The General Court of the EU overturns the decision of the European Commission,
which blocked the Spanish tax system in 2014.
Victory for Spanish multinational companies in European courts. The General Court
of the European Union (ECJ) supports tax advantages for the acquisition of foreign
companies. In particular, it invalidates in several judgments the Commission’s
resolution that deemed the Spanish tax system for the deduction of indirect
purchases in non-resident companies as illegal. The judgments support
the position of companies such as Santander, AXA, Telefónica, Iberdrola, Ferrovial,
Abertis, or the Sociedad General de Aguas de Barcelona.
The judgments confirm the Corporate Tax system that was implemented in 2002.
This system allowed companies that had acquired stakes in non-resident companies
to deduct the financial goodwill derived from that acquisition from the taxable base,
through amortization. When several members of the European Parliament raised
questions about it, the Commission responded in early 2006 that this system was not
subject to the Union’s regulations on state aid.
In July 2013, the Commission examined a new interpretation of the tax system in
question, which had been formalized in a binding consultation submitted by the
Spanish authorities. According to Brussels’ opinion, this interpretation expanded the
original system to include the financial goodwill derived from indirect acquisitions in
non-resident companies through direct acquisitions in non-resident holding
companies. In a decision made on October 15, 2014, the Commission concluded
that this new tax measure constituted a new form of aid incompatible with the
internal market. Therefore, it demanded that Spain put an end to this aid system and
recover the aid granted under this measure.
Spain and several affected companies requested the General Court to annul the
Commission decision of October 15, 2014. They argued that the
Commission made a mistake in classifying the new administrative interpretation as a
“new aid”; and that it violated, among other things, the principle of legal certainty and the principle of protection of legitimate expectations. These appeals were suspended until the matters related to the Commission initial decisions were definitively
The General Court of the EU has issued its decision and annulled the Commission’s
Decision of October 15, 2014. According to the court, the Commission did not have
the authority to make this decision, as its original decisions already covered both
direct and indirect acquisitions. The fact that the Commission ordered the recovery of
all aid granted under the system in question in relation to indirect acquisitions in its
October 2014 decision amounted to the revocation of legal decisions, as the original
decisions already addressed indirect acquisitions and recognized them, under
certain conditions, as deserving the protection of legitimate expectations.
According to the new judgments, Brussels lacked the authority to overturn its original
decisions. These decisions were legal, and it was not demonstrated that they were
based on incorrect information. They granted Spain the subjective right to apply the
aid system in question, previously declared incompatible, under certain conditions.
Furthermore, beneficiary companies had the subjective right not to reimburse certain
illegal aids. The Commission violated the principles of legal certainty and protection
of legitimate expectations by withdrawing these rights in its October 2014 decision
concerning indirect acquisitions.
In any case, even if the Commission were considered to have the authority to make
the October 2014 decision, it made a legal error by denying the recognition of
legitimate expectations like those acknowledged in its original decisions to
the beneficiaries of the aid system concerning indirect acquisitions. The responses
provided by the European Commission in early 2006 to parliamentary questions
generated legitimate expectations in Spain and the beneficiaries regarding the
legality of the aid system for all acquisitions (both direct and indirect).
B Law & Tax International Tax & Legal Advisors.
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