EGC upholds tax aid to Spanish companies for purchases abroad originally struck down by Brussels

EU ruling on Spanish floor clausesEuropean Court of Justice at Luxembourg

The General Court of the European Union has ruled that the tax incentives approved by the government of José María Aznar in 2001 for companies to deduct indirect purchases of shares abroad are legal. This incentive was approved with the aim of allowing national companies to grow abroad.

The Executive then allowed companies, including large firms such as Banco Santander, Axa and Prosegur, to deduct the goodwill generated by the indirect purchase of shares in companies abroad, both in the EU and in third countries, from their corporate income tax.

The European Commission, in two decisions, one in October 2009 and the other in January 2011, declared that these measures constituted illegal State aid and ordered Spain to recover them. In other words, the company had to pay what had not been paid to the tax authorities. However, the Commission finally allowed Spain, under certain conditions, to continue applying the tax regime in certain cases under the principle of protection of legitimate expectations.

As a result, the Treasury will have to repay the tax aid it granted in 2012 in a binding consultation to Telefónica, which the Commission annulled. It is estimated that the Treasury will have to repay up to €8 billion to the affected companies.

In 2004, Santander bought Abbey National for €13.199 billion. In 2005, Telefónica acquired Britain’s O2 for €26.665 billion. In 2006, Iberdrola bought Scottish Power for €17.2 billion. That year, the British company BAA accepted a sale offer from Ferrovial for £10.3 billion (more than €14.6 billion euros) to take over seven British airports, including Heathrow, and became the world’s largest airport operator.

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The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.