Spanish acquirer had been able to bid about 15 % more than non-Spanish competitors.

(89) The contested measure also seems to favour certain export activities (export aid for foreign share acquisitions) of Spanish companies, which is at odds with established Commission policy (38) in this area.

B.1.4. The contested measure impacts state resources

(90) The contested measure is of benefit to undertakings that meet certain requirements and enables them to reduce their tax base and thereby the amount of tax that would normally be due in a given year if this provision did not exist. It therefore provides the beneficiary with a financial advantage, the cost of which is directly borne by the budget of the Member State concerned.

VI. REACTION FROM SPAIN TO THE COMMENTS FROM THIRD PARTIES

(91) The Spanish authorities point out that the vast majority of third parties’ comments support their point of view. Only two parties consider that the contested measure constitutes State aid, whereas all the others conclude that Article 12(5) TRLIS does not constitute State aid within the meaning of Article 107(1) TFEU. Otherwise, fewer economic operators would have submitted comments. In addition, the wide range of activities and size of the interested third parties demonstrates the general nature of the contested measure.

(92) Regarding the exceptional nature of the contested measure, the Spanish authorities reject this qualification by recalling the common feature of goodwill and financial goodwill amortisation according to Spanish accounting rules (39). In addition, the deduction of goodwill amortisation constitutes the general rule of the Spanish corporate tax system in accordance with the provisions laid down in Articles 11(4) and 89(3) TRLIS. Article 12(5) TRLIS follows the same logic. It is incorrect to present Article 12(3) TRLIS as the general rule for amortisation of financial goodwill since this article refers to the deduction of shareholdings in non-listed entities. This provision is related to the depreciation of the theoretical accounting value and not to financial goodwill. Article 12(3) and 12(5) TRLIS are two complementary general rules: the first refers to the depreciation attributed to the losses generated by the target company, whereas the second refers to the deduction only of the part of the depreciation attributable to the depreciation of financial goodwill. Finally, the fact that no other Member State has a measure similar to the contested measure is irrelevant since tax systems are not harmonised within the European Union.

(93) Regarding the selective nature of the contested measure, the parallels drawn with the Court of Justice judgment of 15 July 2004 (40) are incorrect since in that case the Commission had clearly defined the profile of the beneficiary, whereas in the present case this could not be done. Indeed, Article 12(5) TRLIS does not require any link between the shareholding acquisition and the export of goods and services. Therefore the contested measure does not have the effect of increasing exports of Spanish goods or services. The fact that this non-selective measure is not available for domestic operations does not affect its general nature. In fact, the final objective of the contested measure is the same as that of the Cross-border Tax Directive, which is to ensure that investment decisions are based on economic rather than tax considerations. Therefore, since it is possible to carry out business combinations with domestic acquisitions and not with cross-border acquisitions, treating domestic operations and cross-border operations differently is not only legally justified but also necessary in order to guarantee the neutrality of the tax system.

(94) Regarding the alleged distorting features of the contested measure, the Spanish authorities point out that any tax relief that reduces the operating costs of a company increases the competitive edge of the beneficiary. However, this statement is irrelevant since the contested measure is a general measure. The different tax rates applied across the Member States, which impact on the competitiveness of their resident companies, do not fall under the State aid rules. In addition, the contested measure has not been shown to affect trade between Member States. Moreover, the consequence of amortising financial goodwill is not necessarily to increase the price offered by a competitor.

(95) As regards the compatibility of the contested measure with the internal market, the Spanish authorities consider Article 12(5) TRLIS to be appropriate and proportionate to address a market failure by establishing a neutral tax system for domestic and cross-border operations that fosters the development of pan- European companies.

VII. ASSESSMENT OF THE SCHEME

(96) In order to ascertain whether a measure constitutes aid, the Commission has to assess whether the contested measure fulfils the conditions of Article 107(1) TFUE. This provision states that ‘Save as otherwise provided in the Treaties, any aid granted by Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market’. In the light of this provision, the Commission will assess hereunder whether the contested measure constitutes State aid.

A. Selectivity and advantage inherent in the measure

(97) To be considered State aid, a measure must be specific or selective in the sense that it favours only certain undertakings or the production of certain goods.

(98) The Commission Notice (41) states that ‘The main criterion in applying Article 92(1) (now Article 107(1) TFEU) to a tax measure is therefore that the measure provides in favour of certain undertakings in the Member State an exception to the application of the tax system. The common system applicable should thus first be determined. It must then be examined whether the exception to the system or differentiations within that system are justified “by the nature or general scheme” of the tax system, that is to say, whether they derive directly from the basic or guiding principles of the tax system in the Member State concerned.’

(99) According to the case law of the Court of Justice (42), ‘as regards the assessment of the condition of selectivity, which is a constituent factor in the concept of State aid, it is clear from settled case law that Article 87(1) EC (now Article 107(1) TFEU) requires assessment of whether, under a particular statutory scheme, a State measure is such as to “favour certain undertakings or the production of certain goods” in comparison with other undertakings which are in a legal and factual situation that is comparable in the light of the objective pursued by the measure in question’ (43).

(100) The Court has also held on numerous occasions that Article 107(1) TFEU does not establish a distinction between the causes or the objectives of state measures, but rather defines them in relation to their effects (44). In particular, tax measures which do not constitute an adaptation of the general system to particular characteristics of certain undertakings, but have been conceived as a means of improving their competitiveness, fall within the scope of Article 107(1) TFEU (45).

(101) The concept of State aid does not, however, apply to state measures which differentiate between undertakings where that differentiation arises from the nature or the overall structure of the system of which they form part. As explained in the Commission Notice (46), ‘some conditions may be justified by objective differences between taxpayers’.

(102) As explained in more detail in the following section, the Commission considers that the contested measure is selective in that it only favours certain groups of undertakings that carry out certain investments abroad and that this specific character is not justified by the nature of the scheme. The Commission considers that the contested measure should be assessed in the light of the general provisions of the corporate tax system, and more precisely the rules on the tax treatment of financial goodwill (see paragraphs 48 to 69).

(103) The Commission has also analysed whether the factual hypothesis used as a basis by the Spanish authorities is sound and whether there are barriers in the legislations of third countries. However, it should be pointed out that this exercise cannot constitute a recognition that such barriers could justify a different tax treatment in the present case. Moreover, the purpose of the present Decision is not to set out the conditions which would have allowed the Member State concerned to avoid the classification of the contested measure as State aid.

(104) Even if an alternative reference system inspired by the one suggested by the Spanish authorities were chosen, the Commission concludes that the contested measure would still constitute a selective advantage, essentially due to the absence of different factual and legal conditions required for the different scenarios to benefit from the provisions on the goodwill or financial goodwill on foreign transactions. More importantly still, under the contested measure the financial goodwill can be recognised separately and can also be amortised if the beneficiary acquires a minority shareholding of 5 %. This level is well below that needed to apply the general rules on amortisation of goodwill (47). The contested measure is therefore an exception to the reference system, whatever its definition.

(105) In addition to this, the Commission notes other differences as regards the implementing conditions applying to the contested measure and the provisions of the reference system. Indeed, under the contested measure, shareholding acquisitions made before 1 January 2002 are not taken into account for the calculation of the base to be amortised. By contrast, under a business combination scenario, such a cut-off date does not exist when calculating the goodwill and the taxpayer has to prove that the combination is made for valid economic reasons to avoid combinations being aimed at purely obtaining tax benefits (48), whereas the contested measure only provides tax benefits. The Spanish authorities have been unable to provide convincing arguments to justify these differences, and thus the measure cannot be considered to be justified by the logic of the Spanish tax system.

(106) Hence, the contested measure is too imprecise and indiscriminate since it does not set any conditions, such as the existence of specific, legally circumscribed situations which would justify different tax treatment. Consequently, situations which have not been demonstrated to be sufficiently different to justify a selective derogation from general goodwill rules end up benefiting from the contested measure. The Commission therefore considers that the contested measure concerns the tax deduction of specific types of costs and covers a broad category of transactions in a discriminatory manner, which cannot be justified by objective differences between taxpayers.

(107) Moreover, in line with the case law of the Court of Justice (49), the Commission considers that it is not necessary, in order to arrive at a conclusion regarding the State aid qualification of a scheme, to demonstrate that all individual aid granted under that scheme qualifies as State aid within the meaning of Article 107(1) TFEU. For this purpose, it is sufficient that the implementation of the scheme under review leads to situations which qualify as aid to be able to conclude that the scheme contains aid elements within the meaning of Article 107(1) TFEU. Hence, reviewing the legislation of all possible non-EU countries for which the Commission investigation procedure is still open is unnecessary in the context of this Decision. Therefore, as indicated already in paragraphs 115 et seq. of the previous Decision (50), the Commission has verified — on the basis of methodology explained in detail below — whether some of the individual applications of the contested aid scheme in non-EU transactions involve State aid. This analysis focused on those non-EU countries with which Spain maintains close economic relations and which were therefore selected according to their importance in terms of foreign direct investment (FDI) between 1 January 2002 and 1 June 2009. Of these non-EU countries, the Commission focused its analysis on the countries likely to yield a greater number of individual applications of the contested measure: United States of America (EUR 35 billion FDI), Mexico (EUR 18 billion FDI), Argentina (EUR15 billion FDI) and Brazil (EUR 13 billion FDI). According to the information submitted by the Spanish authorities in the course of the procedure, it would appear that, of the 15 non-EU countries for which the Spanish authorities presented information, transactions took place not only in the above-mentioned four countries but also in the Republic of Colombia, the Republic of Peru and the Republic of Ecuador. The Commission has therefore extended its review to these three countries also.

(108) The Commission’s reasoning, summarised above, is developed in the following paragraphs.

A.1. Tax treatment of financial goodwill under the Spanish tax system with respect to non-EU acquisitions

A.1.1. Reference system

(109) In the opening Decision as well as in the previous Decision, the Commission considered that the appropriate reference system is the Spanish corporate tax system and, more precisely, the rules on the tax treatment of financial goodwill set out in the Spanish tax system. This approach is in line with previous Commission practice and the case law of the European Courts, which consider the ordinary corporate tax system to be the reference system (51). This approach is maintained in the present Decision.

(110) The Spanish authorities state that, in general, the constraints on cross-border business combinations place taxpayers buying shareholdings in domestic companies in a different legal and factual situation from those buying shareholdings in non-resident companies, and in particular in companies located in non-EU countries. The Spanish authorities have explained that the objective of the contested measure is to avoid a difference of tax treatment between, on the one hand, an acquisition followed by a business combination for valuable consideration and, on the other hand, a share acquisition without a business combination. On this basis, the scope of the contested scheme would be limited to the acquisition of significant shareholdings in a company not resident in Spain because some obstacles would make it more difficult to perform a cross-border business combination compared with a local one (52). As a consequence of the existence of these obstacles, Spanish taxpayers investing abroad would be placed, legally and factually, in a different situation from those investing in Spain. In this respect, the Spanish authorities state that (53): ‘In summary, the mere differential nature of certain tax measures does not necessarily imply that they are State aid, since these measures also need to be examined to see whether they are necessary or functional as regards the efficiency of the tax system, as stated in the Commission Notice. Hence the Spanish tax system envisages different tax schemes for objectively different situations, as is the case for acquisitions of shareholdings in foreign companies as against acquisitions in Spanish companies (impossible to perform merger operations, risk management, etc.) with a view to achieving the tax neutrality imposed by Spanish domestic legislation and by Community law itself, and ensuring that the logic of the Spanish tax system is consistent and efficient’.

(111) Providing specific tax treatment for cross-border shareholding acquisitions would, according to these authorities, be necessary to ensure the neutrality of the Spanish tax system and to prevent more favourable treatment for domestic shareholding acquisitions. Therefore, the Spanish authorities and the 30 interested parties consider that the correct reference framework for the assessment of the contested measure would be the tax treatment of goodwill for foreign acquisitions.

(112) In the previous Decision, the Commission maintained the procedure in order to allow the Spanish authorities to provide new information as regards the existence of explicit legal obstacles to cross-border business combinations in non-EU countries.

(113) In this context, and essentially on the basis of the elements contained in the reports, the Commission has investigated the legislation of various non-EU countries simply in order to check the Spanish authorities’ allegations about the existence of explicit legal obstacles to cross-border combinations. This examination does not, however, constitute recognition of the fact that such obstacles could justify a different reference system in the present case. In the course of this examination, the Commission checked mainly whether a Spanish parent company had the legal capacity to combine with a subsidiary resident in a non-EU country.

(114) The following premises underpin this investigation which was limited to examining the truth of the allegations made in the arguments: — first, the Commission checked whether, as stated in the previous Decision (54), Spanish companies face an explicit legal barrier, attributable to a non-EU country and not to Spain (55), that prevents them from converting a foreign subsidiary into a branch. Such legal provisions can only constitute a barrier, however, if the company concerned would have been able to exercise effective influence, most notably by means of a majority shareholding, over the target company to such an extent that it would be able to impose a merger if the obstacles were not there. Hence, legal provisions in non-EU countries which prevent a Spanish taxpayer from acquiring control over a target company in that country cannot be regarded as a relevant explicit legal barrier in the sense alleged by the Spanish authorities: as a result of such provisions, Spanish companies/taxpayers can never fulfil the condition of effective influence since they will always be minority shareholders of the target company. Therefore, they can never have the necessary effective capacity to impose a business combination. The Commission would like to point out that the condition of control was assessed at the level of the beneficiary of the measure (and not of the group to which it may belong) in line with the Spanish tax system. Following the same line of reasoning, the Commission considers that an explicit prohibition on non-resident entities directly owning specific assets (for instance, property on the coast) cannot constitute an explicit legal barrier in the context of this exercise. The Commission considers that a mere administrative burden or formality (56) required of non-resident companies by non-EU countries cannot be regarded as an explicit legal barrier simply because it generates additional costs — which may be tax-deductible under the Spanish tax system — but does not make the business combination impossible, — second, an allegation that there are no known examples of cross-border business combinations between Spanish companies and companies from certain non-EU countries cannot constitute sufficient evidence or demonstrate the existence of obstacles. The elements taken into account by companies when deciding to carry out a business combination are diverse and not limited only to the capacity of the companies concerned to combine their business activities. This is clearly illustrated by the fact that some of the 30 interested parties own numerous fully-controlled Spanish subsidiaries without having combined their Spanish businesses, even though the Spanish authorities recognise that there are no obstacles to domestic business combinations. Therefore, the Commission considers that, of the elements in the reports, only explicit prohibitions of cross-border business combinations set out in the laws of non-EU countries can be accepted. Indeed, as already indicated in paragraph 93 of the previous Decision, if unsubstantiated elements of a general nature were taken into account, this analysis would risk becoming largely arbitrary.

(115) The findings presented below are based on the information provided by the Spanish authorities in the reports, the truthfulness and completeness of which have been checked by the Commission in the light of the methodological remarks set out above. On this basis, the Commission considers that, contrary to the arguments of the Spanish authorities, it cannot be considered that all the laws of non-EU countries raise explicit legal obstacles to cross-border business combinations. Therefore, similar to what was stated in relation to intra-EU transactions in the previous Decision (57), the Commission cannot share the views expressed by the Spanish authorities, supported by the arguments of the 30 interested parties, as regards the general existence of these alleged obstacles. The Commission considers that outside the EU Member States, and at least in the following relevant non-EU countries, no explicit legal obstacles can be recognised, as indicated below: — United States of America: (i) first of all, the Commission notes that, in a report presented by the Spanish authorities (58), when assessing whether there are any precedents for cross-border business combinations, the author states ‘Not found, but it is likely that this event happened in Delaware’. In contradiction with the Spanish authorities’ main arguments, the conclusion in one of the reports (59) regarding this country seems to be that there is no general, explicit legal prohibition on cross-border business combinations; (ii) second, under the general rules of company law (60) and tax law (61), there is no explicit prohibition on business combinations with foreign entities; (iii) third, specific company law provisions (62) apply to domestic business combinations. There is, to the Commission’s knowledge, no explicit prohibition on applying those provisions to cross-border business combinations, even though the applicable administrative formalities may differ. The Commission points out that at least the State of Delaware makes cross-border business combinations (63) explicitly feasible on condition that the inverse is permitted by the legislation of the country where the foreign company is resident. Therefore, if such a transaction is not feasible between companies located respectively in Delaware and Spain, the Commission considers that the obstacles are attributable to Spain, and therefore not relevant for the present assessment. This finding should be looked at in the context of the importance of the State of Delaware for the location/incorporation of companies in the USA (64); (iv) fourth, specific tax provisions apply to domestic business combinations in order to avoid unfavourable taxation when carrying out restructuring operations. There is, to the Commission’s knowledge, no explicit prohibition on applying them to cross-border business combinations, even though the applicable administrative formalities may differ; (v) finally, the Commission did not find any case law by the competent US courts that would contradict its conclusion regarding the absence of explicit legal obstacles to cross-border business combinations with a company resident in the United States. — Mexico: (i) first of all, the Commission notes that Article 8(3) of the tax convention (65) between Spain and Mexico, signed on 6 October 1994 and still in force, explicitly provides for cross-border business combination transactions. As a consequence of this provision, such transactions benefit from roll-over relief since unrealised capital gains are not taxed. As far as the Commission can see, the purpose of this international tax convention is to remove the possible exclusion (66) of cross-border business combinations from the benefit of the specific tax rules applying to domestic business combinations; (ii) second, under Mexican legislation (company law and tax law), and taking into account the above tax convention, there is no explicit legal prohibition on business combinations with Spanish entities; (iii) finally, the Commission did not find any case law by the competent Mexican courts that would clearly contradict its conclusion regarding the absence of explicit legal obstacles to cross-border business combinations with a company resident in Mexico. — Brazil: (i) first of all, the Commission notes that a precedent of a cross-border business combination (not with Spain) was found by the Spanish authorities (67); (ii) second, under the general rules of company law and tax law (68), there is no explicit legal prohibition on business combinations with foreign entities, although administrative formalities may differ (69); (iii) third, some explicit legal restrictions apply to the performance of economic activities in certain sectors (70) by entities controlled by foreign companies. However, as stated above (see paragraph 114), legal provisions in non-EU countries preventing a Spanish taxpayer from taking control of a target company in that country cannot be regarded as a relevant explicit legal barrier in the sense alleged by the Spanish authorities: as a result of this provision, Spanish companies/taxpayers can never fulfil the condition of effective influence since they will always be a minority shareholder in the target company. As far as the Commission can see, this is precisely the situation which arises from the Brazilian legislation referred to in the two reports; (iv) finally, the Commission did not find any case law that would contradict its conclusion regarding the absence of explicit legal obstacles to cross-border business combinations with a company resident in Brazil. — Argentina: (i) first of all, the Commission notes that Article 5 of the tax convention (71) between Spain and Argentina, signed on 26 August 1994 and still in force, explicitly provides for cross-border business combinations. As a result of this provision, cross-border restructuring operations cannot give rise to unfavourable taxation; (ii) second, under the general rules of company law (72) and tax law (73), there is no explicit legal prohibition on business combinations with foreign entities although the applicable administrative formalities may differ; (iii) third, the Commission did not find any case law that would contradict its conclusion regarding the absence of explicit legal obstacles to cross-border business combinations with a company resident in Argentina. Moreover, the Commission does not agree with the interpretation in the two reports of the rulings (74) issued by the tax administration in certain planned cross-border transactions. These rulings simply clarify the conditions of the Argentinian tax roll-over arrangements. They do not mention the existence of a general and explicit prohibition on applying these arrangements to cross-border restructuring operations. Moreover, the interpretation given in the reports of these specific rulings contradicts the general provision in the above-mentioned tax convention (75) between the Kingdom of Spain and the Argentine Republic. — Ecuador: (i) first of all, the Commission notes that, under the general rules of company law and tax law, there is no explicit legal prohibition on business combinations with foreign entities (76); (ii) Second, the Commission notes that a report presented by the Spanish authorities (77) recognises that a cross-border business combination is feasible provided that the Spanish acquirer has set up a branch in Ecuador beforehand. — Peru: (i) first of all, the Commission notes that, under the general rules of company law and tax law, there is, to the Commission’s knowledge, no explicit legal prohibition on business combinations with foreign entities (78); (ii) second, the Commission notes that Article 2074 of the Peruvian Civil Code sets out the principles applicable to cross-border business combinations and the General Companies Law allows business combinations involving a branch of a foreign entity and a company resident in Peru (79); (iii) third, the Law on Income Tax ensures neutral treatment of business combinations involving a branch of a foreign entity and a company resident in Peru (80); (iv) the Commission therefore considers that a cross-border business combination is in any case feasible provided that the Spanish acquirer has set up a branch in Peru beforehand. — Colombia: (i) first of all, the Commission notes that the Superintendencia de Sociedades (81) explicitly confirms that cross-border business combinations are feasible under Colombian legislation (82); (ii) second, under the general rules of company law and tax law (83), there is no explicit legal prohibition on business combinations with foreign entities even though the applicable administrative formalities may differ; (iii) third, the Commission notes that a report presented by the Spanish authorities (84) recognises that cross-border business combinations are feasible provided that the Spanish acquirer has set up a branch in Colombia beforehand.

(116) The Spanish authorities submitted information on the laws of eight other non-EU countries. As already stated in paragraph 107, the Commission considers that the above findings are sufficient to confirm that, in any event, even if one were to admit that the existence of legal obstacles to cross-border business combinations are significant, the reference system is the rules on the tax treatment of financial goodwill in the Spanish system. Nonetheless, applying the same methodology and criteria as described in paragraphs 114 et seq., the Commission considers, on the basis of the information available, that no explicit legal obstacles to cross-border business combinations of a general nature exist in the laws of Chile, Venezuela, Algeria, Canada, Australia, Japan or Morocco.

(117) Therefore, on the basis of the above findings, the Commission cannot agree with the Spanish authorities that each potential individual beneficiary of the contested measure is faced, be it only in practice, with insurmountable obstacles to cross-border business combinations.

(118) In the light of the above, the Commission considers that there is no reason to depart from the reference system in the opening Decision and the previous Decision: the appropriate reference framework for assessing the contested measure is the general Spanish corporate tax system and, more precisely, the rules on the tax treatment of financial goodwill in the Spanish tax system. This conclusion cannot be affected by the fact that the Commission found two non-EU countries where explicit legal obstacles do exist (India and China). As already stated in paragraph 107, in line with the case law of the Court of Justice (85), the Commission considers that, in order to arrive at a conclusion regarding the State aid qualification of a scheme, it is not necessary to demonstrate that all individual aid granted under that scheme qualifies as State aid within the meaning of Article 107(1) TFEU.

(119) More precisely, as regards China, the 2005 Company Law applying to mergers involving only limited liability companies or joint stock limited companies incorporated in China, and Articles 2 and 55 of the regulation entitled ‘Provisions on Acquisitions of Domestic Enterprises by Foreign Investors’ issued by the Chinese Ministry of Commerce on 22 June 2009, explicitly exclude non-resident companies from the scope of application of the business combination rules so that a Spanish company would not be able to combine its business with a Chinese-controlled subsidiary.

(120) With reference to the legislation in force in India, Articles 391 to 394 of the Indian Companies Law of 1956 explicitly exclude non-resident companies from the scope of application of the business combination rules so that a Spanish company would not be able to combine its business with any Indian-controlled subsidiary.

A.1.2. Existence of a derogation from the reference system

(121) Under the Spanish tax system, the tax base is calculated on the basis of the accounting result, to which adjustments are then made by applying specific tax rules. As a preliminary remark and on a subsidiary basis, the Commission notes that the contested measure derogates from the Spanish accounting system. The emergence of financial goodwill can only be computed in abstract by consolidating the accounts of the target company with those of the acquiring company. However, under the Spanish accounting system, the consolidation of accounts is required in case of ‘control’ (86) and is done for both domestic and foreign associations of companies, in order to provide the global situation of a group of companies subject to unitary control. Such a situation is deemed (87) to exist, for instance, if the parent company holds the majority of the voting rights of the subsidiary company. Nonetheless, the contested measure does not require any such type of control and applies as from a 5 % level of shareholding. Finally, the Commission also notes that, from 1 January 2005 (88), in line with accounting rules, financial goodwill can no longer be amortised by most Spanish companies. In effect, in this respect the 30 interested parties refer to provisions (89) that are no longer in force under the current Spanish accounting system. As a result of Law 16/2007 of 4 July 2007 reforming and adapting commercial law in the field of accounting for the purposes of international accounting harmonisation under EU legislation, as well as Royal Decree 1514/2007 of 16 November 2007 on the General Accounting Plan, from an accounting point of view the amortisation of neither goodwill nor financial goodwill is allowed any more. These amendments to Spanish accounting law are in line with Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards (90). Therefore, given these considerations, the contested measure constitutes an exception to the ordinary accounting rules applicable in Spain.

(122) That being said, because of the fiscal nature of the contested measure, the existence of an exception must be assessed in comparison with the reference tax system, and not merely on an accounting basis. In this context, the Commission notes that the Spanish tax system has never permitted the amortisation of financial goodwill, except under Article 12(5) TRLIS. In particular, no such amortisation is possible for domestic transactions. This is clear from the following:

(123) For Spanish tax purposes, goodwill can only be booked separately following a business combination (91), which materialises either in the case of acquisition or contribution of the assets that make up an independent business, or following a legal business combination. In such cases, the goodwill arises as the accounting difference between the acquisition cost and the market value of the assets that make up the business acquired or held by the combined company. When the acquisition of the business of a company is made by way of the acquisition of its shares, as in the case of the contested measure, goodwill can only arise if the acquiring company combines subsequently with the acquired company, over which it will then have control.

(124) However, under the contested measure, neither control nor the combination of the two businesses is necessary. The mere acquisition of a shareholding of at least 5 % in a foreign company is sufficient. Thus, by allowing the financial goodwill, which is the goodwill that would have been booked if the businesses had combined, to appear separately even in the absence of a business combination, the contested measure constitutes an exception to the reference system. It must be stressed that the exception does not result from the duration of the period during which the financial goodwill is amortised compared with the period that applies to traditional goodwill (92), but rather from the different treatment of domestic and cross-border transactions. The contested measure cannot be considered a new general accounting rule in its own right because the amortisation of financial goodwill deriving from the acquisition of domestic shareholdings is not allowed.

(125) Given all the above considerations, the Commission concludes that the contested measure derogates from the reference system. As will be demonstrated in paragraphs 153 to 163, the Commission considers that neither the Spanish authorities nor the 30 interested parties have put forward sufficiently coherent arguments to alter this conclusion.

A.1.3. Existence of an advantage

(126) Under Article 12(5) TRLIS, part of the financial goodwill deriving from the acquisition of shareholdings in foreign companies can be deducted from the tax base by way of derogation from the reference system. Therefore, by reducing the tax burden of the beneficiary, Article 12(5) TRLIS provides them with an economic advantage. It takes the form of a reduction in the tax to which the companies concerned would otherwise be liable. This reduction is proportionate to the difference between the acquisition price paid and the market value of the underlying booked assets of the shareholdings purchased.

(127) The precise amount of the advantage with respect to the acquisition price paid corresponds to the net discounted value of the tax burden reduction provided by the amortisation that is deductible throughout the amortisation period following the acquisition. It therefore depends on the corporate tax rate in the years concerned and the discount interest rate applicable.

(128) If the acquired shareholdings are resold, part of this advantage would be recouped by means of capital gain taxation. Indeed, by allowing amortisation of financial goodwill, if the foreign shareholding in question is resold, the amount deducted would lead to an increase in the capital gain taxed at the time of sale. However, in the event of such uncertain circumstances, the advantage would not disappear completely since taxation at a later stage does not take the liquidity cost into account. As rightly pointed out by the two parties, from an economic point of view, the amount of the advantage is at least similar to that of an interest-free credit line that allows up to 20 annual withdrawals of one-20th of the financial goodwill for as long as the shareholdings are held on the taxpayer’s books.

(129) Taking a hypothetical example, already mentioned by the Commission in the opening Decision, a shareholding acquired in 2002 would yield an advantage corresponding to 20,6 % of the amount of financial goodwill, assuming a discount interest rate of 5 % (93) and considering the existing structure of corporate tax rates until 2022 as currently set out in Law No 35/2006 (94). The third parties have not contested these figures. In the event that the acquired shareholdings are resold, the advantage would correspond to the interest that would have been charged to the taxpayer for a credit line with the characteristics described in the previous paragraph.

(130) Finally, the Commission cannot share the views of the Spanish authorities and the 30 interested parties that the final beneficiary of the contested measure would only be the seller of the foreign shareholding since it would receive a higher price. The Commission rejects this argument after assessing the effect of the contested measure in its current form. First, there is no mechanism guaranteeing that the advantage is passed on in full or in part to the seller. Second, the acquisition price results from a series of different elements, not just from the contested measure. Third, even if the above two conditions were met, the Spanish taxpayer benefiting from the contested measure must still be considered the beneficiary of the measure. Even if an economic advantage were transferred to the seller, the contested measure would still give the acquirer greater capacity to offer a higher price, which is of the utmost importance in the case of a competitive acquisition operation.

(131) Therefore, the Commission concludes that, in any event, the contested measure provides an advantage at the time of acquisition of foreign shareholdings.

A.1.4. Justification of the measure by the logic of the Spanish tax system

(132) The Commission considers that, in line with the settled case law of the Court of Justice (95), the measures introducing a differentiation between undertakings do not constitute State aid when that differentiation arises from the nature and overall structure of the system of charges of which they form part. This justification based on the nature or overall structure of the tax system reflects the consistency of a specific tax measure with the internal logic of the tax system in general.

(133) In this regard, the Commission considers, firstly, that the Spanish authorities have not demonstrated that the effect of the contested measure would be to eliminate double taxation. The scheme in fact does not establish any conditions to prove that the seller has been effectively taxed on the gain derived from the transfer of the shareholding, even though such a condition is imposed for amortising the goodwill arising from a business combination (96). It should be underlined that, although the Spanish authorities claim not to be competent to exercise control over a foreign seller carrying out operations abroad, the Commission notes that this condition is required for the application of other Spanish tax provisions (97) but not for the contested measure.

(134) Secondly, the contested measure does not constitute a mechanism to avoid double taxation of future dividends that would be taxed upon realisation of future profits and should not be taxed twice when distributed to the company that holds a significant shareholding for the acquisition of which financial goodwill was paid. In fact, the contested measure creates no relation between the dividends received and the deduction enjoyed as a result of the contested measure. On the contrary, the dividends received from a significant shareholding in a foreign company already benefit from both the exemption provided for by Article 21 TRLIS and the direct tax neutrality provided for by Article 32 TRLIS to avoid international double taxation. In this connection, the amortisation of the financial goodwill results in an additional advantage with respect to the acquisition of significant shareholdings in foreign companies.

(135) Thirdly, the Spanish authorities have not demonstrated that the contested measure is an extension of the impairment rules which presuppose that there is objective evidence of losses based on a detailed and objective calculation that is not required by the contested measure. On the contrary, Article 12(3) TRLIS permits partial deductions for depreciation of equity shareholdings in domestic and foreign shareholdings which are not traded on a secondary market for impairments occurring between the beginning and the end of the tax year. The contested measure — which is, for beneficiaries, compatible with Article 12(3) TRLIS (98) — provides for further deductions over and above the decrease in the theoretical accounting value linked to impairment.

(136) Fourthly, the Commission notes that the financial goodwill deriving from the acquisition of domestic shareholdings cannot be amortised whereas the financial goodwill of foreign companies is amortised under certain conditions. Different tax treatment of the financial goodwill of foreign companies compared with domestic ones is a differentiation introduced by the contested measure which is neither necessary nor proportionate in terms of the logic of the tax system. In fact, the Commission considers that it is disproportionate for the scheme at hand to impose substantially different nominal and effective taxation on companies in comparable situations just because some of them are involved in investment opportunities abroad.

(137) Moreover, the Commission considers that the comments made by one of the 30 interested parties (99) mean that even the rationale behind the justification put forward by Spain would be contrary to the logic of the Spanish tax system. In fact, according to this submission, in a cross-border business combination scenario, the goodwill that would arise would, in all likelihood, be located abroad, more precisely in the foreign permanent establishment resulting from the dissolution of the target company. Therefore, again according to this submission, even in a cross-border business scenario, Spain would not allow goodwill to be amortised in Spain as the goodwill is not located in Spain. In addition to this, the Commission notes additional differences in the conditions applying to each of these two scenarios. Under the contested measure, shareholding acquisitions made before 1 January 2002 are not taken into account for the calculation of the base to be amortised. However, in a business combination scenario, this cut-off date does not exist when calculating the goodwill. Moreover, in a business combination scenario, the taxpayer has to prove that the main objective of the combination derives from economic considerations in order to avoid combinations only aimed at obtaining tax benefits (100), whereas the contested measure only provides tax benefits. The Spanish authorities have not been able to provide convincing arguments to justify these differences, which are thus to be considered as not being duly justified by the logic of the Spanish tax system.

(138) Finally, the Spanish authorities also argue that the contested measure is justified by the neutrality principle which must be applied in the corporate tax context (101). Indeed, the explanatory memorandum to the Corporate Tax Law (102) in force when the contested measure was introduced clearly referred to this principle. In this respect, the Commission notes that the ‘competitiveness principle’ (103) invoked by the Spanish authorities, who expressly refer to ‘an increase in exports’, also drives this reform. In this context, it should be recalled that, according to previous Commission Decisions (104), it is disproportionate to impose different effective taxation on companies in comparable situations just because they are involved in export-related activities or pursue investment opportunities abroad. In addition, the Commission recalls that, as the Court stated, (105)‘…whilst the principles of equal tax treatment and equal tax burden certainly form part of the basis of the Spanish tax system, they do not require that taxpayers in different situations be accorded the same treatment’.

(139) In the light of the above, the Commission considers that the neutrality principle cannot justify the contested measure. Indeed, as highlighted also by the two parties, the fact that the acquisition of a 5 % minority shareholding acquired after a given date benefits from the contested measure demonstrates that the measure would include certain situations that bear no significant similarity. In this way it could be said that, under the reference system, situations which are both factually and legally different are treated in an identical manner. The Commission considers therefore that the neutrality principle cannot be invoked to justify the contested measure.

(140) Given the above considerations, the Commission must conclude that the selective advantage aspect of the tax scheme under review is not justified by the nature of the tax system. Therefore, the contested measure must be considered as including a discriminatory element in the form of a limitation regarding the country in which the transaction benefiting from the tax advantage takes place, and this discrimination is not justified by the logic of the Spanish tax system.

A.2. Complementary reasoning: analysis of the contested measure from the point of view of a reference system based on the one suggested by the Spanish authorities

(141) Although the Commission considers, as stated in the previous paragraphs, that the arguments raised by the Spanish authorities rely on an incorrect analysis of the de facto legislation of non-EU countries, as in the previous Decision, the Commission also analysed the contested measure from the point of view of a hypothetical reference system based on the one suggested by the Spanish authorities.

(142) The Spanish authorities have explained that the objective of the contested measure is to avoid a difference of tax treatment between, on the one hand, an acquisition followed by a business combination for valuable consideration and, on the other hand, a share acquisition without a business combination. On this basis, the scope of the contested scheme would be limited to the acquisition of significant shareholdings in a company not resident in Spain because some obstacles would make it more difficult to perform a cross-border business combination than a local one (106). As a result of these barriers, Spanish taxpayers investing abroad would be placed, legally and factually, in a different situation from those investing in Spain. Indeed, the Spanish authorities state that (107): ‘In summary, the mere differential nature of certain tax measures does not necessarily imply that they are State aid, since these measures also need to be examined to see whether they are necessary or functional as regards the efficiency of the tax system, as stated in the Commission Notice. Hence the Spanish tax system envisages different tax schemes for objectively different situations, as is the case for acquisit