2003/81/EC: Commission Decision of 22 August 2002 on the aid scheme implemented by Spain in favour of coordination centres in Vizcaya C 48/2001 (ex NN 43/2000) (Text with EEA relevance) (notified under document number C(2002) 3141)
Date: 2002-08-22
Institutions: European Commission
Subjects: Spain, State aid, aid system, business management, corporation tax, infringement of EU law, tax system

L 31/26

EN

Official Journal of the European Union

6.2.2003

II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 22 August 2002

on the aid scheme implemented by Spain in favour of coordination centres in Vizcaya C 48/2001
(ex NN 43/2000)

(notified under document number C(2002) 3141)

(Only the Spanish text is authentic)

(Text with EEA relevance)

(2003/81/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

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

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

Having invited interested parties to submit their comments (1)
pursuant to the provisions cited above and having regard to
their comments,

Whereas:

I. PROCEDURE

(1)

to the Code,

In 1997 the Economic and Financial Council adopted a
Code of Conduct for business taxation with the objective
of tackling harmful tax competition (2). As a result of the
commitment made
the
in response
Commission published in 1998 a notice on the applica-
tion of State aid rules to measures relating to direct busi-
ness taxation (3) (the notice), stressing its determination
to apply the rules rigorously and to respect the principle
of equality of treatment. On the basis of this notice, the
Commission undertook to examine or re-examine case
by case the tax arrangements in force in the Member
States.

(2)

In this context, the Commission wrote to the Spanish
authorities on 12 February 1999 seeking information on
various measures including the tax schemes in the

(1) OJ C 304, 30.10.2001, p. 6.
(2) OJ C 2, 6.1.1998, p. 1.
(3) OJ C 384, 10.12.1998, p. 3.

Basque Country and Navarre for coordination centres.
None of
these measures had been notified to the
Commission. By letter dated 21 April 1999, the Spanish
authorities supplied the information requested.

By letter dated 22 June 2000, the Spanish authorities
informed the Commission that the tax schemes for coor-
dination centres in Ávala and Guipúzcoa had been
repealed.

By letter dated 8 May 2001, Spain informed the
the tax scheme for coordination
Commission that
centres in Navarre had been repealed and that
the
Vizcaya scheme was still
in force but had not been
applied. Since, according to the information available,
no aid had been granted under the Ávala, Guipúzcoa
and Navarre schemes,
the Commission dropped its
inquiry into them and limited its investigation to the
scheme for coordination centres in Vizcaya, which was
still in force.

By letter dated 11 July 2001, the Commission informed
Spain that it had decided to initiate the procedure laid
down in Article 88(2) of the EC Treaty in respect of
coordination centres in Vizcaya.

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

(3)

(4)

(5)

(6)

(4) See footnote 1.

6.2.2003

EN

Official Journal of the European Union

L 31/27

(7)

(8)

(9)

By letter dated 20 November 2001, the Spanish authori-
ties informed the Commission that the Vizcaya Provin-
cial Council had adopted a draft law repealing the tax
scheme for coordination centres.

By letters dated 18 March 2002 and 8 April 2002, the
Commission asked Spain for further information on the
repeal of the tax scheme for coordination centres and on
the beneficiaries of the scheme. By letter dated 25 April
2002, Spain informed the Commission that the coordi-
nation centres scheme would be finally abolished on 30
April 2002, and that the sole beneficiary had already
renounced its coordination centre status. By letter dated
3 June 2002, Spain confirmed that the scheme had been
abolished.

II. DESCRIPTION OF THE AID

A special tax scheme was introduced in Vizcaya for
management,
coordination and financial operations
centres. The details of the scheme are governed by Arti-
cles 53 and 54 of Provincial Regulation No 3/1996 of
26 June 1996 on corporation tax and Provincial Decree
No 81/1997 of 10 June 1997 adopting the Corporation
Tax Regulations.

(b) fulfil one of the following conditions:

(i) its authorised capital must not be less than
ESP 250 million (EUR 1,50 million), or its own
funds not less than ESP 600 million (EUR 3,61
million);

(ii) its

annual

than
turnover must be more
ESP 1 000 million (EUR 6,01 million).
the
centre performs management and coordination
activities only, its turnover must be greater than
ESP 150 million (EUR 0,902 million).

If

(13) Under Article 54 of Provincial Regulation No 3/1996, a
coordination centre may calculate its tax base in one of
two ways: either by the classical method,
i.e. by
deducting expenses from taxable income, or by an alter-
native method. In the latter case, taxable profits are reck-
oned as 25 % of the coordination centre's expenditure,
excluding financial costs. The amount thus obtained is
then liable to corporation tax at the standard rate. This
is known as the ‘cost plus’ method.

(14)

To qualify for the coordination centres scheme, an
undertaking must obtain the prior approval of the tax
authorities, which is granted for a period of up to five
is automatic if the conditions of the
years. Approval
scheme are fulfilled; it may be renewed on request.

(10) A management, coordination and financial operations
centre (coordination centre) is a legal person subject to
corporation tax, whose main purpose is to manage,
direct, supervise and centralise the transactions and
services of the international group of firms to which it
belongs.

(15)

(11)

To qualify for the Vizcaya tax scheme, a group must
meet the following requirements:

(a) the aggregate own funds of the group must be more

than ESP 1 250 million (EUR 7,51 million);

(b) the group must include firms resident in at least two

foreign countries;

(c) at least 25 % of the group's own funds must be held

by firms that are not resident in Spain;

(d) annual

turnover must exceed ESP 8 000 million
(EUR 48,1 million), of which at least 25 % must
relate to foreign operations.

III. GROUNDS FOR INITIATING THE PROCEDURE

In its assessment of the information submitted by Spain
in the course of its preliminary assessment, the Commis-
sion considered that the exclusion of financial costs from
the calculation of profits under the cost plus method
could confer an advantage on coordination centres. It
also considered that this advantage was granted through
state resources, affected trade between Member States
and was selective. It also considered that none of the
exceptions
to the general prohibition on State aid
provided for in Articles 87(2) and 87(3) of the Treaty
applied. The Commission therefore had doubts about
the compatibility of
the measure with the common
market and decided to initiate the formal investigation
procedure.

IV. COMMENTS FROM INTERESTED PARTIES

(16)

Comments were received from the Vizcaya Provincial
Council. They may be summarised as set out in recitals
17 to 23.

(12)

In addition, a coordination centre must:

(a) employ at least eight persons full-time;

(17)

The Vizcaya coordination centres scheme is in the
process of being abolished.

L 31/28

EN

Official Journal of the European Union

6.2.2003

(18)

(19)

(20)

(21)

Tax measures adopted in Vizcaya have been based on
the experience of other Member States. The Vizcaya
legislation on coordination centres was based essentially
on the Belgian coordination centres scheme in force at
the time. The Commission had taken no State aid action
against the Belgian scheme, which covered more than
300 coordination centres. Nor did the subsequent
changes
the slightest
comment from the Commission as to its classification as
State aid under Article 92 (now Article 87) of the EC
Treaty. The Vizcaya Provincial Council was therefore
sure that
to adopt was
consistent with Community law.

to the Belgian scheme elicit

the legislation it was about

If there had been any doubt before 1996 as to the aid
nature of the Belgian scheme or its compatibility with
the common market, it is reasonable to assume that the
Commission would have taken action under the former
Article 93 of the Treaty (now Article 88). It is not too
far-fetched to conclude that, by remaining silent, the
Commission took a position in this matter consistent
with Lorenz (5), approving the Belgian scheme either
because it was not State aid or because it was a tax
measure manifestly compatible with the
common
market. It was only later that the Commission stated that
the Belgian scheme had not deserved to be described as
State aid.

The lack of any reservations on the part of the Commis-
sion with regard to the well-known Belgian scheme is a
sufficient basis for a legitimate expectation. When it
the Vizcaya Provincial Council
adopted the scheme,
would not know that the contested legislation might be
regarded as State aid, still less that after a preliminary
examination, there would be doubts about its compat-
ibility with the common market.

If the Vizcaya coordination centre scheme were found to
be State aid incompatible with the common market, the
legitimate expectation would prevent the Commission
from ordering the recovery of any aid granted under the
scheme. Similarly, there would be a legitimate expecta-
tion on the part of the beneficiary of the scheme as to
the legality of the Provincial Council's action, since the
Provincial Council had been aware for many years of the
existence of the Belgian scheme and since the Commis-
sion had raised no objections.

(22) Apart from the question of legitimate expectations, there
is also the principle of equality of treatment. At the same
time as initiating this proceeding under Article 88(2) of
the Treaty,
the Commission proposed appropriate
measures under Article 88(1) to Belgium in respect of its

the
coordination centres
Commission considered the Belgian scheme to be an
existing aid.

scheme. This means

that

(23)

(24)

Since there is no specific feature of the Belgian scheme
compared with the Vizcaya scheme that objectively
warrants the former being regarded as existing aid but
the latter as new aid, both schemes should be treated
equally by the Commission. Where a scheme is regarded
as existing aid,
require
recovery of the aid, even if it declares the scheme to be
incompatible with the common market. It is difficult to
see how an instruction to recover the aid in the case of
the Vizcaya scheme is warranted, when the scheme is
essentially the same as the Belgian one.

the Commission may not

V. COMMENTS FROM THE SPANISH AUTHORITIES

In their written comments, which forwarded the infor-
mation supplied by the Vizcaya Provincial Council, the
Spanish authorities informed the Commission of
the
adoption of the Vizcaya legislation abolishing the coor-
dination centre scheme. They also forwarded a copy of
the comments from the Vizcaya Provincial Council,
summarised above.
In addition, Spain confirmed that
contrary to the information supplied in their letter of 8
May 2001, one firm had been approved as a coordina-
tion centre under the scheme prior to the date of that
letter, but had renounced that status on 27 November
2001.

VI. ASSESSMENT OF THE AID

(25) Having considered the opinion of the Spanish authorities
and the Vizcaya Provincial Council,
the Commission
maintains its position, expressed in its letter of 11 July
2001 (6) to the Spanish authorities initiating the proce-
dure under Article 88(2) of
the
scheme under examination constitutes unlawful, oper-
ating aid which falls within the scope of Article 87(1) of
the EC Treaty.

the EC Treaty,

that

State aid

(26) Neither the Spanish authorities nor the Vizcaya Provin-
cial Council have challenged the Commission's preli-
minary assessment, given in its letter of 11 July 2001 (7),
that the coordination centres scheme constitutes State
aid within the meaning of Article 87(1) of the EC Treaty.
The Commissions showed that the scheme appeared to
satisfy the four cumulative criteria which must be met in
order for a measure to constitute State aid. This assess-
ment may be summarised and refined as follows.

(5) Case 120/73, Lorenz v. Germany [1973] ECR 1471.

(6) See footnote 1.
(7) See footnote 1.

6.2.2003

EN

Official Journal of the European Union

L 31/29

(27) Under the coordination centres scheme, eligible under-
takings may opt for an alternative method of calculating
their tax liability. In the context of transfer pricing (8),
tax authorities may apply such alternative methods to
ensure that transactions between associated enterprises
are at arm's length. The arm's length principle provides
that the taxable profits from transactions between asso-
ciated firms should be charged as if the transaction had
been carried out between unrelated parties under normal
market conditions. As regards transfer pricing, the inter-
national rules (the arm's length principle) were estab-
lished by Article 9 of the OECD Model Tax Convention
on Income and on Capital, as implemented in the OECD
Transfer Pricing Guidelines of 1995. Since such analysis
requires that individual facts and circumstances are taken
into account, the OECD Guidelines do not recommend
the use of fixed margins.

(28) As stated in point 9 of the notice (9), an advantage may
be conferred by reducing the firm's tax burden, and in
particular by reducing its taxable income. The Vizcaya
coordination centres scheme allows firms to choose the
cost plus method for calculating their taxable income.
The method may result in a reduction of the tax paid, if
it does not reflect the economic reality of the underlying
transactions. Depending on the nature of the firm's busi-
ness, the cost plus method together with a fixed mark-
up may lead to the economic reality being underesti-
mated and therefore to the payment of less tax than
under the more traditional, comparable unrelated price
(CUP) method. This risk is particularly great where the
firm conducts high value-added transactions. It is there-
fore incumbent on the tax authorities to ensure that the
cost plus method applied is appropriate to the individual
enterprise, or, as the case may be, the particular sector,
in order that the tax paid is comparable to that under
the more traditional (CUP) method.

the scheme confers an
sion therefore concludes that
advantage on coordination centres and on the groups to
which they belong.

(30)

The lowering of the tax base leads to a reduction in
Vizcaya's tax revenue. This is equivalent to the use of
State resources.

(31)

The scheme affects competition and trade between
Member States, since the groups to which coordination
centres belong must generate at least 25 % of their turn-
over in two foreign countries. Firms covered by the
scheme are therefore likely to be active in sectors in
which intra-Community trade is intense. By strength-
ening the financial position of such groups, the measure
will distort or threaten to distort intra-Community trade.

(32)

The scheme is selective. Only those enterprises which
satisfy the particular criteria set out in Provincial Regula-
from the coordination
tion No 3/1996 can benefit
centres scheme.

(33) Neither the Spanish authorities nor the Vizcaya Provin-
cial Council have given any reasons why the tax
measures in question are necessary for the functioning
and effectiveness of the Spanish tax system and therefore
do not constitute State aid (point 23 of the notice (10)).

Compatibility

(34) Neither the Spanish authorities nor the Vizcaya Provin-
cial Council have challenged the Commission's assess-
ment in its letter of 11 July 2001 (11) that none of the
exceptions provided for in Articles 87(2) and 87(3),
under which State aid may be considered compatible
with the common market, applies in the present case.
The Commission has no reason, therefore, to change its
assessment, which is summarised in recitals 35 to 39.

(29)

scheme makes

The Vizcaya coordination centres
it
possible to exclude financial costs from the calculation
of the taxable income. This increases the probability that
the tax paid by firms will be lower than that using the
more traditional (CUP) method. The difference will be
even greater if the main function of the coordination
centre is to carry out financial transactions. Neither the
Spanish authorities nor the Vizcaya Provincial Council
have supplied any evidence that the cost plus method
applicable under the scheme results in an equivalent
level of taxation to the classical method. The Commis-

(35)

(36)

Since the coordination centre scheme constitutes State
aid within the meaning of Article 87(1) of the EC Treaty,
its compatibility must be assessed in the light of the
exceptions provided for in Articles 87(2) and 87(3).

The exceptions provided for in Article 87(2), which
concern aid of a social character granted to individual
consumers, aid to make good the damage caused by
natural disasters or exceptional occurrences and aid
granted to certain areas of
the Federal Republic of
Germany, do not apply in this case.

(8) Transfer prices are the prices at which a firm transfers goods or

provides services to associated firms.

(9) See footnote 3.

(10) See footnote 3.
(11) See footnote 1.

L 31/30

EN

Official Journal of the European Union

6.2.2003

(37) Nor does the exception provided for in Article 87(3)(a),
which provides for the authorisation of aid to promote
the economic development of areas where the standard
of living is abnormally low or where there is serious
underemployment.

(38)

(39)

Similarly, the coordination centres scheme cannot be
considered to be a project of common European interest
or to remedy a serious disturbance in the economy of
Spain, as provided for by Article 87(3)(b). Nor does it
have as its object the promotion of culture and heritage
conservation as provided for by Article 87(3)(d).

that

Finally, the coordination centres scheme must be exam-
ined in the light of Article 87(3)(c), which provides for
the authorisation of aid to facilitate the development of
certain economic activities or of certain economic areas,
where such aid does not adversely affect trading condi-
tions to an extent
is contrary to the common
interest. The tax advantages granted by the coordination
centres scheme are not related to investments, to job
creation or to specific projects. They simply constitute a
reduction of charges that should normally be borne by
firms in the course of their business and must therefore
be considered as operating aid, the benefits of which
cease as soon as the aid is withdrawn. According to the
established practice of the Commission, such aid cannot
be considered to facilitate the development of certain
activities or of certain economic areas.

Legitimate expectations

(40) Where illegally granted State aid is found to be incompa-
tible with the common market, the normal requirement
is that the aid should be recovered from the benefici-
aries. Through recovery of the aid, the competitive posi-
tion that existed before the aid was granted is restored as
far as possible. However, Article 14(1) of Council Regu-
lation (EC) No 659/1999 of 22 March 1999 laying
down detailed rules for the application of Article 93 of
the EC Treaty (12)
‘the
Commission shall not require the recovery of the aid if
this would be contrary to a general principle of Commu-
nity law’. The case law of the Court of Justice and the
established that
Commission's own decisions have
where, as a result of the Commission's actions, the bene-
ficiary of a measure has a legitimate expectation that the
aid has been granted in accordance with Community
law, then an order to recover the aid would infringe a
general principle of Community law.

(now Article 88) states that

(41)

In Van den Bergh & Jurgens (13), the Court ruled that it:

‘

has consistently held that any trader in regard to
whom an institution has given rise to justified hopes
may rely on the principle of protection of legitimate
expectation. On the other hand,
if a prudent and
discriminating trader could have foreseen the adop-
tion of a Community measure likely to affect his
interests, he cannot plead that principle if
the
measure is adopted.’

(42)

(43)

(44)

In Commission Decision 2001/168/ECSC of 31 October
2000 on Spain's corporation tax laws (14), the Commis-
sion noted the similarities between the Spanish scheme
in question and a French scheme which it had approved
on the grounds that it did not constitute aid within the
meaning of Article 92(1) of the EEC Treaty (now Article
87(1) of the EC Treaty).

the Commission notes that

In the present case,
the
Vizcaya coordination centres scheme bears close simila-
rities to the scheme introduced in Belgium by Royal
Decree No 187 of 30 December 1982 on the tax treat-
ment of coordination centres. Both schemes concern
intra-group activities and both use cost plus methods to
determine the tax base. In its decision of 2 May 1984,
the Commission considered the scheme not to be an aid
within the meaning of Article 92(1) of the EEC Treaty
(now Article 87(1) of the EC Treaty). Even if this deci-
sion was not published, the fact that the Commission
had not raised any objections to the Belgian coordina-
tion centres scheme was publicised both in the XIVth
Report on Competition Policy and in an answer to a
parliamentary question (15).

In this context, the Commission notes that its decision
on the Belgian coordination centres scheme was taken
before the entry into force of the Vizcaya coordination
centres scheme. The Commission also notes that the sole
beneficiary of the scheme was approved as a coordina-
tion centre before the Commission's decision of 11 July
2001 (16) opening the formal
investigation procedure.
Furthermore, the sole beneficiary renounced its rights
under the scheme before the closure of
the present
formal investigation procedure. Therefore, the arguments
of the Vizcaya Provincial Council that both it and the
beneficiary of the scheme had a legitimate expectation
which,
if the scheme were found to be incompatible
with the common market, would prevent the Commis-
sion from ordering the recovery of any aid granted, are
sound. This legitimate expectation covers firms approved
under the scheme before the opening of the formal
investigation procedure in respect of any aid granted up
to the closure of that procedure.

(12) OJ L 83, 27.3.1999, p. 1.
(13) Case C-265/85 Van den Bergh en Jurgens BV v. Commission [1987]

ECR, p. 1155, paragraph 44.

(14) OJ L 60, 1.3.2001, p. 57.
(15) Written question No 1735/90, OJ C 63, 11.3.1991.
(16) See footnote 1.

6.2.2003

EN

Official Journal of the European Union

L 31/31

(45)

(46)

(47)

Equality of treatment

The Vizcaya Provincial Council argues that the Vizcaya
coordination centres scheme should have been subject to
a proposal for appropriate measures under Article 88(1)
EC, thereby subjecting it to the same treatment as the
this
Belgian coordination centres
scheme. However,
argument presumes a margin of discretion that
the
In Piaggio (17), the Court
Commission does not have.
ruled that the Commission's classification of the scheme
at issue as an existing aid, when that scheme had not
been notified in accordance with Article 88(3) EC, could
not be accepted.

In the present case, the Vizcaya legislation enacting the
coordination centres scheme was not notified to the
Commission prior to its entry into force. Therefore, the
Commission cannot consider it to be an existing aid
scheme.

also notes that the only firm approved under the scheme
renounced its rights on 27 November 2001. Both the
Spanish authorities and the sole beneficiary of
the
scheme were entitled to entertain legitimate expectations
that the scheme did not constitute State aid. Therefore,
the Commission does not need to require recovery of
the aid.

HAS ADOPTED THIS DECISION:

Article 1

The illegal State aid scheme implemented by Spain under Arti-
cles 53 and 54 of Vizcaya's Provincial Regulation No 3 of 26
June 1996 on corporation tax and implemented by Provincial
Decree No 81/1997 of 10 June 1997 is incompatible with the
common market.

VII. CONCLUSIONS

Article 2

The Commission concludes that the Vizcaya coordina-
tion centres scheme constitutes State aid within the
meaning of Article 87(1) of the EC Treaty and that none
the derogations provided for in Article 87(2) or
of
Article 87(3) apply. The Commission also finds that
Spain has unlawfully implemented the scheme in ques-
the EC Treaty.
tion,
However,
legislation to
repeal the scheme was adopted on 30 April 2002 and
entered into force on 9 May 2002 (18). The Commission

in breach of Article 88(3) of
the Commission notes

that

This Decision is addressed to the Kingdom of Spain.

Done at Brussels, 22 August 2002.

For the Commission

Mario MONTI

Member of the Commission

(17) Case C-295/97 Piaggio v. Ifitalia & others, [1999] ECR I-3735.
(18) See Provincial Regulation No 4 of 30 April 2002 (Boletín Oficial de

Vizcaya No 87, 9.5.2002).