State aid: Commission requires Spain to abolish tax scheme favouring acquisitions in non EU countries

28 January 2011

The Commission has requested Spain, under EU state aid rules, to abolish a 2002 provision in its corporate tax that allows Spanish companies to amortise ‘financial goodwill’ deriving from acquisitions of shareholdings in companies in third countries. The Commission also asks for the recovery of any aid granted under this provision since 21 December 2007 where concrete legal obstacles to investment could not be demonstrated. This follows and closes an investigation which had already resulted in a decision, in 2009, concluding that the scheme amounted to illegal aid as regards acquisitions of shareholdings in other EU countries.

In October 2007, the Commission started a formal investigation into a provision of the Spanish Corporate Tax Law over concerns that it provided an advantage for Spanish companies acquiring foreign ones (see IP/07/1469). Article 12(5) of the law provides that a Spanish company may amortise the ‘financial goodwill’ resulting from the acquisition of a shareholding of more than 5% in a foreign company during the 20 years following the acquisition.
Amortising goodwill is generally allowed in full mergers and cannot discriminate between national and foreign firms. It consists in the write off, over a period of time, of the ‘excess’ price paid for the acquisition of a business compared with the market value of the assets composing it.

The Spanish provision allowed for the amortisation of the financial goodwill (difference between the cost of the shares and the market value of the target company’s assets) in the acquisition of shareholdings in foreign companies. This is a clear exception from the general Spanish tax system in that it allows the amortisation of goodwill even where the acquiring and the acquired companies are not combined into a single business entity. The provision was the subject of complaints and questions from Members of the European Parliament.

In 2009 the Commission concluded that the scheme amounted to state aid in that it treated more favourably Spanish acquisitions in other Member States than Spanish-Spanish transactions without any objective reason. The Commission kept the investigation open with regard to acquisitions in non-EU countries (see IP/09/161) in order to examine alleged evidence of obstacles to cross-border business combinations that Spain committed to provide. As a result Spain no longer applied the measure regarding acquisitions in other EU countries.

Spain argued that the measure was needed to offset fiscal and other legal obstacles allegedly faced by acquirers in the non-EU countries. However, the Commission could not identify any such explicit obstacles in the vast majority of the more relevant third countries whose legislation it examined. Therefore today’s decision concludes that the tax provision also amounts to a clear and unjustified advantage in the case of acquisitions in third countries.

As a consequence, the Commission asks Spain to repel the provision also for what concerns acquisitions outside the EU and to recover any aid granted in this fashion since the start of the EU investigation, in 2007, with the exception of the countries where such obstacles (e.g. ban on cross-border legal combinations) have been or can be demonstrated (India and China).


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