The Spanish tax lease case may cause shock waves

The desperate attempts undertaken by the Spanish government to convince the European Commission to forego recovery proceedings on the massive state subsidies injected to the ship industry may reduce the final bill.

Even if it succeeds in that demanding task, the severe damage inflicted to tax equity schemes all over Europe will induce a lasting effect. Panic-stricken investors will steer clear of any fiscal-based device aimed at promoting investment financing. As the Commission is likely to press on exposing to public scorn in the pillory those intermediaries transferring tax benefits to end users, no listed company will put at risk its reputation.

One wonders why investors bear the brunt while real beneficiaries escape unscathed. Under the Spanish scheme intermediaries were meant to make full use of accelerated fiscal depreciation stemming from leasing the target asset, keeping for themselves a fraction of the overall benefit. The big cake was channelled to shipyards, ship-owners being entitled to a moderate portion through a lock gate device. The asset was bought at a markedly higher price than the market one, being sold later at a normal price.

Pilfering taxpayer’s money in such dubious schemes designed to support an ailing industry does deserve little mercy. But according to the Commission’s reasoning the real culprits will fail to face any penalty at all.

Even ship-owners buying at market prices would be forced to reimburse a virtual aid they never enjoyed. Investors risking their money will follow the same fate. No wonder the shipyards fear being unable to lure these badly mauled economic agents back to business.

Similar schemes around Europe are bound to suffer the same treatment. For all the efforts investors and ship-owner might perform to disengage themselves from the threat of footing the bill, the 10-year prescription period in state aid discipline might wreak havoc on them.

The same pattern applies to tax equity devices implemented for fostering investment in other capital goods. As intermediaries are considered to unlawfully benefitting from them, their risk appetite is likely being inhibited for a lasting period. True enough, huge fiscal divergences and a ramping lack of transparency need to be urgently addressed if an even playing field is ever to be established.

But enforcing harmonised levels for tax benefits seems out of reach unless extensive efforts are undertaken to bring down widely differing national rules on personal and corporate taxes. A distant goal that might take decades in getting enough support.

Meanwhile, tax equity schemes face rough times, a nasty prospect when the product gap is widening in Europe. Fostering investment projects by providing extra financing tools could play a key role in anchoring recovery. Abuses must undoubtedly be checked. But the piecemeal strategy in addressing unwarranted state subsidies likely to grossly distort the allocation of resources might end up fuelling uncertainty and a massive stampede from investors when their active involvement proves so essential to support investment and growth.