2003/294/EC: Commission Decision of 11 December 2002 on the application by Portugal of the financial and tax aid scheme for the free zone of Madeira in the period between 1 January and 31 December 2000 (notified under document number C(2002) 4825) (Text with EEA relevance)
Date: 2002-12-11
Institutions: European Commission
Subjects: Madeira, aid system, control of State aid, financial aid, free zone, regional aid, tax exemption

6.5.2003

EN

Official Journal of the European Union

L 111/45

COMMISSION DECISION

of 11 December 2002

on the application by Portugal of the financial and tax aid scheme for the free zone of Madeira in
the period between 1 January and 31 December 2000

(notified under document number C(2002) 4825)

(Only the Portuguese text is authentic)

(Text with EEA relevance)

(2003/294/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(2)

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

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

Having called on interested parties to submit their comments
to those Articles (1) and having regard to those
pursuant
comments,

Whereas:

I. PROCEDURE

by

10

June

1998
registered

from their
received
as

By letter No 327 of 21 April 1998 from the Portuguese
Permanent Representation, registered as received by the
Commission on the same day, the Portuguese authorities
requested an additional period of two weeks in which to
submit their comments on the proposed appropriate
measures. By letters No 409 of 4 June 1998 and No
Permanent
423
of
Representation,
the
Commission on 10 and 12 June 1998 respectively, the
Portuguese authorities transmitted to the Commission a
letter dated 29 May 1998 from the Minister for Foreign
Affairs stating that the Portuguese Government agreed
with the principles underlying the Commission's action
on regional aid and including certain comments on the
guidelines on national regional aid. Since the letter from
the Minister for Foreign Affairs did not make it clear to
the Commission that the Portuguese authorities agreed
with the proposed appropriate measures mentioned
above, by letter D/52552 of 18 June 1998, transmitted
to the Portuguese Permanent Representation, and by
letter D/53161 of 23 July 1998,
transmitted to the
Portuguese Minister for Foreign Affairs, the Commission
to confirm their
asked the Portuguese
agreement.

authorities

that

(1) When the Commission adopted the guidelines on
national regional aid (2), it took the view, pursuant to
Article 88(1) of
the gradual
the EC Treaty,
development and operation of
the common market
meant that a reassessment had to be carried out with
the Member States of regional aid schemes in existence
before the date of adoption of the guidelines so as to
allow the establishment,
from 1 January 2000, of a
transparent and equitable system of regional aid for all
Member States, based on full compliance with the
guidelines. By letter SG(98) D/1684 of 24 February
1998, which set out appropriate measures pursuant to
the Treaty in respect of national
Article 88(1) of
regional
the
Portuguese
existing
regional aid schemes which were in force on 1 January
2000,
to make them compatible with the
provisions of the guidelines as from that date.

the Commission proposed that
should amend

authorities

so as

aid,

all

(3)

By letter No 629 of 2 September 1998 from the
Portuguese Permanent Representation,
registered as
received by the Commission on 7 September 1998, the
Portuguese authorities transmitted to the Commission a
letter dated 20 August 1998 from the Minister for
Foreign Affairs stating that the financial and tax aid
scheme for the free zone of Madeira (3) would expire on
31 December 2000, being subject to the appropriate
measures for national regional aid. By letter D/53951 of
29 September 1998 to the Portuguese Permanent
Representation, the Commission stated that, in view of
the abovementioned letter from the Minister for Foreign
Affairs, it considered that the Portuguese authorities had
confirmed their agreement on the proposed appropriate
measures. At the same time,
it asked the Portuguese
authorities either to give an assurance that the financial

(1) OJ C 301, 21.10.2000, p. 4.
(2) OJ C 74, 10.3.1998, p. 9.

(3) State aid E 19/94, ex E 13/91 and N 204/86.

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and tax aid scheme for the free zone of Madeira would
be limited in duration to 31 December 1999 or to
notify the proposed amendments that would make the
scheme compatible with the guidelines as
from 1
January 2000.

Commission within one month of
publication.

the date of

(4)

(5)

(6)

to take the view that all

Despite the numerous contacts to this end between the
Commission and the Portuguese authorities (4), no
information was communicated to the Commission
enabling it
the necessary
amendments had been made to bring the scheme into
line with the guidelines on national regional aid as from
1 January 2000. Accordingly, given the presumed
acceptance of the aforementioned appropriate measures
by the Portuguese authorities, the scheme in question
was entered in the register of non-notified aid under NN
60/2000.

By letter SG(2000) D/105022 of 17 July 2000 the
Commission notified Portugal that, having examined the
information provided by the Portuguese authorities on
the financial and tax aid scheme for the free zone of
Madeira
in connection with appropriate measures
proposed pursuant to Article 88(1) of the Treaty for
it had decided to initiate the
national regional aid,
procedure laid down in Article 88(2) of the Treaty in
respect of the application of the scheme in the period
between 1 January and 31 December 2000. At the same
time, it asked Portugal to submit its comments and to
provide all relevant information for assessing the aid
concerned within one month of
the
abovementioned letter.

receipt of

formal
The Commission's decision to initiate
investigation procedure in respect of the aid concerned
was published in the Official
the European
Communities (5). Interested parties were invited to submit
their comments on the scheme concerned to the

Journal of

the

(4) Letters No 9 of 5 January 1999, No 233 of 15 March 1999, No
848 of 25 August 1999, No 1156 of 18 November 1999 and No
19 of 5 January 2000 from the Permanent Representation, and No
853 of 4 April 2000 from the Portuguese Finance Minister
(registered as received by the Commission on 7 January 1999, 18
March 1999, 27 August 1999, 24 November 1999, 7 January 2000
and 6 April 2000 respectively), and fax No 11684/99 of 14
December 1999 from the Portuguese Permanent Representation;
letters from the Commission D/50399 of 27 January 1999 and
D/51612 of 16 April 1999 to the Permanent Representation, and
D/522 of 10 March 2000 to the Portuguese Finance Minister;
bilateral meetings of 26 May 1999, 8 December 1999 and 15
December 1999 between the Commission and the Portuguese
authorities.
(5) See footnote 1.

(7)

(8)

(9)

(10)

by

received

from the
registered

Portuguese
as

By letters No 860 of 11 August 2000 and No 867 of 16
Permanent
August
2000
Representation,
the
Commission on 11 and 17 August 2000 respectively,
the Portuguese authorities asked for an additional period
of one month in which to submit their own comments
under the procedure laid down in Article 88(2) of the
Treaty. By letter D/54485 of 31 August 2000 to the
Portuguese Permanent Representation, the Commission
granted that additional period. By letter No 932 of 18
September 2000 from their Permanent Representation,
received by the Commission on 19
registered as
September
authorities
Portuguese
the
2000,
communicated their comments to the Commission.

The Commission also received comments
from 16
interested parties. The Commission forwarded these
comments
to the Portuguese authorities by letters
D/56003 of 4 December 2000 and D/56048 of 6
December 2000, addressed to the Portuguese Permanent
Representation, to allow them to give their opinion. The
respective comments were received by letter No 82 of
10 January 2001 from the Portuguese Permanent
Representation,
the
as
Commission on 12 January 2001.

registered

received

by

II. DESCRIPTION OF THE MEASURE IN RESPECT OF
WHICH THE COMMISSION INITIATED THE
PROCEDURE

the terms of

Under
recent Commission
the most
decision on the financial and tax aid scheme for the free
zone of Madeira (6), tax aid was allowed for industrial,
financial and service firms and for operators entered in
the shipping register who set up in the free zone by 31
December 2000. These firms were exempt
from all
direct taxes up to the end of 2011, after which they
were to be partially exempt
(they would then be
required to pay property and income taxes, which
constitute the principal part of their tax burden).

Following the adoption of the guidelines on national
regional aid, the Commission proposed, as appropriate
measures pursuant to Article 88(1) of the EC Treaty and
by letters of 24 February 1998,
that Member States
should amend all existing regional aid schemes which
were in force on 1 January 2000, so as to make them
compatible with the guidelines as from that date. The
the
guidelines on national

aid enshrine

regional

(6) State aid E 19/94 — letter SG(95) D/1287 of 3 February 1995.

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principle that regional aid intended to reduce a firm's
current expenses (operating aid) is normally prohibited,
while exceptionally allowing such aid to be granted in
regions eligible under the derogation in Article 87(3)(a)
of the Treaty ‘provided that it is justified in terms of its
contribution to regional development and its nature,
and its level is proportional to the handicaps it seeks to
alleviate' (point 4.15). The guidelines also stipulate that
‘with the exception of the cases mentioned in point
4.16,' (aid for transport in the outermost regions and
regions of low population density) ‘operating aid must
be both limited in time and progressively reduced'
(point 4.17).

by

the

these

approved by the Commission. In this respect, given that
Portugal had not submitted any new notification for the
period 2000 to 2006,
two aspects were
independent of each other. In so far as the only change
envisaged
in the
Portuguese
conditions for granting the aid in 2000 were to restrict
the number of new financial firms admitted to the free
zone to not more than 20 % of the total number of
such firms active the previous year, the proposal put
forward by the Portuguese authorities did not seem
capable of ensuring the scheme's conformity with the
guidelines.

authorities

for

the

authorities

the Portuguese

zone of Madeira,

(11) When it was called upon to assess the tax and financial
the
free
aid scheme
Commission stated that, apart from the exemption from
tax on the acquisition of land and buildings, the tax aid
granted by
constituted
operating aid that might be granted for long periods or
still
indefinitely. Given that
covered by the derogation laid down in Article 87(3)(a)
of the Treaty in the period between 2000 and 2006,
compliance with the conditions laid down to that effect
by the guidelines would thus be an obligation the
Portuguese authorities would have to fulfil in applying
the scheme and granting aid to firms established in the
abovementioned free zone between 1 January and 31
December 2000.

the Madeira region is

(12)

in

the

to cause

form of

taxes,
appear

In general, in so far as it arose only in connection with
the question of
some regional and/or minor
limitation in time did not
the
Portuguese authorities much concern. On the other
hand, as regards the progressive reduction of operating
its
aid
proportionality in relation to the handicaps it was
intended to alleviate, the Portuguese authorities felt that
the arrangements for implementing the financial and tax
aid scheme for the free zone of Madeira should be
re-examined only in the context of an overall agreement
covering the period from 1 January 2000 to 31
December 2006, taking into account changes in the
socioeconomic situation of the Madeira region.

exemptions

and

tax

(14)

(15)

that

In this context the Commission also noted that, even
though it had already announced (8)
it was
planning to amend the guidelines to make it possible to
approve operating aid that was not progressively
limited in time in the outermost
reduced and not
regions eligible for regional aid where such aid was
intended to reduce the additional costs arising in the
pursuit of the economic activity from the handicaps set
out in Article 299(2) of the Treaty, the only exceptions
then allowed to the principles of limitation in time and
progressive reduction related to aid specifically designed
to offset additional
transport costs in the outermost
regions and regions with low population density.

III. COMMENTS SUBMITTED BY THE PORTUGUESE
AUTHORITIES

In this respect
in particular

The comments submitted by the Portuguese authorities
under the formal
investigation procedure first of all
challenged the grounds of the decision to initiate the
the Portuguese authorities
procedure.
pointed out
that Portugal had never
accepted the guidelines on national regional aid, nor the
appropriate measures proposed by the Commission in
this area. Consequently, according to the Portuguese
authorities, since such acceptance could not be inferred
from any document transmitted to the Commission, the
latter would have no grounds for considering the aid
granted in accordance with the financial and tax aid
scheme for the free zone of Madeira in the period
between 1 January and 31 December 2000 to be
unlawful and subject to recovery.

(13)

In this respect the Commission first pointed out that,
under its decision on the matter (7), the financial and
tax aid scheme for the free zone of Madeira was to
the
expire on 31 December 2000. This being so,
for
to appropriate measures
scheme was
national regional aid only for the year 2000, and any
change in the implementation of the scheme during the
period 2001 to 2006 still had to be notified to and

subject

(16)

The Portuguese authorities also considered the initiation
of the procedure to be excessive and unjustified in any
event for two reasons in particular:

— the Commission was obliged, at least from the entry
into force of
to
discriminate positively in favour of the outermost
In initiating the procedure laid down in
regions.

the Treaty of Amsterdam,

(7) See footnote 6.

(8) Report COM(2000) 147 final, 14 March 2000.

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Article 88(2), the Commission was failing to comply
in particular because the
with that obligation,
Commission
it
necessary to amend the guidelines on regional
aid (9)
the new
Article 299(2),

in order to take full account of

subsequently

considered

itself

— the approach adopted in relation to the financial
and tax aid scheme for the free zone of Madeira
represented unequal treatment in comparison with
other cases and/or
the
regions.
Portuguese authorities considered in particular that
the Irish International Financial Service Center had
relatively
out
been
arrangements (10)
Commission
while
departments
of
rejected
had
compromise in relation to the free zone of Madeira.

flexible
the
any

possibility

phasing

allowed

In this

respect

(17)

In view of these comments, the Portuguese authorities
considered in particular that
the Commission should
close the procedure by means of a decision confirming
the scheme until 31 December
the authorisation of
2000,
in the same terms as the decision it took in
1995 (11).

IV. COMMENTS FROM INTERESTED PARTIES AND
RESPONSE OF THE PORTUGUESE AUTHORITIES

(18)

(19)

The comments submitted by interested parties came
largely from the direct or indirect beneficiaries of the
financial and tax aid scheme for
the free zone of
Madeira. Although they were relatively numerous, these
comments contained virtually no relevant information
for assessing the scheme in question, since they were
generally confined to regretting that the procedure had
been initiated and asking the Commission to refrain
from taking decisions that could be detrimental to the
efficient operation of
the
the free zone. None of
interested parties,
for example, seemed to share the
doubts voiced by the Commission when the procedure
was initiated (this element was in fact the only aspect
stressed in the Portuguese authorities' responses to the
abovementioned
the
Commission by letter No 82 of 10 January 2001 from
their Permanent Representation).

comments,

notified

to

as

V. ASSESSMENT

The Commission examined the comments submitted
both by the Portuguese authorities and by interested
investigation procedure
parties under
concerned.

formal

the

in

respect

procedure

investigation

(20) As regards the alleged non-acceptance of the proposed
appropriate measures in respect of national regional aid,
the Commission would like to point out in particular
that at no time during the period of 28 months
between letter SG(98) D/1684 of 24 February 1998,
which proposed appropriate measures in relation to
national regional aid, and the decision to initiate the
formal
of
implementation of the financial and tax aid scheme for
the free zone of Madeira during the year 2000 (which
taken on 28 June 2000) did the Portuguese
was
authorities inform the Commission that they did not
accept those appropriate measures. Quite the contrary,
the Portuguese authorities always suggested, both by
letters from the Portuguese Permanent Representation
and during the various bilateral meetings held on the
matter, that they were willing to cooperate fully with
the Commission to identify the changes that had to be
made to the scheme to ensure that it complied with the
the
guidelines,
Commission
the
appropriate measures as given.

and they were
considered

aware
acceptance

that
of

their

fully

(21) Notwithstanding

it

the

never

explicitly

foregoing,

Commission
the
the Portuguese
nevertheless has to acknowledge that
authorities
their
of
notified
unconditional acceptance of the appropriate measures
transmitted by letter SG(98) D/1684 of 24 February
1998. The Commission is therefore not able to refute
the comments submitted by the Portuguese authorities
under the formal investigation procedure, according to
which such acceptance was never given. Under these
the procedure initiated in respect of
circumstances
Portugal's
appropriate
measures proposed by the Commission with regard to
the application of the financial and tax aid scheme in
the free zone of Madeira in the period between 1
January and 31 December 2000 no longer serves any
useful purpose.

non-compliance with

the

(22)

these

circumstances,

The Commission also notes that the aid scheme for the
free zone of Madeira expired on 31 December 2000.
Under
the
Commission could make either in relation to the other
comments submitted by the Portuguese authorities or in
relation to the comments submitted by interested parties
would also no longer serve any useful purpose.

any observations

VI. CONCLUSION

(9) OJ C 258, 9.9.2000, p. 5.
(10) OJ C 395, 18.12.1998, p. 8.
(11) See footnote 6.

(23)

In view of the foregoing, the Commission considers that
the procedure initiated under Article 88(2) of the Treaty
as regards the application of the financial and tax aid
scheme for the free zone of Madeira in the period

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between 1 January and 31 December 2000 no longer
serves any useful purpose. The Commission regrets,
however, that the Portuguese authorities did not inform
it in good time that they did not accept its proposal for
appropriate measures pursuant to Article 88(1) of the
Treaty as regards national regional aid, contrary to what
would appear to be required by the principle of fair
cooperation underlying the aforesaid Article 88(1),

the free zone of Madeira in the period between 1 January and
31 December 2000 no longer serves any useful purpose.

Article 2

This Decision is addressed to the Portuguese Republic.

HAS ADOPTED THIS DECISION:

Done at Brussels, 11 December 2002.

Article 1

formal

the
The
application by Portugal of the financial and tax aid scheme for

investigation procedure

in respect of

For the Commission

Mario MONTI

Member of the Commission