2003/28/EC: Commission Decision of 20 December 2001 on a State aid scheme implemented by Spain in 1993 for certain newly established firms in Álava (Spain) (notified under document number C(2001) 4475) (Text with EEA relevance)
Date: 2001-12-20
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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COMMISSION DECISION

of 20 December 2001

on a State aid scheme implemented by Spain in 1993 for certain newly established firms in `lava
(Spain)

(notified under document number C(2001) 4475)

(Only the Spanish text is authentic)

(Text with EEA relevance)

(2003/28/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(3)

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,
called on interested parties to submit
having regard to those comments,

in accordance with the abovementioned Articles (1),
their comments, and

(4)

(5)

Whereas:

1. PROCEDURE

(1)

in

the

border

organisations

adopted in 1993 by the

As a result of two complaints, the first submitted by
autonomous
certain
community of Rioja against the urgent, transitional tax
measures
three Basque
provincial councils, and the second by a competitor
the 10 year exemption from corporation tax
against
enjoyed by Dep(cid:243)sitos Tubos Reunidos Lentz TR Lentz,
SA (Detursa),
the
in
located
Commission learned of
the existence of State aid in
`lava in the form of an exemption from corporation
tax for newly established firms.

Lantar(cid:243)n

(`lava),

By letter from the Permanent Representation dated 14
December 2000, registered on 19 December 2000, the
Spanish authorities asked that
for
submitting their comments be extended. By letter from
the Permanent Representation dated 5 February 2001,
registered on 8 February 2001, the Spanish authorities
(prepared by the `lava
submitted their comments
Provincial
abovementioned
procedure.

the time

Council)

under

limit

the

The Commission decision to initiate the procedure was
published in the Official
the European
Communities (2). The Commission invited interested
parties to submit their comments on the aid within one
month of the date of publication of the Decision.

Journal

of

Entrepresarien

(Confederaci(cid:243)n

the Rioja Regional
Comments were received from:
from the Basque
Government on 1 March 2001;
Empresarial
Business Confederation
Vasca/Euskal
Konfederakuntza
(Confebask)) on 2 March 2001; from the Uni(cid:243)n General
de Trabajadores de la Rioja on 2 March 2001, and from
Sch(cid:252)tz IbØrica, S.L. by letter dated 2 July 2001
(D/52 703). The Commission sent these comments to
from the
Spain, asking for observations. By letter
the
Permanent Representation dated 26 July 2001,
Spanish authorities asked that
for
limit
submitting their comments be extended. By letter from
the Permanent Representation dated 17 September
2001, the Spanish authorities submitted their comments
(prepared by the `lava Provincial Council) on the
observations of
the
abovementioned procedure.

interested third parties under

the time

2. DETAILED DESCRIPTION OF THE AID

(2)

letter

By
SG(2000)
dated 28 November 2000,
D/108 806, the Commission informed the Kingdom of
Spain of its decision to initiate in respect of this aid the
procedure laid down in Article 88(2) of the Treaty.

(6)

The Commission notes that this tax aid scheme was
introduced by Article 14 of Provincial Law 18/1993 of
5 July 1993 on urgent tax measures to assist investment

(1) OJ C 37, 3.2.2001, p. 38.

(2) See footnote 1.

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and stimulate economic activity (3). The text of
Article (4) reads as follows:

the

(cid:145)1. Companies formed between the entry into force of
this Provincial Law and 31 December 1994 shall be
exempt from corporation tax for a period of 10 tax
years starting from, and including, the one in which
they are formed, provided that the conditions laid
down in the following paragraph are met.

(8)

stimulate
investment incentives for firms.

economy

the

through

L 17/21

enterprise

and

tax years.

In this case,

from previous

The Commission also notes that the tax aid relates to
the positive taxable income for corporation tax resulting
from the conduct of the business, less the set-off for any
losses
the
recipients are companies which have started their
commercial activities since the date of entry into force
of the said provincial
laws, have invested in tangible
fixed assets a minimum of ESP 80 million (EUR
480 810) and have generated at
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).

least 10 jobs.

(9)

The Commission emphasises that the aid consists of an
exemption from corporation tax during a period of 10
tax years, starting from, and including,
the year in
which the companies are formed.

(10)

The Commission finds that the tax aid 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 a particular category of
firm, such as SMEs, since any firm may qualify,
if it
satisfies the abovementioned conditions.

(11) As far as combination with other aid is concerned, it is
stated that the tax aid in question may not be combined
with any other tax concessions that may be granted in
respect of the minimum investment or the minimum
creation of jobs. Nevertheless, combination with other,
non-tax
loans,
guarantees, equity purchases, etc., relating to the same
is possible
investments
other
combination with
concessions whose
the circumstance triggering each
operative event,
i.e.
concession,
for
example, with tax incentives in the form of a tax
credit (5).

is different. Such would be the case,

out. Nor

subsidised

including

is not

grants,

ruled

aid,

tax

(12)

far as

that as

In its decision initiating the procedure, the Commission
pointed out
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 (cid:145)in any form(cid:146).
The Commission also emphasised, however, that, to be

the application of

2. The conditions of eligibility for
established in this Article are that:

the exemption

(a)

they are formed with a minimum paid-up
capital of ESP 20 million;

[(cid:133)]

(f) between the date of

incorporation and 31
December 1995 they invest at
least ESP 80
million, all such investments being in assets
assigned to the business which are not leased or
sold to third parties for their use;

(g) they create at least 10 jobs in the six months
average
figure during the

and the
that

following start-up,
workforce is kept at
exemption period;

annual

[(cid:133)]

(i)

they must have a business plan covering a
period of at least five years. [(cid:133)].

[(cid:133)]

6. The provisions of this Article shall be incompatible

with any other tax concession.

7. The

scheme

exemption

transitional

shall
be
the
requested from the Treasury Department of
Provincial Council [(cid:133)],which, after checking that
the requirements set out at the beginning have been
met, shall communicate to the applicant company,
as appropriate, its provisional authorisation, which
shall be
the
councillors.(cid:146)

adopted with the

approval of

(7)

The Commission notes that, according to the preamble
the aid is to
to the Provincial Law,

the purpose of

(3) Bolet(cid:237)n Oficial del Territorio Hist(cid:243)rico de `lava No 79, 16.7.1993.
(4) Only the parts of relevance to the assessment of the aid are cited.

(5) See Commission Decision 1999/718/EC of 24 February 1999
concerning State aid granted by Spain to Daewoo Electronics
Manufacturing Espaæa SA (Demesa), (OJ L 292, 13.11.1999, p. 1).

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regarded as aid, the measures must meet all four of the
criteria set out in Article 87 and explained below.

comply with the ceiling laid down for de minimis aid (6),
the aid cannot be
the Commission considered that
regarded as de minimis aid (7).

(13)

Firstly, it stated provisionally that the exemption from
corporation tax confers on recipients an advantage,
which relieves them of charges that are normally borne
from their budgets.

(19)

(14)

the said
the Commission considered that
Secondly,
exemption from corporation tax involves a loss of tax
revenue and is therefore equivalent to the consumption
of public resources in the form of fiscal expenditure.

The Commission affirmed that State aid, which is not
governed by the de minimis rule,
to the
obligation of prior notification laid down in Article
88(3) of the Treaty. However, the Spanish authorities
have not
fulfilled this obligation. The Commission
therefore considered that the aid could be regarded as
unlawful.

is subject

Thirdly, the Commission considered that the exemption
from corporation tax affects competition and trade
between Member States. Since the recipients conduct
business, which may be the subject of intra-Community
their position vis-(cid:224)-vis
trade,
the
clear
competitors
therefore that
the
recipient firms’ profitability is improved by the increase
in their net profit (profit after tax). In this way they are
more able to compete with firms which are not eligible
for the aid.

aid strengthens
in intra-Community trade.

the aid affects trade. Furthermore,

is

It

(20)

The Commission found that, although the granting of
the aid was conditional on a 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. The Commission
the aid does not have the
that
therefore thought
character of investment or job-creation aid.

(21) On the contrary, the Commission considered that the
tax aid has the character of operating aid, since its
the costs incurred
purpose is to relieve a firm of
through
everyday
or
business
its
management.

normal

its

eligibility

certain firms. The

Lastly, the Commission considered that the exemption
from corporation tax is specific or selective in that it
favours
requirements
expressly rule out any firm that was set up before the
the said Provincial Law
date of entry into force of
(mid-1993), that has created fewer than 10 jobs, whose
investment is less than ESP 80 million (EUR 480 810)
and whose paid-up capital does not exceed 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,

In short, the Commission considered, at that stage, that
the exemption from corporation tax is State aid within
the Treaty, since it
the meaning of Article 87(1) of
an
constituting
meets
advantage, being granted by the State from State
resources, affecting trade between Member States and
distorting competition in favour of certain firms.

criteria of

cumulative

the

Since the maximum amount of tax aid in question is
it
not subject,

to the requirement

in particular,

that

(22)

The Commission pointed out that regional operating aid
is in principle prohibited. It may nevertheless be granted
in exceptional circumstances in regions, which meet
certain conditions. But this is not the case here. The
in the light of the
Commission therefore found that,
regional
to the
as
compatibility of the tax aid.

there were doubts

aid rules,

(23)

The exemption from corporation tax, which is not
restricted to a particular sector, may be granted to firms
that are subject
rules. The
Commission therefore questioned whether the aid is
compatible where the recipient belongs to a sector that
is subject to special Community rules.

to Community sectoral

(6) See point 3.2 of the Community guidelines on State aid for small
and medium-sized enterprises (SMEs) (OJ C 213, 19.8.1992, p. 2)
and 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).

(7) See point 3.2 of the Community guidelines on State aid for small
and medium-sized enterprises (see footnote 6) and the Commission
notice on the de minimis rule for State aid (see footnote 6).

(15)

(16)

(17)

(18)

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L 17/23

(24)

subject

Furthermore, the Commission doubted the compatibility
of the tax aid with the common market in the light of
the derogations in Article 87(2) and (3) of the Treaty.
The aid cannot be regarded as aid having a social
character under Article 87(2)(a), is not intended to make
caused by natural disasters or
good the damage
exceptional occurrences under Article 87(2)(b) and is
to the provisions of Article 87(2)(c)
not
concerning certain areas of
the Federal Republic of
Germany. As regards the derogations in Article 87(3)
other than those in subparagraphs (a) and (c), which
have already been discussed, the Commission considered
that the aid is 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 aid does not
fall within the scope of Article 87(3)(c), which concerns
(cid:145)aid to facilitate the development of certain economic
activities...(cid:146), since it is not specific in any way to the
activities of the recipient firms. Lastly, it is not intended
to promote culture or heritage conservation within the
meaning of Article 87(3)(d).

(25) As well as asking the Spanish authorities for their
the
comments under
the
Commission
information necessary for assessing the exemption of
certain
from
newly
corporation tax.

the Article 88(2) procedure,
all

established

in `lava

them to

requested

supply

firms

it

that

is clear from the letter that

into effect was a State aid, nor

They argue that
the
Commission did not in any way think that the measure
put
it was
appropriate to initiate the procedure provided for in
Article 93(2) (currently Article 88(2)) of the Treaty. By
from the Permanent Representation dated 30
letter
September 1994 the Spanish authorities informed the
Commission that, in their opinion, the tax measures did
not constitute State aid prohibited by Article 92 of the
Treaty, since they were measures of a general nature.
Furthermore, by letter to the Permanent Representation
the Commission asked for
dated 19 January 1996,
information about
the
the possible
measures. Later, by letter dated 6 February 1996, the
Tax Coordination Authority ((cid:211)rgano de coordinaci(cid:243)n
fiscal) (8))
(cid:145)the Basque
informed the Commission that:
tax provisions are general
in character and are not
covered by the concept of State aid(cid:146). For the rest, the
Spanish authorities state that,
if the Commission had
entertained the slightest suspicion that the provincial
law in question constituted State aid within the meaning
of Article 87 of the Treaty, it would have been obliged
(in accordance with the case-law of
the Court of
Justice (9))
the Article 88(2) procedure
immediately.

recipients of

to initiate

3. COMMENTS OF THE SPANISH AUTHORITIES

(28)

By letter from the Permanent Representation dated 5
February 2001, the Spanish authorities submitted their
comments (prepared by the `lava Provincial Council).
that the
The Spanish authorities consider, essentially,
decision to initiate in respect of the exemption from
corporation tax the procedure laid down in Article
88(2) of the Treaty is automatically null and void, since
it is based on a de facto wrong description of Provincial
Law No 18/1993 as a new aid rather than an existing
aid and was
the
procedure legally provided for in the Treaty.

therefore adopted in breach of

for business

the Commission,

Secondly, the Spanish authorities consider that the fact
that
in November 2000, described
Provincial Law 18/1993 as State aid is the result of a
development in Community State aid policy (as is also
indicated by the decision to initiate the procedure,
taking the notice as the basis of examination). By
adopting, on 1 December 1997, a resolution on a code
(the (cid:145)Code of
of conduct
Conduct(cid:146)), the Council acknowledged the possibility that
the criteria used by the Commission to examine current
tax arrangements (cid:151) and not only current arrangements
(cid:151) in the context of applying the Community State aid
its part,
rules could subsequently change. For
the
Commission,
report on the
implementation of the Code of Conduct for business
taxation and fiscal State aid(cid:146) (11), expressly recognises
that its aim in publishing guidelines is (cid:145)to clarify the

taxation (10)

annual

in its

(cid:145)First

evidence of

The Spanish authorities emphasise, firstly, that the tax
measure did not constitute an aid when it came into
force. As
the
this
Commission has known of the existence of the said
Provincial Law for many years, since by letter dated 25
May 1994 it
Permanent
Representation of a complaint that referred to that Law.

they claim that

informed

Spanish

the

(8) As alleged evidence of this letter,

the `lava Provincial Council
attached to its comments a copy of a document bearing the
letterhead of the Department of Finance and Public Administration
of
the Tax Coordination
Authority; it was not dated or signed. The document was never
registered in the Commission.

the Basque Government and not of

(9) See Case C-82/84 Germany v Commission,

[1984] ECR 1451,

paragraph 12.

(10) Annex 1 to the Conclusions of

the ECOFIN Council of 1

December 1997, (OJ C 2, 6.1.1998, p. 1).

(11) Communication from the Commission to the Council and the

European Parliament, COM(1998)595 final, 25.11.1998.

(26)

(27)

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business

taxation(cid:146) (12).

Subsequently,

taxation (13). As

in accordance with point 36,

application of State aid rules to measures relating to
the
direct
Commission adopted the notice on the application of
the State aid rules
relating to direct
to measures
stated in the decision to
business
initiate the procedure, the Commission examines tax aid
schemes,
including Provincial Law 18/1993, on the
basis of the guidelines referred to in point 37 of the
notice. Further,
(cid:145)Article
93(1) states that the Commission shall, in cooperation
with Member States, keep under constant review all
systems of aid existing in those States(cid:146). The notice itself
makes clear, however, that all current tax schemes in
the Member States that predate the notice may only be
examined by the Commission under
the procedure
provided for in Article 88(1) of the Treaty (constant
from being
review), which thus prevents
considered illegal. The schemes,
therefore, are tax
measures applied in the Member States, hence the term
(cid:145)current(cid:146), which prior to that date (December 1997) had
not been regarded as State aid.

the (cid:145)aid(cid:146)

(29)

Thirdly, the Spanish authorities contend that Provincial
Law 18/1993 was never amended. It therefore satisfies
the non-amendment test in Council Regulation (EC) No
659/1999 of 22 March 1999 laying down detailed rules
for the application of Article 93 of the EC Treaty (14),
whereby an aid measure can be regarded as an existing
aid.

(30)

it

It has been shown that

the Spanish authorities consider that, even
In short,
though, according to the Commission, Provincial Law
is an
18/1993 should be regarded as State aid,
existing aid scheme.
the
Commission was informed, in 1994 or even earlier, of
the application of Provincial Law 18/1993 and did not
regard it as a State aid; that a change in State aid policy
has occurred, since reference is made to existing tax
measures in the Member States; and that the said Law
has not been amended in any way since it came into
force. However, Article 88(1) lays down the compulsory
procedure which has to be followed in the case of
existing aid:
review in cooperation with
Member States, and not the procedure provided for in
Article 88(2). The Regulation also lays down the
procedure that
should be followed in the case of
existing aid schemes: cooperation pursuant to Article
93(1)
(currently Article 88(1) of the Treaty) and the
proposal of appropriate measures. The Commission,
its decision to initiate the
therefore,

should annul

constant

if
that

the Provincial

procedure and,
it considers, after a preliminary
law does constitute
examination,
State aid for the purposes of Article 87 of the Treaty,
should propose to the Member State in question the
measures
required in this case by the progressive
development or the functioning of the common market.

It

that

selective as

in particular

their conclusion,

In support of
stress

it cannot be regarded as State aid.

(31) As to the character of the tax measure in question, the
Spanish authorities consider that, since it is not caught
laid down in Article
by the selectivity requirement
87(1),
is not
selective, in particular since it is applied irrespective of
the sector of the economy in which the firms operate
and since its purpose, which is to promote the economy
the Commission
is not
as a whole,
non-discriminatory
maintains:
objective,
the
lays down do not
implementing criteria which it
them into (cid:145)certain
that meet
transform the firms
undertakings(cid:146) within the meaning of Article 87 of the
Treaty.
the Spanish
authorities
the measure in
question, designed as its name suggests to (cid:145)promote
economic
economic
objective using all the instruments available to a State.
In addition, they consider that the non-application of
the tax concession either to existing firms or new firms
created after 31 December 1994 does not mean that it
is selective, since, firstly, the purpose is to promote new
activities and, secondly, firms created after that date are
not disadvantaged compared with the recipients of the
concerning
aid. As
investment,
Spanish
authorities consider that these do not mean that the
measure is selective, since the conditions, as a result of
not
their
discriminatory. As the selectivity requirement
is not
met, the Spanish authorities conclude that the measure
cannot be regarded as State aid, but as a measure of a
general nature.

to the quantitative
job-creation and

conditions
capital,

activity(cid:146), pursues

horizontal

legitimate

objective

nature,

and

the

are

a

(32)

the rest,

the Spanish authorities consider

For
that
another reason why the tax measure in question cannot
be regarded as State aid is that
it does not distort
competition and does not affect trade between Member
States. They point out that, under the Code of Conduct,
Provincial Law 18/1993 has already been examined (15),
and it was concluded that there was no effect on the
location of business in the Community.
In addition,
Provincial Law 18/1993 does not strengthen, nor could
it, the position of any firm. As the firms, which have

(12) Point 14 of the communication mentioned in the above footnote.
(13) OJ C 384, 10.12.1998, p. 3.
(14) OJ L 83, 27.3.1999, p. 1.

(15) Report by the (cid:145)Code of Conduct Group(cid:146), submitted to the ECOFIN
Council of 29 November 1999, point D009: (cid:145)Basque Country (cid:151)
Start-up aid(cid:146).

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L 17/25

recently been set up, do not have a well-defined
position on the market, it is not easy to see how they
could be strengthened.

(33)

Finally, the Spanish authorities reject the description of
the tax measure introduced by Provincial Law 18/1993
as operating aid, since such a description, by definition,
can only be given to firms that already exist but not,
under any circumstances, to new ones. On the contrary,
they consider that the measure, in view of the minimum
investment and minimum job-creation levels on which
it
initial
the Commission
investment within the meaning of
communication of 1979 (16).
the
Spanish authorities point out
in the
guidelines on national regional aid (17), it says that tax
aid (cid:145)may(cid:146) be regarded as investment aid when it is based
on investment, this does not mean that it is only in this
case that it (cid:145)should(cid:146) be regarded as investment aid.

In this connection,
that where,

intended to promote

conditional,

is

is

measure in question affords the recipients an advantage,
since the purpose and the effect of the exemption from
corporation tax for 10 consecutive tax years is to relieve
the recipient of part of the tax burden which would
have been imposed on its profits. Moreover, since the
firms are engaged in economic activities,
recipient
which are likely to include intra-Community trade, the
tax measure distorts competition and affects that trade.
According to the Rioja Regional Government, the tax
measure is specific in scope not only on account of the
capital of ESP 20 million (EUR
minimum share
120 202), the minimum investment of ESP 80 million
(EUR 480 810) and the minimum of 10 jobs created,
but because (a) existing firms are not eligible and (b)
eligibility is restricted to firms in certain regions of the
Member State.

(36)

The Rioja Regional Government also points out that,
under Article 88(3) of the Treaty, State aid should be
notified to the Commission. Aid, it says, cannot be put
into effect before the Commission has ruled on its
compatibility with the common market.

4. OTHER COMMENTS RECEIVED BY THE
COMMISSION

(34)

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.

(37)

4.1. Comments of the Rioja Regional Government

The Rioja Regional Government also considers that the
tax measure cannot be regarded as investment aid,
because it does not satisfy the requirements in the
regional aid (18). Despite the
guidelines on national
minimum investment and job-creation requirements, the
aid does not depend on the size of the investment or
the number of jobs created. Instead, the tax measure has
the character of operating aid, since it relieves the
recipient of some of the expenditure, which it would
have incurred as part of its day-to-day operations. This
operating aid, moreover, does not qualify for any of the
exceptions provided for in Article 87(2) and (3) of the
Treaty.

(35)

The Rioja Regional Government states that
the tax
measure constitutes State aid, since it satisfies all four
criteria set out in Article 87 of the Treaty. In support of
this contention it argues that the term (cid:145)State(cid:146) in Article
87 of the Treaty includes any public body irrespective
of the extent of its territorial scope and hence, inter alia,
the provincial governments.
the
description (cid:145)aid(cid:146) does not depend on the form of the
measure. It points out that the concept of aid in Article
87 is broader than that of subsidy and may therefore
It also points out that the tax
include tax measures.

It also states

that

(38)

(16) OJ C 31, 3.2.1979, p. 9. According to the communication, (cid:145)aids
linked to initial investment(cid:146) means aids linked and fixed directly in
relation to initial investment or jobs created.

(17) OJ C 74, 10.3.1998, p. 9. See footnote 46 in Annex I of the
guidelines:
(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(cid:146).

tax

five

systems

The Rioja Regional Government considers that the tax
measure cannot be justified on the grounds that there
are
in Spain. Advocate-General
Saggio (19) considered in this respect that the fact that
authorities within a territory hold tax powers does not
justify any discrimination in favour of firms established
in that territory. Nor is the measure justified by the
nature or general scheme of the tax system in `lava,
since its purpose is to improve the competitiveness of
firms. The Rioja Regional Government also
recipient

(18) See previous footnote.
(19) Opinion of Advocate-General Saggio in Joined Cases C-400/97,
C-401/97 and C-402/97, Administraci(cid:243)n General del Estado v
Juntas Generales de Guipœzcoa y Diputaci(cid:243)n Foral de Guipœzcoa.

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argues that the Spanish Supreme Court has held (20)
that other similar tax measures distorted competition
and affected the free movement of capital and labour.
The High Court of
the Basque Country (Tribunal
Superior de Justicia del Pa(cid:237)s Vasco) (21) has also taken
this line.

(43)

It points out

in a given region. However,

Regarding the selective nature of
the tax measure,
the Commission considers the
Confebask States that
measure to be an instrument for the direct granting of
aid.
that, according to
in this respect
points 17, 19 and 20 of the Commission notice on the
application of the State aid rules to measures relating to
direct business taxation, 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
the tax
measure in question has none of these characteristics,
not even territorial specificity, since it applies to the
whole territory for which the provincial authorities that
introduced it 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 thresholds is normal
practice
rules.
Confebask also draws attention to the basis of various
Justice and Commission
judgements of
decisions: hitherto,
it has never been held that
thresholds 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.

and Community

the Court of

in national

tax

(44) As to the fact that the tax measure in question applies
only to part of the territory of a Member State, which
evidence of
as
the Commission sees
specificity,
Confebask points out
similar measures were
that
introduced for the rest of that territory by the Finance
Act 1994 (22). These measures consisted in a reduction
of 95 % in corporation tax liability for 1994, 1995 and
1996 for newly established firms which invested at least
ESP 15 million (EUR 90 152) and had a workforce of
between three and 20 persons. The measures were
designed, moreover, to promote the formation of new
companies. Consequently, the effect on competition of
exemption from corporation tax in `lava is
the
neutralised,
since the neighbouring Basque historic
territories also give tax concessions to newly established
firms. Further, if the tax measures in question did affect
competition, this would be on account of the central
government’s measures,
for which the number of
recipients could be greater.

(45)

(22)

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 Code of

(cid:145)Law No 22 of 29 December 1993, on tax measures and the
reform of
and
unemployment protection(cid:146).

the public

system of

service

legal

the

(39)

The Rioja Regional Government believes, therefore, that
the tax measures should be regarded as State aid, which,
in
because the notification procedure provided for
Article 88(3) of the Treaty has not been followed,
is
unlawful and incompatible with the common market.

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

(40)

started

Confebask
underlying historical
enjoyed by `lava.

by
reasons

drawing
for

attention
the
the tax autonomy

to

(41)

Concerning the presumed reduction of
the tax debt,
Confebask considers that the Commission is wrong to
think that there is a tax debt whose reduction involves a
loss of tax revenue. If this argument were sound, any
tax deduction would always involve a loss of revenue
compared with the amount that would initially be due.
Confebask therefore asks the Commission to reconsider
its position, since not to do so would be tantamount to
unlawfully harmonising the tax burden by fixing a
reference amount for determining possible losses of tax
revenue.

that

there are between the various

(42) As regards the effect on trade, Confebask states that, in
the Commission’s view, the tax measure distorts trade
because the recipients are involved in that
trade.
However, any trade will always be affected by any
differences
tax
systems. Thus, to see whether the tax measures do affect
trade, the Commission ought to analyse the tax system
as a whole and not specific provisions in it. 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
this specific measure affects trade and others do not. In
any event, even if such an effect did exist, the way to
remove it would be through harmonisation, not State
aid.

(20) See its judgement of 7 February 1998.
(21) See the judgements of 30 September and 7 October 1999
concerning the (cid:145)tax holidays(cid:146) in the form of reductions of taxable
income of 99 %, 75 %, 50 % and 25 %.

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Conduct Group (Primarolo Group).
In France, since
1994, new firms have been eligible for corporation tax
exemptions and reductions for a period of five years
(ten years in some regions), and in Corsica for even
more favourable arrangements. In Luxembourg, there is
a 25 % reduction of corporation tax for a period of
eight years. In Italy, the exemption from the IRPEG and
the ILOR in the Mezzogiorno is 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 `lava’s exemption from corporation tax
is not an exceptional system, which gives rise to any
specificity. On the contrary, it is a system widely used
in the Member States. In view of the above, Confebask
concludes that the tax measures in question are not
State aid but general measures.

(46)

legitimate

expectations,

Confebask argues that the Commission’s description of
the tax reduction as unlawful aid calls into question the
the ban on
principles of
arbitrary decisions by institutions,
legal certainty and
proportionality. The Basque tax system was already
Decision
by
deemed
93/337/EEC (23).
the Commission may
change its position, during the (cid:145)constant review(cid:146), as
regards future cases but not past ones.

In any event,

Commission

compatible

as

State

(47) According to Confebask, since a legitimate expectation
has been aroused, in particular by letter reference 4555
of 22 May 1994, which the Commission sent to the
Spanish Permanent Representation in order to obtain
information, the measure cannot be the subject of a
recovery. The letter shows, firstly, that the Commission
learned of the measure back in 1994 and, secondly, that
the
aid. The
complainant described it
Commission, however, did not
initiate the procedure
but apparently agreed with the reply from the Spanish
authorities, who denied that the measure was State aid.
The situation described, recalls the earlier one examined
by the Court of Justice in RSV (24). In that case, the
Court held that the period of 26 months between the
decision to initiate the procedure and the final decision
had established, on the part of
the beneficiary, a
legitimate expectation of such a nature as to prevent the
Commission from ordering the Dutch authorities to
order the refund of the aid. Confebask considers that, if
a period of 26 months between the initiation of the
procedure and its conclusion establishes a legitimate

expectation which prevents the recovery of
the aid
being ordered, a situation in which the Commission
does not even initiate the procedure for six years and
six months, so that no position is adopted concerning
the possible existence of aid that is incompatible with
the common market, is even clearer still. In short, the
undertakings and authorities informed of the questions
raised by the Commission, which did not react to the
reply provided by the Spanish authorities, would be
entitled to think that the system of exemption from
corporation tax gave no cause for complaint as far as
the State aid rules were concerned. Confebask also
mentions other factors that prevented an experienced
economic operator from noticing any irregularity in its
acceptance of the tax concession in question. As early as
legislation
1993,
applicable in the rest of Spain) contained systems for
exempting newly established firms from corporation tax.
Basically, these systems are no different from those in
the Basque legislation cited in these pleadings. In the
circumstances, no recipient
firm could foresee that
several years after being informed of these rules, which
the
are similar
common
on
Community law, would demand the recovery of the aid.
such recovery would involve
As already explained,
recalculating the tax debt
for tax periods that were
closed years ago, which would be a manifest assault on
legal certainty.

to those applicable in the rest of
relying
the Commission,

common tax law (i.e.

territory,

the

the

(48) As regards the assessment of compatibility with the
common market, Confebask notes that, according to the
decisions of
the
Commission initiates proceedings it must have serious
doubts as to the compatibility of the aid. As no reaction
was forthcoming for several years, it must be concluded
that the Commission did not harbour any doubts.

Justice (25), where

the Court of

(49) On the other hand,

if the tax measure in question is
regarded as a rule granting aid directly, Confebask takes
the view that the practice of the Commission and the
Court requires that the measure has to be sectorally
specific before its compatibility can be assessed. The
overall
tax burden on firms and the reference tax
burden would also have to be established. 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 challenges the Commission’s argument that the tax
measure is incompatible with the common market,
since it does not contain specific provisions on sectoral

(23) OJ L 134, 3.6.1993, p. 25.
(24) Judgment of the Court of Justice of the European Communities of
24 November 1987, in Case C-223/85, RSV v Commission, [1987]
ECR 4617.

(25) See

Judgment of

the European
Communities of 19 May 1993, in Case C-198/1991, William Cook
plc v Commission, [1993] ECR I-2487.

the Court of

Justice of

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22.1.2003

or regional aid, or aid for large investment projects, etc.:
tax measures may not and should not contain this type
of provision. According to the Court of Justice (26), the
Commission should specify in its decisions what the
adverse effects on competition are, determining the real
effect of the measures examined. Incompatibility cannot
be determined, therefore, in abstract situations 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 measure in
question.

(50)

Confebask therefore asks the Commission to terminate
the procedure and state that
in
question comply with Community law.

the tax measures

4.3. Comments from the Uni(cid:243)n General de
Trabajadores de la Rioja (UGT)

The UGT’s first point is that the labour force in Rioja is
feeling the effects of the tax aid through the resultant
migration of firms. This effect on the region’s labour
that Rioja adjoins the
force is increased by the fact
Basque Country.

The `lava measure in question, which is identical to the
measures
introduced by the other Basque historic
territories, means that the Basque Country is becoming
a tax haven in order to capture business from the whole
of the EU, and in particular from the border region of
Rioja. The measures therefore distort competition, since
the decision to locate a firm is not the result of the free
play of market forces but of the tax concessions created
by a fiscal policy with objectives unconnected with the
tax system. They also constitute an obstacle to the
desirable tax harmonisation of the Community.

Furthermore, the UGT considers that the tax measure
the
has the character of a State aid.
Commission (27)
tax
already
measures of the Basque historic territories as State aid
that is incompatible with the common market. It also

It notes that
other

regarded

has

(51)

(52)

(53)

(26) Joined Cases C-278/92, C-279/92 and C-280/92, Spain v

Commission, [1994] ECR I-4103.

(27) Decision of 10 May 1993 on Provincial Laws 28/1988 (`lava),
8/1988 (Vizcaya) and 6/1988 (Guipœzcoa); Commission Decision
and Decision
1999/718/EC
(see
2000/795/EC (Ramond(cid:237)n SA and Ramond(cid:237)n CÆpsulas SA)
(OJ
L 318, 16.12.2000, p. 36).

(Daewoo)

footnote

5)

notes that, in his Opinion of 1 July 1999, which dealt
with preferential rulings on tax measures similar to
territories,
those
Advocate-General Saggio also considered that
such
measures constituted State aid in breach of the Treaty.

historic

Basque

the

of

(54)

(55)

(56)

(57)

the rest,

the UGT supports

the tax measure is State aid that

the Commission’s
For
is
that
assessment
unlawful and incompatible.
It believes, therefore, that
the measure should be regarded as State aid, which,
in
because the notification procedure provided for
Article 88(3) of the Treaty has not been followed,
is
unlawful and incompatible with the common market.
The Commission should also require the recipients to
repay aid that has been paid unduly.

4.4. Comments from Sch(cid:252)tz IbØrica, S.L. (Sch(cid:252)tz)

its competitors include
Sch(cid:252)tz begins by saying that
Dep(cid:243)sitos Tubos Reunidos Lentz, TR Lentz, SA,
established in `lava (Detursa). It claims that Detursa has
been exempt from corporation tax since 1996, which
means that it will continue to be exempt until 2006. It
the Historic
the provincial authorities of
notes that
Territory of `lava sent a certificate on 1 March 2000
stating that Detursa qualifies for the exemption under
Provincial Law No 18/1993 of 5 July.

Sch(cid:252)tz considers that it is harmed by the exemption for
which Detursa is eligible. The exemption improves
Detursa’s competitive situation on the market, e.g. as
regards advertising campaigns, the economic and social
conditions of
its workers, research and development,
industrial promotion and electronic commerce. Sch(cid:252)tz
that, although Detursa has not
states in this respect
made a profit enabling it to receive the aid, it obtains
advantages from the grant of
the exemption in any
event by acting in the knowledge that it is free from
paying the tax for 10 years.

that

the measure is State aid that
It points out

Similarly, Sch(cid:252)tz supports the Commission’s assessment
is unlawful and
that
incompatible.
the measure is not
justified by the nature or the general scheme of the tax
system, since it is designed to promote the formation of
new companies which will have competitive advantages
over other firms that,
like Sch(cid:252)tz, do not enjoy such
advantages. For the rest, Sch(cid:252)tz considers that the tax
exemption has the character of operating aid, since it
relieves Detursa of the costs that should be incurred
through its normal operation.

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Official Journal of the European Communities

L 17/29

5. COMMENTS OF SPAIN ON THE OBSERVATIONS OF
OTHER INTERESTED PARTIES

(61)

By letter from the Permanent Representation dated 17
September 2001, the Spanish authorities submitted their
comments (prepared by the `lava Provincial Council)
on the observations of interested third parties, which
were sent to them in accordance with Article 6(2) of
Regulation (EC) No 659/1999. Basically,
the `lava
Provincial Council considers that none of the comments
calls into question its original observations (28). It states
that the Commission will not find any information in
these comments that will help it to determine whether
the measure is an existing aid or a new one.

(62)

(58)

(59)

The `lava Provincial Council also uses the reply to the
observations of other interested parties to submit further
comments of its own in addition to those which it had
made on 5 February 2001 in the said letter from the
Spanish Permanent Representation, under Article 6(1) of
Regulation (EC) No 659/1999. However, the period of
one month from the date of the letter (28 November
2000)
in which the Commission notified the Spanish
authorities of its decision to initiate the procedure and
invited them to submit comments under
the said
Article, expired on 29 December 2001. These additional
comments should not be taken into account, therefore.
The Commission would point out in this respect that
the possibility given to the authorities of the Member
comments on the
State
observations of
to
Article 6(2), definitely does not mean that they can have
an additional period in which to present comments
under the said Article 6(1).

interested third parties, pursuant

in question to submit

Firstly, it must confer on recipients an advantage, which
relieves them of charges that are normally borne from
their budgets. The advantage may be provided through
different types of reduction in the firm’s tax burden. The
exemption from corporation tax meets this criterion,
since it removes the tax burden on the recipient firms.
If there were no exemption, the recipient firm would
have to pay full corporation tax for 10 years. The
exemption from corporation tax thus
an
exception to the common tax system applicable.

implies

in the form of

Secondly, the Commission considers that the exemption
from corporation tax involves a loss of tax revenue and
is therefore equivalent to the consumption of public
resources
fiscal expenditure. This
criterion is also applied to aid granted by regional and
local bodies in the Member States (29). Furthermore, the
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

6. ASSESSMENT

6.1. Character of a State aid

(60)

The Commission would point out that, for the purpose
of applying the Community rules on State aid, the tax
nature of
important,
the measure in question is not
since Article 87 of the Treaty applies to aid measures (cid:145)in
any form(cid:146). Nevertheless,
the Commission emphasises
that, to be regarded as aid, the measure should satisfy
all
in Article 87 and
four of
explained below.

the criteria set out

(28) See section III: (cid:145)Comments of the Spanish authorities(cid:146).

this argument,

(63) According to the above claim put forward by certain
third parties, the Commission is wrong to think that the
exemption from corporation tax involves a loss of tax
revenue. To determine the amount of revenue lost, so
runs
the Commission should fix a
normal level or amount of tax. It should be noted here,
however, that the normal
level of tax is derived from
the tax system in question and not from a Commission
decision. Furthermore, according to the second indent in
point 9 of the notice on the application of the State aid
rules to measures relating to direct business taxation, 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(cid:146). The
advantage may be provided through a reduction in the
firm’s tax burden in various ways, including: (cid:145)[(cid:133)] a total
or partial reduction in the amount of
tax (such as
exemption or a tax credit)(cid:146). It should be noted in this
(cid:145)a
respect
measure by which the public authorities grant to certain
undertakings a tax exemption which, although not
the
involving a transfer of State resources, places

that, as the Court of

Justice has held (30)

(29) See Judgment of the Court of Justice of 14 October 1987, in Case

C-248/84, Germany v Commission, [1987] ECR 4013.

(30) Case C-387/92, Banco de CrØdito Industrial, now Banco Exterior de
[1994] ECR I-877,

Espaæa SA v Ayuntamiento de Valencia,
paragraph 14.

L 17/30

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Official Journal of the European Communities

22.1.2003

financial

situation than other

persons to whom the tax exemption applies in a more
taxpayers
favourable
constitutes State aid within the meaning of Article 92(1)
of the Treaty(cid:146). This is the case with the tax advantage
that an exemption from corporation tax confers. The
argument, therefore, is not convincing.

(64)

Thirdly, the measure must affect competition and trade
between Member States. It should be pointed out in this
respect that, according to a report (31) on the external
dependency of the Basque economy in the period 1990
to 1995, exports went up (32), not only in absolute
terms but, in particular, in relative terms as well, to the
the country. The
detriment of sales to the rest of
external market has therefore partially replaced the
Spanish market. Furthermore, according to another
statistical report (33) on the foreign trade of the Basque
Country, at 28,9 % the Basque economy’s (cid:145)propensity to
export(cid:146) (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, during the period
1993 to 1998 the Basque trade balance was clearly in
surplus.
in 1998, for each ESP 100 of
imports there were ESP 144 of exports. In short, the
Basque economy is very open to the outside, and its
production is very much geared to exporting. Given
these characteristics of the Basque economy, it is clear
firms are engaged in economic
that
activities, which are likely to include intra-Community
trade. Consequently,
their position
vis-(cid:224)-vis their competitors in the Community. It is clear
therefore that
the
recipient firms’ profitability is improved by the increase
in their net profit (profit after tax). This enables them to
compete with firms, which are not eligible for the tax
aid.

the aid affects trade. Furthermore,

aid strengthens

the recipient

In particular,

(65)

Since the tax rules under investigation 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 and their impact
on a market, sector or specific product cannot be
established, contrary to the claim made by certain third
parties. This position has been confirmed by a number

(31) Patxi Garrido Espinosa

and Ma Victoria Garcia Olea,
dependencia exterior vasca en el periodo 1990(cid:151)1995(cid:146), Eustat.

(cid:145)La

(32) In 1990 exports accounted for 28,5 % of total sales,

including

(33)

those to the rest of Spain, but for 40,8 % only five years later.
(cid:145)Estad(cid:237)stica de Comercio Exterior para la Comunidad Aut(cid:243)noma de
Euskadi
(Euskal
Estatistika-Erakundea/Instituto Vasco de Estad(cid:237)stica).

prepared

1998(cid:146),

Eustat

aæo

by

en

el

of decisions of the Court of Justice (34). Moreover, the
in its decision
Commission would emphasise that,
initiating the procedure, it asked the Spanish authorities
for all relevant information that would allow it to assess
the aid. The request was clearly intended to enable the
the actual
Commission to obtain a general
effects of the scheme and not to gather data sufficient
the
for carrying out
Spanish
any
have
information (35) on the instances where the tax holiday
was applied. This is why it is contradictory to criticise
the Commission, as certain third-party comments do,
for providing only a general assessment while at the
same time refusing to supply the information requested.

individual appraisals. However,
not

authorities

provided

idea of

to

the

information

the only recipient

recipients of
the

to
firm is a subsidiary of

(66) Although assessment of the scheme did not require it to
do so, the Commission, by way of illustration, examined
the specific case of Detursa,
firm
identified (thanks to the complaint submitted by Sch(cid:252)tz
IbØrica S.L.,
since the Spanish authorities did not
provide the information requested by the Commission
tax exemption).
concerning the
the
According
Commission (36),
the
Sotralentz group, whose registered office is at Drulingen
in France. The Sotralentz group has two factories, one
belonging to the Spanish subsidiary at Comuni(cid:243)n,
`lava, and the other to the subsidiary at Peterlee in the
United Kingdom, which make plastic products, and in
this market,
particular
Sotralentz and hence its subsidiary Detursa compete
with the German groups Sch(cid:252)tz (including its Spanish
subsidiary Sch(cid:252)tz IbØrica S.L., with two plants
in
Germany and subsidiaries in France,
Italy, the United
Kingdom, Norway and Poland) and Werit, the Italian

packaging. On

industrial

available

this

81

82;

and

(34) See Case C-75/97,

in Case C-310/99,

the Opinion
Italy

(Maribel) Belgium v Commission, [1999] ECR
I-3691, paragraphs 48 and 51; Joined Cases T-298/97, T-312/97,
T-313/97, T-315/97, T-600/97 to 607/97, T-1/98, T-3/98 to
[2000] ECR
T-6/98 and T-23/98, Alzetta Mauro and others,
of
II-2319,
80,
paragraphs
Advocate-General Ru(cid:237)z-Jarabo
v
Commission, paragraphs 54 and 55 (17 May 2001), and the
Opinion of Advocate-General Saggio in Case C-156/98, Germany v
Commission, paragraph 31 (27 January 2000), 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 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).
(35) With regard to the complaint submitted by Sch(cid:252)tz IbØrica SA, the
Spanish authorities informed the Commission that no aid had
been paid to Detursa at that date.

from an ex ante assessment,

is sufficient

if,

it

article

(36) See in particular Sotralentz’s website http://www.sotralentz.com
(cid:145)La guerre du nuclØaire du conteneur de
container
in the 1 000 litre
(cid:145)Emballages magazine(cid:146):

and the
1 000 litres(cid:146)
sector),
15
(http://www.emballagesmagazine.com/site/index.cfm).

(Nuclear war’
2000,

May

in

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Official Journal of the European Communities

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and the

group Mamor
Finnish group Van Leer.
Competition on the IBC (Intermediate Bulk Container)
market is clearly cut-throat, as production capacity far
exceeds demand. In industrial packaging, competition is
worldwide rather than just European: Sotralentz has
granted a licence to the Greif Bros Corporation group in
the United States of America, and the Sch(cid:252)tz group has
five factories on the other side of
the Atlantic. The
Commission therefore thinks that granting Detursa State
aid may affect trade between Member States and distort
competition, strengthening Detursa’s position vis-(cid:224)-vis
competitors like Sch(cid:252)tz IbØrica S.L.

transparency. On the other hand, as explained above, it
does distort competition and affect trade.

should be

assessed by

effect on trade

(68) As regards the comment from certain third parties that
the
the
Commission on the basis of a comparison of all tax
the
the Commission would point out
systems,
subject of the proceeding initiated under Articles 87 and
88 of the Treaty is the distortions of competition that
may result from a rule favouring certain firms (in this
case certain newly established firms) and not those that
are due to differences between the tax systems of the
Member States, which would in any event be caught by
the provisions of Articles 93 to 97 of the Treaty.

that

the

activities

location of business

(67) As regards the Spanish authorities’ argument that the
tax measure in question neither distorts competition nor
affects trade between Member States since the report by
the Code of Conduct group concluded that it did not
affect
in the
Community, the Commission considers that an analysis
which draws on the Code of Conduct cannot be a
substitute for an assessment based on the State aid rules.
The criteria established in part B (37) of the Code of
Conduct
for determining whether a tax measure is
(cid:145)harmful(cid:146) are not the same as those for deciding whether
a measure distorts competition or affects trade.
It is
possible,
a measure will not be
that
considered harmful, because the criteria in B do not
apply, even though it may distort and affect trade. In
this specific case, the tax holiday is not caught by the
criteria in B, since it
is not granted exclusively to
non-residents or in respect of transactions carried out
by non-residents; it is not completely separate from the
national economy; it is not granted even without any
real
economic
presence within the Member State; it is not applied to
profits determined in respect of activities within a
multinational group of companies in accordance with
lack
internationally accepted principles and does not

substantial

economic

therefore,

activity

and

(37) Section B of the Code of Conduct for Business taxation reads: (cid:145)[(cid:133)]
When assessing whether such measures are harmful, account
should be taken of, inter alia: (1) whether advantages are accorded
only to non-residents or in respect of transactions carried out with
non-residents, or (2) whether advantages are ring-fenced from the
domestic market, so they do not affect the national tax base, or
(3) whether advantages are granted without any real economic
activity or substantial economic presence within the Member State
offering such tax advantages, or (4) whether the basis of profit
determination in respect of activities within a multinational group
of companies departs from internationally accepted principles,
notably those agreed upon within the OECD, or (5) whether the
tax measures lack transparency,
including where statutory rules
are relaxed at administrative level in a non-transparent way(cid:146).

it

the

firms

favours

view that

certain firms. The

the Commission takes

(69) As regards the specific character which State aid must
have,
the
exemption from corporation tax is specific or selective
in that
eligibility
requirements expressly rule out any firm set up before
the date of entry into force of the said Provincial Law
(mid-1996) that has created fewer than 10 jobs, whose
investment is less than ESP 80 million (EUR 480 810)
and whose capital does not exceed ESP 20 million (EUR
120 202). The Commission would point out
that,
according to the Fourth Report on Enterprise in
Europe (38),
in the European
the number of
Community in 1992 which had fewer
than 10
employees, or no employees at all, was 14 629 000, or
92,72 % of the total (39). In Spain’s case, the percentage
in 1991 was even higher, at about 95,11 % (40).
on
to
Furthermore,
Enterprises in Europe (41), the number of firms in the
European Community in 1995 which had fewer than
10 employees, or no employees at all, was 16 767 000,
or 92,89 % (42) of
the
In Spain’s case,
the total.
percentage was higher still, at about 95 % (43).
is
likely that these percentages are even higher in the case
of new firms,
since a firm usually starts with a
workforce that will expand as the firm consolidates and
reaches its cruising speed. This is the case in Spain,
where in 1995 the percentage was even higher, at about
98 % (44). The main conclusion, therefore, is that one of

Fifth Report

according

the

It

(38) Enterprises in Europe, Fourth Report, Eurostat.
(39) Data taken from the table on page 27 of the report.
(40) Data taken from the table on page 152 of the report.
(41) Enterprises in Europe, Fifth Report, Eurostat.
(42) Data taken from the table on page 31 of the report.
(43) Data taken from the table on page 224 of the report.
(44) Data taken from the table on page 73 of the report.

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(70)

(71)

the conditions of eligibility alone rules out the majority
of firms.

The Commission would also point out that the fact that
the tax exemption is specific in scope does not mean
that it has no other selective features, such as regional
specificity. However, once it has been shown that the
tax reduction favours certain firms on account of this
specificity of scope, the Commission considers that it is
not necessary to analyse in detail all the other specific
features.
it will not
In this particular case, therefore,
examine any regional specificity the measure may have.

For the rest, the objective character of the thresholds
cited does not, as some of the third-party comments
claim, prevent them from being selective and excluding
firms which do not satisfy the conditions in question.
According to the case law (45),
(cid:145)the fact that the aid is
not aimed at one or more specific recipients defined in
advance, but that it is subject to a series of objective
criteria pursuant
[(cid:133)]
cannot suffice to call in question the selective nature of
the measure and, accordingly, its classification as State
aid within the meaning of Article 92(1) of the Treaty.
[(cid:133)] It does not, however, preclude that public measure
from having to be regarded as a system of aid
constituting a selective, and therefore specific, measure
it
if, owing to the criteria governing its application,
procures an advantage for certain undertakings or the
production of certain goods, to the exclusion of others(cid:146).

to which it may be granted,

(72) As regards invoking the nature or general scheme of the
tax system as a possible justification for the exemption
from corporation tax, the Commission emphasises that
what matters is to know 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.
Furthermore, it is up to the Member State concerned to
establish that the tax measures in question follow the
logic of the tax system (46). In this particular
internal
supply any
case,
information on the internal
the tax system,
which the tax measure is supposed to follow. The
that, according to the
Commission notes however

the Spanish authorities did not

logic of

(45) See Judgment of

the Court of First

Confederaci(cid:243)n Espaæola de Transporte de Mercanc(cid:237)as
Commission, [2000] ECR II-3207, paragraph 40.

Insance in Case T-55/99,
(CETM) v

(46) See paragraph 27 of the Opinion of Advocate-General Ru(cid:237)z-Jarabo

in Case C-6/97.

the objectives pursued,

provincial law introducing the tax holiday, the declared
objective was to stimulate `lava’s economy, which was
then in serious crisis. The objective is not determined
therefore by primary tax concerns, but by economic
policy considerations unconnected with the tax system.
This extraneous quality is reinforced by the temporary
the tax measure. As regards the possibly
nature of
legitimate nature of
the
Commission does not question this, although it would
point out that it is not sufficient for a public measure to
avoid being examined from a State aid perspective,
since, as the case-law states (47): (cid:145)If that argument were
followed, it would be sufficient for the public authorities
to invoke the legitimacy of the objectives which the
adoption of an aid measure sought to attain for that
measure to be regarded as a general measure outside the
scope of Article 92(1) of the Treaty. That provision does
not distinguish between measures of State intervention
by reference to their causes or aims but defines them in
relation to their effects(cid:146).

fact

that

that

and the

(73) As to the existence of exemptions from corporation tax
the
States
in other Member
Commission did not regard them as State aid because
they were aimed at new firms, a point that, according to
certain third parties, gives rise to legitimate expectations
concerning tax aid for newly established firms,
the
the preliminary
Commission would point out
results of the investigation of this question cast doubt
on this line of argument. The tax holidays of
these
Member States were deemed to be State aid schemes (48)
and
notified under Article 88(3) of
compatible with the common market. Furthermore,
even supposing that the Commission had not reacted, it
would not be legitimate to take this misguided approach
in the present case. According to the case-law of the
(cid:145)any breach by a Member State of an
Court of Justice,
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

the Treaty

(47) See paragraph 53 of the judgment cited in footnote 45.
(48) See France:
tax aid scheme for

(cid:145)enterprise areas(cid:146) N 155/86,
approved by Commission decision of 21 January 1987,
Seventeenth Competition Report, point 245; Regional Planning
Act aid scheme N 493/95, approved by Commission decision of
29 November 1995, OJ C 53, 22.2.1996;
Italy: aid scheme
pursuant to Law No 64 of 1 March 1986 on special assistance for
the Mezzogiorno, approved by Commission decision of 2 March
1988 (OJ L 143, 10.6.1988); Luxembourg: Regional Planning Act
aid scheme N 607/92, approved by Commission decision of 9
December 1992 (OJ C 39, 13.2.1993); regional aid map assistance
scheme N 72/96, approved by Commission decision of 20
September 1996, OJ C 51, 21.2.1997; regional aid scheme for
economic development N 793/B/99, approved by Commission
decision of 19 July 2000 (OJ C 278, 30.9.2000).

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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) (49).

since it was not

It does not satisfy criteria (i)

the conditions laid down in Article 1(b) of Regulation
to
(EC) No 659/1999.
(iv) (50)
introduced before Spain’s
accession on 1 January 1986; was never authorised by
the Commission or the Council; cannot be regarded as
having been authorised, since it was never notified; and
was granted at least 10 years ago.

(74) As regards the third-party comments that

there are
other tax measures in Spain which the Commission has
not regarded as State aid because they are aimed at new
firms, it should be emphasised that the characteristics of
these measures is very different from those of the tax
holidays in question. A scheme where, to be eligible, it
is necessary to create three jobs cannot be compared
with one that requires ten, nor is one where the aid
consists of a 95 % reduction of taxable income for three
exemption.
years
Furthermore,
the
decisions adopted on the said tax holidays cannot
prejudice those which, as appropriate, it has to adopt
on the other tax measures cited.

a
the Commission considers

comparable with

year

that

10

(75) As to the argument put forward in certain third-party
comments 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 tax system of each of the
three Basque historic territories.

(76)

In short, the Commission considers that the exemption
from corporation tax is State aid within the meaning of
Article 87(1) of
an
advantage, is granted by the State from state resources,
affects
and distorts
competition in favour of certain firms.

trade between Member States

the Treaty,

confers

since

it

6.2. The exemption from corporation tax as new
aid

(77)

The Commission considers that the aid does not have
the character of an existing aid, since it does not meet

(49) See Case C-78/76, Steinike & Weinlig v Federal Republic of Germany,
[1977] ECR 141, paragraph 24. On the other hand, Case
C-313/90, ComitØ International de la rayonne et des fibres synthØtiques
and others v Commission, [1993] ECR I-1125, paragraph 45, states
that
the
protection of legitimate expectations may be relied upon in order
to justify the repetition of an incorrect
interpretation of a
measure(cid:146).

(cid:145)neither the principle of equal

treatment nor that of

(78)

in its

The Commission also considers that the tax exemption
does not satisfy the conditions in Article 1(b)(v) (51).
in any other
correspondence nor
Neither
document has the Commission ever stated directly or
indirectly that it considers the tax measure in question
is not aid. On the contrary, in Decision 98/C 103/03 of
18 November 1997 (52), it took the view that the new
tax holiday that `lava introduced in 1996, and for
which,
in addition to other aid, Demesa was eligible,
could contain aid elements that might be incompatible.
Subsequently, in Decision 1999/718/EEC concluding the
the tax
procedure,
holiday was State aid that was incompatible with the
common market. The Commission has followed the
same approach of considering tax holidays as State aid
with regard to other tax measures introduced by other
Member States, such as France (decision of 21 January
1987 in case N 155/86 and of 29 November 1995 in
case N 493/95), Italy (decision of 2 March 1988) and
Luxembourg (decision of 9 December 1992 in case N
607/92 and of 20 September in case N 72/96). Since all
these decisions, except 1999/718/EEC, were adopted not

the Commission considered that

(50) Article 1(b) (i) to (iv) of Regulation No 659/1999 read as follows:

(cid:145)(b) (cid:145)existing aid(cid:146) shall mean:

(i)

all aid which existed prior to the entry into force of the
Treaty in the respective Member States, that is to say, aid
schemes and individual aid which were put into effect
before, and are still applicable after, the entry into force
of the Treaty;

(ii) authorised aid, that is to say, aid schemes and individual
aid authorised by the Commission or by the Council;
(iii) aid which is deemed to have been authorised pursuant to
Article 4(6) of this Regulation or prior to this Regulation
but in accordance with this procedure;

(iv) aid which is deemed to be existing aid pursuant to Article

15.(cid:146)

(51) Article 1(b)(v) of Regulation (EC) No 659/1999 reads as follows:

(cid:145)(b) (cid:147)existing aid(cid:148) shall mean:

((cid:133))
(v) aid which is deemed to be an existing aid because it can
be established that at the time it was put into effect it did
not constitute an aid, and subsequently became an aid
due to the evolution of the common market and without
having been altered by the Member State. Where certain
measures become aid following the liberalisation of an
activity by Community law, such measures shall not be
considered as existing aid after
the date fixed for
liberalisation(cid:146).

(52) Decision to initiate the formal investigation procedure in Article
93(2) in respect of certain aid granted to Demesa, `lava (OJ C
103, 4.4.1998, p. 3).

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to measures

only before 10 December 1998 (date of publication of
the Commission notice on the application of the State
aid rules
relating to direct business
taxation) but even before 1 December 1997 (date of the
resolution on a code of conduct for business taxation),
the Commission would emphasise that the decision to
consider the tax holiday introduced in 1993 as State aid
is not due, as the `lava Provincial Council claims in its
comments, to the Commission changing the criterion
when examining current tax schemes in the light of the
notice or of the Code of Conduct.

may be regarded as new aid within the meaning of
Article 1(c) of the same Regulation (53) (54).

6.3. Unlawful nature of the exemption from
corporation tax

(79)

aid

to notified

Furthermore, regarding the Spanish authorities’ claim
that if the Commission considered that the tax holiday
was State aid it should have initiated the procedure
immediately, on the basis of paragraph 12 in Case
C-84/82 (see footnote 9), the Commission would point
out that this precedent is not relevant, since it applies
only
schemes. The Commission
emphasises that under Article 13(2) of Regulation (EC)
No 659/1999 it
is not subject, where illegal aid is
concerned, to the time limits applicable in the case of
notified aid schemes. It also points out that, by letter to
the Permanent Representation dated 19 January 1996, it
asked for information about the possible recipients of
the measure. By fax dated 16 February, confirmed by
letter dated 19 February 1996, the Spanish Permanent
the
Representation requested a 15-day extension of
deadline for replying. By letter dated 21 March 1996,
the Spanish Permanent Representation requested a
further extension of 30 days. Despite these requests,
which indicated that a reply might be forthcoming, the
Spanish authorities did not answer the Commission’s
request for information. The Commission would also
point out
initiated a procedure in respect of
other similar State aid measures in the form of a
reduction of taxable income for certain new firms in
`lava (C 49/99) on 29 September 1999.
In its final
decision of 12 July 2001 it concluded that the said aid
was incompatible.

that

it

(81)

for

aid (55),

conditions

de minimis

Since the scheme does not require a commitment from
the Spanish authorities to grant the aid in accordance
the
with 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. Nor can the
aid comply with the de minimis rules, since there is no
threshold will not be
guarantee that the de minimis
exceeded.

(82)

is not
The Commission affirms that State aid that
governed by the de minimis
to the
rule is subject
obligation of prior notification laid down in Article
88(3) of the Treaty. However, the Spanish authorities
have not
fulfilled this obligation. The Commission
therefore considers that the aid should be regarded as
unlawful.

(83) As regards the argument put forward by certain third
the tax measure cannot be classified as
parties that
illegal on account of the legitimate expectations created
by the Commission’s approval of the Basque tax system,
this can only be rejected, since, firstly, under Article 1(f)
of Regulation (EC) No 659/1999, an aid is illegal if, as
in the present case,
it has not been notified under
Article 88(3) of the Treaty. Secondly, since it was not
notified, a decision could never be taken by the
Commission as to its compatibility with the common
market (56). As
the
Commission of the (cid:145)Basque tax system(cid:146), which according

alleged approval by

to the

(80)

In short, because it does not meet the conditions laid
down in Article 1(b) of Regulation (EC) No 659/1999,
the tax measure in question cannot be regarded as
existing aid. The Commission considers, however, that it

(53) In Article 1(c) of Regulation (EC) No 659/1999, new aid is defined
as (cid:145)(c) (cid:147)new aid(cid:148): all aid, that is to say, aid schemes and individual
aid, which is not existing aid, including alterations to existing aid(cid:146).
(54) Letter to the Spanish Permanent Representation, D/10687, dated

19 January 1996.

(55) The assessment of the aid is the same whether it is based on the
Community guidelines on State aid for small and medium-sized
enterprises (SMEs), the Commission notice on the de minimis rule
for State aid or Commission Regulation (EC) No 69/2001 of 12
January 2001 on the application of Articles 87 and 88 of the EC
Treaty to de minimis aid (see footnote 6).

(56) Joined Cases T-132/96 and T-143/96, Freistaat Sachsen and others v

Commission, [1999] ECR II-3663, paragraph 300.

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and

that

the ceilings

such as observance of

by `lava, Guipœzcoa

the Decision (58) provided, moreover,

to the comments of interested third parties, is the result
of Decision 93/337/EEC, the Commission would point
out, first, that the Decision did not refer to any (cid:145)Basque
tax system(cid:146) but to a series of specific tax measures (57)
introduced
Vizcaya
respectively in 1988 and, second, that in that Decision
those measures were regarded as State aid. Article 1(4)
the
of
granting of the aid should be subject to a series of
conditions,
for
the rules applicable to SMEs and the
regional aid,
provisions on the combination of aid.
It was not a
question therefore of approving the Basque tax system
but of describing as State aid certain tax measures and
imposing conditions
that aid.
Consequently, the decision did not prejudice in any way
any positive decision that the Commission might take
concerning any other new tax measure that might be
introduced in the Basque Country. In short, contrary to
there
is claimed in the third-party comments,
what
never was any Commission decision that approved the
(cid:145)Basque tax system(cid:146) in the abstract and, hence, any new
tax measure such as the tax exemption in question, or
at least deprived that system of its illegal character (59).

the granting of

for

6.4. Compatibility with the common market

(84) As a preliminary, the Commission would repeat that the
exemption from corporation tax has to be classed as an
aid scheme. Given the general, abstract nature of an aid
scheme, the Commission is not obliged to examine the
situation of each potential recipient individually. In any
event, it does not know the circumstances of existing or
prospective recipients and is not,
therefore, able to
examine the exact repercussions on the competitiveness
of
to ascertain that
potential recipients could benefit from aid that is not
consistent with the Community directives, guidelines
and frameworks. Moreover,
the Commission would
again stress that, in its decision initiating the procedure,
relevant
it

asked the Spanish authorities

specific firms.

sufficient

for

all

is

It

(57) The measures consisted basically in 95 % relief of the tax on
capital transfers and documented legal acts, a 20 % tax credit in
respect of investments, complete freedom as to the depreciation of
assets constituting new investments, an increase in the tax credit
up to 5 % of
the investment, depending on the employment
created, and an increase in the tax credit up to 20 % of the
technological
investment
interest.

investments of special

in the case of

this decision,

(58) See Article 1(4) of Decision 93/337/EEC: (cid:145)Within two months of
the notification of
the Spanish authorities shall
ensure that the aid is granted within the national regional aid
areas and ceilings or in accordance with the conditions laid down
small and
in the Community guidelines on State aid for
medium-sized enterprises,
in compliance with the Community
rules on the cumulation of aid for different purposes and with the
limits
laid down for certain sectors of activity in industry,
agriculture and fisheries(cid:146).

(59) See footnote 23.

individual

information that would allow it to assess the aid. The
request was clearly intended to enable the Commission
to obtain a general
idea of the actual effects of the
scheme and not to gather data sufficient for carrying
out
Spanish
appraisals. However,
authorities have not provided any information on the
instances where the tax holiday was applied. This is why
it is contradictory to criticise the Commission, as certain
third-party comments do, for providing only a general
assessment while at the same time refusing to supply
the information requested.

the

(85) As the scheme in question covers only the NUTS (60) III
territory of `lava,
it is necessary to examine whether
aid in this historic territory can qualify for the regional
derogations in Article 87(3)(a) or (c). The Commission
would point out in this respect that `lava has never
been eligible for the Article 87(3)(a) derogation, since
the per capita GDP (61) 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 (62) (63), the conditions of
eligibility for the derogation in Article 87(3)(a) of the
Treaty are met only if the region, at NUTS II, has a per
capita GDP of not more than 75 % of the Community
average. The Commission notes however that, according
to the regional aid map (64) `lava was a region in
which
partly
compatible (65) up to 26 September 1995 (66), and
thereafter fully compatible, with the common market

considered

could

State

aid

be

(60) Nomenclature of territorial units for statistics.
(61) Per capita gross domestic product (GDP) measured in purchasing

power standards (PPS).

(62) The references to the regional rules are confined, in the following
recitals, to the guidelines on national regional aid (see footnote
17). Where the aid was granted before the guidelines came into
force, the Commission’s assessment is based on the rules current
at the time it was granted. Nevertheless, since the relevant parts of
the said rules have not changed,
it is sufficient to refer to the
latest text in this case.

(63) See point 3.5 of
footnote 17).

the guidelines on national regional aid (see

(64) The successive regional aid maps that have applied since Spain’s
accession were the one adopted in 1988 in Commission Decision
88/C 351/04, the amended map (see communication 96/C 25/03)
in the decision of 26 July 1995, and the map for 2000 to 2006
adopted in the decision of 11 April 2000.

(65) The only parts of `lava where the aid could be covered by the
regional derogation in Article 87(3)(c) of
the Treaty were the
Nervion Valley industrial zone and the areas in the Pyrenees. The
other parts of `lava did not meet the necessary criteria.

(66) Date of entry into force of the amendment to the earlier map

adopted in 1988.

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under the regional derogation in Article 87(3)(c) of the
Treaty (67).

region (68) nor a region of low population density (69).
This is the reason why the operating aid elements in the
exemption from corporation tax 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
low
Treaty,
population density. The aid is therefore incompatible in
this case.

in an outermost region or a region of

(86)

certain

despite

thresholds. However,

State aid in the form of an exemption from corporation
tax promotes the formation in `lava of new firms
investments and numbers of employees
whose initial
exceed
this
minimum investment and the creation of a minimum
number of jobs, the tax aid in question does not qualify
as investment or employment aid. The basis for the aid
is not the size of the investment, the number of jobs
created, or the corresponding wage costs, but taxable
income. Furthermore,
the amount of aid is not a
function of an investment ceiling, the number of jobs,
or the corresponding wage costs, but of taxable income.
According to Annex I
to the guidelines on national
regional aid,
(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
if one sets a
may be connected with an investment
ceiling expressed as a percentage of the amount invested
in the region(cid:146).
follows that aid, which, as in the
present case, does not meet these criteria, cannot be
regarded as investment aid.

It

(87) On the contrary, since it partly reduces the profits tax
paid by the recipient firms, the aid qualifies as operating
aid. Corporation tax is a tax burden which companies
subject to it have to pay regularly and inevitably as part
of
therefore
appropriate to examine the tax aid in the light of any
derogations that may apply to the operating aid in
question.

everyday management.

their

is

It

(88)

is

that, under

the Treaty,

the character of operating aid,

The Commission would point out
the
guidelines on national regional aid, regional aid, which
has
in principle
prohibited. Exceptionally, however, such aid may be
the derogation in
granted in regions eligible under
to certain
Article 87(3)(a) of
subject
conditions laid down in points 4.15 to 4.17 of
the
guidelines, in the outermost regions or in regions of low
population density if it is intended to offset additional
the NUTS III
transport costs. However,
territory of
the derogation in Article
`lava is not eligible for
87(3)(a) of
the said
operating aid does not meet the conditions described.
The NUTS III territory of `lava is neither an outermost

the Treaty, and the grant of

(67) OJ C 25, 31.1.1996, p. 3.
(68) It is not in the list of outermost regions in Article 299 of the

Treaty.

(89)

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

the regional derogations

(90)

(91)

The derogation in Article 87(3)(c) of the Treaty has to
be examined to see whether it might not apply, in the
above cases, for purposes other than the development of
certain economic activities. The Commission notes in
this respect that the exemption from corporation tax is
not intended to develop an economic activity within the
meaning of Article 87(3)(c) of the Treaty, such as the
and
development
medium-sized enterprises,
research and development,
environmental protection,
job creation or training in
accordance with the appropriate Community rules.
Consequently,
the
derogation in Article 87(3)(c) of the Treaty in respect of
the said purposes.

tax aid cannot qualify for

of measures

small

assist

the

to

The exemption from corporation tax is not subject to
limitation and may therefore be granted
any sectoral
without any restriction to firms 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,
shipbuilding,
fisheries,
industry (70). The
synthetic
and the motor
Commission considers that, as a result, the exemption
from corporation tax cannot comply with the said
sectoral rules. In this particular case, the aid does not
it should not promote new
meet
the
production capacity so as not
sectors
overcapacity problems

from which these

the condition that

to exacerbate

steelmaking,

coalmining,

fibres

(69) See point 3.10.4 of the guidelines on national regional aid (see

footnote 17).
sectoral
the
the Official

(70) For
to
website
http://europa.eu.int/comm/competition/state_aid/legislation/.

see,
European Communities,
for

the
Directorate-General

currently in force

in addition
the
Competition:

rules
Journal

the

of

of

22.1.2003

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L 17/37

(96)

(97)

the

the abovementioned sectors,

traditionally suffer. Therefore, where
recipient
the
belongs to one of
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
the Treaty on the promotion of certain
87(3)(c) of
activities does not apply.

(92)

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), nor is it intended to make
caused by natural disasters or
good the damage
exceptional occurrences
in accordance with 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
87(3)(b) of
the Treaty. Nor does it qualify for the
derogation in Article 87(3)(d), as its purpose is not to
promote culture or heritage conservation. The aid is
therefore incompatible with the common market.

(93)

Since the exemption from corporation tax covers several
tax years, there could still be some tax aid left to pay,
but as this aid is unlawful and incompatible, the Spanish
authorities should cancel the payment of any balance
from the exemption from corporation tax which could
still be due to certain recipients

6.5. Recovery of aid already paid

(94) According to certain of Confebask’s comments (see
above), the aid should not be repaid on account of the
legitimate expectations arising, first, from the fact that
for many years the Commission did not describe the
measures in question as State aid and, second, from the
existence of other
the
tax holidays
Member State, which were not called into question by
the Commission.

in the rest of

case

into effect

to established

It should also be pointed out that the tax exemption
in accordance with the
was not put
procedure provided for in Article 88(3) of the Treaty.
law (71), however,
According
undertakings to which an aid has been granted may not,
in principle, entertain a legitimate expectation that the
aid is lawful unless it has been granted in compliance
with the procedure laid down in that article. A diligent
economic operator should normally be able to make
sure that this procedure has been complied with. In the
case in point, Confebask, which attached copies of the
correspondence between the Commission and the
Spanish authorities to its comments, cannot claim it was
unaware that the measures were illegal.

recipients of

the case-law (72) does not rule out

the
To be sure,
possibility that
illegal aid may invoke
exceptional circumstances, which may reasonably have
sustained their legitimate expectation that the aid was
in order to oppose repayment, but in this case
valid,
none of the circumstances put forward in the comments
of interested third parties may be taken into account. As
regards the possible legitimate expectation created by
the Commission not describing the measures
in
question as State aid for a long period, the Commission
firstly that, under Article 13(2) of
would point out
Regulation (EC) No 659/1999,
in cases of possible
unlawful aid it
is not bound by the time limits
applicable to notified aid. Consequently, it is not obliged
to adopt decisions on unlawful aid, as in the present
case, within two months (73) (in accordance with Article
4(5)) or within 18 months (74) (under Article 7(6)). It
should also be pointed out that in its letter of 25 May
1994 to the Spanish Permanent Representation, which
Confebask attached to its comments, the Commission
drew the Spanish Government’s attention to the letter to
Member States of 3 November 1983 concerning the
obligations arising from Article 93(3) of the Treaty and
to the communication published in OJ C 318 of 24
November 1983,
in which it repeated that any aid
granted unlawfully could be the subject of a request for
repayment. Consequently, in the first letter which it sent
to the Spanish Permanent Representation following the
complaint lodged in 1994, the Commission warned the
Spanish authorities that the tax exemption might have
the character not only of an aid but also of an illegal aid
if appropriate,
and that,
it might have to be repaid.
in its correspondence with the Spanish
Moreover,

that

(95) As a preliminary, it should be noted that Confebask is
not arguing that the Basque firms it represents did not
realise
exemption from corporation task
granted on certain conditions to newly established firms
did not confer an advantage. The Commission considers
therefore that those firms were aware of the advantage
conferred by the exemption.

the

(71) See Case C-5/89, Germany v Commission, [1990] ECR I-3437,
paragraph 14; Case C-169/95, Spain v Commission, [1997] ECR
I-135, paragraph 51; Case C-24/95, Land Rheinland-Pfalz v Alcan
Deutschland GmbH, [1997] ECR I-1591, paragraph 25.

(72) See paragraph 16 of the judgment cited in footnote 71, and Case
C-183/91, Commission v Greece, [1993] ECR I-3131, paragraph 18.
formal

(73) Decision to raise no objection or

to initiate

the

investigation procedure.

(74) Decision to terminate the formal investigation procedure.

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22.1.2003

since 1994,

authorities
the Commission has never
described the tax exemption, either directly or indirectly,
as compatible with the common market.

(98) As regards the legitimate expectation arising from the
existence of other tax holidays in the rest of Spain, it
should be noted, as already explained, that the measure
has very different characteristics. In the circumstances, it
is difficult to justify similar treatment for measures that
are very disparate. It should also be noted that, in the
case of
the Commission was
unable to rule as to their compatibility, either because
they had not been notified or because no complaint had
been made against
them. Nor has it ever given an
opinion, either directly or indirectly, on these measures.

the other tax holidays,

(101)

it

In RSV,

the tax exemption,

(99) As to the precedent of RSV (75), cited by third parties in
support of a legitimate expectation arising out of the
long period that elapsed between the Commission’s first
letter, of 25 May 1994, and the decision to initiate the
procedure in respect of
is
important to stress the particular circumstances of that
case.
the aid was formally notified to the
Commission, albeit late. It was also related to additional
costs associated with a transaction for which aid had
already
It
concerned a
that had been receiving aid
authorised by the Commission for several years. An
exhaustive investigation was not necessary, therefore, in
order to determine whether the aid was compatible. In
the present case, however, the aid was not notified, is
not
linked to aid that has been authorised by the
Commission, and does not concern a sector that has
received aid before. The Commission therefore considers
that the RSV decision is not relevant in this case.

been authorised
sector

the Commission.

by

(100) The length of time that elapsed is largely due to the lack
of cooperation on the part of the Spanish authorities.
By letter to the Permanent Representation dated 19
January 1996, the Commission requested information
about the possible recipients of the measures. By fax
dated 16 February, confirmed by letter dated 19
February 1996, the Spanish Permanent Representation
requested a 15-day extension of
the deadline for
replying. By letter dated 21 March 1996, the Spanish
Permanent Representation requested a further extension
of 30 days. Despite these requests, which would suggest
that
the Spanish
authorities did not answer the Commission’s request for

reply might be

forthcoming,

a

(75) See footnote 24.

in respect of

information. The Commission also notes that during
this period the Spanish authorities were informed of the
procedures it had initiated,
following the complaints
lodged in 1996 about aid to Demesa (76) and, in 1997,
about aid to Ramond(cid:237)n (77),
the tax
holidays (78) introduced in `lava in 1996 and enjoyed,
in addition to other aid, by those firms. As both files
concluded that the 1996 tax holidays were unlawful and
incompatible State aid,
the information which the
Spanish authorities received in this connection, far from
the
arousing
compatibility of
it
might be incompatible.

legitimate
the tax exemption,

indicated that

expectation

any

to

as

In the circumstances, the Commission considers that it
did not give any reason to hope that the tax exemption
might be compatible. Thus the recipients cannot plead
any legitimate expectations or legal certainty where this
exemption is concerned. It should be pointed out in this
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
the
given
specific
administration(cid:146) (79).

the principle of

assurances

him by

to

(102)

In short, in view of the arguments set out above, the
Commission considers that the recipients may not rely
on general principles of Community law such as
regards
legal certainty as
legitimate expectations or
incompatible aid already paid. 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

(76) State aid file on aid to Demesa (see footnote 52); final Decision

1999/718/EC (see footnote 5).

(77) State aid file on aid to Ramond(cid:237)n: Decision to initiate the
procedure, 30 March 1999 (OJ C 194, 10.7.1999, p. 18); final
Decision 2000/795/EC (see footnote 27).

(78) State aid cases C 49/99, C 50/99 and C 52/99 relating
respectively to the tax aid schemes (tax holidays) introduced by
Article 26 of the following provincial laws: Provincial Law No 24
of 5 July 1996 (`lava), Provincial Law No 7 of 4 July 1996
(Guipœzcoa) and Provincial Law No 3 of 26 June 1996 (Vizcaya).

(79) See paragraph 300 of the judgment cited in footnote 56.

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the unlawful grant of

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
that 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 repayment on the basis
of the reference rate used at that date to calculate the
net grant equivalent of regional aid in Spain (80).

aid

granted

(103) This decision relates to the scheme and should be
implemented immediately, including the recovery of any
scheme. The
individual
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.

under

that

7. CONCLUSIONS

(104)

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

HAS ADOPTED THIS DECISION:

Article 1

The State aid in the form of an exemption from corporation
into effect by Spain in the Historic
tax, unlawfully put
Territory of `lava, in breach of Article 88(3) of the Treaty,
through Article 14 of Provincial Law No 18 of 5 July 1993, is
incompatible with the common market.

Article 2

Spain shall abolish the aid scheme referred to in Article 1, if it
is still in force.

Article 3

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

Recovery shall be effected without delay in accordance
2.
with the procedures of national law, provided these allow the
immediate and effective execution of this Decision. The aid to
be recovered shall include interest from the date on which it
became available to the recipients until the date of its effective
the
recovery.
reference rate used for calculating the grant equivalent of
regional aid.

Interest shall be calculated on the basis of

(a) Spain has unlawfully put into effect,

in `lava, an
exemption from corporation tax for certain newly
established firms, in breach of Article 88(3) of the
Treaty;

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.

(b) the exemption from corporation tax in question is

incompatible with the common market;

Article 5

This Decision is addressed to the Kingdom of Spain.

(c)

the Spanish authorities should 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 should take all
necessary measures to recover it, so as to restore the
economic situation which the recipient firms would
be in if the aid had not been granted unlawfully.

Done at Brussels, 20 December 2001.

For the Commission

Mario MONTI

Member of the Commission

(80) Commission letter to Member States SG(91) D/4577, 4 March
1991. See also Case C-142/87, Belgium v Commission, [1990] ECR
I-959.