State aid: Commission welcomes phasing out of Spain’s tax incentives for investment abroad

Thursday, June 1 2006

The European Commission has welcomed the notification by the Spanish Government that it has formally accepted the Commission recommendation of 22 March 2006 (see IP/06/355 ) to gradually abolish the tax advantages in favour of Spanish companies investing abroad by the end of 2010 at the latest, as they distort competition and trade within the Single Market. Spain's acceptance renders the abolition of the incentives legally binding under EC Treaty state aid rules and will put an end to a long-lasting system of operating aid in Spain.

Competition Commissioner Neelie Kroes i commented "I welcome the definitive abolition of these long-standing tax incentives, which seriously distort trade in the Single Market by granting unfair advantages to Spanish companies for their investments abroad".

The scheme offers Spanish companies a yearly tax credit of 25% of the amount invested to establish a foreign branch, to acquire a substantial shareholding of a foreign company and to explore or penetrate new markets (including in other Member States), provided such investments are linked to the export of goods or services from Spain. The scheme also includes a temporary tax allowance totalling 25% of the expenses incurred to acquire control of an active business outside the EU, provided it is a new business venture unrelated to activities already exercised in Spain.

Spain's acceptance means that:

  • - 
    the tax credit will be reduced from 25% to 12% as of 1st January 2007
  • - 
    from 2008 onwards, the tax credit will be further reduced by 3% per year, until its complete elimination by 1st January 2011
  • - 
    aid to exports or to favour domestic over imported products within the meaning of Council Regulations 69/2001 and 70/2001 on the application of state aid rules to de minimis aid and to small and medium enterprises respectively is immediately discontinued by means of administrative rulings to taxpayers.

Spain's unconditional implementation of these measures immediately eliminates the scheme's most harmful effects on trade and progressively reduces its intensity from January 2007 until its final suppression by the end of 2010.

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