The General Court of the EU has annulled the European Commission’s decision declaring that part of the Spanish Tax Lease System constituted a state aid incompatible with the internal market (Judgment of 17 December 2015 in joined cases T-515/13 and T-719/13)
In a ruling made public on 17 December, the court overturned the Decision of the European Commission of 17 July 2013 which considered that three of the five fiscal measures comprising the so-called Spanish Tax Lease System constituted an incompatible state aid. It also annulled the order to recover the alleged aid granted from investors.
The Spanish Tax Lease System was a combination of tax measures which provided two different tax benefits: an anticipated and accelerated depreciation of the vessel compared to the depreciation permitted by ordinary corporate rules, and a special Tonnage Tax which also entailed a tax exemption on the capital gain resulting from the sale of the vessel to the final buyer.
The anticipated and accelerated depreciation was based on a privileged regime in the Spanish Corporate Tax legislation, according to which companies could create a form of joint venture for tax purposes, incorporated under Spanish Law (“Economic Interest Group” or “EIG”) to invest in new vessels to be built by Spanish shipyards. The EIG was organized by a bank which offered shares to interested investors, even though the investors were not involved in shipping activities. Since the EIG was tax transparent, the losses incurred by it were directly passed to its members, normally large Spanish taxpayers, reducing their tax base and consequently resulting in a tax saving for them.
Although the Spanish Tax Lease System was organized by the bank in order to generate tax benefits for the members of the EIG, it transferred part of these benefits to the shipping companies in the form of a significant discount in the final price of the vessel.
As a result, tax advantages were generated for the investors, part of these advantages (between 85% and 90%) being transferred to the shipyards in the form of a rebate on the selling price of the vessel. The remaining advantages (between 10% and 15%) were received by the investors as a return on their investment.
The investigation of the EU Commission concluded that the Spanish Tax Lease System allows the investors to enjoy the tonnage tax regime which should only benefit companies engaged in the shipping business. Consequently, the investors, not the constructors or the charterers, should refund to the Spanish state the aids they have unduly benefited from.
The Kingdom of Spain, Lico Leasing (a company having invested in a number of EIGs) and Pequeños y Medianos Astilleros Sociedad de Reconversión, S.A. brought actions for annulment against the Commission’s Decision before the General Court of the EU. The Court has declared that the Commission erred when declaring that certain of the fiscal measures comprising the Spanish Tax Lease System granted a selective economic advantage to the EIGs and the investors and, therefore, when stating that these fiscal measures constituted a state aid. As far as it concerns the investors, the Court considers that the economic advantage obtained by them was not selective. Although the system was subject to prior authorization, the advantages in question were available to any investor which decided to participate in the transactions within the Spanish Tax Lease System, irrespective of its field of activity. As investors were likely to operate in all sectors of the economy, the measures could not be considered as being selective. In this respect, for the Court it was irrelevant that the benefits were only available to businesses making this kind of investment.
Besides, the Court also considers that the Commission did not give sufficient grounds for its decision that the measures were likely to distort competition and affect trade between Member States.
There are other 63 cases pending before the General Court related to the annulment of the abovementioned Commission Decision.
