2002/540/EC: Commission Decision of 11 July 2001 on the State aid scheme applied by Spain to certain newly established firms in Guipúzcoa (Spain) (Text with EEA relevance) (notified under document number C(2001) 1761)
Date: 2001-07-11
Institutions: European Commission
Subjects: EU law, Spain, State aid, aid system, control of State aid, corporation tax, tax exemption

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Official Journal of the European Communities

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 11 July 2001

on the State aid scheme applied by Spain to certain newly established firms in Guipúzcoa (Spain)

(notified under document number C(2001) 1761)

(Only the Spanish text is authentic)

(Text with EEA relevance)

(2002/540/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

respect of this aid the procedure laid down in Article
88(2) of the Treaty.

Having regard to the Treaty establishing the European Commu-
nity, and in particular the first subparagraph of Article 88(2)
thereof,

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

Having, in accordance with the abovementioned Articles, called
on interested parties to submit their comments (1), and having
regard to those comments,

Whereas:

I. PROCEDURE

(1)

As a result in particular of the information received in
response to the procedures
initiated following the
complaints about the State aid granted to Daewoo Elec-
tronics Manufacturing España SA (2), Ramondín SA and
Ramondín Cápsulas SA (3), the Commission learned of
the existence of a scheme of non-notified investment aid
in Spain,
in Álava, consisting of tax incentives in the
form of a reduction of the tax base for certain newly
established firms. It also received unofficial information
that similar measures existed in Guipúzcoa, since that
territory has the same tax autonomy as Álava.

(2)

By letter dated 29 September 1999, SG(99) D/7813, the
Commission informed Spain of its decision to initiate in

(1) OJ C 55, 26.2.2000, p. 2.
(2) Commission Decision 1999/718/EC (OJ L 292, 13.11.1999, p. 1).
(3) Commission Decision 2000/795/EC (OJ L 318, 16.12.2000, p. 36).

(3)

(4)

(5)

By letter from the Permanent Representation dated 2
December 1999, registered on 6 December 1999, the
Spanish authorities submitted their comments under the
abovementioned procedure.

The Commission’s decision to initiate the procedure was
published in the Official Journal of the European Commu-
nities. (4) The Commission invited interested parties to
submit their comments on the aid within one month of
the date of publication.

Comments were received from: the Comunidad Autó-
the
noma de Castilla y León on 17 March 2000;
Gobierno de La Rioja on 24 March 2000; the Confedera-
ción Empresarial Vasca/Euskal Entrepresarien Konfedera-
kuntza (hereinafter CONFEBASK) on 27 March 2000,
plus, outside the time limit, supplementary comments by
letter dated 29 December 2000, registered on 3 January
2001; the Colegio Vasco de Economistas/Ekonomilarien
Euskal Elkargoa on 27 March 2000;
the Círculo de
Empresarios Vascos on 27 March 2000; and the Asocia-
ción Profesional de Asesores Fiscales de la Comunidad
del País Vasco on 28 March 2000. By letter dated 17
May 2000 (D/52998),
these
comments to Spain, asking for observations; it has not
received any.

the Commission sent

(4) See footnote 1.

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(6)

(7)

By letter from the Permanent Representation dated 22
June 2000,
informed the
the Spanish authorities
Commission of the derogation as from 18 March 2000,
pursuant to Norma Foral (Provincial Law) 3/2000 of 13
March (5), from Article 26 of Norma Foral 7/1996 of 4
July of Guipúzcoa (6), which constitutes the legal basis
for the tax incentives in question.

II. DETAILED DESCRIPTION OF THE AID

According to the information at
the Commission’s
disposal, which has not been questioned by the Spanish
authorities or by anybody else, the tax incentives in
question were introduced by Article 26 of Norma Foral
7/1996 of 4 July on Corporation Tax (7). The text of the
Article reads as follows (8):

‘1. Companies starting their business activity shall be
entitled to a reduction over four consecutive tax
periods, starting from the first one in which, within
four years from start-up, they obtain positive tax
bases, of 99 %, 75 %, 50 % and 25 % respectively of
the positive tax base resulting from the conduct of
their business, before offsetting any negative tax
bases from previous periods.

[…]

2. To qualify for this reduction, taxable persons shall

meet the following requirements:

(a) they start their business with a minimum paid-up

capital of ESP 20 million;

[…]

(f) in the first two years of operation they invest in
tangible fixed assets worth at
least ESP 80
million, all such investments being in assets
assigned to the business which are not leased or
sold to third parties for their use. To this end,
investments in tangible fixed assets shall include
assets
leasing,
through
provided that
they undertake to exercise the
option to buy;

financial

acquired

(g) at least ten jobs are generated in the six months
following start-up, and the annual average work-
force is kept at that figure from that time until
the financial year in which the right to apply the
reduction to the tax base expires.

[…]

(i) they have a business plan covering a minimum

period of five years.

3. […]

of jobs created within the meaning of paragraph 2(g)
shall be incompatible with any other tax reduction
laid down for such investment or job creation.

5. The reduction laid down in this Article shall be
requested from the tax authorities, which, after
checking that the requirements set out at the begin-
ning have been met, shall communicate to the appli-
cant company, as appropriate,
their provisional
authorisation, which shall be adopted with the
approval of
the Diputación Foral de Guipúzcoa
(Provincial Council).

[…].’

(8)

(9)

(10)

(11)

The Commission confirms
according to the
preamble of Norma Foral 7/1996, the object of the aid
in question is to promote the emergence of new compa-
nies.

that,

The Commission notes that the tax incentives relate to
the positive tax base for corporation tax resulting from
the conduct of the business, less the set-off for the nega-
tive tax bases from previous financial years. In this case,
the recipients are companies which have started their
commercial activities since the date of entry into force of
the said provincial laws, have invested in tangible fixed
assets a minimum of ESP 80 million (EUR 480 810)
and have generated at least ten jobs. In addition, reci-
pient companies should, in particular, have a business
strategy covering a minimum period of five years and
should start
their activity with a minimum paid-up
capital of ESP 20 million (EUR 120 202).

The Commission emphasises that the aid consists in a
reduction of the positive tax base of 99 %, 75 %, 50 %
and 25 % respectively over four consecutive tax periods,
starting from the first one in which, within a period of
four years from start-up, the recipients obtain a positive
tax base.

the tax incentive is not
The Commission finds that
intended for firms, which carry out certain activities or
belong to certain sectors, since any activity or sector
may be eligible. Nor is it intended for certain categories
of firms, e.g. SMEs, since any firm may qualify, provided
that it satisfies the abovementioned tests.

4. The minimum amount of the investments within the
meaning of paragraph 2(f) and the minimum number

(12)

(5) Boletín Oficial del Territorio Histórico de Álava, 5.4.2000.
(6) Territorio Histórico de Gipuzkoa: Norma Foral 7/1996 dated 4 July

concerning the corporation tax.

(7) Boletín Oficial de Gipuzkoa, 17.7.1996.
(8) Only the parts essential to the assessment of the aid are cited.

The Commission finds that these reductions of the tax
base are applicable from the tax year starting on 1
January 1996. As far as combination with other aid is
concerned, it is stated that the tax incentives in question
may not be combined with any other tax concessions
that may be granted in respect of the minimum invest-
ment or the minimum creation of jobs. Nevertheless,

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combination with other, non-tax aid, including grants,
subsidised loans, guarantees, equity purchases, etc.,
relating to the same investments is not ruled out. Nor is
possible combination with other tax concessions whose
the circumstance triggering each
operative event,
for
concession,
example, with tax incentives in the form of a tax credit.

is different. Such would be the case,

i.e.

(13)

(14)

(15)

(16)

(17)

In its decision initiating the said procedure, the Commis-
sion pointed out that as far as the application of the
Community State aid rules is concerned, the tax nature
of the measures in question is irrelevant, since Article 87
applies to aid measures ‘in any form’. The Commission
also emphasised, however, that, to be regarded as aid,
the measures should meet all four of the criteria which
are laid down in Article 87 and which are explained
below.

Firstly, the Commission pointed out, at that stage, that
the reductions of 99 %, 75 %, 50 % and 25 % give their
recipients an advantage, since the charges normally
affecting their budgets are reduced by a partial reduction
of the normal tax liability.

Secondly, the Commission provisionally considered that
the reductions involve a loss of tax revenue and are
therefore equivalent
to the consumption of public
resources in the form of fiscal expenditure.

Thirdly, the Commission considered at that stage that
the reduction in the tax base affects competition and
trade between Member States. Since the recipients
conduct business, which may be the subject of intra-
Community trade, the aid strengthens their position vis-
à-vis competitors who also trade between Member States.
That trade is therefore affected. Furthermore, the reci-
pient firms’ profitability is improved by the increase in
their net profit (profit after tax). In this way they are able
to compete with firms which are not eligible for the aid.

Lastly, the Commission considered, at that stage, that the
reduction of the tax base in question is specific or selec-
tive in that it favours certain firms. The conditions for
granting the incentives specifically state that firms estab-
lished before the said provincial laws came into force in
mid-1996 are ineligible, as are other firms whose invest-
ments are below the threshold of ESP 80 million
(EUR 480 810), which have created fewer than ten jobs
and which do not have a paid-up capital of more than
ESP 20 million (EUR 120 202).
the
Commission provisionally considered that the tax aid is
not justified by the nature or general scheme of the tax
system.

In addition,

a discretionary power of the tax authorities. The aid is
not granted automatically, since the recipient’s applica-
tion is studied by the Diputación Foral de Guipúzcoa,
which may, subsequently, decide to grant
the aid if
appropriate.

In short, the Commission considered, at that stage, that
the reduction of the tax base is a State aid within the
meaning of Article 87(1) of the Treaty and Article 61(1)
of the Agreement on the European Economic Area, since
it cumulatively meets the criteria of constituting a
benefit, being granted by the State from State resources,
affecting trade between Member States and distorting
competition in favour of certain firms.

Since the tax incentives are not subject, in particular, to
the condition that they do not exceed EUR 100 000 for
a period of three years, the Commission considered, at
that stage, that they cannot be regarded as subject to the
de minimis rule (9).

The Commission stated provisionally that, since State aid
was involved which was not governed by the de minimis
rule, it was subject to the obligation of prior notification
laid down in Article 88(3) of the Treaty and Article
62(2) of
the Spanish
authorities did not meet
that obligation, and the
Commission therefore considered at that stage that the
incentives can be regarded as unlawful.

the EEA Agreement. However,

the

The Commission found provisionally that, although the
conditional on a
incentives was
granting of
minimum investment and the creation of a minimum
number of jobs, the tax arrangements did not ensure
compliance with the Community rules on regional aid. It
therefore considered at that stage that the incentives did
not rank as investment or employment aid.

(19)

(20)

(21)

(22)

(23) However, the Commission also considered at that stage
that the tax incentives have the characteristics of oper-
ating aid. Their purpose is to relieve a firm of those
costs, which it would have had to meet under normal
conditions as part of its everyday management or its
usual activities.

(24)

The Commission pointed out that operating aid is in
principle prohibited. It may nevertheless be granted in
in those regions, which
i.e.
exceptional circumstances,
qualify for the regional derogations if they meet certain
conditions. However, the incentives are not subject to
these conditions. Consequently, the Commission took
the view at that stage that there were doubts about the
compatibility of the tax incentives with the rules on
regional aid.

(18)

Furthermore, the Commission considered, at that stage,
that the selective nature of the concession is also due to

(9) See point 3.2 of the Community guidelines on aid for SMEs (OJ C
213, 19.8.1992) and the Commission notice on the de minimis rule
for State aid (OJ C 68, 6.3.1996).

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The reduction of the tax base, which is not restricted to
a particular sector, may be granted to firms that are
subject to Community sectoral rules. The Commission
therefore questioned at that stage whether the incentives
are compatible where the recipient belongs to a sector
that is subject to special Community rules.

is
measure, whose purpose is to promote investment,
part of an economic policy, which is much used by
governments.

(25)

(26)

Lastly, the Commission questioned the compatibility of
the tax incentives with the common market in the light
of the derogations in Article 87(2) and (3) of the Treaty.
The incentives cannot be regarded as aid having a social
character under Article 87(2)(a), is not intended to make
good the damage caused by natural disasters under
Article 87(2)(b) and is not subject to the provisions of
Article 87(2)(c) concerning certain areas of the Federal
Republic of Germany. As far as the derogations in
Article 87(3) other than those in subparagraphs (a) and
(c), which have already been discussed, are concerned,
the Commission considered that the incentives are not
designed to promote the execution of an important
project of common European interest or to remedy a
serious disturbance in the economy of a Member State
under Article 87(3)(b). The incentives do not fall within
the scope of Article 87(3)(c), which concern ‘aid to facili-
tate the development of certain economic activities…’,
since they are not specific in any way to the activities of
the recipient
intended to
promote culture and heritage conservation within the
meaning of Article 87(3)(d).

they are not

firms. Lastly,

(27) As well as inviting them to submit their comments under
the Article 88(2) procedure, the Commission also asked
the Spanish authorities to supply all the information
necessary for assessing the tax incentives in the form of
a reduction of the tax base of certain newly established
firms in Guipúzcoa. In this specific case, the relevant
information requested is as follows: copies of all deci-
sions granting the reduction of the tax base, and data on
the investments made by each recipient, the jobs created,
the share capital, the size of the reduction for which
each firm is eligible, and the outstanding balance.

III. COMMENTS OF THE SPANISH AUTHORITIES

(29)

(30)

(31)

the opening of

In their opinion,

They argue that the measure is not specific or selective
the
in character.
measure to all sectors and to all taxpayers that meet the
appropriate criteria removes any specific character. Nor
is there any de facto restriction of this general scope. As
to specificity of substance, this does not exist, since the
requirements to invest ESP 80 million and create 10
jobs are not discriminatory, but objective conditions
deriving from the need to ensure the effectiveness of the
measure and thus achieve the proposed objective.

Furthermore, the Spanish authorities question the discre-
tionary character of the measures in question, since the
incentives are granted automatically once the said objec-
tive conditions are satisfied. The Diputación Foral de
Guipúzcoa can thus check only that all the conditions
are satisfied; it cannot alter or add any conditions. Nor is
the procedure laid down in the abovementioned Article
26(5) for granting the tax incentives discretionary. Under
that Article ‘the tax authorities... shall communicate to
the applicant company, as appropriate, their provisional
authorisation, which shall be adopted with the approval
of the Diputación Foral de Guipúzcoa’. The procedure
should be interpreted therefore as meaning that
the
incentives will be granted after a check has been made
that all the objective conditions are met. This is why the
phrase ‘as appropriate’ is not discretionary.

claim that

Spanish authorities

the
Similarly,
the
the tax base is founded on
Guipúzcoa reduction of
measures existing in other Member States
such as
Ireland, or on measures taken by the Spanish Central
Government in 1993. (10) However, the Commission did
not consider all these measures as State aid within the
meaning of Article 87 of the Treaty. Given the similarity
the
between the Guipúzcoa measures and those of
central government,
if one
measure is not specific in character, the other ought not
to be either. Furthermore, the Spanish authorities state
that both the Guipúzcoa measures and those of the
Central Government cover only one part of Spain. There-
fore,
the Commission did not consider there was
anything specific about the tax measure introduced by
the Spanish Central Government, it ought to reach the
same conclusion about the Guipúzcoa measures.

it can be concluded that

if

(28)

The Spanish authorities submitted their comments by
letter
from the Permanent Representation, dated 2
December 1999. Basically, they consider that the reduc-
tion of the tax base does not constitute State aid under
Article 87 of the Treaty, but a general measure, which is
not subject to the State aid rules. They also state that the

(10) Law 22/1993, dated 29 December 1993, on tax measures and the
reform of the legal system of the public service and unemployment
protection (BOE, 31.12.1993). The measure consisted in the reduc-
tion of the corporation tax base by 95 % in the tax years 1994 to
1996 of firms set up in 1994 which invested at least ESP 15
million and created at least three, but less than 20, jobs.

(32)

(33)

(34)

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Similarly, the Spanish authorities argue that, even if the
Commission were to consider that
the measure was
specific, it is justified by the nature and general scheme
of the system, as provided for in the Commission notice
on the application of the State aid rules to measures
relating to direct business taxation (98/C 384/03) (11).
The measure in question is justified by the nature and
general scheme of the tax system, since the conditions
that must be met before it can be granted are objective
and cross-sector.

IV. OTHER COMMENTS RECEIVED BY THE COMMIS-

SION

(38)

The Commission emphasises that the comments set out
below are without prejudice to the question of whether
the parties, which submitted them, can be considered
interested parties within the meaning of Article 88(2) of
the Treaty.

for

sectoral

The Spanish authorities question the view expressed by
the Commission that the tax rules do not satisfy the
conditions
the
rules.
Commission ought to determine what the specific condi-
tions are that are infringed by the said tax rules. As
regards the application of the rules on regional aid, the
Spanish authorities consider that this is inappropriate,
since in this specific case no State aid is involved.

In their opinion,

The Spanish authorities also question the Commission’s
position in accepting that trade is affected by the fact
that the recipient undertakings carry out economic activ-
ities that may involve trade between Member States. In
their opinion, it cannot be established, pace the Commis-
sion that trade is affected generally, but only in specific
cases, since there is a possibility that in some cases it will
not be affected. In other cases, firms could be involved
that operate either in sectors, which have not yet been
liberalised, or exclusively in local markets. In all these
cases, therefore, one of the prerequisites for describing
an official measure as State aid is missing.

(35) As

regards

the operating-aid characteristics which,
according to the Commission, the tax measures in ques-
the Spanish authorities emphasise that,
tion have,
although the tax advantage derives from the tax base and
not from the investment, it still has the character of an
investment incentive. The incentives, therefore, cannot
be described as operating aid.

(36)

(37)

that

In view of the above arguments, the Spanish authorities
consider
the Commission should terminate the
Article 88(2) procedure by a decision stating that the tax
measures in question do not meet the criteria for being
regarded as State aid.

For the rest,
the Spanish authorities emphasise that,
under Spanish tax rules, the tax authorities may disclose
information on taxpayers only in certain exceptional
cases. Such cases do not include sending information to
the Commission. Consequently, the Spanish authorities
are not providing any of the information requested in
the decision initiating the procedure.

(11) OJ C 384, 10.12.1998, p. 3.

(39)

(40)

(41)

Comments by the Comunidad Autónoma de Castilla
y León

The Comunidad Autónoma de Castilla y León points out
first of all that the tax measures in question are part of a
set of tax measures adopted by the Diputación Foral de
Guipúzcoa that have been contested both internally
within the Member State and at Community level.
It
states that, in the case in point, Article 26, which intro-
duces the tax measure in respect of which the procedure
was initiated, was quashed by the Tribunal Superior del
País Vasco (12) in 1999.

The Comunidad Autónoma de Castilla y León goes on to
state that the tax measures in question constitute State
aid, since they satisfy all four criteria laid down in Article
87 of the Treaty. In support of this contention it basi-
cally puts forward the same arguments as those given in
the decision initiating the procedure. It states that the
measure is also selective on account of the discretionary
power of the authorities (13). Similarly, the tax measures
are not justified by the nature or general scheme of the
tax system, since their purpose is to promote the forma-
tion of new companies.

that

For the rest, the Comunidad Autónoma de Castilla y
León considers
the tax incentives cannot be
regarded as compatible by virtue of the derogations in
Article 87. In this respect, it states that the tax measures
are operating aid, since they are continuous and not
linked to the execution of a specific project. However,
pursuant to the derogation in Article 87(3)(a), operating
aid can only be compatible, under certain conditions, in
assisted areas. As the Basque Country is an assisted area
under the derogation in Article 87(3)(c), the operating
aid in question cannot be regarded as compatible.
Furthermore,
the obligation to notify laid down in
Article 88(3) has not been complied with.

(42)

The Comunidad Autónoma de Castilla y León takes the
view therefore that the tax measures in question should
be regarded as State aid which is unlawful, since the
notification procedure laid down in Article 88(3) has not
been followed, and which is incompatible with the
common market.

(12) Judgment No 718/1999 of 30 September 1999.
(13) See in this respect the judgement rendered by the Court of Justice

of the EC on 26 September 1996 regarding Case C-241/94.

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Comments from the Gobierno de La Rioja

procedure, and as aid that
common market.

is incompatible with the

(43)

The Gobierno de La Rioja states that the tax measures
constitute State aid, since they satisfy all four criteria set
out in Article 87 of the Treaty. In support of this conten-
tion, it argues in particular that the purpose and effect of
the reduction of the tax base is to relieve the recipient of
part of the tax burden, which would otherwise have been
imposed on its profits. It therefore constitutes a financial
advantage for recipient firms, which, because there are
no quid pro quos for the authorities, involves a loss of tax
revenue. In addition, the economic activity of the recipi-
ents will be encouraged by this fact. They thus enjoy a
competitive advantage over all other firms. In addition to
the specificity of substance, in the form of a minimum
share capital of ESP 20 million, a minimum investment
of ESP 80 million and a minimum of ten jobs created,
the Gobierno de La Rioja states that the discretionary
nature of the reduction of the tax base is due partly to
the authorities’ ability to determine eligible investments,
time limits and thresholds and partly to the fact that the
granting of the reduction of the tax base is not auto-
matic.

(44) Moreover, the Gobierno de La Rioja considers that the
tax measure cannot be justified on the grounds that there
are five tax systems in Spain. It points out that, in the
Opinion on Joined Cases C-400/97, C-401/97 and C-
402/97, Advocate General Saggio considered that the
nature of the competent authorities for tax matters in a
territory does not justify discrimination in favour of
firms established in that
the
justified by the nature or general
measures are not
scheme of
the tax system in Guipúzcoa, since their
purpose is to improve the competitiveness of recipient
firms. The Gobierno de La Rioja also points out that the
Tribunal Superior de Justicia del País Vasco (14) regarded
the tax measures in question as disproportionate and
inappropriate for achieving the objective of promoting
economic activity, since they may indirectly affect the
free movement of persons and goods by establishing
unacceptable conditions of competitive advantage.

territory. Furthermore,

(45)

In addition, the Gobierno de La Rioja considers that the
tax incentives cannot be considered compatible with the
common market by virtue of the derogations in Article
87. Also, the Spanish authorities did not fulfil the obliga-
tion to notify the incentives under Article 88(3) of the
Treaty.

(46)

The Gobierno de La Rioja therefore thinks that the tax
measures should be regarded as unlawful State aid, since
they do not comply with the Article 88(3) notification

(14) See the judgments of 30 September and 7 October 1999 with

regard to the tax measures in question.

from the Confederación Empresarial
Comments
Vasca — Euskal Entrepresarien Konfederakuntza
(CONFEBASK)

(47)

To begin with, CONFEBASK emphasises the historical
roots underlying the current autonomous tax powers
vested in Guipúzcoa. As regards substance, CONFE-
BASK’s views are essentially as follows:

(a) The presumed reduction of

the tax debt:

the
Commission is wrong to think that there is a tax
debt whose reduction involves a loss of tax revenue.
If
this argument were sound, any tax deduction
would always involve a loss of revenue compared
with the amount that would have normally been
paid. CONFEBASK therefore
the
Commission reconsider its position, since otherwise
it could be argued that taxes were being unlawfully
harmonised by establishing a normal amount in rela-
tion to which it would be necessary to determine
any losses of tax revenue.

requests

that

(b) The effect on trade: according to the Commission,
where the recipients participate in intra-Community
trade, the tax measures in question distort that trade.
However, differences between tax systems always
affect trade. To determine the extent, to which trade
is affected, the Commission should therefore analyse
the entire tax system and not specific provisions.
CONFEBASK emphasises
that,
according to one study, the tax burden in the Basque
Country is greater than in the rest of Spain. The
specific
Commission should explain why these
measures and not other tax differences affect trade.
In any event, even if such an effect did exist, the way
to remove it would be through harmonisation, not
State aid.

in this

respect

(c) The selective character of the aid: in CONFEBASK’s
opinion, the selective nature of the tax measures
should be assessed in one of two ways, either as an
enabling rule conferring power on the tax authority
subsequently to grant a specific relief, or as a rule
directly granting the tax relief without requiring
subsequent specification. The Commission, however,
is using one argument, which fits the first category,
and another, which fits the second. Given that the
two are mutually exclusive, the Commission should
explain in which category the tax measures question
fall, since otherwise it would be contradictory to try
and use both.

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— CONFEBASK questions the approach whereby
the tax measures are regarded as enabling rules,
since the reduction is granted automatically and
the authorities, accordingly, have no discre-
tionary power. The authorities are restricted to
checking that the applicant satisfies the tests of
eligibility. Moreover,
the tax measures are
if
regarded as enabling rules which subsequently
make it possible to grant the aid,
it has to be
concluded that the current procedure, in so far as
it is the rules that are being questioned and not
specific instances of their application, is meaning-
less. Similarly, according to the first paragraph of
the Commission’s letter to the Member States, (15)
a general provision conferring relieves is regarded
as an aid only if ‘legislative machinery enabling it
to be granted without further formality has been
set up’. By contrast, because it is abstract, an
enabling rule cannot be regarded as State aid
and, hence, cannot be assessed for its effect on
competition and trade between Member States.

— As

for

regarding the tax measures as

rules
granting aid directly, CONFEBASK points out
that, according to points 19, 20 and 17 of notice
98/C 384/03, a tax measure may be specific and,
hence, may be a State aid, if it is aimed solely at
public undertakings, certain types of undertaking
or undertakings in a given region. However, the
tax measures in question have none of these
characteristics, not even territorial
specificity,
since they apply to the whole territory for which
the regional authorities that introduced them are
competent. As to the specific character of the
thresholds,
share capital of ESP 20 million,
investment of ESP 80 million, and 10 jobs
created, CONFEBASK considers that the use of
in
objective
national and Community tax rules. CONFEBASK
also draws attention to the basis of various judge-
ments of the Court of Justice and Commission
it has never been held that
decisions: hitherto,
thresholds
the
specificity. Moreover,
imply
Commission itself acknowledges, in point 14 of
the above notice, that the effect of promoting
certain sectors does not necessarily mean that the
measures are specific.

is normal practice

thresholds

in other Member States, but

the rules are identical,
It even maintains that
except for the quantitative thresholds. Thus the
effect of Guipúzcoa’s reduction of the tax base
on competition is cancelled, since the territories
adjoining the Basque provinces qualify for tax
if there
concessions for new firms. Moreover,
were an effect on competition, this should derive
from the central government measures, since
they may have a larger number of recipients.
CONFEBASK also stresses that there are similar
measures
the
Commission has not initiated any procedure with
regard to them, nor have they been classified as
harmful measures by the Primarolo Group.
In
this respect it states that, in France, new firms
have been eligible for corporation tax exemptions
and reductions for a period of five years (10
years in some regions, and for even more favour-
able arrangements in Corsica) since 1994.
In
is a 25 % reduction of
Luxembourg,
corporation tax for a period of eight years. In the
south of Italy there are tax holidays from the
IRPEG and the ILOR for 10 years. Lastly,
in
Portugal, there is a 25 % reduction of corporation
tax for a period of from seven to 10 years. Every-
thing shows, therefore, that Guipúzcoa’s reduc-
tion of the tax base is not an exceptional system
rise to any specificity. On the
which gives
is a system widely used in the
it
contrary,
Member States.

there

(d) The importance of

legal certainty: CONFEBASK
argues that the Commission’s description of the tax
reduction as an unlawful aid calls into question the
principles of legitimate expectations, a ban on arbi-
trary decisions by the Institutions, legal certainty and
proportionality, since the Commission regarded the
Basque tax arrangements as lawful in its 1993 deci-
sion. In any event, the Commission may change its
position as regards future cases but not as regards
past ones.

— CONFEBASK also maintains that Guipúzcoa’s
reduction of the tax base in is nothing more than
an adjustment of a 1993 measure (mentioned
above in the comments from the Spanish autho-
rities) introduced by Spain’s central government.

(15) Commission letter to Member States SG(89) D/5521 of 27 April

1989.

that

(e) Incompatibility with the common market: if the tax
measures in question are regarded as enabling rules,
CONFEBASK considers
compatibility
cannot be assessed while the aid is not granted
through an administrative decision. The procedure is
meaningless and incapable by definition of yielding
any results as to the compatibility of the aid. On the
the tax measures in question are
other hand,
regarded as rules granting aid directly, CONFEBASK

their

if

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takes the view that the practice of the Commission
and the Court require that measures have to have
sectoral specificity before the compatibility of the aid
can be assessed. Furthermore, it would be necessary
to establish the overall tax burden on firms and the
reference tax burden. Lastly, this approach would
lead to the absurd conclusion that any tax burden
lower than the highest tax burden in all the Member
States would constitute State aid. CONFEBASK also
questions the Commission’s argument that the said
tax measures are incompatible, since they do not
contain specific provisions on sectoral or regional
aid, or aid for large investment projects, etc.: tax
measures may not and should not contain this type
of provision. According to the Court of Justice (16),
the Commission should specify in its decisions what
the adverse effects on competition are, determining
the real effect of the measures examined. Incompat-
ibility cannot be determined, therefore,
in abstract
situations specific to a tax system, since in that case
any differences between tax systems would necessa-
rily become aid. This leads CONFEBASK to repeat
that there is no normal tax debt, which has been
reduced by the tax, measures in question.

(f) CONFEBASK therefore asks

the Commission to
adopt a final decision terminating the procedure and
stating that the tax measures in question comply
with Community law.

(48)

CONFEBASK’s additional comments, communicated by
letter dated 29 December 2000, registered on 3 January
2001, were not taken into account, as they reached the
Commission after the deadline had expired (17). Further-
more, CONFEBASK did not apply for an extension of the
time limit pursuant to Article 6(1) of Council Regulation
(EC) No 659/1999 of 22 March 1999 laying down
detailed rules for the application of Article 93 of the EC
Treaty (18).

Comments from the Colegio Vasco de Economistas
— Ekonomilarien Euskal Elkargoa (hereinafter CVE)

(49)

CVE considers that
the tax system of each Basque
province does not meet the specificity criterion in Article
87(1) of the Treaty, since it only applies in part of a
Member State. In support of this view, it argues that the
Commission’s usual practice of considering that there is

(16) Joined Cases C-278/92, C-279/92 and C-280/92 Spain v Commis-
sion [1994] ECR I-4103, judgement by the Court of Justice dated
14 September 1994.

(17) The deadline for submitting comments was one month from the
date of publication in the Official Journal of the European Commu-
nities, i.e. 26 February 2000.

(18) OJ L 83, 27.3.1999, p. 1.

it

a unique

specificity when the tax measure is applied to part of the
Member State is appropriate where there is a single tax
system. However,
is not relevant where there are
various tax systems in the same Member State. The prac-
tice, furthermore,
is contrary to the coherence of the
Spanish tax system, which is multiple by nature. Each
system is applied exclusively in one part of the territory.
Thus, each one of the systems is not a regional system,
but
territory
system applicable
concerned. Moreover, the losses of tax revenue which
result from certain tax measures are not the subject of a
transfer from the central government. On the contrary,
they should be offset, either by increasing the revenues
from other taxes or by cutting public expenditure. In
addition, the specific nature of the Spanish tax system
should not involve penalisation through the application
of Community law. For the rest, any distortions of
competition resulting from the existence of
five tax
systems should be tackled through the Community rules
on tax harmonisation.

to the

(50) Nonetheless, CVE does not rule out that, in the exercise
of their tax autonomy, the Diputaciones Forales (Provin-
cial Councils) may adopt tax measures that are caught by
Article 87(1) of the Treaty. However, in such a case, it
considers that the reduction of the tax base is not so
caught, since it only meets the criterion of being granted
from State resources. It does not distort competition,
because its payment implies that there is a positive tax
base. Moreover,
its amount cannot be determined in
advance, since, for example, if there were no profits, the
aid would not be paid. The same applies as regards the
effect on trade. This should be established on an indivi-
dual basis: it is not sufficient that trade might be affected.
For the rest, it examines whether specificity derives from
the thresholds for eligibility for the tax reduction or from
the Diputación Foral’s discretionary power to grant the
reduction. In this respect, it considers that the thresholds
do not involve specificity, since they are objective and
non-discriminatory. As for the grant of the tax reduction,
this does not involve the exercise of a discretionary
power, but checking that all the conditions are met.

(51)

CVE concludes that the reduction of the tax base, which
is a general measure adopted under the tax powers of
the provinces in question, is not caught by Article 87 of
the Treaty.

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Comments from the Círculo de Empresarios Vascos
and the Asociación Profesional de Asesores Fiscales
de la Comunidad del País Vasco (hereinafter CEV-
APCPV)

(52)

Since these associations submitted similar or even iden-
tical comments, the following summary applies to both
of them.

(53)

CEV-APCPV questions the Commission’s assessment that
the reduction of the tax base is specific or selective
because firms set up before it came into force and
existing firms are excluded and because of the quantita-
tive thresholds required. Tax rules always apply from the
date of their entry into force, and retroactive application
the
is exceptional. Furthermore, as the objective of
measure is to encourage investment, it is logical that the
tax reduction should be confined to new firms. As
regards the thresholds, everything indicates that they are
objective and, moreover, much used in the tax sphere.
As to the Diputación Foral’s approval before the reduc-
tion of the tax base can apply, everything indicates that
this is an act of prior verification aimed at checking that
all the conditions are met. Once the check has been
made, the grant takes place automatically.

In such a case,

(54) As for the effect on trade, CEV-APCPV emphasises that
this should be established on an individual basis, i.e. the
opposite of the general analysis made by the Commis-
sion. For instance, there may be recipients, which only
produce for local markets.
the tax
measures do not affect intra-Community trade. The same
the
applies to the effect on competition. Moreover,
reduction of the tax base for recipients whose activities
are carried out on markets that have not yet been liberal-
ised cannot distort competition. For the rest, the loss of
tax revenues cannot be assessed if it is regarded as a
single measure, in this case the reduction of the tax base,
while ignoring the overall tax burden. In this respect,
CEV-APCPV state that
tax burden in the
Basque Country is greater than in the rest of Spain.

the overall

(55)

that, even if

CEV-APCPV consider
the Commission,
despite the above comments, continues to think that the
said reduction of the tax base is a specific measure, it
would be justified by the nature and general scheme of
the system. In support of this view, they emphasise that
the tax measure is applied to all operators irrespective of
their activity. Furthermore, it is necessary for the func-
tioning and efficiency of the system, since to evaluate the
inequality of a measure it is necessary to situate it in the
system and determine whether this results in a lower tax
burden. Moreover, the tax measure complies with the
principle of equality, since new firms are not in the same
situation as an existing firm.

(56)

In addition, CEV-APCPV ask the Commission to assess
the measure in question by taking into account similar

measures in other Member States (e.g. Ireland), similar
measures from 1993 introduced by the Spanish Central
Government, and the application of the reduction of the
tax base in question throughout Spanish territory. In this
respect, CEV-APCPV state that the Commission has never
considered that these measures are caught by Article 87
of the EC Treaty. Furthermore, they question whether
the tax measures can be regarded as operating aid, since
the latter is not applicable to new firms, but to the artifi-
cial maintenance of existing firms. For the rest, CEV-
APCPV consider that the Commission’s objective in initi-
ating the procedure against the reduction of the tax base
is tax harmonisation. However, for this it is using Arti-
cles 87 and 88 of the Treaty, and for this reason there is
a misuse of powers.

(57)

In view of the above, CEV-APCPV conclude that the
reduction of the tax base is not caught by Article 87 of
the Treaty.

V. TRANSMISSION

OF

THE

THIRD

PARTIES’

COMMENTS TO SPAIN

(58)

By letter to the Spanish Permanent Representation, dated
18 May 2000, the Commission sent, pursuant to Article
6(2) of the aforesaid Regulation (EC) No 659/1999, the
third parties’ comments to Spain, inviting it to submit its
observations within one month of the date of the letter.
Spain has not submitted any such observations.

VI. ASSESSMENT OF THE AID

(59)

(60)

VII. THE CHARACTER OF A STATE AID

The Commission would point out that, for the purpose
of applying the Community rules on State aid, the tax
nature of the measures in question does not matter, since
Article 87 of the Treaty is applied to aid measures ‘in
any form’. Nevertheless,
the Commission emphasises
that, to be regarded as aid, the measures in question
should cumulatively satisfy the four criteria set out in
Article 87 and explained below.

Firstly, the measure must confer on recipients an advan-
tage, which relieves them of charges that are normally
borne from their budgets. The advantage may be
provided through a reduction in the firm’s tax burden in
various ways, including a total or partial reduction in the
amount of tax. The said reduction of the tax base by
99 %, 75 %, 50 % and 25 % meets this criterion, since it
reduces the recipient firms’ tax burden by an amount
equivalent to the result of applying the tax rate to the
post-reduction balance. If the tax base were not reduced,
the recipient firm would have to pay the particular tax
on 100 % of the tax base. The reduction of the base thus
implies an exception to the common tax system applic-
able.

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(61)

Secondly, the Commission considers the said reduction
of the base involves a loss of tax revenue and is therefore
equivalent to the consumption of public resources in the
form of fiscal expenditure. This criterion is also applied
to aid granted by regional and local bodies in the
Member States (19). Furthermore, the intervention of the
State can be effected both through tax provisions of a
statutory, regulatory or administrative kind and through
the practices of the tax authorities. In this specific case,
the intervention of the State is effected by the Diputación
Foral of Guipúzcoa through a legislative provision.

28,9 % the Basque economy’s ‘tendency to export’ (ratio
of exports to GDP) is greater than that of Germany and
the other Member States, where it
is about 20 %.
According to this report, the Basque trade balance was
clearly in surplus during the period 1993-1998. In parti-
cular, in 1998, for each ESP 100 of imports there were
ESP 144 of exports. In short, the Basque economy is
very open to the outside, and its production is very
much geared to exporting. Given these characteristics of
the Basque economy, it is clear that recipient firms may
trade
aid
strengthens their position vis-à-vis their competitors in
intra-Community trade. That trade is therefore affected.
Furthermore, the increase in recipient firms’ net profit
(profit after tax) improves their profitability. This enables
them to compete with firms, which are not eligible for
the tax incentives.

States. Consequently,

between Member

(62) As

the

regards

argument put

forward in certain
comments by third parties, namely that it would be
wrong to regard the reduction of the tax base of 99 %,
75 %, 50 % and 25 % as involving a loss of tax revenue
compared to the normal amount (established by the
Commission) of tax which should be paid, it has to be
pointed out that the normal level of tax derives from the
tax system in question and not from a Commission deci-
sion. Furthermore, according to the second indent in
point 9 of notice 98/C 384/03, to qualify as State aid,
‘firstly, the measure must confer on recipients an advan-
tage which relieves them of charges that are normally
borne from their budgets. The advantage may be
provided through a reduction in the firm’s tax burden in
various ways, including [...] a total or partial reduction in
the amount of tax (such as exemption or a tax credit)’.
This is the case with the relief in the form of the partial
reduction of 99 %, 75 %, 50 % and 25 % of the tax base.
The comment is without foundation therefore.

(64)

Since, in this case, the tax rules examined are general
and abstract in character, the Commission would point
out that the analysis of their incidence can only be
carried out at a general, abstract level; it is not possible
to specify the particular incidence on a market, sector or
specific product, as we see in the abovementioned
comments of
third parties. This position has been
confirmed in the established case law (23) of the Court of
Justice.

(63)

Thirdly, the measure must affect competition and trade
between Member States. It should be pointed out in this
respect that, according to a report (20) on the external
dependency of the Basque economy in the period 1990-
95, exports abroad went up (21), not only in absolute
terms but, in particular, in relative terms as well, to the
detriment of exports to the rest of Spain. The foreign
market thus partly replaced the market, which is the rest
of Spain. Furthermore, according to another statistical
report (22) on the foreign trade of the Basque Country, at

(19) See Case 248/84 Germany v Commission [1994] ECR 4013, judge-

ment rendered by the Court of Justice on 14 October 1987.

(20) Mr. Paxti Garrido Espinosa and Ms Victoria García Olea, ‘La depen-
dencia exterior vasca en el periodo 1990-1995’, Euskal Estatistika-
Erakundea/Instituto Vasco de Estadística (EUSTAT), the statistical
office of the Basque Government.

(21) Exports abroad accounted for 28,5 % of total exports (including
sales to the rest of Spain) in 1990, and for 40,8 % five years later in
1995.

(22) ‘Estadística de Comercio Exterior para la Comunidad Autónoma de

Euskadi en el año 1998’, prepared by EUSTAT.

(65) As regards the comment that the effect on trade should
be assessed by the Commission on the basis of a
comparison of all tax systems, the Commission would
point out that the distortions of competition which are
the subject of this procedure under Articles 87 and 88 of
the Treaty are due to a derogating rule which favours
certain firms (in this case certain newly established firms)
vis-à-vis the other firms of the Member State; they are
not possible distortions of competition which are due to
the Member
differences between the tax systems of
States, which might, as appropriate, be caught by the
provisions of Articles 93 to 97 of the Treaty.

(23) See Case C-75/97 (Maribel) Belgium v Commission, paragraphs 48
and 51 (17 June 1999); Case T-298/97 Alzetta Mauro and others v
Commission, paragraphs 80 to 82 (15 June 2000); the Opinion of
Advocate General Ruiz-Jarabo in Case C-310/99 Italy v Commission,
paragraphs 54 and 55 (17 May 2001); and the Opinion of Advo-
cate General Saggio in Case C-156/98 Germany v Commission, para-
graph 31 (27 January 2000), which ran thus: ‘It should be pointed
out in this respect that, with regard to a general aid scheme, to be
able to determine the effect of that scheme on trade, it is sufficient
if, from an ex ante assessment, it can reasonably be considered that
the said effect may come about’. If the position of a firm (or, as in
the present case, an indefinite number of firms) is reinforced by an
this privilege may in principle affect competition
aid scheme,
between Member States.

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Fifth Report on Enterprise

the Commission would point out

(66) As to the specific character which State aid must have,
the Commission takes the view that the reduction of the
tax base is specific or selective in that it favours certain
firms, since the conditions for granting the incentives
specifically state that firms established before the said
provincial law came into force are ineligible, as are other
firms whose investments are below the threshold of
ESP 80 million (EUR 480 810), which have created
fewer than ten jobs and which do not have a paid-up
capital of more than ESP 20 million (EUR 120 202). In
that,
this respect,
to the
according
in
Europe (24),
in the European
the number of
Community in 1995 which had fewer
than ten
employees, or no employees at all, was 16 767 000, or
92,89 % of the total (25). In Spain’s case, the percentage
was even higher, at about 95,00 %. (26) It is likely that
these percentages are even higher in the case of new
firms, since a firm usually starts with a workforce that
grows as the firm consolidates and reaches its cruising
speed. This was the case in Spain, in 1995, where the
percentage was even higher, at about 98,00 %. (27)
Consequently, everything indicates, primarily, that one
of the conditions of eligibility for the aid means, by itself,
that the majority of firms are excluded. For the rest, the
objective character of
the threshold cited does not
prevent it, as some of the third-party comments claim,
from being selective and excluding firms which do not
satisfy the conditions in question.

firms

(67) As for the possible discretionary power of the tax autho-
rities, the Commission finds that the aid in question is
not granted automatically. The application submitted by
the recipient is examined beforehand by the Diputación
Foral de Guipúzcoa, which, after carrying out the exami-
nation, may, if appropriate, grant the aid. According to
the Spanish authorities, this is simply to check that all
the conditions are met. However, they do not explain
why the check should be made beforehand and not, as is
the normal practice in the management of tax revenue, a
posteriori.

(68) As regards the existence of tax measures in the form of a
reduction of the tax base in other Member States, which
the Commission did not consider selective in scope
because they are aimed at new firms, according to
certain comments of third parties, this is the origin of a
legitimate expectation concerning tax incentives for new
firms the Commission would point out that the schemes

(24) Empresas en Europa, 5o informe, EUROSTAT.
(25) Taken from the data in the table on p. 31 of the Report.
(26) Taken from the data in the table on p. 224 of the Report.
(27) Taken from the data in the table on p. 73 of the Report.

It must be pointed out

mentioned in some of the third-party comments are
different in certain respects to this reduction of the tax
base. Furthermore, even supposing that certain schemes
were similar and that the Commission had not reacted, it
would not be justified to follow this misguided approach
that,
in this particular case.
according to the case law of the Court of Justice, a
possible infringement by a Member State of an obliga-
tion imposed on it under the Treaty, in connection with
the prohibition in Article 92, would not be justified by
the circumstance that other Member States had also
failed to fulfil that obligation; it should also be pointed
out that the effect of different distortions of competition
on trade between Member States is not that they cancel
each other out; on the contrary it is cumulative in char-
acter, so that such distortions increase the harmful
consequences for the common market (28).

(69)

Concerning the question raised in some of the third-
party comments about the character of the enabling rule
or the rule granting aid directly, the Commission would
point out that, in this case, the rules which introduced
the reduction of the tax base have the character of an aid
scheme. In support of this assessment, it is sufficient to
point out that under Article 1(d) of Regulation No 659/
1999, an aid scheme is defined as ‘a system on the basis
of which, without further implementing measures being
required, individual aid awards may be made to under-
takings defined within the act in a general and abstract
manner...’. However, this character of an aid scheme does
not predetermine, as certain third-party comments claim,
whether there is any discretionary power in the execu-
tion of the scheme or not. Discretionary power in regard
to the granting of the aid will depend on the specific
characteristics of the scheme. Furthermore, the Commis-
sion would point out that, if the tax authorities to have
this is enough, where there are no other
discretion,
to establish the existence of aid
specific elements,
elements in a tax measure.

(70) As regards invoking the nature or general scheme of the
tax system as justification for the reduction of the tax
base, the Commission emphasises that what matters is to
know whether the tax measures involved meet the objec-
tives inherent in the tax system itself, or whether, on the
contrary, they pursue other, possibly legitimate objec-
it is up to the
tives outside the tax system. However,
Member State concerned (29) to establish that the tax

(28) See Case C-78/76 Steinike & Weinlig v Federal Republic of Germany,
paragraph 24,
judgement by the Court of Justice on 22 March
1977. On the other hand, Case C-313/90 Comité International de la
rayonne et des fibres synthétiques and others v Commission, paragraph
45, judgement by the Court of Justice on 24 March 1993, states
that neither the principle of equal treatment nor that of the protec-
tion of legitimate expectations may be relied upon in order to
justify the repetition of an incorrect interpretation of a measure.
(29) See paragraph 27 of the Opinion of Advocate General Ruiz-Jarabo

in Case C-6/97.

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measures in question follow the internal logic of the tax
system. In the case at issue, the Spanish authorities state
that because the measures are objective and cross-sector
in character, they are consistent with the internal logic
of the tax system. However, the fact that the measure is
objective and cross-sector in character does not demon-
strate that it follows the internal logic of the tax system
— it is not sufficient evidence that the measure fulfils
the principal objective inherent in any tax system, which
is to gather the revenue for financing the expenditure of
the State, or that it satisfies the principles of equality and
progressiveness inherent in the Spanish tax system (30).

(71) Moreover,

It

the

state

in their
Spanish authorities
comments that the reduction of the tax base satisfies the
thus helps to
objective of promoting investment.
achieve the industrial policy objectives pursued by the
Government. According to the latter’s paper Política
Industrial. Marco General de Actividades 1996-1999,
‘[…] tax policies are essential for boosting economic
for promoting industrial
development and, similarly,
projects based on the industrial development of
the
[Basque] Country’ (page 131), and in the chapter ‘Tax
policy instruments’ one reads:
‘[…] the tax autonomy
which we have [in the Basque Country] enables us to
search for imaginative made-to-measure tax solutions,
e.g. for priority projects or even tax incentives for large
firms (page 133)’. The reduction of the tax base in ques-
tion, therefore,
is part of an industrial policy whose
objectives are not peculiar to tax systems.

(72)

In short,
the Commission finds that, as the Spanish
authorities point out, the reduction of the tax base in
question pursues an economic policy objective which is
not inherent in the tax system. The reduction is therefore
not justified by the nature or general scheme of the
system.

(73) As to the argument put forward in certain third-party
comments concerning the existence of a higher overall
tax burden in the Basque Country,
the Commission
repeats that this is not relevant in the case at issue, since
the procedure was initiated in respect of a specific
measure and not the whole the tax system of each one
of the three Basque territories.

involves an aid granted by a State, from State resources,
which favours certain undertakings, distorts competition
and affects trade between Member States.

VIII. THE UNLAWFUL NATURE OF THE REDUCTION OF

THE TAX BASE

(75) Given that the said scheme does not require a commit-
ment from the Spanish authorities to grant the aid in
accordance with the conditions (31) for de minimis aid, the
Commission considers that the aid cannot be regarded as
subject to those rules. It should be pointed out in this
respect that the Spanish authorities never maintained, in
the procedure, that the aid in question should have the
character of de minimis aid, either in full or in part. More-
over, it could not comply with the de minimis rules, since
in particular there is no guarantee that the ceiling of
EUR 100 000 would not be reached. The incentives do
not have the character of existing aid, either, since they
do not meet the conditions laid down in Article 1(b) of
Regulation (EC) No 659/1999.

(76)

The Commission would point out that State aid which is
not covered by the de minimis rules and is not existing
aid is subject to the obligation of prior notification laid
down in Article 88(3) of the Treaty and Article 62(2) of
the EEA Agreement. However, the Spanish authorities
have not
fulfilled this obligation, which is why the
Commission believes that the aid should be regarded as
unlawful. The Commission regrets this failure by the
Spanish authorities to fulfil their obligation to notify the
aid in advance.

(77) As regards the argument

certainty,

legitimate

in some of the third-party
comments that basically there is an alleged infringement
of
the
expectations and legal
Commission feels bound to reject this, since firstly the
scheme is not an existing aid and, secondly, since it was
the
not notified under Article 88(3) of
Commission has not been able to decide whether it is
compatible with the common market. Consequently, the
recipients cannot rely on legitimate expectations or legal
certainty as regards the State aid nature of the reduction
of the tax base. It should be pointed out in this connec-
tion that ‘it is settled case-law that the right to protection
of legitimate expectations may be claimed by any indivi-
dual who finds himself in a position in which it is shown
that the Community administration gave rise to justified

the Treaty,

(74)

To sum up, the Commission finds that the reduction of
the tax base is a State aid under Article 87(1) of the
Treaty and Article 61(1) of the EEA Agreement, since it

(30) Article 31 of the Spanish Constitution.

(31) The result of the assessment of the aid is the same, whether that
assessment is based on the Commission notice on the de minimis
rule for State aid (OJ C 68, 6.3.1996) or on Regulation 69/2001 of
12 January 2001 on the application of Articles 87 and 88 of the
Treaty to de minimis aid (OJ L 10, 13.1.2001, p. 30).

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that

hopes on his part (...). However, no one may plead
infringement of the principle of the protection of legiti-
mate expectations in the absence of specific assurances
given to him by the administration’ (32). For this reason,
the argument
legal
certainty have been infringed should be rejected in this
case. Moreover, the Commission would point out in this
respect
it had
regarded certain tax measures
introduced by the
provinces of Álava, Guipúzcoa and Vizcaya in 1988 as
State aid.

in its Decision 93/337/EEC (33)

legitimate expectations or

that

IX. ASSESSMENT OF COMPATIBILITY WITH THE

COMMON MARKET

(78) As a preliminary, the Commission would repeat that the
reduction of the tax base has the character of an aid
scheme. Given the general, abstract nature of an aid
scheme, the Commission does not know the circum-
stances of the firms, which are already, recipients or
which will be recipients. It cannot, therefore, examine
the particular effect on competition of specific firms. In
this context it is sufficient to ascertain that potential reci-
pients could benefit from aid that is not consistent with
the directives, guidelines and frameworks applicable on
this subject. Moreover, the Commission would empha-
sise that, in its decision initiating the procedure, it had
asked for all relevant information relating to the aid and
the particular circumstances of each recipient. However,
the Spanish authorities have not provided any of this
information. This is why it is contradictory to reproach
the Commission, as certain third-party comments do, for
the general nature of its assessment and at the same time
refuse to supply the detailed data requested.

(79) As the scheme in question covers only the NUTS 3 (34)
territory of Guipúzcoa,
is necessary to examine
it
whether aid in this territory can qualify for the regional
derogations in Article 87(3)(a) and (c). As regards the
admissibility of Guipúzcoa, the Commission would point
out that the territory has never been eligible for the
Article 87(3)(a) derogation, since the per capita GDP (35)
of the NUTS 2 region of the Basque Country, of which it
forms part, has always been higher than 75 % of the
Community average. According to the rules on regional
aid (36), the conditions of eligibility for the derogation in

(32) Joined Cases T-132/96 and T-143/96 Freistaat Sachsen and others v
judgement

Commission [1999] ECR II-3663, paragraph 300,
rendered by the Court of Justice on 15 December 1999.

(33) OJ L 134, 3.6.1993, p. 25.
(34) Nomenclature of territorial units for statistics.
(35) Per capita gross domestic product (GDP) measured in purchasing

power standards (PPS).

(36) The references to the regional rules are confined, in the following
recitals, to the Guidelines on national regional aid (98/C 74/06). In
any event, the result of the assessment would be the same if the
analysis were based on the earlier rules. See point 3.5 of the Guide-
lines on national regional aid (98/C 74/06).

Article 87(3)(a) of the Treaty are met only if the region,
in the case of NUTS 2, has a per capita GDP of not more
than 75 % of the Community average.

(80) As regards the aid’s eligibility for the derogation in
Article 87(3)(c), the Commission would point out that,
in its decision (37) of 26 September on the changes in
Spain’s regional aid map, it proposed, under the proce-
dure laid down in Article 88(1) of the Treaty, that the
Spanish authorities should revise the map and consider
in future that the whole of Guipúzcoa was a region in
which aid for regional development could be regarded as
compatible with the common market under the deroga-
tion in Article 87(3)(c). By letter from their Permanent
Representation dated 26 September 1995, the Spanish
authorities accepted this proposal. The new map thus
came into force from that date. As regards the subse-
quent period, the Commission would point out that, in
its decision of 11 April 2000, it approved the Spanish
regional aid map for
the period 2000 to 2006.
the province of Guipúzcoa
According to this map,
continues to be a region in which regional development
aid may be considered compatible with the common
market
in accordance with the derogation in Article
87(3)(c) of the Treaty.

(81)

jobs are achieved,

The State aid in the form of a reduction of the tax base
has the effect of promoting the creation, in Guipúzcoa,
of new firms in which the initial amount of investment
and the number of jobs created exceed certain thresh-
olds. However, although the minimum investment and
the tax
the minimum number of
incentives in question do not qualify as investment or
employment aid. They are not based on the amount of
investment, the number of jobs created, or the corre-
sponding wage costs, but on the tax base. Furthermore,
they are not paid up to a limit expressed as a percentage
of the amount of investment, the number of jobs created
or the corresponding wage costs, but up to a ceiling
expressed as a percentage of the tax base. In this respect,
the Commission would point out that Annex I of the
Guidelines on national regional aid (98/C 74/06) states
that ‘tax aid may be considered to be aid connected with
an investment where it is based on an amount invested
in the region. In addition, any tax aid may be connected
with an investment if one sets a ceiling expressed as a
percentage of the amount invested in the region’. There-
fore, tax incentives, which, as in this case, do not meet
these criteria, cannot qualify as investment aid.

(37) OJ C 25, 31.1.1996, p.3

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(82) On the contrary, since they partly reduce the profits tax
paid by the recipient
firms, the incentives qualify as
operating aid. Corporation tax is a tax burden which
companies subject to it have to pay regularly and inevi-
tably as part of their everyday management. It is there-
fore appropriate to examine the tax incentives in the
light of any derogations that may apply to the operating
aid in question.

job creation or training in accordance with the appro-
priate Community rules. Consequently, the tax incentives
cannot qualify for the derogation in Article 87(3)(c) in
respect of the said purposes.

(83)

In this respect, the Commission would point out that, in
accordance with the said Guidelines
(98/C 74/06),
regional aid, which has the character of operating aid, is
normally prohibited. Exceptionally, however, such aid
may be granted in regions eligible under the derogation
in Article 87(3)(a), provided that it meets certain condi-
tions laid down in points 4.15 to 4.17 of the said Guide-
lines,
in the outermost regions or in regions of low
population density if it is intended to offset additional
transport costs. However, the NUTS level 3 territory of
Guipúzcoa is not eligible for the derogation in Article
87(3)(a) of the Treaty, and the grant of the said operating
aid does not meet the conditions described. The NUTS
level 3 territory of Guipúzcoa is not an outermost
region (38) nor a region of low population density (39).
This is the reason why the operating aid elements in the
reduction of the tax base are prohibited,
in particular
because they are not granted in a region that is eligible
for the derogation in Article 87(3)(a) of the Treaty, in an
outermost region or a region of low population density.
The incentives are therefore incompatible in this case.

(84)

The Commission therefore considers that the tax incen-
tives scheme in question cannot be regarded as compa-
tible with the common market under the regional dero-
gations in Article 87(a) and (c) of the EC Treaty, since it
does not comply with the rules on regional aid.

(85)

The derogation in Article 87(3)(c) has to be examined to
see whether it might not apply, in the above cases, for
other purposes as well as the development of certain
economic activities. It may be concluded in this respect
that the object of the reduction of the tax base is not to
develop an economic activity within the meaning of
Article 87(3)(c),
the development of
measures to assist small and medium-sized enterprises,
research and development, environmental protection,

in particular

(86)

(87)

Similarly, in the absence of any sectoral limitations, the
reduction of the tax base may be granted without any
restriction to undertakings in sensitive sectors subject to
specific Community rules, such as those applicable to
the production, processing and marketing of the agricul-
tural products in Annex I to the Treaty, fisheries, coal-
mining, steel-making, transport, shipbuilding, synthetic
fibres and the motor industry (40). In the circumstances,
the Commission considers that the tax incentives in the
form of a reduction of the tax base cannot comply with
the said sectoral rules. In this particular case, the reduc-
tion of the tax base does not meet the condition that it
should not promote new production capacity so as not
to exacerbate the overcapacity problems from which
these sectors traditionally suffer. Therefore, where the
recipient belongs to one of the abovementioned sectors,
the Commission considers that, since it is not subject to
the sectoral rules mentioned, the aid is incompatible with
the common market and the derogation in Article
87(3)(c) of the EC Treaty on the promotion of certain
activities does not apply.

The aid in question, which cannot qualify for the deroga-
tions in Article 87(3)(a) and (c) of the Treaty, cannot
qualify either for other derogations in Article 87(2) and
(3). It cannot be regarded as aid of a social nature under
Article 87(2)(a), since it is not intended to make good
the damage caused by natural disasters or,
for the
purposes of Article 87(2)(b), by other exceptional occur-
rences. Furthermore,
its object is not to promote the
execution of an important project of common European
interest, nor to remedy a serious disturbance in the
economy of a Member State, as provided for in Article
87(3)(b). For the rest, it cannot qualify for the derogation
in Article 87(3)(c), since it is not intended to promote
culture or heritage conservation. The aid is therefore
incompatible with the common market.

(88) As the reduction of the tax base covers various tax years,
there could still be some tax aid currently left to pay.
this aid is unlawful and incompatible. The
However,

(38) It is not in the list of outermost regions in Article 299 of the

Treaty.

(39) According to point 3.14 of the Guidelines on national regional aid

(98/C 74/06).

(40) For the sectoral rules currently in force see, in addition to the Offi-
cial Journal of the European Communities, the website of the Directo-
for Competition http://europa.eu.int/comm/competi-
rate-General
cion/state_aid/legislation/

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Spanish authorities should therefore cancel the payment
of any balance from the reduction of the tax base, which
could still be due to certain recipients.

HAS ADOPTED THIS DECISION:

Article 1

The State aid in the form of a reduction of the tax base, unlaw-
fully put
into effect by Spain in the Historic Territory of
Guipúzcoa, in breach of Article 88(3) of the Treaty, through
Article 26 of Norma Foral 7/1996 of 4 July, is incompatible
with the common market.

Article 2

Spain shall abolish the aid scheme referred to in Article 1, since
it is continuing to produce effects.

Article 3

1.
Spain shall take all necessary measures to recover from
the recipients the aid referred to in Article 1, which has been
unlawfully made available to them.

Spain shall cancel all payment of outstanding aid.

Recovery shall be effected without delay in accordance
2.
with the procedures of national law, provided these allow the
immediate and effective execution of this Decision. The sums to
be recovered shall bear interest from the date on which they
their actual recovery.
were available to the recipients until
Interest shall be calculated on the basis of the reference rate
used for calculating the grant equivalent of regional aid.

Article 4

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

Article 5

This Decision is addressed to the Kingdom of Spain.

Done at Brussels, 11 July 2001.

For the Commission

Mario MONTI

Member of the Commission

(89) As regards incompatible aid already paid, it should be
in accordance with the above argu-
pointed out that,
ments, the recipients may not rely on general principles
of Community law such as legitimate expectations or
legal certainty. Consequently, there is nothing to prevent
the application of Article 14(1) of Regulation (EEC) No
659/1999, according to which ‘where negative decisions
are taken in cases of unlawful aid, the Commission shall
decide that the Member State concerned shall take all
necessary measures to recover the aid from the benefi-
the Spanish authorities
ciary’.
should take all necessary measures to recover the aid
already paid in order to restore the economic situation,
which the recipient
the
unlawful grant of the aid. The aid should be recovered in
accordance with the procedures and provisions of
Spanish law and should include all interest due, calcu-
lated from the date the aid was granted to the date of
actual repayment on the basis of the reference rate used
at that date to calculate the net grant equivalent of
regional aid in Spain (41).

firms would be in without

In this case,

therefore,

(90)

This decision relates to the scheme and should be imple-
mented immediately, including the recovery of any indi-
vidual aid granted under that scheme. The Commission
would also point out that, as usual, this Decision is
without prejudice to whether individual aid may be
regarded,
in full or in part, as compatible with the
common market on its own merits, either in a subse-
quent Commission decision or under exempting regula-
tions.

(91)

In view of the above, the Commission, concludes that:

X. CONCLUSIONS

— Spain has unlawfully put into effect, in Guipúzcoa,
the reduction of the tax base for investments, thereby
infringing Article 88(3) of the Treaty,

— the reduction of the tax base in question is incompa-

tible with the common market,

— the Spanish authorities shall cancel the payment of
any aid balance, which could still be due to certain
recipients. As regards the incompatible aid already
paid, the Spanish authorities shall take all necessary
measures to recover it, so as to restore the economic
situation which the recipient
firms would be in
without the unlawful grant of the aid,

(41) Commission letter to Member States SG(91)D/4577 of 4 March
1991. See also Case 142/87 Belgium v Commission [1990] ECR I-
950, judgement by the Court of Justice dated 21 March 1990.