The Court of Justice of the EU rules that Spanish tax breaks for shareholdings in foreign companies constituted illegal state aid
(Judgment of the Court of Justice of the EU of 21 December 2016 in Joined Cases C-20/15 P Commission v World Duty Free Group and C-21/15 P Commission v Banco Santander and Santusa)
The Court of Justice of the EU has upheld Commission’s decision finding that Spanish tax breaks for shareholdings in foreign companies constituted illegal state aid.
According to Spanish law, an undertaking which is taxable in Spain that acquires a shareholding in a foreign company of at least 5%, and that holds it without interruption for at least one year, is entitled to deduct through amortization the goodwill resulting from that shareholding.
A formal investigation on this scheme was opened in October 2007 by the Commission as a result of a complaint filed by a private operator, who claimed that such scheme constituted State aid.
By means of two decisions of 28 October 2009 and 12 January 2011, the Spanish regime was declared to be incompatible with the internal market by the Commission, who ordered Spain to recover the aid granted.
The decisions were challenged by Spanish World Duty Free Group, Banco Santander and Santusa Holding before the General Court.
On 7 November 2014, the General Court rendered its judgments whereby it annulled the two Commission decisions, considering that selectivity of the scheme -which is one of the conditions that must be met for a measure to constitute state aid under Article 107(1) Treaty of the Functioning of the EU- had not been established in the decisions by the Commission. The judgments were appealed by the Commission before the Court of Justice of the EU on the basis of error of law by the General Court with regard to the interpretation of selectivity.
In its judgments of 21 December 2016, the Court of Justice of the EU set aside the two judgments and referred the cases back to the General Court.
In particular, the Court of Justice of the EU determined that, in applying the condition relating to selectivity, the General Court erred in law by annulling the decisions of the Commission, arguing that the latter had failed in the identification of the category of undertakings that were exclusively favored by the tax measure.
Contrary to the General Court, the Court of Justice found that, in order to prove selectivity, the Commission is not required to identify a particular category of undertakings that exclusively benefit from the measure at issue. In addition, the Court of Justice stated that a measure may be selective if it entails discrimination against undertakings that are excluded from it.
