2006/748/EC: Commission Decision of 4 July 2006 on State Aid No C 30/2004 (ex NN 34/2004) implemented by Portugal exempting from corporation tax on capital gains certain operations/transactions by public undertakings (notified under document number C(2006) 2950)   (Text with EEA relevance)
Date: 2006-07-04
Institutions: European Commission
Subjects: Portugal, State aid, aid for restructuring, control of State aid, corporation tax, privatisation, public sector, tax exemption

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COMMISSION DECISION

of 4 July 2006

on State Aid No C 30/2004 (ex NN 34/2004) implemented by Portugal exempting from corporation
tax on capital gains certain operations/transactions by public undertakings

(notified under document number C(2006) 2950)

(Only the Portuguese version is authentic)

(Text with EEA relevance)

(2006/748/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

II.

DETAILED DESCRIPTION OF THE AID SCHEME

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

(6)

(7)

Whereas:

I.

PROCEDURE

(1)

(2)

(3)

Following information relating to alleged tax exemptions
on capital gains granted by the Portuguese authorities to
certain public undertakings under Article 25 of
the
Portuguese Tax Relief Regulations, Estatuto dos Benefícios
Fiscais (hereinafter referred to as ‘EBF’) (2), the Commission
asked the Portuguese authorities for detailed information by
letter dated 14 March 2001.

The Portuguese authorities replied by letter of 25 April
for information was sent on
2001. A second request
28 October 2003 and a reply was received on 30 January
2004. The Portuguese
submitted further
information by letter of 8 September 2004.

authorities

By letter dated 6 October 2004 the Commission informed
Portugal that it had decided to initiate the procedure laid
down in Article 88(2) of the EC Treaty on the aid measure
in question (3). In this decision, published in the Official
Journal of the European Union (4), the Commission invited
interested parties
their comments on the
measure.

to submit

(4)

By letter received by the Commission on 21 December
2005,
the Portuguese authorities submitted their com-
ments.

The tax exemptions are provided for in Article 25 of the
EBF, entitled Mais-valias no âmbito do processo de privatização
(capital gains as part of the privatisation process) which
corresponds to Article 32-C in the original version of 2000
before the amendment of the EBF by Decree-Law 198/2001
of 3 July 2001.

the purposes of establishing the profit

For
liable for
corporation tax in the case of wholly publicly owned
companies and companies controlled by them, Article
25 EBF provides for the exclusion from the taxable amount
of capital gains
from privatisation and restructuring
operations carried out in accordance with the strategic
guidelines for the performance of the State's shareholder
function and recognised as such by order of the Finance
Minister.

(8) Article 25 of the Portuguese EBF entered into force on
1 January 2000 pursuant to Article 103 of Law 3-B/2000
of 4 April 2000.

III. GROUNDS FOR INITIATING THE PROCEDURE

(9)

The decision to initiate the formal investigation procedure
stated that Article 25 EBF seemed to constitute a state aid
scheme within the meaning of Article 87(1) of
the
EC Treaty. The scheme appeared to be an operating aid
the information available, was
and, on the basis of
incompatible since it did not seem to be directed to any
eligible investments or expense items. Furthermore, none of
the exemptions provided for in Article 87(2) and (3) of the
EC Treaty appeared applicable.
it constituted
unjustified aid that gave public undertakings an advantage
over their private competitors.

Indeed,

(5) No interested parties submitted any comment.

IV.

COMMENTS FROM PORTUGAL

(1) OJ C 256, 15.10.2005, p. 26.
(2) Decree-Law 215/89 of 1 July 1989.
(3) C(2004) 2637, 6.10.2004.
(4) See footnote 1.

(10) By letter received by the Commission on 21 December
2005 Portugal confirmed the information already provided
during the Commission's preliminary assessment.

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(11) The Portuguese authorities summarise developments in
corporation tax on capital gains in Portugal as follows:

advantage when they are
reorganisation or restructuring operations.

involved in privatisation,

— From 1993 reinvested capital gains received prefer-
tax treatment, provided they derived from
ential
tangible fixed assets or
shares held by holding
companies (SGPS) (5). In such cases reinvestment of
the proceeds leads to their exclusion from taxable
profit.

— This situation changed from 2001 (6). A positive
balance between capital gains and capital losses was
taxable as follows: when the proceeds were reinvested
in the year they were realised, one fifth of
the
proceeds were taxable in the year they were realised
and a further fifth in each of the following four years.

— From 2002 half of the capital gains became taxable,

even if they were reinvested (7).

— In 2003 the situation changed again: SGPS (and risk
capital companies, SCR) enjoyed total tax exemption
of capital gains realised on shares they held, provided
they held them for not less than one year (8).

(12) The Portuguese authorities argue that

the tax relief
legislation merely applies to public-sector undertakings
the same rules of capital gains taxation and tax neutrality as
have applied to private companies engaged in corporate
restructuring since the 1988 tax reform and the establish-
ment of corporate income tax, Imposto sobre o Rendimento
das Pessoas Colectivas (IRC).

further argue that under
(13) The Portuguese authorities
legislation reinvested capital gains
Portuguese tax relief
receive preferential
tax treatment, provided they derive
from tangible fixed assets or shares held by holding
companies. In such cases, reinvestment of the proceeds
leads to their exclusion from taxable profit, something
which is an integral part of the Portuguese tax system.

(14) Article 25 EBF also excludes from the taxable base for IRC
capital gains realised by 100 % state-owned companies and
companies controlled by them. It only extends to such
bodies the tax treatment applicable to the capital gains
and to corporate
reinvested by holding companies
restructuring operations carried out by other private
companies. Eligible companies therefore derive no financial

(5) Article 7(2) of Decree-Law 495/88 of 30 December 1988 and EBF
Article 31(2) implemented Article 44 (now 45) of the Código do
Imposto sobre o Rendimento das Pessoas Colectivas (CIRC).

(6) Law 30-G/2000 of 29 December 2000.
(7) Law 109-B/2001 of 27 December 2001.
(8) Under Article 31(2) EBF, in the revised wording introduced by Law
32-B/2002 of 30 December 2002 approving the state budget for
2003:
‘capital gains and capital losses realised by SGPSs or SCRs
through conveyance in return for payment, whatever the grounds of
the transaction, of shares in capital which they hold, provided they
have held them for a period of not less than one year, plus the
financial charges incurred in acquiring them, shall not count towards
the taxable profits of such companies’.

(15) According to the Portuguese authorities,

the intention
behind Article 25 EBF was precisely to avoid making
privatisations and corporate restructuring operations in the
public sector conditional on the involvement of a public
thus facilitating the State's role as
holding company,
shareholder.

(16) The Portuguese authorities affirm that Article 25 EBF
contains no provision which creates an exceptional system
of taxation of capital gains compared with the ordinary
system. Its application confers no additional advantage on
beneficiary companies
involved in reorganisation or
restructuring operations.

(17) The Portuguese authorities also notified their intention of
repealing Article 25 EBF. So, once it was repealed, every
restructuring or privatising operation involving a public
company would be treated under Portugal's ordinary tax
relief system applicable to private enterprises.

(18) With regard to recovery the Portuguese authorities argued
that:
(a) only four transactions had benefited from the
scheme, and in any case a private company would have
obtained the same tax advantages by setting up a holding
company and reinvesting the amount in financial assets;
and (b) three of the four transactions had already been
approved by the management of
the Caixa Geral de
Depósitos (CGD) with a view to privatisation (creation of an
SGPS), given that at the time Article 25 EBF had not yet
been adopted. Therefore, given that no financial advantage
was granted to the public undertakings, the Portuguese
authorities deny that there is anything to recover.

(19) The four transactions that benefited from the scheme are:

— The sale by Mundial Confiança (MC), an insurance
subsidiary of the Portuguese financial institution CGD,
of its holding (5,46 %) in Crédito Predial Português (CPP)
to Banco Santander Central Hispano (BSCH) on 5 April
2000. The capital gain realised by MC was EUR
9,3 million.

— The sale by Banco Pinto & Sotto Mayor

(BPSM),
controlled by CGD at the time of the transaction, of
its holding (94,38 %) in Banco Totta & Açores (BTA) and

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its holding (7,09 %) in CPP to BSCH on 7 April 2000.
The capital gain realised by BPSM was estimated at
EUR 310 million.

— A share exchange between MC and BCP. MC sold its
holding (53,05 %) in BPSM to BCP in exchange for
approximately 10 % of BCP on 19 June 2000. The
capital gain realised by MC was EUR 1 566,4 million.

— The capital gain from the sale of CGD's stake in the
Brazilian bank ITAÚ SA, which took place between
2000 and 2003. The total capital gain realised by
CGD was EUR 357,4 million.

(20) The

first

three

transactions were decided following
agreements between the Champalimaud Group and BSCH.
To this end CGD and BSCH signed a contract on
11 November 1999 under which:

— BSCH bought António Champalimaud's holdings in
the Champalimaud Group and then sold them to
CGD.

— The holdings in BTA and CPP were sold to BSCH.

(21) The aim of restructuring the Champalimaud Group was to
split up the banking and insurance activities in order to
improve the efficiency of
the Portuguese supervisory
authorities (Banco de Portugal and Instituto de Seguros de
Portugal).

(22)

In the fourth case the divestiture was decided following a
new agreement between CGD and Unibanco (União de
Bancos Brasileiros SA).

(23) The objective of the measure in question was to ensure the
fiscal neutrality of privatisation and restructuring opera-
tions involving wholly publicly owned companies and
companies controlled by them.

(24) The Portuguese authorities, in their role of shareholder in
CGD, sent on 18 October 2000 and 31 March 2000 letters
signed by the Finance Minister authorising the transactions
referred to above in accordance with the strategic guide-
lines.

V.

ASSESSMENT OF THE MEASURE

V.1 Does the scheme constitute state aid?

(26) The Court of Justice has consistently held that a measure
whereby the public authorities grant certain undertakings a
tax exemption which, although not involving a transfer of
state resources, places the persons to whom the exemption
applies in a more favourable financial position than other
taxpayers constitutes state aid within the meaning of
Article 87(1) of the Treaty (9).

State resources

(27) The measure provided for in Article 25 EBF uses state
resources because it is based on the non-collection of
corporation taxes which would normally be due to the
State. The decision to forego this revenue fulfils the
criterion for state resources.

Selective advantage

(28) Article 25 EBF, compared with the normal tax arrange-
ments applicable to capital gains in Portugal, grants an
advantage to the beneficiaries.

(29) The normal tax arrangments to be taken into consideration
are those applicable to undertakings without distinction as
to ownership (public-owned or not) or nature (holding or
not).

(30) The normal tax arrangements are not those applicable
exclusively to holding companies because the transactions
covered by Article 25 EBF (restructuring operations) may
involve both holding and non-holding companies.

(31) The preferential

tax regime applicable to capital gains
obtained by holdings in Portugal, became applicable from
1993. However, at the time the transactions in question
took place this preferential treatment applied only if the
proceeds realised were reinvested. This means that even by
comparison with the arrangements applicable to holding
companies, which were not the normal tax arrangements in
Portugal, a selective advantage was accorded to wholly
publicly owned companies and companies controlled by
them.

(32) An exemption from capital gains tax puts the publicly
owned companies which benefit from it at an advantage
compared with other companies operating in the same
economic sectors because these public companies enjoy an
increased cash flow for running their business. Whatever
the purpose of the measure may be, state aid is determined
on the basis of effects and not objectives.

(25) The Commission confirms the decision to open the formal
procedure to decide whether the measure is state aid.
Article 25 EBF, which exempts from corporation tax public
undertakings’ capital gains from privatisation and restruc-
turing operations, constitutes a state aid scheme.

(33) The advantage is granted only to certain undertakings,
namely undertakings that are wholly publicly owned and
those controlled by them, undergoing privatisation or

(9) Case C-6/97 Italian Republic v Commission [1999] ECR I-2981,

paragraph 16.

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restructuring operations that comply with government
policy objectives.
It excludes all other undertakings,
including privately owned companies competing with the
publicly owned beneficiaries. The Commission notice on
the application of the state aid rules to measures relating to
direct business taxation states that, when some public
undertakings, for example, are exempt from company taxes,
such rules, which accord preferential treatment to under-
takings having the legal status of public undertaking and
carrying out an economic activity, may constitute state aid
within the meaning of Article 92 of the Treaty (10).

(34) The tax provisions of Article 25 EBF are de jure selective
since they concern only certain companies (i.e. public
companies or companies controlled by them). Moreover,
the measure applied de facto exclusively to banking or
insurance public undertakings or undertakings controlled
by them. This is clear from the information provided by the
Portuguese authorities.

(35) The Portuguese authorities deny that

the measure is
selective, arguing that the measure addresses public-sector
entities as a category of undertakings, and is thus a general
measure. This argument cannot, however, be accepted by
the Commission for the following reasons.

measure concerned is not justified by the nature and the
structure of the Portuguese tax system.

Effect on trade and distortion of competition

(40) By enabling public companies undergoing privatisation or
regulated restructuring to enjoy reductions in the tax on
their capital gains, Article 25 EBF grants them an operating
advantage and strengthens their position compared with
other companies. In its assessment the Commission is not
required to establish that the aid has a real effect on trade
between Member States or that competition is actually
being distorted, but only to examine whether that aid is
liable to affect trade and distort competition (11). Where aid
granted by a Member State strengthens the position of a
company in relation to other companies competing in
intra-Community trade, these other companies must be
regarded as affected by that aid (12).

(41) What is more, all the identified beneficiaries of the scheme
operate in the banking and insurance sectors, sectors that
have been open to competition for many years. Progressive
liberalisation has enhanced the competition that may
already have resulted from the free movement of capital
provided for in the EC Treaty.

(42) The effect on trade between Member States and the impact
the aid in terms of distortion of competition is

of
particularly sensitive in these sectors (13).

(36) Firstly, there is no such concept as public-sector companies
relevant
for tax purposes as the companies that may
potentially enjoy the advantage accorded by Article 25 EBF
may in principle intervene on a wide variety of markets.

(43) The aid scheme is therefore liable to affect this trade and

distort competition.

(37) Secondly,

this measure does not

identify any aspects
specific to public companies compared with private ones.
Private companies and foreign public companies with
branches in Portugal may also engage in restructuring
programmes. Their shareholders may decide to sell the
companies, but would not be covered by the scheme.

(38) Thirdly, only a subsector of public undertakings is targeted
by this measure:
those which are in a process of
privatisation or restructuring where such operations are
recognized by the Finance Minister. This measure is
selective even in respect of undertakings in the public
sector, also because of the discretionary power enjoyed by
the competent authority.

(39) Therefore, the Commission concludes that Article 25 EBF
grants a selective advantage. The selectivity implied by the

(10) OJ C 384, 10.12.1998, p. 3.

Conclusion

(44)

It follows from the above that the exceptional scheme
provided for in Article 25 EBF, which exempts from
corporation tax public undertakings’ capital gains from
privatisation operations and from restructuring processes,
constitutes a scheme granting state aid within the meaning
of Article 87(1) of the EC Treaty.

V.2 Does the scheme constitute illegal aid?

(45) Portugal has

implemented the

aid scheme without
notification. Therefore, by unlawfully implementing Arti-
cle 25 EBF, Portugal is in breach of Article 88(3) of the
Treaty.

(11) See for instance the judgment of the Court of Justice in Case C-372/

97 Italy v Commission [2004] ECR I-3679, paragraph 44.

(12) See Case 730/79 Philip Morris Holland v Commission [1980] ECR

2671 paragraph 11.

(13) For the effect on trade and distortion of competition in the banking
judgment of
bancarie,

sector,
15 December 2005 in Case C-222/04 Fondazioni
paragraph 139 et seq., and the case law cited.

see in particular

the Court of

Justice's

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V.3 Compatibility of the illegal aid scheme

VI.

RECOVERY

(46) The aid is not compatible with Article 87(2). It is not aid of
a social nature, granted to individual consumers, nor aid to
make good the damage caused by natural disasters or
is it aid granted to the
exceptional occurrences; nor
economy of certain areas of
the Federal Republic of
Germany affected by the division of Germany.

(52) According to Article 14 of Regulation (EC) No 659/1999,
where negative decisions are taken in respect to unlawful
aid, the Commission shall decide that the Member State
concerned shall take all necessary measures to recover the
aid from the beneficiary. However, the Commission may
not require recovery of the aid if this would be contrary to a
general principle of Community law.

(47) The aid is applicable uniformly across the whole territory of
Portugal, and therefore cannot be considered compatible
with Article 87(3)(a) and (c), which covers the development
of certain regions.

(53) The Commission considers that, in the present case, there is
no general principle of Community law which would
impede recovery.

trading conditions

(48) The Commission considers that the operating aid con-
cerned cannot be regarded as favouring the development of
certain economic activities within the meaning of Article 87
(3)(c), notably because this provision requires that the aid
‘not adversely affect
to an extent
contrary to the common interest’, a condition which the
Commission deems not satisfied in this case. This aid does
not meet any of
the rescue and
in force when the aid was
restructuring guidelines
granted (14).
target any other horizontal
It does not
objective of common interest. Finally,
that
application is restricted to the financial sector does not
change the conclusion of the assessment, especially since
this sector is particularly sensitive to the effect on trade
between Member States and the impact of this aid in terms
of distortion of competition.

the conditions of

the fact

(49) Nor is the aid compatible with Article 87(3)(d)

(aid to
promote culture and heritage conservation) or (e) (such
other categories of aid as may be specified by decision of
the Council). Portugal has never invoked any of
these
derogations.

(50) Furthermore, the aid is not compatible with Article 87(3)
(b). The aid cannot be considered a ‘project of common
European interest’ since it will benefit the public under-
takings of one Member State and not the Community as a
whole and it will not promote a specific and well-defined
project; nor does it ‘remedy a serious disturbance in the
economy of a Member State’ since there is no evidence that,
the Portuguese economy would have
without
suffered from a serious disturbance.

the aid,

(51)

In any case, apart from very general statements, Portugal
has not specifically invoked any of the derogations of the
Treaty.

(14) Community guidelines on State aid for rescuing and restructuring

firms in difficulty (OJ C 288, 9.10.1999, p. 2).

(54) The Portuguese authorities argue that the four transactions
that benefited from the scheme would have been exempted
from tax anyway under the Portuguese tax arrangements
the four
for holding companies. Moreover,
transactions were already decided under
the previous
arrangements as Article 25 EBF had not yet been approved
at the time. The Portuguese authorities therefore argue that
no recovery should take place.

three of

(55) According to ECJ case-law (15) and the Commission notice
on business taxation (16), it is at the stage of recovery that
re-establishing the status quo ante has to be considered in
order to assess if an alternative tax treatment existed which,
in the absence of unlawful aid and in accordance with
domestic rules which are compatible with Community law,
would have granted a similar advantage to the undertakings
in question.

(56) The amount to be recovered in order to restore the previous
situation is the difference between: (i) the total discounted
advantage granted to the public undertakings or under-
takings controlled by them resulting from the application
of Article 25 EBF; and (ii) the ‘normal’ tax treatment which
would have applied if the operations in question had been
carried out without the aid measure. In the Unicredito case
the ECJ states that it would not be right to determine the
amounts to be repaid in the light of various operations
which could have been implemented by the undertakings if
they had not opted for the type of operation covered by the
aid (17). In this context, the Commission must not to take
into account the hypothetical choices which could have
been made by the operators concerned, such as operations
structured in other ways.

(57) Consequently, in order to assess the situation that would
have prevailed if
the operations in question had been
carried out without the tax reduction, an analysis must be
the transactions that benefited from
made of each of

(15) Case C-148/04 Unicredito Italiano SpA.
(16) Commission notice on the application of the State aid rules to
measures relating to direct business taxation (OJ C 384, 10.12.1998,
p 3).

(17) Paragraphs 113 to 119.

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Article 25 EBF. In this case, such an analysis can be made
on the basis of the information provided by the Portuguese
authorities, without prejudice to a further assessment of
each transaction on the basis of any further information
available.

to the ‘special

about 10 % of the authorised capital of BCP, would be
subject
system applicable to mergers,
divisions, transfers of assets and share swaps’ of Articles 67
to 72 CIRC. These articles implement Directive 90/434/
EEC (18), which leaves
the Member States no other
possibility than to exempt the operation from taxation.

First two transactions

(58) The first transaction was MC's sale of its holding in CPP to
BSCH on 5 April 2000. The second transaction was the sale
by CDG-controlled BPSM of its holding in BTA plus its
holding in CPP to BSCH on 7 April 2000.

(59) Since Article 25 EBF was not published at the time the sales
were proposed, both transactions were planned and
approved by the CGD management under
tax
legislation applicable to holding companies (SGPS). The
setting-up of the holding companies and the successive
sales or swaps of shares would have resulted in a tax
exemption for both transactions under
the normal
Portuguese tax arrangements. The Portuguese authorities
to the
have transmitted all
Commission.

the relevant documents

the

(60)

Indeed, the choice of operators for the transactions in
question was not at all accidental but the decisions had
been already planned and approved by the managements of
the groups concerned. The conditions for carrying out the
transactions under the general tax legislation applicable to
holding companies were also already met. The Portuguese
authorities confirmed there was no need to obtain the prior
approval of the tax authorities for such transactions.

(61) To conclude, the Commission considers that no recovery is
necessary in these two cases. For these transactions there
was no advantage in applying Article 25 EBF since, in view
of the nature of the operation, MC and BPSM would have
been exempted, even without
the
exemption arrangements for holding companies, which is
the normal tax treatment under Portuguese legislation.

this article, under

Third transaction

(62) The third transaction was the exchange of shares between

MC and BCP described above.

(63) Thus the capital gains realised by MC from the swap of a
majority shareholding in BPSM for shares accounting for

(64) What is certain is that by order of 14 November 2000 the
Finance Minister decided to apply Article 25 EBF to this
transaction. However, in this case there was no advantage in
applying Article 25 EBF since the exemption imposed by
the Community Directive
and transposed by CIRC
Article 71(1) is the normal tax treatment which, in the
absence of unlawful aid and in accordance with domestic
rules compatible with Community law, would have been
granted for the operation actually carried out. Therefore, no
recovery is necessary in this case either.

Fourth transaction

(65) The fourth and last transaction is the capital gain from the
sale of CGD's stake in the Brazilian bank ITAÚ SA, which
took place between 2000 and 2003. Unlike the other three
transactions, this one is not related to agreements between
the Champalimaud Group and BSCH.

(66) The complete sale took several transactions between 2000
and 2003. Although the Portuguese authorities argue that
this transaction could have been done via a holding
company, the fact is that doing it in this way in order to
obtain a more favourable tax treatment than that offered by
the ordinary system was not effectively planned. Therefore,
in light of the Unicredito case, the Commission believes that
applying the tax exemption for holding companies in this
case would entail reconstructing past events on the basis of
hypothetical elements. The Portuguese authorities did not
provide enough detailed evidence on the different steps of
the operation in question that would have led to tax
neutrality, even if Article 25 EBF had not been applied.

(67) Therefore, the Portuguese authorities have not shown, at
this stage, that the amount to be calculated by applying the
effective tax rate to the capital gains actually realised
(EUR 357,4 million) plus interest, should not be recovered.

VII.

CONCLUSION

(68) The Commission finds that Portugal was in breach of
Article 88(3) of the Treaty in implementing Article 25 of

(18) Council Directive 90/434/EEC of 23 July 1990 on the common
system of taxation applicable to mergers, divisions, transfers of assets
and exchanges of shares concerning companies of different Member
States (OJ L 225, 20.8.1990, p. 1). Article 8(1) lays down that: ‘On a
merger, division or exchange of shares, the allotment of securities
representing the capital of the receiving or acquiring company to a
shareholder of the transferring or acquired company in exchange for
securities representing the capital of the latter company shall not, of
itself, give rise to any taxation of the income, profits or capital gains
of that shareholder’.

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the Portuguese EBF. The aid scheme is incompatible with
the common market and has to be repealed, as pledged by
the Portuguese authorities.

(69) This Decision concerns the scheme as such and must be
implemented immediately,
including the recovery of aid
granted under the scheme. However, it is without prejudice
to the possibility that all or part of the aid granted in
individual cases may be deemed compatible with the
common market.

(70) The Portuguese authorities have shown that no recovery
needs to be undertaken in the first three transactions.
Therefore, on the basis of the information provided by the
Portuguese authorities, and without prejudice to a further
assessment of that transaction on the basis of any further
information available, only the aid granted for
the
transaction relating to the capital gains from the sale of
CGD's stake in the Brazilian bank ITAÚ S.A. has to be
recovered,

HAS ADOPTED THIS DECISION:

Article 3

1.
Portugal shall take all necessary measures to recover from
the beneficiaries the aid referred to in Article 1 that was granted
to them unlawfully.

2. Recovery shall be effected without delay and in accordance
with the procedures of national law, provided that they allow the
immediate and effective execution of this Decision.

3. The aid to be recovered shall bear interest from the date on
which it was paid to the beneficiary until the date of its recovery.

Interest shall be calculated on the basis of the reference rate

4.
used for calculating the grant-equivalent of regional aid.

Article 4

Portugal shall inform the Commission within two months of
notification of this Decision of the measures taken to comply
with it. It will provide this information using the questionnaire in
Annex I to this Decision.

Article 5

Article 1

This Decision is addressed to the Portuguese Republic.

The state aid scheme implemented by Portugal under Article 25
EBF is incompatible with the common market.

Done at Brussels, 4 July 2006.

Article 2

Portugal shall repeal the scheme referred to in Article 1.

For the Commission

Neelie KROES

Member of the Commission