2003/86/EC: Commission Decision of 20 December 2001 on a State aid scheme implemented by Spain in 1993 for certain newly established firms in Vizcaya (Spain) (notified under document number C(2001) 4478) (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

14.2.2003

EN

Official Journal of the European Union

L 40/11

COMMISSION DECISION

of 20 December 2001

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

(notified under document number C(2001) 4478)

(Only the Spanish text is authentic)

(Text with EEA relevance)

(2003/86/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

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

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

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

Whereas:

(4)

(5)

1. PROCEDURE

(1)

in

the

neighbouring

adopted in 1993 by the

the Commission learned of

submitted by certain
As a result of a complaint
organisations
autonomous
community of Rioja against the urgent, transitional tax
three Basque
measures
provincial councils,
the
existence of State aid in Vizcaya in the form of an
exemption from corporation tax for newly established
firms. The Commission also received another complaint,
from a competitor, about the 10-year exemption from
corporation tax (the same tax measure as in Vizcaya)
enjoyed by Dep(cid:243)sitos Tubos Reunidos Lentz TR Lentz, SA
((cid:145)Detursa(cid:146)), located in Lantar(cid:243)n (`lava).

limit

the time

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
submitted their comments (prepared by the Vizcaya
Provincial
abovementioned
under
procedure.

Council)

the

The Commission’s 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

(Confederaci(cid:243)n

Comments were received from the Rioja Regional
from the Basque
Government on 1 March 2001;
Empresarial
Confederation
Business
Vasca/Euskal Entrepresarien Konfederakuntza ((cid:145)Confebask(cid:146)))
on 2 March 2001; from the Rioja branch of the General
Union of Workers ((cid:145)UGT(cid:146)) on 2 March 2001 and from
the General Assembly of Vizcaya on 5 March 2001. By
letter dated 2 July 2001 (D/52703), the Commission
sent these comments to Spain, asking for observations.
By letter from the Permanent Representation dated 26
July 2001, the Spanish authorities asked that the time
limit for submitting their comments be extended. By
from the Permanent Representation dated 17
letter
September 2001, the Spanish authorities submitted their
comments (prepared by the Vizcaya Provincial Council)
on the observations of interested third parties under the
abovementioned procedure.

(2)

letter

dated 28 November 2000 (SG(2000)
By
D/108806),
its
the Commission informed Spain of
decision to initiate in respect of this aid the procedure
laid down in Article 88(2) of the Treaty.

2. DETAILED DESCRIPTION OF THE AID

(3)

By letter from the Permanent Representation dated 14
December 2000, registered on 19 December 2000, the

(6)

The Commission notes that this tax aid scheme was
introduced by Article 14 of Provincial Law No 5 of

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

(2) See footnote 1.

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24 June 1993 on urgent
to assist
investment and stimulate economic activity (3). The text
of the Article reads as follows (4):

tax measures

(8)

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
investments
is possible
concessions whose
other
combination with
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

(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.

2. The conditions of eligibility for the exemption

established in this Article are that:

(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
following start-up, and the annual average
workforce is kept at that figure during the
exemption period;

[(cid:133)]

(i)

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

[(cid:133)]

6. The

provisions

shall
incompatible with any other tax concession.

this Article

of

be

7. The temporary exemption shall be requested from
Provincial
the Treasury Department of
the
after
[(cid:133)],which,
Council
requirements set out at the beginning have been
met,
applicant
company,
provisional
appropriate,
authorisation, which shall be adopted with the
approval of the councillors.(cid:146)

the
checking that

communicate

shall

the

its

to

as

(7)

The Commission notes that, according to the preamble
the aid is to
to the Provincial Law,
and
stimulate
investment incentives for firms.

the purpose of
through

enterprise

economy

the

(12)

that as

In its decision initiating the procedure, the Commission
the
pointed out
Community State aid rules was concerned,
the tax
nature of the measures in question was irrelevant, since
Article 87 of the Treaty applied to aid measures (cid:145)in any

the application of

far as

(3) Bolet(cid:237)n Oficial de Vizcaya No 154, 7.7.1993.
(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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form(cid:146). It also emphasised, however, that, to be regarded
as aid, the measures must meet all four of the criteria
set out in Article 87 and explained below.

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

(13)

It noted that, firstly, the exemption from corporation
tax conferred on recipients an advantage, which relieved
them of charges that are normally borne from their
budgets.

(19)

The Commission affirmed that State aid that was not
governed by the de minimis rule was subject
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.

(14)

Secondly, the exemption involved a loss of tax revenue
and was therefore equivalent
to the consumption of
public resources in the form of fiscal expenditure.

generate

Thirdly, the exemption affected competition and trade
between Member States. Since the recipients conducted
businesses, which might
between
Member States,
the aid strengthened their position
vis-(cid:224)-vis competitors in that trade. It is clear therefore
that the aid affects trade. Furthermore, the increase in
recipient
improves
their profitability. In this way they were more able to
compete with firms which were not eligible for the aid.

(profit after tax)

firms’ net profit

trade

(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 did not have the
that
therefore thought
character of investment or job-creation aid.

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

business

normal

its

Lastly, the Commission considered that the exemption
from corporation tax was specific or selective, in that it
favoured certain firms. The eligibility requirements
expressly ruled out any firm that had been set up before
the date of entry into force of the said Provincial Law
(mid-1993), that had created fewer than 10 jobs, whose
investment was less than ESP 80 million (EUR 480 810)
and whose paid-up capital did not exceed ESP 20
the Commission
million (EUR 120 202).
justified by the
considered that
nature or general scheme of the tax system.

In addition,
the tax aid was not

(22)

The Commission pointed out that regional operating aid
was in principle prohibited.
It might nevertheless be
granted in exceptional circumstances in regions that met
certain conditions. But this was 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,

In short, at that stage, the Commission considered that
the exemption from corporation tax was State aid
within the meaning of Article 87(1) of the Treaty, since
constituting an
it met
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 was
it
not subject,

to the requirement

in particular,

that

(23)

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

(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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(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 could not be regarded as aid having a social
character under Article 87(2)(a), was not intended to
make good the damage caused by natural disasters or
exceptional occurrences under Article 87(2)(b) and was
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 was 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 did not
fall within the
scope of Article 87(3)(c), which
concerned (cid:145)aid to facilitate the development of certain
economic activities(cid:133)(cid:146), since it was not specific in any
way to the activities of the recipient firms. Lastly, it was
not
heritage
promote
conservation within the meaning of Article 87(3)(d).

intended

culture

or

to

(25) Under the Article 88(2) procedure,

the Commission
asked the Spanish authorities to submit their comments
and to supply all the information necessary for assessing
the exemption of certain newly established firms in
Vizcaya from corporation tax.

(28)

3. COMMENTS OF THE SPANISH AUTHORITIES

(26)

(27)

By letter from the Permanent Representation dated 5
February 2001, the Spanish authorities submitted their
comments (prepared by the Vizcaya Provincial Council).
The Spanish authorities consider, essentially,
that the
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
the
aid and was
procedure legally provided for in the Treaty.

therefore adopted in breach 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

they claim that

evidence of

the

that

that

Spanish

is clear

informed

they argue,

from the letter,

into effect was a State aid, nor

Provincial Law for many years, since by letter dated 25
Permanent
May 1994 it
Representation of a complaint that referred to that Law.
It
the
Commission did not in any way think that the measure
it was
put
appropriate to initiate the procedure provided for in
Article 93(2) (currently Article 88(2)). By letter from the
Permanent Representation dated 30 September 1994
the Spanish authorities informed the Commission that,
the tax measure did not constitute
in their opinion,
State aid prohibited by Article 92 of the Treaty, since it
was a measure of a general nature. By letter to the
Permanent Representation dated 19 January 1996, the
Commission asked for information about the possible
the measure. Later, by letter dated 6
recipients of
the Tax Coordination Authority (8)
February 1996,
informed
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
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)
to initiate the Article 88(2) procedure immediately.

the Commission that:

suspicion that

the provincial

(cid:145)the Basque

for business

the Commission,

Secondly, the Spanish authorities consider that the fact
that
in November 2000, described
Provincial Law No 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
of conduct
(the (cid:145)Code of
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
rules could subsequently change. For
the
its part,
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

(8) As alleged evidence of this letter, the Vizcaya 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-84/82, Germany v Commission,

[1984] ECR 457,

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 European Parliament

and the Council, (COM(1998) 595 final, 25.11.1998).

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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 No 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 ((cid:145)constant
from being
review(cid:146)), which thus prevents
considered illegal. The schemes,
therefore, are tax
measures applied in the Member States (cid:151) hence the
term (cid:145)current(cid:146) (cid:151) 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 No 18/1993 was never amended.
therefore
satisfies
the non-amendment condition imposed by
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) that must be satisfied
before an aid measure can be regarded as an existing
aid.

It

(30)

In short,
the Spanish authorities consider that, even
though, according to the Commission, Provincial Law
No 18/1993 should be regarded as State aid, it is an
existing aid scheme (it has been shown that
the
Commission was informed, in 1994 or even earlier, of
the application of the Law and did not regard it then as
a State aid);
that a change in State aid policy has
since reference is made to existing tax
occurred,
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
review in cooperation with
existing aid:
Member States, and not the procedure provided for in
Article 88(2). The Regulation also lays down the
should be followed in the case of
procedure that

constant

(12) Point 14 of the communication mentioned in the above footnote.
(13) Commission notice on the application of the State aid rules to
(OJ C 384,

relating to direct business

taxation,

measures
10.12.1998, p. 3).

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

existing aid schemes: cooperation pursuant to Article
(currently Article 88(1) of the Treaty) and the
93(1)
proposal of appropriate measures. The Commission,
its decision to initiate the
therefore,
it considers, after a preliminary
procedure and,
the Provincial 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.

should annul
if
that

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
by the selectivity requirement
laid down in Article
is not
87(1),
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
is not
the Commission
as a whole,
non-discriminatory
maintains:
objective,
the
lays down do not
implementing criteria which it
transform the firms
them into (cid:145)certain
that meet
undertakings(cid:146) within the meaning of Article 87 of the
the Spanish
Treaty.
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
it does not distort
be regarded as State aid is that
competition and does not affect trade between Member
States. They point out that, under the Code of Conduct,
Provincial
been
18/1993
examined (15), and it was concluded that there was no
effect on the location of business in the Community. In

Law No

already

has

(15) Report by the (cid:145)Code of Conduct(cid:146) Group, 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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Provincial

addition,
Law No 18/1993 does not
strengthen, nor could it, the position of any firm. As the
firms, which have 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 No
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 is conditional, is intended to promote 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,

measure. It points out that the concept of aid in Article
87 is broader than that of subsidy and may therefore
include tax measures.
It also points out that the tax
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
recipient
firms are engaged in economic activities,
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
minimum share
capital of ESP 20 million (EUR
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 points out that, under
Article 88(3) of the Treaty, State aid should be notified
it says, cannot be put into
to the Commission. Aid,
effect before
ruled on its
the Commission has
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

(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

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).

regional

aid. Despite

The Rioja Regional Government also considers that the
tax measure cannot be regarded as investment aid (18)
because it does not satisfy the requirements in the
guidelines on national
the
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.

tax

five

systems

The Rioja Regional Government considers that the tax
measure cannot be justified on the grounds that there
in Spain. Advocate-General
are
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

(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 Vizcaya y Diputaci(cid:243)n Foral de Vizcaya.

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nature or general scheme of the tax system in Vizcaya,
since its purpose is to improve the competitiveness of
recipient
firms. The Rioja Regional Government also
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 (21) has also
taken this line.

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.

(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
is
Article 88(3) of the Treaty has not been followed,
unlawful and incompatible with the common market.

(43)

It points out

in a given region. However,

the tax measure,
Regarding the selective nature of
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 (cid:151) share capital of ESP 20 million,
investment of ESP 80 million, and 10 jobs created (cid:151)
Confebask considers that the use of thresholds is normal
practice
rules.
Confebask also draws attention to the basis of various
judgments of
Justice and Commission
it has never been held that
decisions: hitherto,
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
the exemption from corporation tax in Vizcaya is
neutralised,
since the neighbouring Basque historic
territories also give tax concessions to newly established
firms. Further, if the tax measures in question did affect

4.2. Comments of the Basque Business
Confederation (Confederaci(cid:243)n Empresarial
Vasca/Euskal Entrepresarien Konfederakuntza
((cid:145)Confebask(cid:146)))

(40)

Confebask starts by drawing attention to the underlying
historical reasons for the tax autonomy enjoyed by
Vizcaya.

(41)

the tax debt,
Concerning the presumed reduction of
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.

(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

there are between the various

that

(20) See its judgment of 7 February 1998.
(21) See the judgments 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 %.

(22)

(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

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Official Journal of the European Union

14.2.2003

(45)

(46)

competition, this would be on account of the central
for which the number of
government’s measures,
recipients could be greater.

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
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 (10
years in some regions), and in Corsica for even more
favourable arrangements.
there is a
25 % reduction of corporation tax for a period of eight
years. In Italy, the exemption from the IRPEG and the
in
ILOR in the Mezzogiorno is for 10 years. Lastly,
Portugal there is a 25 % reduction of corporation tax for
a period of from seven to 10 years. Everything shows,
therefore,
that Vizcaya’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.

In Luxembourg,

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
deemed
Decision
by
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

shows,

(47) According to Confebask, since a legitimate expectation
has been aroused, in particular by the letter of 22 May
1994, reference 4555, 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
the
Commission learned of the measure back in 1994 and,
secondly, that the complainant described it as State aid.
The Commission, however,
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
the
final decision had established on the part of

did not

initiate

firstly,

that

react

to the

aid that

existence of

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
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
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 1993, the common tax law (i.e.
the legislation 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 are similar to those applicable in the rest of
the common territory,
relying 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.

the Commission,

(48) As regards the assessment of compatibility with the
common market, Confebask notes that, according to the
the
decisions of
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
tax burden on firms and the reference tax
overall
burden would also have to be established. Lastly, this

(23) OJ L 134, 3.6.1993, p. 25.
(24) See Case C-223/85, RSV v Commission, [1987] ECR 4617.

(25) See Case C-198/1991, William Cook v Commission, [1993] ECR

I-2487.

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Official Journal of the European Union

L 40/19

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
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
in
the procedure and state that
question comply with Community law.

the tax measures

4.3. Comments of the Rioja branch of the General
Union of Workers ((cid:145)UGT(cid:146))

(51)

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
force is increased by the fact
that Rioja adjoins the
Basque Country.

(52)

The Vizcaya 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 neighbouring
distort
region of Rioja. The measures
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.

therefore

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

Commission, [1994] ECR I-4103.

(53)

(54)

(55)

has

regarded

It notes that
other

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
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

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 of the General Assembly of Vizcaya

Basically, the General Assembly of Vizcaya takes the
view that the decision to initiate the procedure is void,
since it only refers to new aid, whereas the present case
concerns existing aid. They also argue that the measure
contains no elements of State aid. The tax measure is
compatible with the common market, since it is not
operating aid but investment aid, whose compatibility is
justified by the nature and general scheme of the tax
the General
system.
the Vizcaya
Assembly
the
Provincial Government
section
(cid:145)Comments of the Spanish authorities(cid:146).

arguments of
summarised in the

In support of these conclusions,

repeats

the

formation of new companies

(56) As regards invoking the nature or general scheme of the
tax system as a possible justification for the measure’s
compatibility,
of Vizcaya
the General Assembly
questions the Commission’s view that the objective of
promoting
is
unconnected with the tax system. Not only is promoting
the formation of viable new companies an objective
recognised by the Treaty, but it creates new taxpayers
for the tax system. However, increasing the number of
taxpayers is a primary,
the tax
system. For instance, the purpose and effect of reducing
indirect
taxes such as VAT is to expose the black
economy in order to incorporate it within the tax
system. As for direct taxation, the purpose of cutting

intrinsic objective of

(27) Decision of 10 May 1993 on Provincial Laws No 28/1988
(`lava), No 8/1988 (Vizcaya) and No 6/1988 (Guipœzcoa);
Commission Decision 1999/718/EC (Daewoo) (see footnote 5) and
Commission Decision 2000/795/EC (Ramond(cid:237)n SA and Ramond(cid:237)n
CÆpsulas SA), (OJ L 318, 16.12.2000, p. 36).

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Official Journal of the European Union

14.2.2003

increase

tax revenue.

high marginal rates of, for example,
income tax is to
reduce their disincentive effect, promote economic
activity and hence
In this
particular case, the General Assembly of Vizcaya also
states that because the tax exemption is aimed at the
formation of new companies, it promotes the creation
of new taxpayers. Thus, since the measure will make it
possible to form new companies,
tax revenue will
increase, thereby fulfilling the basic objective of any tax
system.

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

(57)

(58)

By letter from the Permanent Representation dated 17
September 2001, the Spanish authorities submitted their
comments (prepared by the Vizcaya Provincial Council)
on the observations of interested third parties, which
were sent to them in accordance with Article 6(2) of
Regulation (EEC) No 659/1999. Basically, the Vizcaya
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.

The Vizcaya 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 State in question to submit comments on
the observations of interested third parties, pursuant 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).

(59)

(60)

(61)

6. ASSESSMENT OF THE AID

6.1. State aid

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

the criteria set out

Firstly,
the measure must confer on recipients an
advantage, which relieves them of charges that are
normally borne from their budgets. The advantage may
be provided through 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
the recipient
recipient firm would have to pay full corporation tax
for 10 years. The exemption from corporation tax thus
implies an exception to the common tax system
applicable.

there were no exemption,

firms.

If

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 Vizcaya Provincial Council on the
basis of a statutory provision.

provisions

regulatory

statutory,

of

a

this argument,

(62) 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
the Commission should fix a
runs
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

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

(29) See Case C-248/84, Germany v Commission, [1987] ECR 4013.

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Official Journal of the European Union

L 40/21

that, as the Court of

recipients an advantage which relieves them of charges
that are normally borne from their budgets. The
advantage may be provided through a reduction in the
firm’s tax burden in various ways, including: (cid:133) a total
or partial reduction in the amount of
tax (such as
exemption or a tax credit)(cid:146). 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
involving a transfer of State resources, places
the
persons to whom the tax exemption applies in a more
favourable
taxpayers
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.

situation than other

Justice has held (30),

financial

(64)

their profitability. This

improves
them to
compete with firms which are not eligible for the tax
aid.

enables

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
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,
for
providing only a general assessment while at the same
time refusing to supply the information requested.

individual appraisals. However,
not

certain third parties do,

authorities

provided

idea of

as

(65) 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

location of business

activities

the

81

82;

and

in Case C-310/99,

(34) See Case C-75/97, Belgium v Commission ((cid:145)Maribel(cid:146)), [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
opinion
II-2319,
the
80,
paragraphs
Advocate-General Ru(cid:237)z-Jarabo
v
Italy
and the opinion of
Commission, paragraphs 54 and 55,
v
Advocate-General
Commission, paragraph 31, which ran thus:(cid:145) It should be pointed
out in this respect that, with regard to a general aid scheme, to be
able to determine the effect of that scheme on trade, it is sufficient
if, from an ex ante assessment, it can reasonably be considered
that the said effect may come about. If the position of a firm (or,
as in the present case, an indefinite number of firms) is reinforced
by an aid scheme,
affect
competition between Member States(cid:146).

this privilege may in principle

in Case C-156/98, Germany

Saggio

(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.

(63)

Thirdly, the measure must affect competition and trade
between Member States. It should be pointed out in this
respect that, according to a report (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
detriment of sales to the rest of
the country. The
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
in 1998, for each ESP 100 of
surplus.
imports there was ESP 144 of exports.
In short, the
Basque economy is very open to the outside, and its
production is very much geared to exporting. Given
these characteristics of the Basque economy, it may be
deduced that recipient firms are engaged in economic
activities, which are likely to include intra-Community
their position
trade. Consequently,
vis-(cid:224)-vis their competitors in the Community. It is clear
therefore that
the
increase in recipient firms’ net profit (profit after tax)

the aid affects trade. Furthermore,

aid strengthens

In particular,

(30) See Case C-387/92, Banco de CrØdito Industrial, now Banco Exterior
de Espaæa v Ayuntamiento de Valencia, [1994] ECR I-877, paragraph
14.

(31) Patxi Garrido Espinosa and M“ Victoria Garc(cid:237)a Olea, La dependencia

exterior vasca en el periodo 1990-1995, Eustat.

(32) In 1990 exports accounted for 28,5 % of all sales, including those
to the rest of Spain, but only five years later they accounted for
40,8 %.

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

Euskadi
Estat(cid:237)stika-Erakundea/Instituto Vasco de Estad(cid:237)stica).

prepared

Eustat

1998,

aæo

by

en

el

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Official Journal of the European Union

14.2.2003

therefore,

substitute for an assessment based on the State aid rules.
The criteria established in part B (36) 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
a measure will not be
that
possible,
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
internationally accepted principles and does not
lack
transparency. On the other hand, as explained above, it
does distort competition and affect trade.

substantial

economic

activity

and

should be

assessed by

effect on trade

(66) 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

it

the

favours

view that

the Commission takes

(67) 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
that,
120 202). The Commission would point out

certain firms. The

(36) Part B of the said Code of Conduct reads:

are

(1) whether

in respect of

accorded only

(cid:145)[(cid:133)] When assessing
whether such measures are harmful, account should be taken of,
to
advantages
alia:
inter
non-residents or
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 ta
measures lack transparency,
including where statutory rules are
relaxed at administrative level in a non-transparent way(cid:146).

firms

fourth report on enterprises

in
according to the
Europe (37),
in the European
the number of
Community in 1992 which had fewer
than ten
employees, or no employees at all, was 14 629 000, or
92,72 % of the total (38). In Spain’s case, the percentage
in 1991 was even higher, at about 95,11 % (39).
Furthermore, according to the fifth report on enterprises
in Europe (40), the number of firms in the European
Community in 1995 which had fewer
than ten
employees, or no employees at all, was 16 767 000, or
92,89 % (41) of the total. In Spain’s case, the percentage
was higher still, at about 95 % (42). It 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 % (43). The
main conclusion, therefore, is that one of the conditions
of eligibility alone rules out the majority of firms.

(68)

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 exemption 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
it will not
In this particular case, therefore,
features.
examine any regional specificity the measure may have.

(69)

For the rest, the objective character of the thresholds
cited does not, as some third-party comments claim,
prevent them from being selective and excluding firms
which do not
in question.
According to the case-law (44),
(cid:145)the fact that the aid is
not aimed at one or more specific recipients defined in

satisfy the

conditions

(37) Enterprises in Europe, Fourth report, Eurostat.
(38) Data taken from the table on page 27 of the report.
(39) Data taken from the table on page 152 of the report.
(40) Enterprises in Europe, Fifth report, Eurostat.
(41) Data taken from the table on page 31 of the report.
(42) Data taken from the table on page 224 of the report.
(43) Data taken from the table on page 73 of the report.
(44) See Case T-55/99, Confederaci(cid:243)n Espaæola de Transporte de Mercanc(cid:237)as

(CETM) v Commission, [2000] ECR II-3207, paragraph 40.

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to which it may be granted,

advance, but that it is subject to a series of objective
[(cid:133)]
criteria pursuant
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
if, owing to the criteria governing its application,
it
procures an advantage for certain undertakings or the
production of certain goods, to the exclusion of others(cid:146).

examined from a State aid perspective, since, as the
case-law states (46):
(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).

by

resulting
balanced

revenue
be
increase in revenue.

(70) 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 (45). In this particular
internal
that,
the General Assembly of Vizcaya states
case,
basically, because it promotes the formation of new
companies the tax exemption will mean an increase in
the number of
taxpayers and hence in tax revenue.
However, to support this thesis, it has contented itself
with a set of abstract, general
statements without
providing a detailed study of how, in this specific case,
from the 10-year
the
loss of
exemption would
possible
the
In the absence of a
subsequent
detailed analysis it is risky to assume that the balance
will always be positive. Moreover, the General Assembly
of Vizcaya does not explain why, if the objective was to
increase the number of
the aid is only
granted to a minimum number of new firms, perhaps
less than 5 %. Apart from this, the measure’s temporary
nature shows
than being
its objectives,
intrinsic to the tax system, which would give them a
certain permanence, are short-term and unconnected
the Commission must
with it.
reject
the General Assembly of
Vizcaya, since the latter has not managed to show that
the tax exemption has the objective, inherent in the tax
increasing tax revenue. The Commission
system, of
notes however that, according to the provincial
law
introducing the tax holiday, the declared objective was
to stimulate Vizcaya’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 nature
of the tax measure. As regards the possibly legitimate
nature of the objectives pursued, the Commission does
not question this, although it would point out that it is
for a public measure to avoid being
not sufficient

In the circumstances,

the comments of

taxpayers,

rather

that

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

in Case C-6/97.

rise

fact

that

that

gives

and the

(71) As to the existence of exemptions from corporation tax
in other Member
the
States
Commission did not regard them as State aid because
they were aimed at new firms (cid:151) a point that, according
to certain third parties,
to legitimate
expectations concerning tax aid for newly established
firms (cid:151) the Commission would point out
the
preliminary 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 (47) notified under Article 88(3) of the Treaty
and compatible with the common market. Furthermore,
even supposing that the Commission had not reacted, it
would not be legitimate to take this misguided approach
that,
in the present case.
It should be pointed out
according to the case-law of the Court of Justice,
(cid:145)any
breach by a Member State of an obligation under the
Treaty in connection with the prohibition laid down in
Article 92 cannot be justified by the fact that other
Member States are also failing to fulfil this obligation.
The effects of more than one distortion of competition
on trade between Member States do not cancel one

(46) See paragraph 53 of the judgment cited in footnote 44.
(47) See France: Tax aid scheme for (cid:145)enterprise areas(cid:146) N 155/86,
approved by Commission decision of 21 January 1987,
(cid:145)Regional Planning
seventeenth competition report, point 245;
Act(cid:146) 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: (cid:145)Regional Planning Act(cid:146)
aid scheme N 607/92, approved by Commission decision of 9
December 1992 (OJ C 39, 13.2.1993);
(cid:145)regional aid map(cid:146)
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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another
damaging
accumulate
consequences to the common market are increased(cid:146) (48).

and

out

but

the

(72) 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 are 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 10, 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

10-year

that

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

(74)

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

It does not satisfy criteria (i)

(EC) No 659/1999.
to
(iv) (49), since it was not
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.

(76)

in its

The Commission also considers that the tax exemption
does not satisfy the conditions in Article 1(b)(v) (50).
Neither
in any other
correspondence nor
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 (51), 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/EC concluding the
procedure, the Commission considered that the 1996
tax 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

(49) Subparagraphs

(i)

to (iv) of Article 1(b) of Regulation No

659/1999 read as follows:
(cid:145)(b)

(cid:145)existing aid(cid:146) shall mean:
(i) without prejudice to Articles 144 and 172 of the Act
of Accession of Austria, Finland and Sweden, 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;
is

to say, aid schemes and
individual aid which have been authorised by the
Commission or by the Council;

(ii) authorised aid,

that

6.2. New aid

(iii) aid which is deemed to have been authorised pursuant
this Regulation or prior to this

to Article 4(6) of
Regulation but in accordance with this procedure;
(iv) aid which is deemed to be existing aid pursuant to

Article 15;(cid:146).

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

(75)

The Commission considers that the aid does not have
the character of an existing aid, since it does not meet
the conditions laid down in Article 1(b) of Regulation

(48) See Case C-78/76, Steinike & Weinlig v Federal Republic of Germany,
[1977] ECR 595, 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 neither the principle of equal
the
protection of legitimate expectations may be relied upon in order
to justify the repetition of an incorrect
interpretation of a
measure.

treatment nor that of

(cid:145)(b)

(cid:145)existing aid(cid:146) 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
by
be
Community
considered as existing aid after the date fixed for
liberalisation(cid:146).

such measures

activity
not

liberalisation

shall

law,

the

an

of

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

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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/EC, were adopted
not only before 10 December 1998 (date of publication
of
the Commission notice on the application of the
State aid rules to measures 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 Vizcaya 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.

(79)

(77)

aid

aid it

to notified

should have

Furthermore, regarding the Spanish authorities’ claim
that if the Commission considered the tax holiday was
initiated the procedure
State
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
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 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 that it initiated a proceeding in respect of
other similar State aid measures in the form of a
reduction of taxable income for certain new firms in
Vizcaya (C-52/99) on 29 September 1999. In its final
decision of 12 July 2001 it concluded that the said aid
was incompatible.

existing aid. The Commission considers, however, that it
may be regarded as new aid within the meaning of
Article 1(c) of the same Regulation (52), (53).

6.3. Illegality

for

aid (54),

conditions

de minimis

Since the scheme does not contain a commitment from
the Spanish authorities to grant the aid in accordance
with the
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 proceedings,
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 guarantee that the de minimis threshold will not be
exceeded.

that

(80)

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
illegal.

(81) As regards the argument put forward by certain third
parties that
the tax measure cannot be classified as
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

(52) In Article 1(c) of Regulation (EC) No 659/1999, new aid is defined
as (cid:145)(c) (cid:145)new aid(cid:146): all aid, that is to say, aid schemes and individual
aid, which is not existing aid, including alterations to existing aid(cid:146).
reference

to the Spanish Permanent Representation,

(53) Letter

(78)

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

D/10687, dated 19 January 1996.

(54) 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, dated
12 January 2001, on the application of Articles 87 and 88 of the
EC Treaty to de minimis aid (see footnote 6).

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second,

to the

alleged approval by

notified, a decision could never be taken by the
Commission as to its compatibility with the common
market (55). As
the
Commission of the (cid:145)Basque tax system(cid:146), which according
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 (56)
introduced by `lava, Guipœzcoa y Vizcaya respectively
in 1988 and,
in that Decision those
that
measures were regarded as State aid. Article 1(4) of the
Decision (57) provided, moreover, that the granting of
the aid should be subject to a series of conditions, such
as observance of the ceilings for regional aid, the rules
applicable
and the 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
for the granting of 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 what is claimed in the
third-party comments, there never was any Commission
in the
decision that approved the (cid:145)Basque tax system(cid:146)
abstract and, hence, any new tax measure such as the
tax exemption in question, or at
least deprived that
system of its illegal character (58).

to SMEs

6.4. Compatibility with the common market

(82)

the Commission would repeat

First of all,
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

that

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

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

(56) 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,

(57) 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).

(58) See footnote 23.

It

is

sufficient

specific firms.

asked the Spanish authorities

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
the Commission would
and frameworks. Moreover,
again stress that, in its decision initiating the procedure,
it
relevant
information that would allow it to assess the aid. The
request was clearly intended to enable the Commission
idea of the actual effects of the
to obtain a general
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 parties do, for providing only a general assessment
while
refusing to supply the
same
information requested.

individual

time

the

the

for

all

at

in this

in Article 87(3)(a) or

(83) As the scheme in question covers only the NUTS (59)
level 3 territory of Vizcaya, it is necessary to examine
whether aid in this historic territory can qualify for the
(c). The
regional derogations
Commission would point out
that
Vizcaya has never been eligible for the Article 87(3)(a)
derogation, since the per capita GDP (60) of the NUTS
level 2 region of the Basque Country, of which it forms
the
part, has
Community average. According to the rules on regional
aid (61) (62)
the
derogation in Article 87(3)(a) of the Treaty are met only
if the region, at NUTS level 2, has a per capita GDP of
not more than 75 % of the Community average. The
that, according to the
Commission notes however

always been higher

than 75 % of

conditions of

eligibility

respect

the

for

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

power standards (PPS).

(61) 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.

(62) See point 3.5 of the guidelines on national regional aid (footnote

17).

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regional aid map (63), Vizcaya was a region in which
State aid could be considered partly compatible (64) up
to 26 September 1995 (65),
fully
compatible, with the
the
regional derogation in Article 87(3)(c) of the Treaty (66).

common market under

and thereafter

(84)

certain

despite

thresholds. However,

State aid in the form of an exemption from corporation
tax promotes the formation in Vizcaya 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
the amount of aid is not a
income. Furthermore,
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
may be connected with an investment
if one sets a
ceiling expressed as a percentage of the amount invested
follows that aid, which, as in the
in the region(cid:146).
present case, does not meet these criteria, cannot be
regarded as investment aid.

It

the Treaty,

the Treaty, and the grant of

the derogation in
granted in regions eligible under
to certain
subject
Article 87(3)(a) of
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
transport costs. However, the NUTS level 3 territory of
Vizcaya is not eligible for the derogation in Article
87(3)(a) of
the said
operating aid does not meet the conditions described.
The NUTS level 3 territory of Vizcaya is not an
outermost region (67) nor a region of low population
density (68). 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
in an outermost region or a
87(3)(a) of
region of low population density. The aid is therefore
incompatible in this case.

the Treaty,

(87)

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

(88)

(85) On the contrary, since it partly reduces the tax paid by
the recipient firms on their profits, 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 their everyday management. It is
therefore appropriate to examine the tax aid in the light
of any derogations that may apply to the operating aid
in question.

(86)

The Commission would point out
the
guidelines on national regional aid, regional aid, which
in principle
has
prohibited. Exceptionally, however, such aid may be

the character of operating aid,

that, under

is

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
research and development,
medium-sized enterprises,
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

(63) 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.

(64) The only parts of Vizcaya 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 (cid:145)Duranguesado(cid:146) and
(cid:145)Encartaciones(cid:146) areas. The other parts of Vizcaya did not meet the
necessary criteria.

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

adopted in 1988.

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

(89)

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,

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

Treaty.

(68) See point 3.10.4 of

the guidelines on national

regional aid

(footnote 17).

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fibres

coalmining,

steelmaking,

the condition that

fisheries,
shipbuilding,
industry (69). The
and the motor
synthetic
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
recipient
traditionally suffer. Therefore, where
belongs to one of
the
Commission considers that, since it is not subject to the
sectoral rules mentioned, the aid is incompatible with
the common market and the derogation in Article
87(3)(c) of
the Treaty on the promotion of certain
activities does not apply.

the abovementioned sectors,

from which these

to exacerbate

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

(93)

It should be noted first of all that Confebask is not
arguing that
the Basque firms it represents did not
realise that the exemption from corporation tax 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.

(90)

the
The aid in question, which cannot qualify for
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.

(91)

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 illegal 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.

(94)

(95)

6.5. Recovery of aid already paid

(92) According to certain of Confebask’s comments (see
above), the aid should not be repaid on account of the

(69) For the sectoral rules currently in force see,

Journal of

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

the European Union,

in addition to the
the

the website of

to

established

into effect

case-law (70),

It should also be pointed out that the tax exemption
was not put
in accordance with the
procedure provided for in Article 88(3) of the Treaty.
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 (71) 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
valid,
in order to oppose repayment, but in this case
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
in cases of possible
Regulation (EC) No 659/1999,
unlawful aid it
is not bound by the time limits
applicable to notified aid. Consequently, it is not obliged

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

(71) See paragraph 16 of the judgment, dated 20 September 1990,
cited in footnote 70, and Case C-183/91, Commission v Greece,
[1993] ECR I-3131, paragraph 18.

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to adopt decisions on unlawful aid, as in the present
case, within two months (72) (by virtue of Article 4(5))
or within 18 months (73) (by virtue of Article 7(6)). It
should also be pointed out that in its letter of 25 May
1994 to the Spanish Permanent Representation, a copy
the
of which Confebask attached to its comments,
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
Official Journal of the European Communities 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,
authorities
the Commission has never
since 1994,
described the tax exemption, either directly or indirectly,
as compatible with the common market.

(96) 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,

(97) As to the precedent of RSV (74), cited by third parties in
support of the legitimate expectation fostered by 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

been authorised
sector

the tax exemption,

the Commission.

In RSV,

by

it

(72) Decision to raise no objection or

to initiate

the

formal

investigation procedure.

(73) Decision to terminate the formal investigation procedure.
(74) See footnote 24.

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.

(98)

(99)

a

reply might be

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
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 (75) and, in 1997,
about aid to Ramond(cid:237)n (76),
the tax
holidays (77) introduced in `lava in 1996 and enjoyed,
in addition to other aid, by those firms. Since, in both
cases, the 1996 tax holidays were regarded as illegal and
incompatible State aid,
the information which the
Spanish authorities received in this connection, far from
the
arousing
it
compatibility of
might be incompatible.

legitimate
the tax exemption,

in respect of

indicated that

forthcoming,

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 that (cid:145)it
to protection of
is
legitimate
any
claimed by
individual who finds himself in a position in which it is

the right
expectations may be

settled case-law that

(75) State aid case on aid to Demesa (see footnote 51); final Decision

1999/718/EC (see footnote 5).

(76) State aid case 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).

(77) 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).

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shown that the Community administration gave rise to
justified hopes on his part [(cid:133)]. However, no one may
plead infringement of the principle of the protection of
legitimate
specific
assurances given to him by the administration(cid:146) (78).

expectations

absence of

in the

(100)

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
legitimate expectations or legal certainty, as regards
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
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 (79).

the unlawful grant of

aid

granted

(101) This Decision relates to the scheme and should be
implemented immediately, including the recovery of any
individual
scheme. The
Commission would also point out that, as usual, this
Decision is without prejudice to whether individual aid
may be regarded, in full or in part, as compatible with
the common market on its own merits, either in a
subsequent Commission decision or under exempting
regulations.

under

that

established firms, in breach of Article 88(3) of the
Treaty;

(b) the exemption from corporation tax is incompatible

with the common market;

(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 illegally,

HAS ADOPTED THIS DECISION:

Article 1

The State aid in the form of an exemption from corporation
tax, unlawfully put
into effect by Spain in the Historic
Territory of Vizcaya, 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.

7. CONCLUSIONS

Article 3

(102)

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

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.

(a) Spain has unlawfully put into effect, in Vizcaya, an
exemption from corporation tax for certain newly

(78) See paragraph 300 of the judgment cited in footnote 55.
(79) Commission letter to Member States (SG(91) D/4577) of 4 March
1991. See also Case C-142/87, Belgium v Commission, [1990] ECR
I-959.

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

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Article 4

Done at Brussels, 20 December 2001.

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

Article 5

This Decision is addressed to the Kingdom of Spain.

For the Commission

Mario MONTI

Member of the Commission