On January 12, 2011 the European Commission adopted a State aid Decision1 through which it resolved the last outstanding issue in the State aid case C45/2007 brought against Spain on October 10, 2007 in relation to Article 12.5 of the Spanish Company Tax Law ('the TRLIS'). This rule allows Spanish companies to amortize the financial goodwill that arises in the acquisition of more than 5 % of the shares in foreign companies. This measure had been criticized by certain foreign companies who considered that it artificially increased the capacity of Spanish companies to make acquisitions abroad.
The recent Decision of January 12, 2011 specifically relates to the application of Article 12.5 of the TRLIS to operations involving the acquisition of shareholdings in companies that are based in non-EU countries. It should be recalled that in its Decision of October 28, 20092 the Commission had considered the application of the same rule to intra-EU operations.
In its Decision of October 28, 2009 the Commission defined the measure contained in Article 12.5 of the TRLIS as State aid, considering it to be a selective advantage, given that it only applied to the purchase of shareholdings abroad (and not to similar operations in Spain).
The Commission therefore refused to accept the Kingdom of Spain's arguments that Article 12.5 of the TRLIS was not a selective measure on the basis that de iure and de facto it applied to companies from all types of sectors and of all sizes and conditions.
Nor did the Commission accept the argument that since cross-border mergers were de facto impossible to carry out, Article 12.5 of the TRLIS simply made it possible to materially equate the tax treatment of mergers between Spanish companies – in which goodwill is amortized – with the cross-border operation that was materially the equivalent of a merger – the acquisition of at least a 5 % stake in the target firm. However, the Commission considered that after the entry into force of various Directives in the field of corporate law,3 there were no longer any barriers to cross-border mergers within the EU, which removed any possible justification for applying Article 12.5 of the TRLIS to intra-EU operations. The Commission therefore ordered the recovery of the aid granted in relation to intra-EU transactions implemented prior to the date of publication in the Official Journal of the decision to open the formal State aid proceedings (December 21, 2007).
When it adopted its Decision in 2009, the Commission was not completely sure that there were no real obstacles to cross-border mergers in certain third countries, which led it to refer the issue of mergers outside the EU to a later decision, which is the one now adopted.
To judge by the press release, however, the conclusions reached in the Decision of January 12, 2011 on the application of Article 12.5 of the TRLIS in third countries are very similar to those set forth in the Decision on intra-EU operations. In both cases, Article 12.5 of the TRLIS is defined as incompatible aid and its recovery demanded, except in relation to certain operations where the Commission recognizes that the operators could have legitimate expectations that no aid existed.
The exception appears to refer either to operations prior to the publication of the decision to open the formal procedure in 2007 or to subsequent operations in countries where 'such obstacles (e.g. ban on cross-border legal combinations) have been or can be demonstrated (India and China)'. However, the press release does not give sufficient details of the scope of this exception, so the text of the Decision will have to be examined after it has been published.
Once published in the OJ, the Decision may be appealed to the GC within 2 months and 10 days. As occurred with the decision on intra-EU operations,4 in the light of the economic impact of the decision, appeals may be expected to be brought by the firms directly affected, since the definition of the measure as aid is difficult to reconcile with the traditional concept of selectivity within the field of State aid. In addition, the time limits that the Commission has laid down with regard to the application of the principle of legitimate expectations do not appear to be consistent with the case law in the area.
It is hoped that these appeals make it possible to clarify whether a tax measure that is genuinely open, both de iure and de facto, to firms from all sectors and of all types and conditions should really be defined as 'selective'.
Footnotes
1 The non-confidential version of the Decision has yet to be published. See press release published on January 12, 2011 (reference IP/11/26) online at:
2 See Garrigues Antitrust Newsletter no. 18, December 2009: 'The Commission rules on the tax amortization of financial goodwill.'
3 These are the Directives on cross-border tax issues (Council Directive 90/434/EEC of July 23, 1990 – DOCE L 225/1 of 20.8.1990); the Directive and Regulations on the European Company (Council Directive 2001/86/EC, of October 8, 2001, supplementing the Statute of the European Company with regard to the involvement of employees – OJ L 294 of 10.11.2001, p. 22/32; and Council Regulation (EC) no. 2157/2001 of 8 October 2001, approving the Statute of the European Company (SE) – OJ L 294 of 10.11.2001); and the Directive on cross-border mergers (Directive 2005/56/EC of the European Parliament and Council of 26 October 2005 on cross-border mergers of limited liability companies – DOUE L310/1 of 25.11.05).
4 To date, eight appeals have been filed against the Decision of October 28, 2009 (T-207/10 – Deutsche Telekom); T-219/10 – Autogrill; T-221/10 – Iberdrola; T-225/10 – BBVA; T-227/10 – Banco Santander; T-228/10 – Telefónica; T-234/10 – Ebro Foods; and T-236/10 – AEB). Note, however, that the Decision of October 28, 2009, was only published in the OJ last January 11, 2011, and therefore there is still time for further appeals to be brought.
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