Commission Decision of 31 October 2000 on Spain's corporation tax laws (Text with EEA relevance) (notified under document number C(2000) 3269)
Date: 2000-10-31
Institutions: European Commission
Subjects: Spain, State aid, control of State aid, corporation tax, infringement of EU law, national law

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COMMISSION

COMMISSION DECISION

of 31 October 2000

on Spain's corporation tax laws

(notified under document number C(2000) 3269)

(Only the Spanish text is authentic)

(Text with EEA relevance)

(2001/168/ECSC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Coal and
Steel Community, and in particular Article 4(c) thereof,

Having regard to Commission Decision No 2496/96/ECSC of
18 December 1996 establishing Community rules for State aid
to the steel industry (1), and in particular Article 6(5) thereof,

Having called on interested parties to submit their comments
pursuant to the provisions cited above (2), and having regard to
their comments,

Whereas:

(3)

(4)

I. PROCEDURE

(1)

(2)

By letter dated 16 April 1996 the Commission, having
been alerted by competitors of Spanish steel
firms,
requested the Spanish authorities to supply information
enabling it to assess the scope and effects of Article 34
of Act 43/1995 of 27 December 1995 on corporation
tax (3).

By letter dated 7 August 1997 the Commission
informed the Spanish Government that it had decided to
initiate the procedure laid down in Article 6(5) of
Commission Decision No 2496/96/ECSC (‘the Steel Aid
Code’) in respect of that measure. Since the provisions of
Article 34 of Act 43/1995 were applied in the same
terms by the Provincial Council of Vizcaya (Article 43 of
Provincial Act 3/96 of 26 June 1996 (4)), the Provincial
Council of Guipúzcoa (Article 43 of Provincial Act 7/
1996 of 4 July 1996 (5)) and the Provincial Council of
Álava (Article 43 of Provincial Act 24/1996 of 5 July
1996 (6)), those bodies enjoying autonomous taxation

(1) OJ L 338, 28.12.1996, p. 42.
(2) OJ C 329, 31.10.1997.
(3) BOE No 310, 28.12.1995.
(4) BOB No 135, 11.7.1996.
(5) BOG No 133, 10.7.1996 and No 138, 17.7.1996 (corrected text).
(6) BOTHA No 90, 9.8.1996.

powers, the Spanish authorities were informed that the
Commission decision to initiate the procedure laid down
in Article 6(5) of the Steel Aid Code also covered those
three Articles.

The Commission decision to initiate the procedure was
published in the Official Journal of the European Communi-
ties (7). The Commission invited other Member States
and interested parties to submit their comments on the
matter.

The Spanish Government responded by letter of 13
October 1997. Unesid (Unión de Empresas Siderúrgicas),
Wirtschaftsvereinigung Stahl and CEOE (Confederación
Española de Organizaciones Empresariales) submitted
observations to the Commission by letters dated 27
November 1997, 1 December 1997 and 27 November
1997 respectively. Spain replied to the comments
received from third parties by letter dated 16 March
1998.

II. DETAILED DESCRIPTION OF THE AID

(5)

Article 34 of Act 43/1995, entitled ‘Deduction for
export activities’, provides that businesses engaged in
export activities are entitled to tax credits amounting to
25 % of:

(a) investments made in the creation of branches or
permanent establishments abroad as well as the
acquisition of shares in foreign companies or the
setting-up of subsidiaries directly associated with the
export of goods or services or the sale of tourism
services in Spain;

(7) See footnote 2.

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(b) the costs of multiannual advertising and publicity

campaigns for product launches;

(c) the costs of market penetration and market research

abroad;

(d) the costs of taking part in fairs, exhibitions and
including those of an inter-

other similar events,
national character held in Spain.

III. COMMENTS BY INTERESTED PARTIES

In their comments, both CEOE and Unesid opposed the
Commission decision to initiate proceedings, mainly on
the same grounds as those put forward by the Spanish
authorities (see recitals 8 to 12). They emphasised in
particular that, contrary to what was stated in the
the provisions being
decision initiating proceedings,
challenged were not intended to promote the establish-
ment of production branches abroad. CEOE added that
similar measures were in force in other Member States.

Unlike the other two interested parties, Wirtschaftsverei-
nigung Stahl supported the Commission's decision to
initiate the procedure, sharing its assessment that the
measure constituted State aid. Wirtschaftsvereinigung
Stahl also contended that:

— the deliberate promotion of exports in favour of
Spanish companies distorted competition to the
detriment of undertakings in other Member States,
thus
the common
market,

infringing the principles of

— the ECSC Treaty assumed that any national aid
distorted competition; Article 4(c) prohibited tax aid,
especially if it was aimed at facilitating sales in other
Member States.

(6)

(7)

(8)

(9)

the ECSC Treaty and Decision No 2496/96/ECSC, on the
ground that Spanish tax law did not provide for any tax
benefit relating primarily or exclusively to exports by
steel firms.

(10) Moreover, although exporting was chosen as the feature
indicating the presence of Spanish firms abroad, it was
not in itself the purpose of the tax credit. It was for that
reason that the amount of the credit did not depend on
the extent of export activity and was not linked to the
volume of exports.

(11) According to the Spanish Government, Article 34 of Act
43/1995 should be regarded as a general measure and
cannot be classed as State aid. The general nature of the
rule in Article 34 should be clear from the following
features:

in Spain or abroad, provided that

(i) the Article applied to all taxable persons, whether
they
resident
operated through a permanent establishment. Thus,
Article 34 afforded equal treatment to firms residing
and not residing in Spanish territory;

(ii) it applied to all taxable persons regardless of the

economic sector in which they operated;

(iii) it was applied in a non-discretionary manner. The
tax authorities did not supervise the grant of the
credit provided for by Article 34. It was taxable
persons who applied the credit themselves, the tax
authorities having no other function than to check,
as appropriate, that the requirements laid down by
the rule had been met. Moreover, such checks were
not carried out specifically with regard to Article 34
but, on the contrary, were part of
the general
monitoring of corporation tax;

(iv) it traditionally formed part of the philosophy of the

tax system in Spain.

Lastly, the Spanish Government pointed out that the
same tax credits had applied under Spanish law since
Act 61/1978 of 27 December 1978 on corporation
tax (8) was adopted. Article 26 of that Act, relating to tax
deductions for investments, laid down in paragraph 3
the deductions available to exporting firms, in virtually
the same terms as Article 34 of Act 43/1995. As the
Court of Justice had consistently held, existing measures
were deemed to be those which existed before the entry
into force of the Treaty, in other words, in Spain's case,
before the entry into force of the Act of Accession. In
this respect, and given that they were laid down by law
prior to Spain's entry into the Community,
the tax
credits in question constituted in any event existing
measures.

IV. COMMENTS BY SPAIN

(12)

In its answer to the decision initiating the procedure the
Spanish Government replied that the rule which was the
focus of
the Commission's investigation had a long
tradition in Spanish law, as it had been applied since
corporation tax came into force in 1978, thus preceding
Spain's accession to the European Communities.

The Spanish Government rejected the analysis that the
general measures in Article 34 of Act 43/1995 possibly
constituted export aid, in the form of tax credits, for
investment carried out by steel firms, and contested the
initiation of the procedure on the basis of Article 4 of

(8) BOE No 312, 30.12.1978.

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V. ASSESSMENT OF THE AID

a legal point of view, the measure constitutes existing
aid cannot be shared by the Commission.

(13) Article 4(c) of the ECSC Treaty provides that subsidies or
aids granted by Member States are recognised as incom-
patible with the common market and shall accordingly
be abolished and prohibited within the Community. The
Steel Aid Code lays down the only exemptions from this
general prohibition which can be granted under certain
circumstances:

(17)

In determining whether in the present case the tax credit
scheme has to be regarded as State aid, the Spanish
authorities attach decisive importance — in maintaining
that the scheme does not constitute State aid — to the
fact that the tax reduction is, on the one hand, general
and, on the other hand, directly applied by the recipient
companies
intervention by the
public authorities; in other words, they claim that the
practical application of
the
discretion of any public body.

this provision is not at

themselves without

(a) aid for research and development;

(b) aid for environmental protection;

(c) aid for closures.

(14)

It should be noted that none of these exemptions is
invoked by Spain in the present case.

Spanish

interested

and that

parties which

(15) As to the argument, adduced both by Spain and by the
two
submitted
comments, that Act 43/1995 should have been regarded
as existing aid as it consolidated legislation which had
been in force since 1978, i.e. before Spain joined the
Communities,
the Commission therefore
wrongly decided to initiate the procedure in the present
case, the Commission must recall that the scope of its
decision was the assessment of
the measures under
examination only under the ECSC Treaty rules, where
the notion of existing aid does not exist. Article 4(c) of
that Treaty provides, unlike Article 87 of the EC Treaty,
that subsidies or aids granted by States are recognised as
incompatible with the common market and shall
accordingly be abolished and prohibited within the
Community.
the
Commission takes the view that when joining the Euro-
pean Coal and Steel Community each new Member State
must stop granting any kind of aid previously awarded
to the undertakings covered by that Treaty. If it failed to
do so, any aid granted by the new Member State from
the date of its accession to the European Coal and Steel
Community would have to be regarded as incompatible
with the common market in the light of Article 4(c) of
the ECSC Treaty.

these provisions,

In the light of

(16)

Consequently, Spain's argument could be taken into
account only in relation to the State aid provisions of
the EC Treaty. However, the Commission's decision to
initiate proceedings did not deal with aid given to
Community companies, and so the argument that, from

(18) On this aspect, in line with the case-law of the Court of
Justice (see its judgment of 23 February 1961 in Case
30/59 De Gezamenlijke Steenkolenmijnen in Limburg v High
Authority (9) and the approach taken by the Commis-
sion (10),
it is recalled that under Community law the
notion of aid covers not only positive assistance from
the State but also any measure that relieves an under-
taking of a burden which it would otherwise have to
bear, regardless of whether or not it is directly applied
by the recipient companies. In this light, non-repayable
grants, preferential
loans from the State and credits
against
income or corporation tax are all measures
which have to be regarded as State aid.

(19)

In particular, and by analogy with the judgment of the
Court of 15 March 1994 in Case C-387/92 Banco
Exterior de España v Ayuntamiento de Valencia (11), the
Commission considers that a tax credit granted to
certain undertakings constitutes State aid since it places
the recipients in a more favourable financial position
than other taxpayers (12).

(20) As to the specificity of the measure, it is worth noting
that according to both the Commission's approach (13)
and the case-law of the Court of Justice (see the judg-
ments of 10 December 1969 in joined Cases 6 and
11/69 Commission v France (14) and 7 June 1988 in Case
57/86 Greece v Commission (15), a measure is specific and
therefore must be regarded as State aid instead of a
general measure where, although prima facie it might be
seen as general in form, in practice it supports only a
particular group of companies.
In the present case,
firstly,
the tax measures under examination support
those companies carrying out certain export activities
and exclude companies that do not export as well as
exporters that carry out export activities not covered by
the provision and even exporters that carry out in Spain
investments covered by the provision.
the type of
Secondly, apart from the fact that it has existed since

(9) [1961] ECR 3.
(10) Point 10 of the Commission notice on the application of the State
aid rules to measures relating to direct business taxation (98/C
384/03) (OJ C 384, 10.12.1998, p. 3).

(11) [1994] ECR I-877, paragraph 14.
(12) Point 9 of Commission notice 98/C 384/03 (see footnote 10).
(13) Points 13, 16 and 18 of Commission notice 98/C 384/03 (see

footnote 10).
(14) [1969] ECR 523.
(15) [1988) ECR 2865.

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1978, neither the Spanish Government nor the inter-
ested parties which submitted comments have given any
reasons why the tax measures in question are necessary
to the functioning and effectiveness of the Spanish tax
system (16). Thirdly, although it is true that the discretion
of a public body in the application of a measure contri-
butes to the classification of that measure as specific, the
mere lack of discretion does not make the measure
general.

(21) As to the argument that comparable measures exist in
other Member States, the question is of no consequence
since any such measures could themselves be the subject
of the procedures laid down in the ECSC Treaty (see the
judgment of the Court of Justice of 22 March 1977 in
Case 78/76 Steinike & Weinlig v Germany) (17).

(22)

Finally, the Spanish interested parties which submitted
comments as well the Spanish Government drew the
Commission's attention to the fact that, contrary to what
was stated in the decision initiating proceedings, the
provisions in question are not intended to promote the
establishment of production branches abroad. After
having assessed the wording of Article 34 of Act 43/
1995, namely its title and first paragraph, the Commis-
sion comes to the conclusion that
the creation of
production branches is not specifically envisaged in the
Spanish provisions under examination except where
those production branches are related to the exporting
activity of the recipient company.

VI. CONCLUSIONS

(23)

It emerges from the wording of Act 43/1995 that the
provisions under examination are applicable, among
other things, to steel undertakings which are taxable in
Spain, are engaged in export activities and carry out
certain investments or incur certain expenses abroad.
Thus, such export undertakings receive a clear advantage
over (i) steel undertakings which are taxable in Spain but
do not export, (ii) steel undertakings which are taxable
in Spain and export but do not carry out such invest-
ments abroad (because for instance, they decide to make
the same type of investments in Spain) and (iii) steel
taxable in Spain. The
undertakings which are not
Commission therefore concludes that
the tax credit
scheme under examination, contrary to what is claimed
by the Spanish authorities and by the Spanish interested
parties which submitted comments, is not general in its
application and, indeed, is in itself capable of giving rise

(16) Point 23 of Commission notice 98/C 384/03 (see footnote 10).
(17) [1977] ECR 595, paragraph 24.

It
to the grant of State aid to certain undertakings.
therefore constitutes State aid under the Community
rules and, in so far as it benefits ECSC steel undertak-
ings,
is contrary to Article 4(c) of the ECSC Treaty.
Neither do any of the exemptions laid down in the Steel
Aid Code apply in the present case.

(24) As to the recovery of the aid, if the Commission finds
that State aid which is incompatible with the common
market has been granted, it usually requires the Member
State to recover it. However, the Commission will not
require recovery of the aid if this would be contrary to a
general principle of Community law.

(25)

(26)

(27)

In the present case, the Commission notes that on 30
September 1992 it adopted a decision on the changes
made by France to the tax arrangements applicable to
commercial or service establishments abroad (18). Those
changes involved the extension of
the then current
arrangements for commercial or service investments
within the Community to those made outside the
Community and the abolition of the specific arrange-
ments for the latter. The Commission found that the
arrangements did not constitute aid within the meaning
of Article 92(1) of the EEC Treaty (now Article 87 EC)
and that they facilitated the completion of the common
market. The French scheme prior to 1992 enabled
French undertakings investing abroad with a view to
setting up sales subsidiaries or research departments
there to receive temporary tax relief equivalent to the
losses incurred by the foreign establishment (if it was
located within the Community) or the amount of the
investment in the foreign establishment (if it was located
investments
outside the Community). For
outside the Community agreement with the Ministry
was required and the tax exemption could amount to
50 % of the investment. In Decision 73/263/EEC (19) the
Commission had concluded that this tax scheme was
neutral as regards competition and compatible with the
rules on the right of establishment. The scheme is
similar in substance to the Spanish one and was in force
when Spain joined the ECSC in 1986.

industrial

The Commission also notes that in June 1996 the then
Member of the Commission with special responsibility
for competition, replying on behalf of the Commission
to a written question by Member of the European Parlia-
ment Mr Raul Rosado Fernandes concerning the Spanish
tax deduction scheme under examination, recalled that
the measures had been notified by the Spanish Govern-
ment on Spain's accession and that the Commission had
never raised any objections to their implementation (20).

Finally, the Commission considers that the decision to
initiate the formal investigation procedure includes only
a preliminary assessment as to whether the proposed
measure is to be regarded as aid. The preliminary nature
of the assessment was underlined by the Commission in
its decision to initiate proceedings in the present case by

(18) Commission press release dated 30 September 1992 (IP/92/770);

OJ C 3, 7.1.1993, p. 2 (aid NN 96/92, p. 5).

(19) Decision of 25 July 1973 on the tax concessions granted, pursuant
to Article 34 of French Law No 65-566 of 12 July 1965 and to
the circular of 24 March 1967, to French undertakings setting up
businesses abroad (OJ L 253, 10.9.1973, p. 10).

(20) OJ C 297, 8.10.1996, p. 2.

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(28)

referring only to the likelihood of the measures in ques-
tion constituting State aid. This is also evident in the
present case from the length of time that the Commis-
sion took to investigate and examine these measures. It
should be noted that Spain was not in any way respon-
sible for delays in the proceedings.

the foregoing,

In this context, and in view of
the
Commission considers that even the most cautious and
well informed steel firms could not have foreseen the tax
provisions under examination being classed as State aid
contrary to Article 4 of the ECSC Treaty, and that they
could
expectations. The
Commission therefore deems it appropriate not to order
the recovery of the aid in question granted prior to the
adoption of the present Decision,

claim legitimate

rightly

HAS ADOPTED THIS DECISION:

Article 1

Any aid granted by Spain under:

(a) Article 34 of Act 43/1995 of 27 December 1995 on

corporation tax;

(b) Article 43 of Provincial Act 3/96 of 26 June 1996 on
corporation tax adopted by the Provincial Council of
Vizcaya;

(c) Article 43 of Provincial Act 7/1996 of 4 July 1996 on
corporation tax adopted by the Provincial Council of
Guipúzcoa; or

(d) Article 43 of Provincial Act 24/1996 of 5 July 1996 on
corporation tax adopted by the Provincial Council of Álava,

to ECSC steel undertakings established in Spain is incompatible
with the common market in coal and steel.

Article 2

Spain shall forthwith take appropriate measures to ensure that
ECSC steel undertakings established in Spain do not receive the
aid referred to in Article 1.

Article 3

Spain shall
inform the Commission, within two months of
notification of this Decision, of the measures taken to comply
with it.

This Decision is addressed to the Kingdom of Spain.

Article 4

Done at Brussels, 31 October 2000.

For the Commission

Mario MONTI

Member of the Commission