2004/168/EC: Commission Decision of 15 October 2003 on a proposal by Portugal to grant aid to Vila Galé — Cintra Internacional, Investimentos Turísticos, SA (notified under document number C(2003) 3376) (Text with EEA relevance)
Date: 2003-10-15
Institutions: European Commission
Subjects: Portugal, State aid, control of State aid, tourism

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Official Journal of the European Union

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COMMISSION DECISION

of 15 October 2003

on a proposal by Portugal to grant aid to Vila Galé — Cintra Internacional, Investimentos
Turísticos, SA

(notified under document number C(2003) 3376)

(Only the Portuguese text is authentic)

(Text with EEA relevance)

(2004/168/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(4)

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

the first

The Commission decision to initiate the procedure was
published in the Official
the European
Communities of 22 October 2002 (2). The Commission
called on interested parties to submit their comments
on the aid within one month of that date.

Journal

of

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

(5)

The Commission received no comments from interested
parties.

Having called on interested parties to submit their comments
pursuant to the provisions cited above (1),

II. DETAILED DESCRIPTION OF THE AID

Whereas:

I. PROCEDURE

(1)

(2)

(3)

By letter No 521 dated 21 February 2002 from their
Permanent Representation, registered as received by the
Commission on 27 February, the Portuguese authorities
notified the Commission of the proposed aid for Vila
Galé — Cintra Internacional,
Investimentos Turísticos,
SA. By letter No 1167 dated 22 April 2002 from their
Permanent Representation, registered as received by the
Commission
the
they
Commission with further information.

25 April,

provided

on

By letter No SG(2002) D/230500 dated 4 July 2002,
the Commission informed the Portuguese Republic of its
decision to initiate
laid down in
Article 88(2) of the EC Treaty in respect of the aid.

the procedure

By letters Nos 2183 dated 24 July 2002, 2278 dated 6
August 2002 and 2163 dated 7 July 2003 from their
Permanent Representation (registered as received on
29 July 2002, 12 August 2002 and 10 July 2003
respectively), the Portuguese authorities presented their
observations under the abovementioned procedure.

(1) OJ C 253, 22.10.2002, p. 5.

(6)

(7)

The investment and the objective

The notified measure consists in the granting of aid to
Vila Galé — Cintra Internacional — Investimentos
Turísticos, SA (hereinafter Vila Galé Cintra) to finance in
part the costs incurred by the enterprise in acquiring
and refurbishing an unfinished building located in the
State of Ceará (Brazil). The building was acquired on
29 September 2000 and was
transformed into a
five-star hotel that was opened in October 2001 and is
now fully operational.

of

an

consists

present measure

individual
The
application in respect of two schemes. One is measure
N 667/1999 (3), which covers the period 2000-2006
and is aimed at promoting modern and competitive
strategies. The individual application
entrepreneurial
notified falls
investment
categories of this scheme, namely investments related to
the internationalisation of economic agents. The second
scheme
promoting

is measure N 96/1999 (4)

into one of

specific

the

(2) See footnote 4.
(3) Approved by the Commission on 26 July 2000 (OJ C 266,

16.9.2000, p. 7).

(4) Approved by the Commission on 8 September 1999 (OJ C 375,

24.12.1999, p. 5).

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internationalisation
through the Tax Benefits Scheme.

projects

by

Portuguese

firms

terms of EUR 538 218 and a net aid intensity of
3,88 % (7).

Recipient

(8)

(9)

the criterion of
The aid recipient does not meet
independence necessary to be considered an SME (5).
Vila Galé Cintra is owned as to more than 25 % by two
enterprises which fall outside the definition of an SME.

The two enterprises are, nevertheless, relatively small
players. Their annual balance-sheet totals (1999 values)
are EUR 36 million and EUR 51 million respectively.
Their annual turnovers are EUR 6 million and EUR 31
million respectively. The Portuguese market shares of
the three shareholders in Vila Galé Brazil in their sectors
of activity are 3,9 %, 3,0 % and 3,6 % for Cintra
(construction), Vila Galé (tourism) and FCR (risk capital
in the tourism sector) respectively.

(12)

The aid measure

(10)

The aid instruments to be used for the purposes of the
present project are a non-repayable grant (which the
Portuguese Authorities intend to make available under
the de minimis Regulation (6)), a soft loan under scheme
N 667/1999 (part-financed with Community funds from
the ERDF) and a tax credit under scheme N 96/1999.

(11)

The data relating to the measure are the following:

(a) eligible investment: EUR 13 869 076;

(b) eligible costs: acquisition of

external

3 691 104),
448 918),
equipment
projects (EUR349 158);

engineering

civil
(EUR 3 653 695),

infrastructure works

the building (EUR
(EUR
(EUR 5 726 200),
and
and studies

(d) tax credit: the tax credit involves estimated aid in
nge terms of EUR 373 166 (8), corresponding to a
net aid intensity of 2,69 %;

(e)

total amount of aid: the total amount of aid from
the soft loan and the tax credit in nge terms is EUR
911 384;

(f)

total net intensity of the aid: 6,57 %.

III. THE ARTICLE 88(2) PROCEDURE

Grounds for initiating proceedings

the

that

The grounds for deciding to initiate proceedings in this
case were twofold. At the time the decision was taken,
the Commission considered
Portuguese
authorities had not demonstrated that State aid would
be needed to reduce or offset the underlying political or
economic risks in Brazil. It also harboured doubts as to
whether the aid would be necessary for the purposes of
It could not, therefore, state
the planned investment.
the aid would facilitate certain
unequivocally that
economic activities and so could benefit
from an
exemption under Article 87(3)(c) of the EC Treaty.

Comments from the Portuguese authorities

(13)

By letters dated 24 July and 6 August 2002,
the
Portuguese authorities presented their observations. In
essence, they contested the two arguments on the basis
of which the Commission initiated proceedings, namely
its doubts about the existence of significant risks and
uncertainties on the Brazilian market that might justify
the granting of state aid and about whether or not the
necessity criterion was met.

(c) soft loan: the nominal amount of the loan is EUR
3 467 269, corresponding to an aid amount in nge

(14) As

the

regards

existence of

and
uncertainties on the Brazilian market, the Portuguese
authorities informed the Commission that the company
belonging to Grupo Cintra (one of the shareholders in

significant

risks

(5) Article 1(3) of the Annex to the Commission Recommendation of
3 April 1996 concerning the definition of small and medium-sized
Independent
enterprises
enterprises are those which are not owned as to 25 % or more of
the capital or the voting rights by one enterprise, or jointly by
several enterprises, falling outside the definition of an SME or a
small enterprise, whichever may apply.

(OJ L 107, 30.4.1996)

states

that:

(6) Commission Regulation (EC) No 69/2001 of 12 January 2001 (OJ L

1.
2.
3.
4.

(7) The calculation is based on the following:
duration of the loan: six years,
grace period: two years,
interest rate on the loan: 0 %,
reference interest rate for Portugal applicable at the time the
investment took place: 6,33 %,
corporation tax rate currently in force in Portugal: 35,2 %.
(8) This is the net aid element of the tax credit as estimated by the

5.

10, 13.1.2001).

Portuguese authorities.

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the

the

formal

decision

initiating

existence of high market

Vila Galé Cintra) which is involved in the investment
project under scrutiny has no business relationship with
Grupo Cintra in the beer sector in Brazil, as stated in
the
investigation
procedure. This investment project therefore represents
the first foreign venture for the companies involved.
Moreover, the fact that Portugal is one of the leading
in Brazil does not, on its own,
foreign investors
preclude
risk and
uncertainty that are indeed features of
the Brazilian
is related to the very pronounced
market. This fact
exchange-rate volatility of the real, on the one hand,
and to the instability of the Brazilian capital market
brought about by the recent economic and financial
crisis in Argentina, on the other. The proposed State aid
is, therefore, intended to compensate for these risks and
uncertainties
and
risk
reduction of the financial costs linked to the investment
project. The Portuguese authorities
concluded that
investments are made in Brazil by entrepreneurs who
are determined to take on the additional risks inherent
in the investments, notwithstanding the existing market
conditions.

leverage

through

sharing,

(15) As regards fulfilment of

the fact

the necessity criterion,
that

the
Portuguese authorities argued that
the
recipient had already completed its investment and
opened the hotel before a decision on the granting of
aid had been taken does not rule out the incentive effect
of the aid.
In fact, the application for State aid was
made in July 2000, before the investment costs were
incurred. What is more, the fact that the investment
the
went ahead without any State support
determination of
to undertake its first
foreign venture in spite of the additional risks involved
and its expectations in relation to obtaining the public
support it applied for. It is the Portuguese authorities'
opinion that the recipient should not be disadvantaged
on the ground that vetting the application took longer
than the period needed to carry out the investment.

the recipient

shows

is obvious that strengthening a European enterprise
which carries out business in the EEA is likely to affect
trade in the Community. Such is the view expressed by
the Court of Justice of the European Communities in its
judgment in Case 142/87 Tubemeuse (9). It cannot be
the aid would give the recipient an
excluded that
advantage over
in the
competitors operating
European Union that had already invested or would be
interested in investing in Brazil without receiving any
aid for foreign direct investment. The measure is funded
through state resources. Accordingly, the Commission
considers that the measure would distort or threaten to
distort competition and that it would amount to State
aid within the meaning of Article 87(1) of the EC Treaty.

its

Possible exemption

(18)

(19)

since

an investment

carried out outside

the proposed aid measure

Firstly,
involves
Community funds from the ERDF which will be used to
the
co-finance
European Union,
the Commission has assessed this
possibility in the light of Commission Regulation (EC)
No 1685/2000 of 28 July 2000 laying down detailed
rules for the implementation of Council Regulation (EC)
No 1260/1999 as regards eligibility of expenditure of
operations co-financed by the Structural Funds (10).

Secondly, given the fact that there are no Community
guidelines or framework for state aid in the tourism
sector, the Commission has based its assessment directly
on Article 87(3)(c) of the EC Treaty, which provides for
an exemption for aid to facilitate the development of
certain economic activities, without adversely affecting
trading conditions
contrary to the
to an extent
economic interest.

Comments from interested parties

(20)

(16)

The Commission did not receive any comments from
interested parties.

economic

The Commission must, therefore, assess whether the aid
will contribute to the development of tourism and/or
in the European Union
other
without adversely affecting trading conditions between
Member States. It must also assess whether the aid will
have an incentive effect for the recipient to carry out
the investment.

activities

IV. ASSESSMENT OF THE AID

Existence of State aid

(17) Under

the notified measure, a specific Portuguese
investing in the
enterprise would receive funds for
tourism sector
an
as
Brazil
internationalisation strategy. This aid would strengthen
the recipient's overall financial and strategic position. It

part

of

in

Possibility of allocating Community funds from the
ERDF to an investment carried out outside the
European Union

(21) Article 160 of the EC Treaty states that ‘the ERDF is
the main regional

intended to help to redress

(9) [1990] ECR, I-959, at 35.
(10) OJ L 193, 29.7.2000, p. 39.

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imbalances in the Community'. Moreover, Article 3 of
Regulation (EC) No 1260/1999 defines the geographical
eligibility for the priority objectives, which concerns
only the regions of the Community.

(27)

(22)

Regulation (EC) No 1685/2000, mentioned above, lays
down the eligibility criteria for operations to receive
Community funds from the ERDF depending on their
location (11). It is mentioned there that the possibility of
accepting operations located outside the region to which
the assistance relates for co-financing:
‘(…) shall be
subject
to prior approval by the Commission on a
case-by-case basis following a request submitted by the
in particular the
Member State,
proximity of the operation to the region, the level of
benefit to the region which can be foreseen, and the
amount of the expenditure in proportion to the total
the
the measure
expenditure
assistance.' (12).

taking into account

under

under

and

(23)

Since the investment is located in an area distant from
the assisted region, the Commission considers that the
above-mentioned condition is not met.

(24)

The Commission therefore considers that the notified
investment
is not eligible for Community financial
support under the ERDF. The remainder of this decision
the total amount of aid indicated at
assumes that
point
in paragraph 11 will be fully covered by
(e)
national funds.

(25)

(26)

Effect of the aid on trade between Member States

The amount of aid is relatively small. It represents a net
grant equivalent of EUR 911 384, corresponding to a
net aid intensity of 6,57 % of the eligible investment. A
small amount of aid that covers a limited portion of the
eligible investment is unlikely to affect trade between
Member States significantly.

in the market.

is a small player

The recipient
Its
shareholders only narrowly exceed the thresholds laid
down in the definition of an SME. They have market
shares of
less than 4 % on the respective markets in
Portugal and their corresponding market shares in the
EU are
aid to an
enterprise with a small market share is less likely to
impose negative externalities than aid to an enterprise
with a large market share. Given the recipient's small
market share, the limited amount of aid would not be
such as to affect the position of its competitors.

therefore negligible.

Individual

(11) Rule 12, Annex I to Regulation (EC) No 1685/2000.
(12) Rule 12, point 3, Annex I to Regulation (EC) No 1685/2000.

and the

The tourism and hotel sector accounts for around 3,5 %
of Brazilian GDP and there are some 10 000 hotels in
Brazil, of which an estimated 5 % to 7 % belong to
companies (13). Currently,
international
the main
European investors in Brazil are the French group Accor
Spanish group Sol Melia
(108 hotels)
(23 hotels) (14). Since the notified project was the first
investment by Vila Galé in Brazil, its resulting share of
the Brazilian market is insignificant compared with the
above.
European
can
It
construction of
reasonably be
another five-star hotel
in Brazil will not significantly
increase local supply or affect the relative position of
the European companies already established on the
market or their ability to attract tourists.

companies mentioned
concluded that

the

The share of the ‘luxury' segment in the Brazilian hotel
is quite high. According to ABIH Nacional,
market
the total number of hotel beds
around 53 % of
registered since 1964 was in four- or five-star hotels.
This market is characterised by a very large number of
them
players
(mostly non-European), with none of
having a substantial market share. Consequently,
the
hotel sector in Brazil can be described as a competitive
market with a very low degree of concentration. Aid
granted to a company in such a market is less likely to
distort competition than aid granted to a company in a
highly
advantage
conferred is more likely to be transferred to consumers
than retained by the recipient.

concentrated market

since

the

the Brazilian market,

share of
international

The aid recipient is in a relatively unfavourable position
compared with its main EU competitors. These have a
much higher
are
recognised at
and have been
established in the market for several years. Their larger
size confers on them greater bargaining power vis-à-vis
international tourism operators, and this results in much
higher occupancy rates and income, thereby reducing
the relative weight of their commercial costs.

level

(28)

(29)

(30)

The investment in question requires a significant local
content in Brazil and does not involve the relocation of
activities from Portugal to Brazil. For that reason, the
aid is not expected to have a negative impact on
economic activity or on employment in Portugal.

(13) Source: ABIH Nacional — Brazilian Association of
‘Statistics on the national hotel

the Hotel
industry', 22 February

Industry,
2001.

(14) See footnote 17.

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(31)

(32)

For the reasons set out in paragraphs 25 to 30, the
Commission considers that the aid is unlikely to have a
significant
between
Member States. In this respect, it would also stress that
it received no comments from interested parties.

impact

direct

trade

on

Contribution of the aid to the development of the
tourism sector in Portugal

is therefore one of

Tourism is one of the most important sectors of activity
in the Portuguese economy. Currently,
it accounts for
around 8 % of GDP and employs directly and indirectly
the
It
around 500 000 people.
priority areas in Portugal for promoting cohesion. This
cohesion effect has often been recognised by the EU
institutions. The Council Resolution of 21 May 2002 on
the future of European tourism (15) states that ‘Tourism
[…] contributes largely to the fulfilment of the targets
established in the Lisbon and Cardiff Process and to the
attainment of a true internal services market.
is
conducive to a high level of employment and social
welfare, sustainable growth, better quality of
life and
European integration and also to social and economic
cohesion, making a considerable contribution to the
convergence.' The
objectives of
same Resolution
emphasises that
‘tourism in Europe being comprised
mostly by small and medium-sized enterprises (SMEs), it
is essential to give tourism industry a better access to
instruments within the framework of the EU to help
them to increase their economic performance and to
strengthen their competitiveness
[…]'. The tourism
sector is characterised by strong vertical and horizontal
Its
connections with other sectors of
development
the
economy as a whole.

the economy.
therefore leads to development of

It

successful,

constructing a further two. It thus seems likely that,
if
the
enterprise's investment capacity in the Portuguese
tourism market.

project will

enhance

this

(b) The tourism sector in Portugal

is dominated by
SMEs, which account for 95 % of the market. Given
their small economic size and turnover, Portuguese
tourism companies have very limited experience of
ventures abroad and tend to concentrate their
activities in Portugal. It can, therefore, be reasonably
the current project will have a
assumed that
demonstration effect
Portuguese
tourism market players as regards the profitability
and sustainability of foreign investment projects.

among

other

(c) Although the investment had a very limited impact
in terms of direct
the
the
of
implementation
Portuguese companies that coordinated the project,
monitored its implementation and supplied material
and equipment.

job creation in Portugal,
benefited

project

the

(d) The Brazilian subsidiary pays the Portuguese parent
company a management
the services it
provides and, in so doing, increases its turnover and
has a positive effects on the State's tax revenue.

fee for

to

the

(e) The positive cash flows generated by the Brazilian
company will,
Portuguese
according
authorities, be transferred to Portugal, primarily in
order to repay the outstanding debt contracted by
Vila Galé Cintra to finance part of the construction
and refurbishment of the hotel. Once this debt has
been repaid in full, the income from Brazil may be
in line with the company's
reinvested in Portugal
strategy.

(33)

The aid will strengthen the long-term position of a
Portuguese tourism enterprise, enabling it to broaden
and diversify its product range and thereby to improve
its business potential.

(34)

It is likely that strengthening the recipient's financial
position will produce benefits mainly in the Portuguese
tourism sector for the following reasons:

(a) The recipient's parent company carries out most of
its activities in Portugal, where it owns fourteen
first
hotels
foreign
is
concentrated mainly in Portugal, where it set up
three new hotels in 2002 and is in the process of

the country. This
Its

throughout
venture.

its
is
strategy

investment

(15) OJ C 135, 6.6.2002, p. 1.

(35)

For the reasons mentioned in recitals 32 to 34, the aid
can be considered as having a positive impact on the
tourism sector in Portugal and an equally positive effect
on cohesion.

Incentive effect of the aid

(36)

(37)

The present case concerns the first venture abroad by
the recipient. Its shareholders too have no experience of
foreign investment in the tourism sector. As mentioned
previously, the companies involved in the investment
are small players on the markets concerned. The cost of
the investment is equivalent to 12 % of their combined
(1999 values). The project
annual balance-sheet
therefore entails a significant
the financial
situation of the companies involved.

risk for

total

The Brazilian market presents some serious difficulties
the marked
for potential
currency.
exchange-rate
Secondly, the recent economic and financial crisis in

investors. Firstly,
volatility of

there is
the national

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loan and a tax credit can therefore be
of a soft
authorised, provided that no Community funds are used.

The Commission does not intend to use this Decision to
lay down its future policy on foreign direct investment.
It normally considers investment aid granted to large
enterprises with a view to financing foreign direct
investment
common
market, unless it can be proved that a project will
contribute to the development of certain economic
activities without adversely affecting trading conditions
within the Community,

incompatible with the

to be

HAS ADOPTED THIS DECISION:

Article 1

The aid in the form of a soft loan and a tax credit which
is planning to implement for Vila Galé — Cintra
Portugal
Internacional,
Investimentos Turísticos, SA with a view to
financing foreign direct investment in Brazil is, subject to the
conditions
to
Article 87(1) of the Treaty, with the common market and,
pursuant to Article 61(1) of the EEA Agreement, with the
functioning of that Agreement.

in Article 2, compatible, pursuant

set out

Article 2

The soft loan and the tax credit to be granted to Vila Galé —
Cintra Internacional,
Investimentos Turísticos, SA must be
financed exclusively by national funds. The measures may not
from the European
be co-financed by Community funds
Regional Development Fund.

Article 4

This Decision is addressed to the Portuguese Republic.

Done at Brussels, 15 October 2003.

For the Commission

Mario MONTI

Member of the Commission

Argentina has led to some instability on the Brazilian
there are some bureaucratic
capital market. Thirdly,
difficulties mainly related to the transfer of
financial
funds to Brazil, which are controlled by the Central
Bank.

(43)

(38) Although the recipient

in carrying out

the Community definition,

is not an SME within the
it encounters
meaning of
similar difficulties
type of
this
investment, given its lack of experience at international
level, its small market share, the size of the investment
compared with its financial position and the problems
specific to the country that make it difficult for it to
enter the market.

Portuguese

stated that

The
the
authorities have
application for public support was made before the
investment started, even though it has been carried out
unaided. The aid schemes under which this individual
application was submitted (N 667/1999 and N 96/1999)
contain a clause which requires that an application for
aid be submitted before work on the project is started.
This requirement is in accordance with point 4.2 of the
guidelines on national regional aid (16) and was met in
the present case. The fact that the recipient applied for
public financial assistance before embarking on the
investment is proof that the required incentive effect
exists.

For the reasons set out in recitals 36 to 39, and given
that the investment represents the first foreign venture
for a relatively small enterprise on a volatile foreign
market (Brazil), the aid can be considered to have an
incentive effect that will compensate the recipient for
the additional financial risks incurred in investing in an
unknown and risky market.

(39)

(40)

(41)

direct

investment

The Commission has accordingly reached the conclusion
that
the proposed aid for Vila Galé — Cintra
Internacional, Investimentos Turísticos, SA in respect of
foreign
the
development of certain economic activities within the
the Treaty without
meaning of Article 87(3)(c) of
adversely
between
trading
affecting
Member States and thus is compatible with the common
market provided
co-financed by
it
European Regional
from the
funds
Community
Development Fund.

contributes

conditions

is not

that

to

(42)

The granting of aid by Portugal to Vila Galé — Cintra
Internacional, Investimentos Turísticos, SA in the form

(16) OJ C 74, 10.3.1998, p. 9.

V. CONCLUSIONS

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

Article 3