State Aid: European Court of Justice confirms Basque tax relief measures are illicit State aid

The Court of Justice of the European Union (“CJEU”) confirmed that two Spanish tax relief measures in three Spanish territories, a reduction of corporation tax for newly established firms and tax credit amounting to 45% of certain investments constituted State aid that is incompatible with the common market.

The CJEU decision results from a proceeding that has been ongoing since 1996, when the Commission became aware of tax relief measures in one of the territories concerned. In 1999 the Commission initiated a formal investigation procedure in relation to the 45% tax credits and reductions in the tax base applied in the three Spanish territories in question. In July 2001, the Commission found both the investigated tax credit and tax reduction constitute State aid that had not been previously notified to the Commission and that was also incompatible with the common market.

The three territories appealed the Commission’s decisions to the General Court (“GC”), which in 2003upheld the Commission’s decision. On appeal to the CJEU, the three territories claimed, inter alia, that the legitimate expectations of beneficiaries, which had received the tax reductions for a substantial period of time, justified a failure to recover the provided State aid.

The CJEU upheld the GC’s decision and stated that a Member State which fails to notify an aid scheme to the Commission may not plead the legitimate expectations of beneficiaries in order to justify a failure to comply with the obligation to recover aid from them. As regards the lengthy proceedings, the CJEU held that the Commission’s inaction between 1996 and 2000 could not constitute implied approval of the aid in light of the failure by the Spanish authorities to notify the aid schemes to the Commission and their lack of cooperation during the investigation. Source: Court of Justice Press Release 28/7/2011

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