2002/892/EC: Commission Decision of 11 July 2001 on the State aid scheme applied by Spain to certain newly established firms in Álava (notified under document number C(2001) 1760) (Text with EEA relevance)
Date: 2001-07-11
Institutions: European Commission
Subjects: Spain, State aid, aid system, control of State aid, electrical engineering, packaging product, tax relief

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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 `lava

(notified under document number C(2001) 1760)

(Only the Spanish text is authentic)

(Text with EEA relevance)

(2002/892/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(2)

Having regard to the Treaty establishing the European
Community, 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

(3)

(4)

(5)

(1)

As a result of the information received in response to
the procedures
initiated following complaints about
State aid granted to Daewoo Electronics Manufacturing
Espaæa SA (2) and to Ramond(cid:237)n SA and Ramond(cid:237)n
the
CÆpsulas
existence of a scheme of non-notified tax aid for
investments
in the Province of `lava,
consisting of a reduction in the tax base for certain
newly established firms.

the Commission learned of

in Spain,

SA (3),

(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).

(4) See footnote 1.

By letter dated 29 September 1999 (SG(99) D/7813) the
Commission informed Spain of its decision to initiate, in
respect of this aid, the procedure laid down in Article
88(2) of the Treaty.

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
the European
Communities (4). The Commission invited interested
parties to submit their comments on the aid within one
month of the date of publication.

Journal

of

Business

Vasca/Euskal

Confederation

Comments were
the Autonomous
received from:
Community of Castile-Leon, on 17 March 2000; the
Rioja Regional Government, on 24 March 2000; the
(Confederaci(cid:243)n
Basque
Empresarial
Entrepresarien
Konfederakuntza) (hereinafter (cid:145)Confebask(cid:146)), on 27 March
2000, plus, outside the time limit,
supplementary
comments by letter dated 29 December 2000, registered
on 3 January 2001; the Basque Economists Association
(Colegio Vasco de Economistas/Ekonomilarien Euskal
Elkargoa), on 27 March 2000;
the Basque Business
Circle (C(cid:237)rculo de Empresarios Vascos), on 27 March
2000; and the Professional Association of Tax Advisers
of the Autonomous Community of the Basque Country
(Asociaci(cid:243)n Profesional de Asesores Fiscales de la
Comunidad del Pa(cid:237)s Vasco), on 28 March 2000. By

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letter dated 17 May 2000 (D/52998), the Commission
sent these comments to Spain, asking for observations;
it has not received any.

workforce is kept at that figure from that time until
the financial year in which the right to apply the
reduction in the tax base expires;

(6)

(7)

By letter from the Permanent Representation dated 22
June 2000,
informed the
the Spanish authorities
Commission that Provincial Law (Norma Foral) No
7/2000 of 29 March 2000 (5) had repealed, as from 5
April 2000, Article 26 of `lava Provincial Law No
24/1996 of 5 July 1996 on corporation tax (6), which
formed the legal basis for the tax incentives in question.

II. DETAILED DESCRIPTION OF THE AID

the Commission’s
According to the information at
disposal, which has not been questioned by the Spanish
authorities or by third parties,
the tax incentives in
question were introduced by Article 26 of Provincial
Law No 24/1996 of 5 July 1996 (7). The text of the
Article reads as follows:

(cid:145)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 in
the positive tax base resulting from the conduct of
their business, before offsetting any negative tax
bases from previous periods.

[(cid:133)]

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;

[(cid:133)]

(e) 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 transferred to third
parties for their use. To this end,
investments in
include assets acquired
tangible fixed assets shall
through financial
they
leasing, provided
undertake to exercise the option to buy;

that

(f) at least 10 jobs are generated in the six months
average
following

start-up,

annual

and

the

[(cid:133)]

(h) they have a business plan covering a minimum
period of five years.

3. [(cid:133)]

4. The minimum amount of the investments within
the meaning of paragraph 2(e) and the minimum
number of
jobs created within the meaning of
paragraph 2(f) 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
the
the requirements
checking that
beginning have been met, shall communicate to the
applicant company, as appropriate, their provisional
authorisation, which shall be confirmed by decision
of the `lava Provincial Council (Diputaci(cid:243)n Foral de
`lava).

set out at

[(cid:133)](cid:146).

The Commission notes that, according to the preamble
of Provincial Law No 24/1996, the object of the aid in
question is
emergence of new
companies.

to promote

the

The Commission also notes that the tax incentives relate
to the positive tax base for corporation tax resulting
from the conduct of the business, prior to the set-off for
negative 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 Law, have invested in
tangible fixed assets a minimum of ESP 80 million (EUR
480 810) and have generated at
In
addition, recipient 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).

ten jobs.

least

(8)

(9)

(10)

The Commission emphasises that the aid consists in a
reduction in 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 positive
tax bases.

(5) Bolet(cid:237)n Oficial del Territorio Hist(cid:243)rico de `lava, of 5 Aril 2000.
(6) Territorio Hist(cid:243)rico de `lava: Norma Foral 24/1996 del Impuesto sobre

Sociedades of 5 July 1996.

(7) Bolet(cid:237)n Oficial del Territorio Hist(cid:243)rico de `lava, of 9 August 1996.

(11)

The Commission finds that the `lava tax incentive is
not 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

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(12)

(13)

(14)

(15)

(16)

of firms, e.g. SMEs, since any firm may qualify, provided
that it satisfies the abovementioned tests.

or

The Commission finds that these reductions in 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 clear that the tax incentives in question
may not be combined with any other tax concessions
the minimum
that may be granted in respect of
investment
jobs.
of
Nevertheless, 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
i.e. the
concessions ruled out whose operative event,
circumstance triggering each concession,
is different.
Such would be
example, with tax
the
incentives in the form of a tax credit (8).

the minimum creation

case,

for

said procedure,

In its decision initiating the
the
Commission 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 (cid:145)in any form(cid:146). The
Commission also emphasised, however,
to be
regarded as aid, the measures should meet all four of
the criteria set out in Article 87 and explained below.

that,

Firstly, the Commission pointed out, at that stage, that
the reductions of 99 %, 75 %, 50 % and 25 % in the
abovementioned tax bases give their
recipients an
advantage, since they partially reduce their 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
subject of
conduct business which may be
intra-Community
their
the
position vis-(cid:224)-vis competitors who are also involved in
intra-Community trade and therefore affects such trade.
Furthermore, the increase in recipient firms’ net profit
(profit after tax) improves their profitability. In this way
they are more able to compete with firms which are not
eligible for the aid.

strengthens

trade,

the

aid

(17)

Lastly, the Commission considered, at that stage, that
the reduction in the tax base in question is specific or
selective in that it favours certain firms. The conditions

(8) See

in this

connection Commission Decision 1999/718/EC
concerning State aid granted by Spain to Daewoo Electronics
Manufacturing Espaæa SA (Demesa).

created fewer

for granting the incentives specifically state that firms
established before the said Provincial Law came into
force in mid-1996 are ineligible, as are other firms
which have
than 10 jobs, whose
investments are below the threshold of ESP 80 million
(EUR 480 810) and which do not have a paid-up capital
of more than ESP 20 million (EUR 120 202).
In
addition, the Commission provisionally considered that
the tax aid is not justified by the nature or general
scheme of the tax system.

(18)

(19)

Furthermore, the Commission considered, at that stage,
that the selective nature of the concession is also due to
a discretionary power of the tax authorities. The aid is
not
recipient’s
application is examined by the `lava Provincial Council,
which may, subsequently, decide to grant
the aid if
appropriate.

automatically,

granted

since

the

In short, the Commission considered, at that stage, that
the reduction in the tax base is 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 meets the cumulative criteria of constituting an
advantage, being granted by the State from State
resources, affecting trade between Member States and
distorting competition in favour of certain firms.

(20)

Since the tax incentives exceed the maximum limit of
EUR 100 000 over a period of
the
Commission considered, at that stage, that they cannot
be regarded as subject to the de minimis rule (9).

three years,

(21)

(22)

The Commission stated provisionally that State aid
which is not governed by the de minimis rule is subject
to the obligation of prior notification laid down in
Article 88(3) of the Treaty and Article 62(1)(a) of the
EEA Agreement. However, the Spanish authorities had
not met that obligation, and the Commission therefore
considered at that stage that the aid could be regarded
as unlawful.

The Commission also found at that stage that, although
the incentives was conditional on a
the 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.

(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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(23) On the contrary, the Commission took the view at that
the tax concessions could be viewed as
stage that
operating aid, as their aim is to relieve companies of the
costs which they would normally have to bear as part
of their everyday management or usual activities.

information requested is as
follows: copies of all
decisions granting the reduction in the tax base, and
data on the investments made by each recipient, the
jobs created,
the
reduction in the tax base which each firm has enjoyed,
and the outstanding balance.

the share capital,

the amount of

(24)

(25)

(26)

The Commission pointed out that operating aid is in
principle prohibited.
It may nevertheless exceptionally
be granted in regions meeting certain conditions. But
that is not the case here. 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.

The reduction in 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
were compatible where the recipient belongs to a sector
that is subject to special Community rules.

subject

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), are not
intended to
make good the damage caused by natural disasters or
exceptional occurrences under Article 87(2)(b) and are
to the provisions of Article 87(2)(c)
not
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
the
Commission considered provisionally that the incentives
were 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
concerns (cid:145)aid to facilitate the development of certain
in any way
economic activities ...(cid:146), as they are not
specific to the activities of the recipient firms. Lastly,
they are not intended to promote culture or heritage
conservation within the meaning of Article 87(3)(d).

already been discussed are

concerned,

(28)

(29)

(30)

III. COMMENTS OF THE SPANISH AUTHORITIES

they consider

The Spanish authorities submitted their comments by
from the Permanent Representation, dated 2
letter
December 1999. Basically,
the
reduction in the tax base does not constitute State aid
within the meaning of Article 87 of the Treaty, but a
general measure which is not subject to the State aid
the measure, whose
rules. They also maintain that
is part of an
to promote investment,
purpose is
economic policy which is much used by governments.

that

the opening of

In their opinion,

They argue that the measure is not specific or selective
in character.
the
measure to all sectors and to all taxpayers that meet the
appropriate criteria removes any specific character. Nor
is there any (cid:145)de facto(cid:146) restriction of this general scope.
As to specificity of substance, this does not exist, since
the requirements to invest ESP 80 million and create ten
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 dispute that the
measures in question are of a discretionary nature, since
the incentives are granted automatically once the said
objective conditions are satisfied. The `lava Provincial
Council 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
for granting the tax incentives discretionary.
26(5)
Under
authorities (cid:133) shall
tax
communicate to the applicant company, as appropriate,
their
be
confirmed by decision of the `lava Provincial Council(cid:146).
The procedure
as
the incentives will be granted after a
meaning that
check has been made that all the objective conditions
are met. This is why the phrase (cid:145)as appropriate(cid:146) is not
discretionary.

authorisation, which

interpreted therefore

that Article

should be

provisional

shall

(cid:145)the

(27) As well as inviting them to submit

their comments
under the Article 88(2) procedure, the Commission also
asked the Spanish authorities
the
information necessary for assessing the tax incentives in
the form of a reduction in the tax base of certain newly
established firms in the Province of `lava. The relevant

to supply

all

(31)

Similarly, the Spanish authorities claim that the `lava
reduction in the tax base is founded on measures
existing in other Member States such as Ireland, or on

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of

those

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 between
the `lava measures
central
and
government, it can be concluded that if one measure is
not specific in character,
to be
either. Furthermore, the Spanish authorities state that
both the `lava measures and those of
the central
government cover only one part of Spain. Therefore, if
the Commission did not consider there was anything
specific about
introduced by the
Spanish central government, it ought to reach the same
conclusion about the `lava measures.

the other ought not

the tax measures

the

the

(32) Moreover, the Spanish authorities argue that, even if the
the measure was
Commission were to consider that
it was justified by the nature and general
specific,
scheme of
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.

as provided for

system,

(33)

(34)

The Spanish authorities question the view expressed by
the Commission that the tax rules do not satisfy the
In their opinion, the
conditions of the sectoral rules.
Commission ought
the specific
conditions are that are infringed by the said tax rules.
The Spanish authorities consider that the application of
the rules on regional aid is inappropriate, since in this
specific case no State aid is involved.

to determine what

They also question the Commission’s assumption that
trade will be affected because the companies benefiting
from the concessions carry out economic activities
involving trade between Member States.
In their
opinion, it cannot be established, pace the Commission,
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, the companies concerned
may be operating on local markets only or in sectors
which have not yet been liberalised. In all these cases,
the prerequisites for describing an
therefore, one of
official measure as state aid is missing.

the

legal

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

the public

service

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

(35) As

regards

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

(36)

(37)

In view of the above arguments, the Spanish authorities
the Commission should terminate the
consider that
Article 88(2) procedure by a decision finding 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.

IV. OTHER COMMENTS RECEIVED BY THE
COMMISSION

(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.

Comments by the Autonomous Community of
Castile-Leon

(39)

(40)

The Autonomous Community of Castile-Leon points out
first of all that the tax measures in question are part of
a set of tax measures adopted by the `lava Provincial
Council that have been contested both in Spain and at
in the case in point,
Community level. It states that,
Article 26, which introduces the tax measure in respect
of which the procedure was initiated, was quashed by
the High Court of
the Basque Country (Tribunal
Superior del Pa(cid:237)s Vasco) in 1999 (12).

The Autonomous Community of Castile-Leon 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
basically 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

(12) Judgment No 718/1999 of 30 September 1999.
(13) See in this respect the judgment of the Court of Justice of the
European Communities in Case C-241/94 France v Commission
[1996] ECR I-4551.

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tax measures are not justified by the nature or general
the tax system, since their purpose is to
scheme of
promote the formation of new companies.

(41)

the

aid,

rest,

since

are operating

the Autonomous Community

of
For
Castile-Leon considers that the tax incentives cannot be
regarded as compatible by virtue of the derogations in
Article 87 of the Treaty. In this respect, it states that the
tax measures
are
continuous and not linked to the execution of a specific
project. However, operating aid can only be compatible,
under certain conditions,
in areas qualifying for aid
under the derogation in Article 87(3)(a). As the Basque
Country qualifies for aid 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) of the Treaty has not
been complied with.

they

since their purpose is to improve the competitiveness of
firms. The Rioja Regional Government also
recipient
points out that the High Court of Justice of the Basque
Country (Tribunal Superior de Justicia del Pa(cid:237)s Vasco)
regarded
as
disproportionate and inappropriate for achieving the
objective of promoting economic activity, since they
could indirectly affect the free movement of persons and
goods by
conditions of
competitive advantage (14).

establishing unacceptable

tax measures

question

the

in

(45)

In short, the Rioja Regional Government considers that
the tax incentives cannot be considered compatible with
the common market by virtue of the derogations in
Article 87 of
the Spanish
authorities did not fulfil the obligation to notify the
incentives under Article 88(3) of the Treaty.

the Treaty. Moreover,

(42)

The Autonomous Community of Castile-Leon 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.

(46)

The Rioja Regional Government therefore takes the view
that the tax measures should be regarded as State aid
which is unlawful, since the Article 88(3) notification
procedure was not complied with, and incompatible
with the common market.

Comments from the Rioja Regional Government

(43)

The Rioja Regional Government 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 contention, it argues in particular that the purpose
and effect of the reduction in 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. This means
that
the recipients’ business benefits, as they have a
competitive advantage over all other firms. In addition
to the specificity of
in the form of a
substance,
minimum share capital of ESP 20 million, a minimum
investment of ESP 80 million and a minimum of 10
jobs created, the Rioja Regional Government states that
the discretionary nature of the reduction in the tax base
is due partly to the authorities’ ability to determine
firms eligible for aid, deadlines and maximum limits and
partly to the fact that the granting of the reduction in
the tax base is not automatic.

(47)

Comments from the Basque Business Confederation
(Confederaci(cid:243)n Empresarial Vasca/Euskal
Entrepresarien Konfederakuntza (Confebask))

started

attention
the
Confebask
underlying historical
the tax autonomy
enjoyed by the Province of `lava. As regards substance,
Confebask’s views are essentially as follows:

by
reasons

drawing
for

to

(a)

the

tax debt:

the presumed reduction of
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 initially due. Confebask therefore
requests the Commission to reconsider its position,
since otherwise it could be argued that taxes were
being unlawfully harmonised by establishing a
normal amount in relation to which any losses of
tax revenue would have to be determined;

(44) Moreover,

the Rioja Regional Government 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
justify
discrimination in favour of
firms established in that
territory. Furthermore, the measures are not justified by
the nature or general scheme of the tax system in `lava,

territory does not

tax matters

in a

(b) the effect on trade: according to the Commission,
where the recipients participate in intra-Community
that
the tax measures in question distort
trade,
trade. However, differences between tax systems

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

tax measures in question.

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trade. To determine the extent

always affect
to
the Commission should
which trade is affected,
therefore analyse the entire tax system and not
specific provisions. Confebask emphasises in this
respect that, according to one study, the tax burden
in the Basque Country is greater than in the rest of
Spain. The Commission should explain why these
specific measures and not other tax differences affect
trade. In any event, even if such an effect did exist,
the way
through
to
harmonisation, not State aid;

it would

remove

be

(c)

the aid:

the selective character of
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;

since

types

public

certain

undertakings,

according to points 19, 20 and 17 of notice
98/C 384/03, a tax measure may be specific
and, hence, may be State aid, if it is aimed solely
at
of
undertaking or undertakings in a given region.
the tax measures in question have
However,
none of these characteristics, not even territorial
specificity,
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 objective
is normal
practice in national and Community tax rules.
Confebask also draws attention to the basis of
various judgments of the Court of Justice of the
European
Commission
decisions: hitherto, it has never been held that
the
thresholds
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,

specificity. Moreover,

Communities

thresholds

imply

and

if

power.

authorities,

have
authorities

accordingly,
The

(cid:151) Confebask questions the approach whereby the
tax measures are regarded as enabling rules,
since the reduction is granted automatically and
no
the
discretionary
are
restricted to checking that the applicant satisfies
the tests of eligibility. Moreover,
the tax
measures are 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 meaningless. Similarly, according
to the first paragraph of the Commission’s letter
to the Member States (15), a general provision
conferring relief
regarded as aid only if
(cid:145)legislative machinery enabling it to be granted
without further formality has been set up(cid:146). 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,

is

(cid:151) as

for

rules
regarding the tax measures as
granting aid directly, Confebask points out that,

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

1989.

by

Spain’s

introduced

(cid:151) Confebask also maintains that `lava’s reduction
the tax base is nothing more than an
of
(mentioned
adjustment of a 1993 measure
from the Spanish
above in the comments
authorities)
central
government. It even maintains that the rules are
identical, except for the quantitative thresholds.
Thus the effect of `lava’s reduction in the tax
since the
base on competition is cancelled,
territories adjoining the Basque provinces qualify
for tax concessions for new firms. Moreover, if
there were an effect on competition, this should
derive from the central government measures,
they may have a larger number of
since
recipients. Confebask also stresses that there are
similar measures in other Member States, but
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 favourable arrangements in Corsica) since
1994. In Luxembourg, there is a 25 % reduction
in corporation tax for a period of eight years. In
the south of Italy there are tax holidays from the
in
IRPEG and the ILOR for 10 years. Lastly,

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18.11.2002

is

there

25 % reduction

Portugal,
in
a
corporation tax for a period of from seven to 10
years. Everything shows, therefore, that `lava’s
reduction of the tax base is not an exceptional
scheme which gives rise to any specificity. On
the contrary, it is a system widely used in the
Member States;

between

differences

any
systems would
necessarily become aid. This leads Confebask to
repeat that there is no normal tax debt which has
been reduced by the tax measures in question;

tax

(f) Confebask therefore asks the Commission to adopt a
final decision terminating the procedure and finding
that
the tax measures in question comply with
Community law.

the

(d) the importance of legal certainty: Confebask argues
that
tax
the Commission’s description of
reduction as unlawful aid calls into question the
principles of
the ban on
legitimate expectations,
arbitrary decisions by institutions, legal certainty and
proportionality, since the Commission regarded the
Basque tax arrangements as lawful
in its 1993
decision.
the Commission could
In any event,
change its position as regards future cases but not as
regards past ones;

(48)

(49)

(e)

if

The

decision.

procedure

incompatibility with the common market: if the tax
measures in question are regarded as enabling rules,
Confebask considers that their compatibility cannot
be assessed while the aid is not granted through an
administrative
is
meaningless and incapable by definition of yielding
any results as to the compatibility of the aid. On the
other hand,
the tax measures in question are
regarded as rules granting aid directly, Confebask
takes the view that the practice of the Commission
and the Court requires that measures have to have
sectoral specificity before the compatibility of the
it would be
aid can be assessed. Furthermore,
tax burden on
necessary to establish the overall
this
firms and the reference tax burden. Lastly,
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.
Commission’s
questions
Confebask
are
said
argument
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.
the
According
Commission should specify in its decisions what the
adverse effects on competition are, determining the
real effect of the measures examined. Incompatibility
abstract
cannot
situations specific to a tax system, since in that case

the
tax measures

determined,

the Court

Justice (16),

also
that

therefore,

the

be

to

of

in

after

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
expired (17).
Commission
Furthermore, 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).

deadline

had

the

Comments from the Basque Economists Association
(Colegio Vasco de Economistas/Ekonomilarien
Euskal Elkargoa) (hereinafter (cid:145)the CVE(cid:146))

The 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 specificity when the tax measure is applied to
part of the Member State is appropriate where there is a
it is not relevant where
single tax system. However,
there are various tax systems in the same Member State.
The practice, 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 a unique system applicable to the territory
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 have to 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 be penalised through the application of
rest, any distortions of
Community law. For
competition resulting from the existence of
five tax
systems should be tackled through the Community rules
on tax harmonisation.

the

(50) Nonetheless, the CVE does not rule out the possibility
that,
the
Provincial Councils may adopt tax measures that are

in the exercise of

tax autonomy,

their

(16) Judgment of the Court of Justice of the European Communities in
Joined Cases C-278/92, C-279/92 and C-280/92 Spain v
Commission [1994] ECR I-4103.

(17) The deadline for submitting comments was one month from the
the

date of publication of the notice in the Official
European Communities, i.e. 26 February 2000.

Journal of

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

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L 314/9

caught by Article 87(1) of the Treaty. However, in the
present case, it takes the view that the reduction in 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 in each specific case: it is not sufficient
that trade might be affected. For the rest, it examines
whether
there is any specificity deriving from the
thresholds for eligibility for the tax reduction or from
the Provincial Council’s discretionary power to grant the
reduction.
the
In this
involve specificity, since they are
thresholds do not
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.

considers

respect,

that

it

(51)

The CVE concludes that the reduction in 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.

Comments from the Basque Business Circle (C(cid:237)rculo
de Empresarios Vascos) and the Professional
association of Tax Advisers of the Autonomous
Community of the Basque Country (Asociaci(cid:243)n
Profesional de Asesores Fiscales de la Comunidad
del Pa(cid:237)s Vasco) (hereinafter (cid:145)the CEV(cid:146) and (cid:145)the
APCPV(cid:146))

(52)

(53)

Since these associations
identical
together.

comments,

submitted similar or even
summarised

views

are

their

The CEV and the APCPV reject
the Commission’s
assessment that the reduction in 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
quantitative thresholds required. Tax rules always apply
from the date of their entry into force, and retroactive
application is exceptional. Furthermore, as the objective
of the 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 Provincial Council’s approval before
the reduction of the tax base can apply, this is an act of
prior verification aimed at
the
conditions are met. Once the check has been made, the
concession is granted automatically.

checking that

all

(54) As regards the issue of whether trade is affected, the
this should be
CEV and the APCPV emphasise that
assessed on a case-by-case basis and not in a general
way, as the Commission has done. For instance, there
may be recipients which only produce for local markets.
the tax measures do not affect
In such a case,
intra-Community trade. The same applies
to their
impact on competition. Moreover, the reduction in the
tax base for recipients whose activities are carried out
on markets that have not yet been liberalised 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 in the tax base, while ignoring
the overall tax burden. In this respect, the CEV and the
APCPV state that the overall tax burden in the Basque
Country is greater than in the rest of Spain.

(55)

(56)

The CEV and the APCPV consider that, even if
the
Commission, despite the above comments, continues to
think that the said reduction in the tax base is a specific
measure, it would be justified by the nature and general
scheme of the tax system. In support of this view, they
emphasise that
the tax measure is applied to all
operators irrespective of their activity. Furthermore, it is
the
necessary for
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.

the functioning and efficiency of

In addition,
the CEV and the 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 introduced from 1993 by
the Spanish central government, and the application of
the reduction in the tax base in question throughout
the CEV and the
In this respect,
Spanish territory.
APCPV state that the Commission has never considered
that these measures are caught by Article 87 of the EC
Treaty. Furthermore,
the tax
measures can be regarded as operating aid, since the
latter is not applicable to new firms, but to the artificial
maintenance of existing firms. For the rest, the CEV and
the APCPV consider that the Commission’s objective in
initiating the procedure against the reduction in the tax
base is tax harmonisation. However, for this it is using
Articles 87 and 88 of the Treaty, and for this reason
there is a misuse of powers.

they question whether

(57)

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

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V. TRANSMISSION OF THE THIRD PARTIES’
COMMENTS TO SPAIN

(62)

(58)

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

comments

(59)

(60)

(61)

VI. ASSESSMENT OF THE AID

VII. CLASSIFICATION AS 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 applies to aid measures (cid:145)in
the Commission emphasises
any form(cid:146). Nevertheless,
that, to be regarded as aid, the measures in question
should satisfy every one of the four criteria set out in
Article 87 and explained below.

(63)

in particular,

them of charges

tax burden and,

the measure must confer on recipients an
Firstly,
advantage which relieves
that are
normally borne from their budgets. The advantage may
be provided through different types of reduction in the
firm’s
through an
exemption from or reduction in tax liability. 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 above reductions. If the tax
base were not reduced, the recipient firm would have to
pay the tax on 100 % of the tax base. The reduction of
the base thus implies an exception to the common tax
system applicable.

that

in the form of

the Commission considers

in the Member States (19). Furthermore,

the said
Secondly,
reduction in the tax base involves a loss of tax revenue
and is therefore equivalent to the consumption of public
resources
fiscal expenditure. This
principle also applies to aid granted by regional or local
the
bodies
intervention of the State can be effected both through
tax
or
administrative kind and through the practices of the tax
authorities.
In this specific case, State intervention is
effected through the `lava Provincial Council on the
basis of a statutory provision.

provisions

regulatory

statutory,

of

a

The argument put forward in certain comments by third
parties, to the effect that it would be wrong to regard
the reductions of 99 %, 75 %, 50 % and 25 % in the tax
base as involving a loss of tax revenue compared to the
normal amount (determined by the Commission) of the
tax due, is a fallacious one. It has to be pointed out that
the normal level of tax derives from the tax system in
question and not
from a Commission decision.
Furthermore, according to the second indent in point 9
of notice 98/C 384/03, to qualify as State aid,
(cid:145)firstly,
the measure must confer on recipients an advantage
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 ((cid:133)) a total or partial reduction in the
amount of tax (such as exemption or a tax credit)(cid:146). This
is the case with the relief in the form of the partial
reduction of 99 %, 75 %, 50 % and 25 % in the tax base.
The comment is therefore without foundation.

(ratio of exports to GDP)

Thirdly, the measure must affect competition and trade
between Member States. It should be pointed out in this
that, according to a report on the external
respect
dependency of the Basque economy in the period 1990
to 1995 (20), exports abroad went up (21), not only in
absolute terms but,
in relative terms as
in particular,
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 on the foreign trade of the
Basque Country (22) at 28,9 % the Basque economy’s
is
(cid:145)propensity to export(cid:146)
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 to 1998. In particular,
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 may be deduced that recipient firms are
engaged in economic activities which are likely to
include
aid
strengthens their position vis-(cid:224)-vis their competitors in
intra-Community trade,
thereby affecting such trade.
Furthermore, the increase in recipient firms’ net profit

trade. Consequently,

intra-Community

(19) Judgment of

the Court of

Justice in Case 248/84 Germany v

(22) Estad(cid:237)stica de Comercio Exterior para la Comunidad Aut(cid:243)noma de

Commission [1994] ECR 4013.

Euskadi en el aæo 1998, prepared by EUSTAT.

(20) Paxti Garrido Espinosa and Victoria Garc(cid:237)a Olea,

vasca

exterior
Estatistika-Erakundea/Instituto Vasco de Estad(cid:237)stica (EUSTAT),
statistical office of the Basque Government.

1990(cid:151)1995(cid:146),

periodo

en

el

(cid:145)La dependencia
Euskal
the

(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.

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L 314/11

tax)

(profit after
their profitability. This
enables them to compete with firms which are not
eligible for the tax incentives.

improves

(64)

in character,

Since, in this case, the tax rules under examination are
general and abstract
the Commission
would point out that the analysis of their impact on
trade can only be carried out at a general, abstract level;
it is not possible to specify to what extent they affect a
market, sector or specific product, as is stated in the
abovementioned comments by
third parties. This
position has been confirmed on a number of occasions
by European Court of Justice case-law (23).

(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-(cid:224)-vis the other firms of the Member State;
they are not possible distortions of competition which
are due to differences between the tax systems of the
Member States, which might, as appropriate, be caught
by the provisions of Articles 93 to 97 of the Treaty.

specifically state that

(66) As regards the specific character which State aid must
have, the Commission takes the view that the reduction
in the tax base referred to above is specific or selective
in that it favours certain firms, since the conditions for
granting the incentives
firms
established before the said Provincial Law came into
force in mid-1996 are ineligible, as are other firms
which have
than 10 jobs, whose
investments are below the threshold of ESP 80 million
(EUR 480 810) and which do not have a paid-up capital
of more than ESP 20 million (EUR 120 202). In this
that,
respect,
according to the
in
Europe (24),
in the European

the Commission would point out

Fifth Report on Enterprises

the number of

created fewer

firms

(23) Judgment of the Court of Justice of the European Communities of
17 June 1999 in Case C-75/97 (Maribel) Belgium v Commission,
paragraphs 48 and 51; Judgment of the Court of First Instance of
15 June 2002 in Case T-298/97 Alzetta Mauro and others v
Commission, paragraphs 80 to 82;
the Opinion of Advocate
General Ruiz-Jarabo of 17 May 2001 in Case C-310/99 Italy v
Commission, paragraphs 54 and 55; and the Opinion of Advocate
General Saggio of 27 January 2000 in Case C-156/98 Germany v
Commission, paragraph 31, which ran thus:
(cid:145)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 aid scheme, this privilege may in principle affect competition
between Member States.(cid:146)

(24) Enterprises in Europe. Fifth report, Eurostat.

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 % (26).
It is likely that
these percentages are higher still
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
about 98 % (27).
percentage was higher
at
Consequently, everything indicates
the
that one of
conditions of eligibility for the aid in itself excludes the
majority of firms. 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.

still,

(67) As for the possible discretionary power of

first

that

examines

the Commission notes

the tax
authorities,
the aid in
question is not granted automatically, as the `lava
Provincial Council
application
if appropriate,
submitted by the recipient and may,
grant
such examination.
the aid in question after
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.

the

this leads

in some of

the Commission would point out

(68) As regards the existence of tax measures in the form of
a reduction in 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 by third parties,
to a
legitimate expectation concerning tax incentives for new
the
firms,
schemes mentioned
third-party
the
in certain respects from this
comments are different
reduction in the tax base. Furthermore, even supposing
that
the
Commission had not reacted, it would not be justified in
taking this misguided approach in the present case. It
should be pointed out that, according to the case law of
the Court of Justice, (cid:145)any breach by a Member State of
an obligation under the Treaty in connection with the
prohibition laid down in Article 92 cannot be justified
by the fact that other Member States are also failing to
this obligation. The effects of more than one
fulfil

certain schemes were

and that

similar

that

(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.

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distortion of competition on trade between Member
States do not cancel one another out but accumulate
and the damaging consequences to the common market
are increased(cid:146) (28).

(69)

the
Concerning the question raised in some of
third-party comments about whether the Provincial Law
in question has the character of an enabling rule or a
rule granting aid directly, the Commission would point
out that,
in this case, the rules which introduced the
reduction in 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 (EC) No
659/1999 an aid scheme is defined as (cid:145)a system on the
basis of which, without further implementing measures
being required, individual aid awards may be made to
undertakings defined within the act in a general and
abstract manner ...(cid:146). However, this character of an aid
scheme does not predetermine, as certain third-party
comments claim, whether there is any discretionary
power
scheme or not.
Discretionary power in regard to the granting of the aid
will depend on the specific characteristics of
the
scheme. Furthermore, the Commission would point out
is
the tax authorities have discretion,
that,
enough, where there are no other specific elements, to
demonstrate the existence of aid elements in a tax
measure.

execution of

in the

this

the

if

(70) As regards invoking the nature or general scheme of the
tax system as justification for the reduction in the tax
base, the Commission emphasises that what matters is
determining whether the tax measures involved meet
in the tax system itself, or
the objectives inherent
whether, on the contrary, they pursue other, possibly
legitimate, objectives outside the tax system. Moreover,
it is up to the Member State concerned to establish that
the tax measures in question follow the internal logic of
the tax system (29).
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
in
the measure is objective and cross-sector
that
follows
character does not demonstrate that
the
internal
is not sufficient
the tax system.
evidence that the measure fulfils the principal objective

logic of

It

it

inherent
in any tax system, which is to gather the
revenue for financing the expenditure of the State, or
that
and
the principles
progressiveness inherent in the Spanish tax system (30).

equality

satisfies

of

it

(71) Moreover,

it

the

state

for boosting economic development

in their
Spanish authorities
comments that the aim of reducing the tax base is to
promote investment, and that
therefore fulfils the
industrial policy objectives pursued by the Basque
Government. According to the Basque Government
document entitled Industrial Policy: General Framework
of Activities 1996 to 1999 (Pol(cid:237)tica Industrial. Marco
(cid:145)tax policies are
General de Actividades 1996(cid:151)1999),
essential
and,
similarly, for promoting industrial projects based on the
(page
industrial development of
131), and in the chapter (cid:145)Tax policy instruments(cid:146) one
reads: (cid:145)the tax autonomy which we have (in the Basque
Country)
imaginative
to
made-to-measure tax solutions, e.g. for priority projects
or even tax incentives for large firms(cid:146) (page 133). The
reduction in the tax base in question, therefore, is part
of an industrial policy whose objectives are not even
peculiar to tax systems.

the Basque Country(cid:146)

enables

search

for

us

(72)

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

(28) Judgment of the Court of Justice of the European Communities of
22 March 1977 in Case C-78/76 Steinike & Weinlig v Federal
Republic of Germany, paragraph 24. On the other hand, Judgment
of 24 March 1993 in Case C-313/90 ComitØ International de la
rayonne et des fibres synthØtiques and others v Commission, paragraph
45, states that neither the principle of equal treatment nor that of
the protection 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

(74)

To sum up, the Commission finds that the reduction in
the tax base is State aid under Article 87(1) of
the
Treaty and Article 61(1) of the EEA Agreement, since it
involves aid granted by a State, from State resources,
which favours certain undertakings, distorts competition
and affects trade between Member States.

in Case C-6/97.

(30) Article 31 of the Spanish Constitution.

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VIII. THE UNLAWFUL NATURE OF THE REDUCTION IN
THE TAX BASE

(75) Given that

the

require

said scheme does not

a
commitment from the Spanish authorities to grant the
aid in accordance with the conditions for de minimis
aid (31), the Commission considers that the aid cannot
to those rules.
be regarded as subject
It should be
the Spanish authorities
that
stressed in this respect
never maintained,
the aid in
in the procedure,
question should be classed as de minimis aid, either in
full or in part. Moreover, 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 exceeded.
The incentives do not qualify as existing aid, either,
since they do not meet the conditions laid down in
Article 1(b) of Regulation (EC) No 659/1999.

that

(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(1)(a)
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.

to

given

assurances

him by
is why the argument

the
specific
administration(cid:146) (32). This
that
legal certainty have been
legitimate expectations or
violated is without
In this
context, moreover, the Commission recalls that in its
tax
Decision
measures introduced in 1988 by the Provinces of `lava,
Guipœzcoa and Vizcaya to be State aid.

foundation in this case.

93/337/EEC (33)

deemed

certain

it

IX. ASSESSMENT OF COMPATIBILITY WITH THE
COMMON MARKET

it

is

not

does

sufficient

the Commission

(78) As a preliminary, the Commission would repeat that the
reduction in the tax base has to be classed as an aid
scheme. Given the general, abstract nature of an aid
scheme,
know the
circumstances of existing or possible future recipient
firms and is not, therefore, able to examine the exact
repercussions on competition for specific firms. In this
context
to ascertain that potential
recipients could benefit from aid that is not consistent
with
frameworks
applicable on this subject. Moreover, the Commission
in its decision initiating the
would emphasise that,
procedure,
information
it had asked for all relevant
relating to the aid and the particular circumstances of
each recipient. However, the Spanish authorities have
not provided any such information. This is why it is
contradictory to reproach the Commission, as certain
third-party comments do, for providing only a general
assessment while at the same time refusing to supply
the detailed data requested.

guidelines

directives,

and

the

(77) As regards the argument

in some of

the third-party
comments that basically there is a violation of legitimate
expectations and legal certainty, the Commission feels
bound to reject
this, since firstly the scheme is not
existing aid and, secondly, since it was not notified
under Article 88(3) of the Treaty, the Commission has
not been able to determine whether it is compatible
with the common market. Consequently, the recipients
cannot rely on any legitimate expectations or legal
certainty as regards the State aid nature of the reduction
in this
in the tax base.
connection that (cid:145)it is settled case-law that the right to
protection of legitimate expectations may be claimed by
any individual who finds himself in a position in which
it is shown that the Community administration gave rise
to justified hopes on his part ((cid:133)). However, no one
may plead infringement of
the
protection of legitimate expectations in the absence of

It should be pointed out

the principle of

(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, p. 9) or on Commission
Regulation (EC) No 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).

the admissibility of `lava,

(79) As the scheme in question covers only the NUTS (34) III
it is necessary to examine whether
territory of `lava,
aid in this
the regional
territory can qualify for
derogations in Article 87(3)(a) or (c) of the Treaty. As
regards
the Commission
the territory has never been
would point out
eligible for the Article 87(3)(a) derogation, since the per
capita GDP (35) of the NUTS II 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 Article 87(3)(a) of the Treaty are met

that

(32) Judgment of the Court of First Instance of 15 Decembre 1999 in
Joined Cases T-132/96 and T-143/96 Freistaat Sachsen and others v
Commission [1999] ECR II-3663, paragraph 300.

(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 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 Guidelines on national
regional aid (98/C 74/06).

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Official Journal of the European Communities

18.11.2002

only if the region,
in the case of NUTS II, has a per
capita GDP of not more than 75 % of the Community
average.

inevitably as part of their everyday management. It is
therefore appropriate to examine the tax incentives in
the light of any derogations that may apply to the
operating aid in question.

regional development

(80) As regards the aid’s eligibility for the derogation in
Article 87(3)(c), the Commission would point out that,
in its Decision of 26 September 1995 (37) on the
changes in Spain’s regional aid map, it proposed, under
the procedure 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 `lava was a region
could be
in which aid for
regarded as compatible with the common market under
the derogation 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
subsequent 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.
According to this map, the Province of `lava 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)

investment,

the number of

jobs created, or

costs, but on the

The State aid in the form of a reduction in the tax base
has the effect of promoting the creation, in the Province
of `lava, of new firms in which the initial amount of
investment and the number of
jobs created exceed
certain thresholds. However, despite this minimum
investment and minimum number of jobs created, the
tax incentives in question do not qualify as investment
or employment aid. They are not based on the amount
the
of
corresponding wage
tax base.
Furthermore, they are not paid up to a limit expressed
as a percentage of
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 (cid:145)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
a
ceiling expressed as
a
investment
percentage of
invested in the region(cid:146).
the amount
Therefore, tax incentives which, as in this case, do not
meet these criteria cannot qualify as investment aid.

the amount of

investment,

if one

sets

(82) On the contrary, since they partly reduce the profits tax
payable by the recipient firms, the incentives qualify as
operating aid. Corporation tax is a tax burden which
to it have to pay regularly and
companies subject

(83)

(84)

(85)

In this respect, the Commission would point out that, in
accordance with the said Guidelines
(98/C 74/06),
regional aid which is classed as operating aid is
normally prohibited. Exceptionally, however, such aid
may be granted in regions eligible under the derogation
in Article 87(3)(a) of the Treaty, provided that it meets
certain conditions laid down in points 4.15 to 4.17 of
the said Guidelines,
in the outermost regions or in
regions of low population density if it is intended to
offset additional transport costs. However, the NUTS III
territory of `lava 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 III territory of `lava 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
low population
an outermost region or a region of
density. The aid is therefore incompatible in this case.

considers

The Commission therefore
tax
incentives scheme in question cannot be regarded as
compatible with the common market under the regional
derogations in Article 87(3)(a) and (c) of the EC Treaty,
since it does not comply with the rules on regional aid.

that

the

as

cases,

as well

for other purposes

The derogation in Article 87(3)(c) of the Treaty has to
be examined to see whether it might not apply, in the
above
the
development of certain economic activities. It should be
noted in this respect that the aim of reducing the tax
base is not to develop an economic activity within the
meaning of Article 87(3)(c) of the Treaty, such as the
development
and
medium-sized enterprises,
research and development,
job creation or training in
environmental protection,
accordance with the appropriate Community rules.
Consequently, the tax incentives cannot qualify for the
derogation in Article 87(3)(c) of the Treaty in respect of
the said purposes.

of measures

small

assist

to

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

Treaty.

(39) According to point 3.10.4 of the guidelines on national regional

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

aid (98/C 74/06).

(86)

(87)

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L 314/15

fibres

to any sectoral

In the circumstances,

steelmaking,
and

fisheries, coalmining,
synthetic

Similarly, the reduction in the tax base, which is not
limitation, may be granted
subject
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 agricultural products in Annex I to the
transport,
Treaty,
the motor
shipbuilding,
industry (40).
the Commission
considers that
the tax incentives in the form of a
reduction in the tax base cannot comply with the said
sectoral rules. In this particular case, the reduction in
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
the
sectors
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 Treaty on the promotion of certain
activities does not apply.

suffer. Therefore, where

traditionally

that,

law such as

the recipients may not

in accordance with the

(89) As regards incompatible aid already paid, it should be
above
pointed out
rely on general
arguments,
principles of Community
legitimate
expectations or legal certainty. Consequently, there is
nothing to prevent the application of Article 14(1) of
Regulation (EC) No 659/1999, according to which
(cid:145)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 beneficiary(cid:146). In this case, therefore, the
Spanish authorities should take all necessary measures
to recover the aid already paid in order to restore the
economic situation which the recipient firms would be
in without 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, calculated from the date the aid was granted until
the date of actual
the
reference rate used at that date to calculate the net grant
equivalent of regional aid in Spain (41).

repayment on the basis of

The aid in question, which cannot qualify for
the
derogations 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); it is not intended to make
good the damage
caused by natural disasters or
exceptional occurrences within the meaning of Article
87(2)(b). 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
the derogation in
87(3)(b). Nor does it qualify for
Article 87(3)(d) as its purpose is not to promote culture
or
therefore
aid
incompatible with the common market.

conservation.

heritage

The

is

(88) As the reduction in the tax base covers various tax
years, there could still be some tax aid currently left to
pay. However, this aid is unlawful and incompatible.
The Spanish authorities should therefore cancel
the
payment of any balance from the reduction in the tax
base which could still be due to certain recipients.

(40) For the sectoral rules currently in force see,
the European Communities,

Official
Directorate-General for Competition
http://europa.eu.int/comm/competition/state_aid/legislation/.

in addition to the
the
the website of

Journal of

(90)

aid

under

granted

This decision relates to the scheme and should be
implemented immediately, including the recovery of any
individual
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
subsequent Commission decision or under exempting
regulations.

that

(91)

Since the compatibility of the State aid in the form of a
reduction in the tax base granted to Daewoo Electronics
Manufacturing Espaæa SA and to Ramond(cid:237)n SA and
Ramond(cid:237)n CÆpsulas SA has already been assessed in
specific Commission Decisions (42), this Decision does
not relate to that aid.

X. CONCLUSIONS

(92)

In view of the above, the Commission concludes that:

(cid:151) Spain has unlawfully put into effect, in the Province
of `lava,
for
reduction in the
investments, thereby infringing Article 88(3) of the
Treaty,

tax base

the

(41) Commission letter

to Member

States of 4 March 1991
(SG(91)D/4577). See also Judgment of
Justice of
21 March 1990 in Case 142/87 Belgium v Commission [1990] ECR
I-950.

the Court of

(42) Commission Decisions 1999/718/EC (OJ L 292, 13.11.1999, p. 1)

and 2000/795/EC (OJ L 318, 16.12.2000, p. 36).

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(cid:151) the reduction in the tax base in question is

incompatible with the common market,

(cid:151) the Spanish authorities must 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 must take all necessary
measures
the
it,
economic situation which the recipient firms would
be in without the unlawful grant of the aid,

to recover

to restore

so as

(cid:151) this Decision does not relate to the reduction in the
tax
Electronics
to
Manufacturing Espaæa SA and to Ramond(cid:237)n SA and
Ramond(cid:237)n CÆpsulas SA,

Daewoo

granted

base

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

Interest shall be calculated on the basis of

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.

HAS ADOPTED THIS DECISION:

Article 1

Article 5

The State aid in the form of a reduction in the tax base,
unlawfully put into effect by Spain in the Province of `lava, in
breach of Article 88(3) of the Treaty, through Article 26 of
Provincial Law No 24/1996 of 5 July 1996, is incompatible
with the common market.

This Decision does not relate to the aid granted under the
scheme in question to Daewoo Electronics Manufacturing
Espaæa SA and to Ramond(cid:237)n SA and Ramond(cid:237)n CÆpsulas SA.

Article 2

Article 6

Spain shall abolish the aid scheme referred to in Article 1 in
so far as it is continuing to produce effects.

This Decision is addressed to the Kingdom of Spain.

Article 3

Done at Brussels, 11 July 2001.

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.

For the Commission

Mario MONTI

Member of the Commission