2002/806/EC: Commission Decision of 11 July 2001 on the State aid scheme applied by Spain to certain newly established firms in Vizcaya (Spain) (Text with EEA relevance) (notified under document number C(2001) 1763)
Date: 2001-07-11
Institutions: European Commission
Subjects: Spain, State aid, aid system, control of State aid, corporation tax, infringement of EU law, tax exemption

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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 Vizcaya (Spain)

(notified under document number C(2001) 1763)

(Only the Spanish text is authentic)

(Text with EEA relevance)

(2002/806/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

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

Spanish authorities submitted their comments under the
abovementioned procedure.

Having regard to the Agreement on the European Economic
Area, and in particular Article 63(1)(a) thereof,

(4)

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

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

Whereas:

I. PROCEDURE

(5)

(1)

(2)

(3)

context of

the procedures

As a result, in particular, of the information collected in
the
initiated following
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 the Province of Álava, consisting of tax
incentives in the form of a reduction of the tax base for
certain newly established firms. It also received informal
information that similar measures existed in the Province
of Vizcaya,
the same tax
autonomy as the Province of Álava.

territory has

since that

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

(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).

Industry

(Confederación

and Navigation (Cámara

The Commission received comments from the following
interested parties:
the Autonomous Community of
Castile-Leon on 17 March 2000: Rioja Regional Govern-
the Bilbao Chamber of
ment on 24 March 2000;
de
Commerce,
Comercio, Industria y Navegación de Bilbao — Bilboko
Erkataritza Ganbera) on 27 March 2000; and the Basque
Business Confederation
Empresarial
Vasca — Euskal Entrepresarien Konfederakuntza or
Confebask) on 27 March 2000. After the deadline, addi-
tional comments were received from the Basque Econo-
mists Association (Colegio Vasco de Economistas —
letter of 29
Ekonomilarien Euskal Elkargoa), by
December 2000, registered on 3 January 2001;
the
Basque Business Circle (Círculo de Empresarios Vascos),
on 27 March 2000, and the Professional Association of
Tax Advisers of the Autonomous Community of the
Basque Country (Asociación Profesional de Asesores
Fiscales de la Comunidad del País Vasco), on 28 March
2000. The Commission forwarded these comments by
letter D/52998 dated 17 May 2000 to Spain, thereby
giving it
forward its own
comments. However, it has received none.

the opportunity to put

(4) See footnote 1.

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Provincial Law (Norma Foral) 7/2000 of 19 July repealed
Article 26 of Vizcaya Norma Foral 3/1996 of 26 June
1996 (5), which formed the legal basis for the tax incen-
tives in question.

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

jobs

(6)

(7)

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 ques-
tion were introduced by Article 26 of the abovemen-
tioned Norma Foral 3/1996 of 26 June 1996 on
Corporation Tax. The text of Article 26 reads as
follows (6):

‘1.
Companies starting their business activity after
the entry into force of the Norma Foral 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.

[…]

To qualify for this reduction, taxable persons

2.
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
transferred to third parties for their use. For the
purposes of this requirement, goods acquired by
leasing shall also be deemed to be investments in
tangible fixed assets, provided that the business
undertakes to exercise the purchase option;

(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.

[…]

The minimum amount of

4.
the investments
within the meaning of paragraph 2(f) and the

(5) Boletín Oficial de Bizkaia, 11.7.1996.
(6) Only the parts essential to the assessment of the aid are cited.

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 confirmed by decision
of the Governing Body of the Vizcaya Provincial
Council (Diputación Foral de Bizkaia).

[…]’

(8)

(9)

(10)

(11)

(12)

The Commission confirms
according to the
preamble of the Norma Foral, the object of the aid in
question is to promote the creation of new companies.

that,

The Commission notes that the tax incentives relate to
the positive tax base for corporation tax resulting from
the conduct of the business of a number of companies,
prior to the set-off
for the negative tax bases from
previous financial years. In this case, the recipients shall
be companies which have started their commercial activ-
ities since the date of entry into force of the said provin-
cial
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, recipient compa-
nies
strategy covering a
a business
minimum period of five years and should start their
activity with a minimum paid-up capital of ESP 20
million (EUR 120 202).

should have

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 positive
tax bases.

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, for example, SMEs, since any firm may qualify,
provided that it satisfies the abovementioned tests.

The Commission finds that these reductions of the tax
base are applicable from the tax period 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 ruled
out whose operative event,
i.e. the circumstance trig-
gering each concession, is different. Such would be the
case, for example, with tax incentives in the form of a
tax credit.

(13)

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
of the Treaty applies to aid measures ‘in any form’.
Nevertheless,
to be
regarded as aid, the measures in question should cumula-
tively satisfy the four criteria set out in Article 87 and
explained below.

the Commission emphasises that,

(14)

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 advan-
tage, since the charges normally affecting their budgets
are cut through a partial reduction of the normal tax
liability.

(15)

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 provisionally considered that
the reduction in the tax bases referred to impinges on
competition and trade between Member States. Since the
recipients conduct business which may involve trade
between Member States, the aid strengthens their posi-
tion vis-à-vis competitors which 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 able to compete with firms which are not
eligible for the aid.

(16)

(17)

(18)

(19)

(20)

(21)

(22)

Furthermore, the Commission considered provisionally
that the selective nature of the concession is also due to
a discretionary power of the tax authorities. The aid is
not granted automatically, since the recipient's applica-
tion is studied by the Vizcaya Provincial Council, 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 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 advan-
tage, 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, among other
requirements, to the condition that they do not exceed
EUR 100 000 during a period of
the
Commission considered provisionally that they cannot
be regarded as subject to the de minimis rule (7).

three years,

The Commission would point out that State aid which is
not covered by the de minimis rules is subject to the obli-
gation of prior notification laid down in Article 88(3) of
the Treaty and Article 62(3) of the EEA Agreement.
However, the Spanish authorities have not fulfilled this
obligation, which is why the Commission considers
provisionally that the aid may be regarded as unlawful.

the

The Commission found at this stage that, although the
conditional on a
incentives was
granting of
minimum investment and the creation of a minimum
number of jobs, the tax arrangements in question do not
guarantee compliance with Community guidelines on
State regional aid. This is why the Commission provi-
sionally took the view that they could not be considered
as investment or employment aid.

(23) On the contrary, the Commission provisionally took the
view that these tax concessions should be viewed as aid
to help cover operating costs, as their aim was to free
companies from the costs which they would have had to
bear in day-to-day management or other habitual activ-
ities.

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 considered that the tax aid is not justified
by the nature or general scheme of the tax system.

In addition,

(24)

The Commission pointed out that operating aid is in
It can, however, be granted in
principle prohibited.
exceptional circumstances,
in regions qualifying for
regional aid, provided that it meets certain conditions.
However, the incentives are not subject to these condi-
tions. Consequently, the Commission considered provi-
sionally that there were doubts about the compatibility
of the tax incentives with the rules on regional aid.

(7) See point 3.2 of the Community guidelines on aid for SMEs (OJ C
213, 19.8.1992) and the communication by the Commission 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 noted provisionally that it had doubts as to
whether the incentives were compatible where the reci-
to special
pient belongs to a sector that
Community rules.

is subject

On the contrary, they view the tax concessions in ques-
tion as a general measure which is not covered by the
rules on State aid. They also state that the measure,
whose purpose is to promote investment, is part of an
economic policy which is much used by governments.

(25)

(26)

(29)

(30)

Lastly, the Commission doubted at this stage whether
the tax incentives were compatible 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 within the
meaning of Article 87(2)(b) and are not subject to the
provisions of Article 87(2)(c) concerning certain areas of
the Federal Republic of Germany. As far as the deroga-
tions in Article 87(3) other than those in subparagraphs
(a) and (c), which have already been discussed, are
concerned, the Commission considered provisionally that
the incentives were not designed to promote the execu-
tion 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
fall within the scope of Article
incentives do not
87(3)(c), which concerns ‘aid to facilitate the develop-
ment of certain economic activities...’, as they are not
specific to the activities of the beneficiary companies.
Lastly, they are not intended to promote culture or heri-
tage conservation within the meaning of Article 87(3)(d).

(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 rele-
vant to assessing the tax incentives in the form of a
reduction of the tax base of certain newly established
firms in the Province of Vizcaya. In this specific case, the
relevant information requested is as follows: copies of all
decisions granting the reduction of the tax base, and data
on the investments made by each recipient, the jobs
created, the share capital, the amount of the reduction in
the tax base which each firm has enjoyed, and the
outstanding balance.

III. COMMENTS OF THE SPANISH AUTHORITIES

the opening of

In their opinion,

They stress 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 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 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.

the Spanish authorities dispute that the
Furthermore,
measures in question are of a discretionary nature, since
the incentives are granted automatically once the said
objective conditions are satisfied. The Vizcaya Provincial
Council can thus check only that all the conditions are
satisfied; it cannot alter or impose 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 confirmed by decision of
the Governing Body of the Vizcaya Provincial Council’.
The procedure
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 discre-
tionary.

interpreted therefore

should be

(31) Moreover, the Spanish authorities claim that the Vizcaya
reduction of
the tax base is founded on measures
existing in other Member States such as Ireland, or on
measures (8) taken by the Spanish central government in
1993. 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
Vizcaya measures and those of the central government,
it can be concluded that if one measure is not specific in
character, the other ought not to be either. Furthermore,
the Spanish authorities state that both the Vizcaya
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 the tax
measure established by the Spanish central government,
it ought to reach the same conclusion about the Vizcaya
measures.

(28)

The Spanish authorities submitted their comments by
letter sent by the Permanent Representation, dated 2
December 1999. Essentially, they take the view that the
reduction of the tax base in question does not constitute
State aid within the meaning of Article 87 of the Treaty.

(8) Law 22/1993 of 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 twenty, jobs.

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(32) Moreover, the Spanish authorities argue that, even if the
Commission considered that the measure was specific, it
was 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) (9). 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.

(33) Nor do the Spanish authorities agree with the view
expressed by the Commission that the tax rules do not
satisfy the conditions of
In their
opinion, the Commission ought to determine what the
specific conditions are that are infringed by the tax rules
in question. 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.

the sectoral rules.

(34)

They also question the Commission's assumption that
trade will be affected because the companies benefiting
from concessions carry out economic activities involving
trade between the 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 oper-
ating in sectors which have not yet been liberalised or
on local markets only. In all these cases one of the prere-
quisites for describing public aid as State aid is missing.

(35) As

regards

the operating-aid characteristics which,
according to the Commission, the tax measures in ques-
tion 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 an
investment incentive and cannot, therefore, be viewed 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.

The Spanish authorities also emphasise that, under
Spanish tax rules, the tax authorities may disclose data
relating to 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 opening the procedure.

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

(38)

(39)

(40)

(41)

IV. OTHER

COMMENTS

RECEIVED

BY

THE

COMMISSION

Comments by the Autonomous Community of
Castile-Leon

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.

The Autonomous Community of Castile-Leon points out
first of all that the tax measures in question are part of
the set of tax measures adopted by the Vizcaya Provincial
Council that have been disputed both in Spain and at
Community level. It points out that, in the case in point,
Article 26, which lays down the tax measure in respect
of which the procedure was initiated, was quashed by
the High Court of
(Tribunal
Superior del País Vasco) in 1999.

the Basque Country (10)

The Autonomous Community of Castile-Leon also 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 also states that
one of the reasons for the selective nature of the measure
is the discretionary power of the authorities (11). More-
over, it also notes that the tax measures are not justified
by the nature or general scheme of the tax system, since
their purpose is to promote the formation of new
companies.

that

For the rest, the Autonomous Community of Castile-
the tax incentives cannot be
Leon considers
regarded as compatible by virtue of the derogations in
Article 87. In this respect, it states that the tax measures
have the character of operating aid, since they are
permanent 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
the operating aid in question cannot be
87(3)(c),
regarded as compatible. Furthermore, the obligation to
notify laid down in Article 88(3) has not been complied
with.

(42)

The Autonomous Community of Castile-Leon takes the
view therefore that the tax measures in question are 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.

(10) Judgement No 718/1999 dated 30 September 1999.
(11) See in this respect the judgment by the Court of Justice of the
European Communities dated 26 September 1996 in Case C-241/
94.

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Comments from the Rioja Regional Government

Comments from the Basque Business Confederation
(Confederación Empresarial Vasca — Euskal Entre-
presarien Konfederakuntza (Confebask))

(43)

the tax
The Rioja Regional Government states that
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 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 autho-
rities, involves a loss of tax revenue. This means that the
recipients' business benefits, as they have a competitive
advantage vis-à-vis all the other companies. 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 10 jobs created,
the Rioja Regional Government states that the discre-
tionary nature of the reduction of the tax base is due
partly to the authorities' ability to determine investments
eligible for aid, deadlines and maximum limits and partly
to the fact that the granting of the reduction of the tax
base is not automatic.

(44) Moreover, the Rioja Regional Government considers that
the tax measures cannot be justified on the grounds that
there are five tax systems in Spain. In this context, it
recalls that Advocate General Saggio (12) ruled that the
nature of the tax authorities in a territory does not justify
discrimination in favour of companies based there.
Furthermore, the measures are not justified by the nature
or general scheme of the tax system in Biscay, since they
claim to improve the competitiveness of recipient firms.
The Rioja Government also points out that the High
Court of
the Basque Country (Tribunal
Superior de Justicia de País Vasco) (13) regarded the tax
measures in question as disproportionate and inap-
propriate 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.

Justice of

(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. Moreover, the Spanish authorities did not
fulfil the obligation to notify the incentives under Article
88(3) of the Treaty.

(47)

Confebask started by drawing attention to the underlying
historical reasons for the tax autonomy enjoyed by the
Province of Vizcaya. As regards substance, Confebask's
views are essentially as follows:

(a) the presumed reduction of the tax debt: the Commis-
sion is wrong to think that there is a tax debt whose
reduction involves a loss of tax revenue. If this argu-
ment were sound, any tax deduction would always
involve a loss of revenue compared with the amount
that would have been paid under normal conditions.
Confebask therefore requests that the Commission
reconsider its position, since otherwise it could be
argued that taxes were being unlawfully harmonised
by establishing a normal amount in relation to which
it would be necessary to determine any losses of tax
revenue;

(b) the impact 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 impact, the Commis-
sion should therefore analyse the entire tax system
and not the specific provisions. Confebask empha-
sises 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 differ-
ences have a negative impact on trade. In any case,
even if such an effect did exist, the way to remove it
would be through harmonisation, not State aid;

(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 in ques-
tion fall, since otherwise it would be contradictory to
try and use both.

(46)

The Rioja Regional Government therefore thinks that the
tax measures should be regarded as unlawful State aid,
since they did not comply with the Article 88(3) notifica-
tion procedure, and as aid that is incompatible with the
common market.

(12) See opinion in Joined Cases C-400/97, C-401/97 and C-402/97.
(13) See the judgements of 30 September and 7 October 1999 on the

tax measures in question.

— Confebask disagrees with 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 test of
eligibility. Moreover,
the tax measures are
if
regarded as enabling rules which subsequently
it has to be
make it possible to grant the aid,

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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 (14),
a general provision conferring relief is regarded
as 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

the jurisdiction of

regarding the tax measures as

rules
granting aid directly, Confebask points out that,
according to points 17, 19 and 20 of notice 98/
C 384/03, a tax measure may be specific and,
hence, may be State aid, if it is aimed solely at
public undertakings, certain types of undertaking
or undertakings
in a given region. The tax
measures in question do not have any of these
characteristics; they are not even specific to a
geographical area, as they are applicable to the
the
whole territory under
regional authorities which established them. As
to the specific character of the maximum limits
(share capital of ESP 20 million, investment of
ESP 80 million, and 10 jobs created) Confebask
the use of objective maximum
considers that
limits is normal practice in national and Commu-
nity tax rules. It also draws attention to the basis
of various judgments of the Court of Justice and
Commission decisions: hitherto, it has never been
held that maximum limits
imply specificity.
Moreover, the 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.

— Confebask also maintains that Vizcaya's reduc-
tion of the tax base is nothing more than an
adjustment of a 1993 measure (mentioned above
in the comments from the Spanish authorities)
introduced by Spain's central government. It even
maintains that the rules are identical, except for
the quantitative maximum limits. Thus the effect
of Vizcaya's reduction of the tax base on compe-
tition is cancelled, since the territories adjoining
the Basque provinces offer tax concessions to
new firms. Moreover, if there were an impact on
competition, it would derive from the abovemen-
tioned measures taken by the Spanish central
authorities,
these can reach a larger
number of beneficiaries. Confebask also stresses
that there are similar measures in other Member

in that

In Luxembourg,

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 corpora-
tion 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.
there is a 25 %
reduction of 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. Everything shows, therefore, that Vizcaya'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;

(d) the importance of legal certainty: Confebask argues
that the Commission's description of the tax reduc-
tion as unlawful aid calls into question the principles
of legitimate expectations, the ban on arbitrary deci-
sions by the institutions, legal certainty and propor-
tionality, since the Commission regarded the Basque
tax arrangements as lawful in its 1993 decision. At
most, the Commission could change its position as
regards future cases but not as regards past ones;

(e) 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 decision. The procedure is meaning-
less and incapable by definition of yielding any
results as to the compatibility of the aid. Moreover, if
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 specifi-
city before the compatibility of
the aid can be
it would be necessary to
assessed. Furthermore,
determine 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
rejects 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 include this type of provision.
According to the Court of Justice (15), the Commis-
sion should specify in its decisions what the adverse

(14) Commission letter to Member States dated 30.10.1985.

(15) Joined Cases C-278/92, C-279/92 and C-280/92 dated 14

September, Spain v Commission, [1994] ECR I-4103.

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the measures analysed.

effects on competition are, determining the real
Incompatibility
effect of
cannot be determined, therefore,
in abstract situa-
tions specific to a tax system, since in that case any
differences between tax 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;

(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 (16). 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 (17).

Comments by the Basque Economists Association
(Colegio Vasco de Economistas — Ekonomilarien
and the Bilbao Chamber of
Euskal Elkargoa)
Industry and Navigation (Cámara de
Commerce,
Comercio,
Industria y Navegación de Bilbao —
Bilboko Erkataritza Ganbera) (hereinafter CVE-CCB)

(49)

CVE-CCB consider 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 single tax
system, but not where there are different tax systems in
is
the same Member State. The practice, furthermore,
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
the
applicable to the territory concerned. Moreover,
losses of
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 Community law. For the rest,
any distortions of competition resulting from the exis-
tence of five tax systems should be tackled through the
Community rules on tax harmonisation.

tax revenue which result

(16) The deadline was one month after the date of publication in the
Official Journal of the European Communities (26 February 2000) of
the call for observations.
(17) OJ L 83, 27.3.1999, p. 1.

(50) Nonetheless, CVE-CCB do not rule out the possibility
that, in the exercise of their tax autonomy, the Provincial
Councils may adopt tax measures that are caught by
Article 87(1) of the Treaty. However, in the present case
they take the view that the reduction in the tax base is
not covered by this Article, as the only criterion it meets
is that it was granted from public funds. 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 to the possibility of trade being affected. This
must be established in each specific case: it is not suffi-
cient that trade might be affected. For the rest, CVE-CCB
examine whether specificity derives from the maximum
limits for eligibility for the tax reduction or from the
the
Provincial Council's discretionary power to grant
reduction.
the
that
respect,
maximum limits 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.

they consider

In this

(51)

CVE-CCB conclude 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 EC Treaty.

Comments from the Basque Business Circle (Círculo
de Empresarios Vascos) and the Professional Asso-
ciation of Tax Advisers of the Autonomous Commu-
nity of the Basque Country (Asociación Profesional
de Asesores Fiscales de la Comunidad del País Vasco)
(hereinafter CEV-APCPV)

(52) As the comments submitted individually by these organi-
sations are similar or even identical, they are summarised
together.

(53)

CEV-APCPV reject 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 quantitative maximum
limits 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 promote investment, it is logical that the tax reduc-
tion should be confined to new firms. As regards the
maximum limits, everything indicates
they are
objective and, moreover, much used in the tax sphere.
As to the Provincial Council's approval before the reduc-
tion of the tax base can apply, this is an act of prior veri-
fication aimed at checking that all the conditions are
met. After this, aid is granted automatically.

that

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

(55)

(56)

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 argue 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 low 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.

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

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)

(61)

(62)

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 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 of the Treaty and explained below.

in particular,

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 granted
through different types of reduction in the company's
tax burden and,
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 amount of the 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
tax base thus implies an exception to the common tax
system applicable.

Secondly, the Commission considers that the said reduc-
tion of the tax base involves a loss of tax revenue and is
therefore equivalent
to the consumption of public
resources in the form of fiscal expenditure. This principle
also applies to aid granted by regional or local bodies of
Member States (18). 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 the present case,
State intervention is effected through the Vizcaya Provin-
cial Council on the basis of a statutory provision.

The argument featuring in some of the comments by
interested third parties, to the effect that it would be
wrong to regard reductions of 99 %, 75 %, 50 % and
25 % in the tax base as involving a loss of tax revenue in
relation to a standard amount
(determined by the
Commission) of the tax due, is a fallacious one. It should
be stressed that the standard level of tax depends on the
tax system in question, not on a Commission decision.
Furthermore, it should be borne in mind that according

(58)

By letter to the Spanish Permanent Representation, dated
18 May 2000, the Commission sent, pursuant to Article

(18) See Case 248/84 dated 24 October 1987, Germany v. Commission

[1987] ECR 4013.

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to the second indent to point 9 of notice 98/C 384/03,
to be considered as State aid, ‘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: (...) 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 therefore
without foundation.

(63)

Thirdly, the measure must affect competition and trade
between Member States. It should be stressed in this
respect that, according to a report (19) on the external
dependency of the Basque economy in the period 1990
to 1995, exports abroad went up (20), not only in abso-
lute 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 (21) on the foreign trade of the Basque Country, at
28,9 % the Basque economy's ‘propensity 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 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 intra-Community trade. Consequently, aid
strengthens their position vis-à-vis their competitors in
intra-Community trade,
thereby affecting such trade.
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.

(64)

Since, in this case, the tax rules analysed are general and
abstract in character, 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

(19) Mr. Patxi 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.

(20) 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.

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

Euskadi en el año 1998’ prepared by Eustat.

specific product, as is stated in the abovementioned
comments by third parties. This position has been
confirmed on a number of occasions by Court of Justice
case law (22).

(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 the 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 States; 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.

(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
the sense that it favours certain companies. The condi-
tions for granting the incentives specifically state that
firms established before the said provincial
law came
into force 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 would point out that, according to the Fifth
Report on Enterprise in Europe (23), the number of firms
in the European Community in 1995 which had fewer
than ten employees, or no employees at all, was
16 767 000, or 92,89 % (24) of the total. In Spain's case,
the percentage was even higher, at about 95 % (25). 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
in 1995,
cruising speed. This was the case in Spain,

In this respect,

(22) 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
aid scheme,
this privilege may in principle affect competition
between Member States.

(23) Companies in Europe, fifth report, Eurostat.
(24) Taken from the data in the table on p. 31 of the report.
(25) Taken from the data in the table on p. 224 of the report.

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even higher,

the percentage was

at about
where
98 % (26). Consequently, the key fact is that one of the
conditions of eligibility for the aid in itself excludes the
vast majority of firms. For the rest, the objective char-
acter of the maximum limit cited does not prevent it, as
some of the comments by third parties claim, from being
selective and excluding firms which do not satisfy the
conditions in question.

(67) As regards the possible discretionary power of the tax
authorities, the Commission notes that the aid in ques-
tion is not granted automatically, as the Vizcaya Provin-
cial Council first examines the application submitted by
the recipient and may, if appropriate, grant the aid in
question after
such examination. 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 by third parties, this leads to a legiti-
mate expectation concerning tax incentives for new
firms, the Commission would point out that the schemes
mentioned in some of the comments by third parties 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 taken any
measures,
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, a possible infringement by a Member State of
an obligation imposed on it under the Treaty, in connec-
tion with the prohibition in Article 92, cannot be justi-
fied by the circumstance that other Member States had
also failed to fulfil that obligation; moreover, 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 character, so that such
distortions increase the harmful consequences for the
common market (27).

(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 (EC) No
659/1999 an aid scheme is defined as ‘a system on the
basis of which, without further implementing measures

(26) Taken from the data in the table on p. 73 of the report.
(27) See Case C-78/76 dated 22 March 1977, Steinike & Weinlig v Federal
Republic of Germany, paragraph 24. On the other hand, Case C-313/
90 dated 24 March 1993, Comité International de la rayonne et des
fibres synthétiques 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’.

being required, individual aid awards may be made to
undertakings defined within the act in a general and
abstract manner...’. However, this character of an aid
scheme does not predetermine, as certain comments
made by third parties claim, whether there is any discre-
tionary power in the execution 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 Commission would point out that, if
the tax authorities have discretion, this is enough, where
there are no other specific elements, to demonstrate the
existence of aid 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
determining whether the tax measures involved meet the
objectives inherent in the tax system itself, or 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 (28). 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
measure is objective and cross-sector in character does
not demonstrate 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 expendi-
ture of the State, or that it satisfies the principles of
equality and progressiveness inherent in the Spanish tax
system (29).

the tax system. However,

the fact

that

(71) Moreover,

it

the

state

in their
Spanish authorities
comments that the aim of reducing the tax base is to
therefore fulfils the
promote investment, and that
industrial policy aims pursued by the Basque Govern-
ment. According to the Basque Government document
entitled Industrial Policy: General Framework of Activ-
ities 1996-1999 (Política Industrial. Marco General de
‘[…] tax policies are essential
Actividades 1996-1999,
for boosting economic development and, similarly, for
promoting industrial projects based on the industrial
development of the (Basque) Country’ (page 131), and in
the chapter ‘Tax policy instrument’ one reads: ‘[…] the
tax autonomy which we have (in the Basque Country)
also 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 question, therefore, is part of an indus-
trial policy whose objectives are not even peculiar to tax
systems.

(28) See the Opinion of Advocate General Ruiz-Jarabo in the abovemen-

tioned Case C-6/97.

(29) Article 31 of the Spanish Constitution.

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(72)

the Commission finds that, as the Spanish
In short,
authorities have pointed 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 comments by
third parties concerning the existence of a higher overall
the Commission
tax burden in the Basque Country,
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 of the tax system of each
one of the three Basque provinces.

(74)

To sum up, the Commission finds that the reduction of
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.

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 of the tax
base. It should be pointed out in this connection that ‘it
is settled case-law that the right to protection of legiti-
mate 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 (...). However, no-one can claim that
there has been a violation of the principle of protection
of
legitimate expectations if the authorities have not
given him or her any specific guarantees’ (31). This is why
legal
the argument
certainty have been violated is without foundation in this
case. In this context, moreover, the Commission recalls
that in its Decision 93/337/EEC (32) it deemed certain tax
measures introduced in 1998 for each of the Provinces
of Álava, Guipúzcoa and Vizcaya to be State aid.

legitimate expectations or

that

VIII. THE UNLAWFUL NATURE OF THE REDUCTION OF

THE TAX BASE

IX. ASSESSMENT OF COMPATIBILITY WITH THE

COMMON MARKET

(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 (30) for de minimis aid, the
Commission considers that the aid cannot be regarded as
subject to those rules. It should be stressed in this respect
that the Spanish authorities never maintained,
in the
procedure, that the aid in question should be classed as
de minimis aid, either in full or in part. Moreover, it could
not comply with the de minimis rules, particularly since
there is no guarantee that
the maximum limit 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.

(76)

The Commission would point out that State aid which is
not covered by the de minimis rules is subject to the obli-
gation of prior notification laid down in Article 88(3) of
the Treaty and Article 62(3) 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.

(78) As a preliminary, the Commission would repeat that the
reduction of the tax base has to be classed as an aid
scheme. In view of the general and abstract nature of an
aid scheme, the Commission does not know the circum-
stances of the existing recipient companies or what they
will be in the future, and it is not, therefore, able to
analyse the exact repercussions on competition for the
companies in question. In this context it is sufficient to
ascertain which potential recipients could benefit from
aid that is not consistent with the directives, guidelines
and frameworks applicable on this subject. Moreover,
the Commission would emphasise that, in its decision
initiating the procedure,
it had asked for all relevant
information relating to the aid and the particular circum-
stances of each recipient. However, the Spanish authori-
ties failed to provide any such information. This is why
it is contradictory to accuse the Commission, as certain
comments by third parties do, of providing only a
general assessment, while at the same time refusing to
supply the detailed data requested.

(77) As regards the argument in some of the comments by
third parties that basically there is a violation of legiti-
mate expectations and legal certainty, the Commission is
obliged to reject this, since firstly the scheme is not
existing aid and, secondly, since it was not notified under

(30) 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 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).

(79) As the scheme in question covers only the NUTS III (33)
region in Biscay, it needs to be investigated whether the
aid in this territory is covered by the regional deroga-
tions set out in Article 87(3)(a) or (c) of the Treaty. As
regards the possibility that the Province of Vizcaya might
meet the necessary conditions, the Commission would
point out that the territory has never met the conditions

(31) Joined Cases T-132/96 and T-143/96 dated 15 December 1999,
Freistaat Sachsen and others v. Commission [1999] ECR II-3663.

(32) OJ L 134, 3.6.1993, p. 25.
(33) Nomenclature of Territorial Units for Statistics.

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which would render it eligible for the Article 87(3)(a)
derogation, since the per capita GDP (34) 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 (35), the
conditions of eligibility for the derogation in Article
87(3)(a) of the Treaty are met only if the region, in the
case of NUTS-II, has a per capital GDP of not more than
75 % of the Community average.

it

(80) As regards the possibility that the aid may be covered by
the Commission
the derogation in Article 87(3)(c),
would point out that, in its Decision of 26 July 1995 (36)
on the changes in Spain's regional aid map,
is
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
Vizcaya was a region in which aid for regional develop-
ment could be regarded as compatible with the common
market under the derogation in Article 87(3)(c). By letter
26
Permanent Representation
from their
September 1995, the Spanish authorities accepted this
proposal. The new map thus came into force as of that
date and remained in force until 31 December 1999. As
regards the subsequent period, the Commission would
it
point out that,
approved the Spanish regional aid map for the period
2000 to 2006. According to this map, the Province of
Vizcaya 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.

in its Decision of 11 April 2000,

dated

(81)

The State aid in the form of a reduction of the tax base
has the effect of promoting the creation, in the Province
of Vizcaya, of new firms in which the initial amount of
investment and the number of
jobs created exceed
certain thresholds. However, although the minimum
investment and the minimum number of
jobs are
achieved, the tax 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 corresponding wage costs, but on the tax base.
Furthermore, they are not paid up to a maximum 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. Moreover, 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

(34) Per capita gross domestic product (GDP) measured in purchasing

power standards (PPS).

(35) 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).

(36) See 96/C 25/03.

ceiling expressed as a percentage of the amount invested
in the region’. Therefore, tax incentives, which, as in this
case, do not meet these criteria, cannot qualify as invest-
ment aid.

(82) On the contrary, since they partly reduce the profits tax
payable by the recipients 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 ques-
tion in the light of any derogations that may apply to
the operating aid in question.

(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
the derogation in
granted in regions eligible under
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 Vizcaya is not eligible for the derogation in
Article 87(3)(a) of the EC Treaty, and the grant of the
said operating aid is not subject
to the conditions
described. The NUTS III territory of Vizcaya is not an
outermost region (37) nor a region of low population
density (38). 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. This aid is therefore incompatible in
the present case.

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(3)(a) and (c) of the EC Treaty, since
it does not comply with the rules on regional aid.

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 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 of
measures to assist small and medium-sized enterprises,
research and development, environmental protection,

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

Treaty.

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

(98/C 74/06).

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(86)

(87)

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) of
the Treaty in respect of the said purposes.

steelmaking,

to any sectoral

fisheries, coalmining,

Similarly, the reduction of the tax base, which is not
subject
restriction, 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 agricultural products in Annex I to the
Treaty,
transport,
shipbuilding, synthetic fibres and the motor industry (39).
In the circumstances, the Commission considers that the
tax incentives in the form of a reduction of the tax base
may not comply with the said sectoral rules.
In this
particular case, the reduction of the tax base does not
meet
it should not promote new
production capacity so as not to exacerbate the overca-
pacity problems from which these sectors traditionally
suffer. Therefore, where the recipient belongs to one of
the abovementioned sectors, the Commission considers
that,
rules
subject
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 condition that

to the sectoral

since it

is not

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(3)(a);
it is not intended to make good the
damage caused by natural disasters or exceptional occur-
rences within the meaning of Article 87(3)(b). Further-
more, 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). Nor
does it qualify for the derogation laid down in Article
87(3)(d), as its purpose is not to promote culture or heri-
tage 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 left to pay, where
unlawful and incompatible aid is concerned. The Spanish
authorities should therefore rule out the payment of any
balance from the reduction of the tax base which could
still be due to certain recipients.

(89) As regards incompatible aid already paid, it should be
pointed out that,
in accordance with the above argu-
ments, the recipients may not invoke general principles
of Community law such as legitimate expectations or
legal certainty. Consequently, there are no obstacles 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 Commis-
sion shall decide that the Member State concerned shall
take all necessary measures to recover the aid from the
beneficiary’. In this case, therefore, the Spanish authori-
ties 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 (40).

firms would be in without

(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.

X. CONCLUSIONS

(91)

In view of the above, the Commission concludes that:

— Spain has unlawfully reduced the tax base of invest-
ments in the Province of Vizcaya, thereby infringing
the provisions of 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,

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

(40) Commission letter to Member States of 29.3.1977. See also Case
142/87 dated 21 March 1990, Belgium v. Commission [1990] ECR I-
950.

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L 279/49

HAS ADOPTED THIS DECISION:

Article 1

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

Article 2

immediate and effective execution 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 recovery.
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.

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

Article 5

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.

2.
Recovery shall be effected without delay in accordance
with the procedures of national law, provided these allow the

This Decision is addressed to the Kingdom of Spain.

Done at Brussels, 11 July 2001.

For the Commission

Mario MONTI

Member of the Commission