The EU General Court overturns the Commission's decision on Spanish tax scheme on the deduction for indirect acquisitions in foreign companies

Following a complaint from a private entity, the European Commission closely examined a new corporate tax scheme introduced in Spain in 2002. This program permitted companies that had purchased shareholdings in a foreign corporation to deduct from the tax base the goodwill resulting from the acquisition of that shareholding (through amortization).

By the Decisions of 28 October 2009 and 12 January 2011 concerning acquisitions of shareholdings made in companies based within the EU and outside the EU, respectively (together known as the “Initial decisions”), the Commission declared that the Spanish tax measures constituted a State aid incompatible with the internal market. Consequently, the Commission ordered the competent Spanish authorities to recover those aids granted, prompting both the Spanish Government and the Spanish companies that had benefited from the tax scheme to challenge the Commission’s decision. However, the Commission decided to limit the scope of the recovery obligation and ordered the Spanish authorities to recover the incompatible aid granted only as of 21 December 2007, when the Commission decision to initiate the in-depth investigation was published, thereby respecting the principle of protection of legitimate expectations.

Since the challenges against the Initial decisions failed, the Spanish authorities drafted a binding opinion for the Commission to analyse a new administrative interpretation on the tax scheme. This new interpretation extended the initial scheme to the financial goodwill resulting from the indirect acquisitions of shareholdings in non-resident undertakings through the direct acquisition of shareholdings in non-resident companies. However, by the Decision of 15 October 2014, the Commission considered that such measure was a new aid, once again incompatible with the internal market, and demanded Spain to cease applying that aid scheme and to recover the aid granted under its framework. It is this decision which has now been reviewed by the EGC.

In its Decision of 27 September 2023, the EGC upheld Spain’s and several companies’ actions and annulled the EU Commission’s Decision of 15 October 2014. Specifically, the EGC has ruled that the Commission was no longer entitled to adopt the Decision of 15 October 2014 given that its Initial decisions already covered both direct and indirect acquisitions of shareholdings. Therefore, the Commission’s order to recover the aid granted leads to a withdrawal of lawful decisions, since they were also related to indirect shareholdings.

According to the EGC, the Commission could not revoke its Initial decisions given that:

1. It had not been demonstrated that the Initial decisions were based on inaccurate information;
2. Subject to certain conditions and on account of the existence of a legitimate expectation, the Initial decisions conferred on Spain an individual right to implement the aid scheme in question, even though it has been declared incompatible; and
3. The Initial decisions also conferred on the undertakings which had benefited from that scheme an individual right not to have to repay an unlawful aid.

In conclusion, the EGC ruled that the Commission infringed the principles of legal certainty and the protection of legitimate expectations by withdrawing those rights as regards the indirect acquisition of shareholdings.

Notwithstanding the above, it should be borne in mind that an appeal on points of law may be brought before the European Court of Justice against the decision of the EGC within two months and ten days of notification of the decision.

For more information, please contact Candela Sotés.

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