21 December 2016
Global Tax Alert
CJEU refers back
to General Court EU
State aid case re:
Spanish regime on tax
amortization of financial
goodwill for foreign
shareholding acquisitions
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Executive Summary
On 21 December 2016, the Court of Justice of the European Union (CJEU)
delivered its judgment on joined cases C-20/15P and C-21/15P that address
the qualification as State aid of the Spanish regime on the tax amortization of
financial goodwill for foreign shareholding acquisitions. (See press release for
details.) Under this latest judgment, the CJEU sets aside the two judgments of
the General Court that annulled the two Commission decisions on this case, and
refers the cases back to the General Court.
The most relevant aspect of the judgment is that the CJEU rejects the approach
adopted by the General Court in relation to the concept of selectivity of fiscal
measures. According to the CJEU, the key aspect for determining the selective
nature of a measure is whether it produces the effect of placing the beneficiaries
in an advantageous position as compared to other companies, which are, in light
of the objectives of the tax system of the Member State, in a comparable factual
and legal position.
Background
As of 1 January 2002, Spain introduced legislation allowing Spanish companies
to take the tax amortization embedded in shares of non-Spanish qualifying
companies (the “financial goodwill”) as a tax expense, irrespective of its
accounting treatment (i.e., as a book-to-tax adjustment).
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Global Tax Alert
As a result, a Spanish company acquiring at least a 5% stake
in a qualifying foreign entity could deduct from its taxable
base the difference between (i) the acquisition cost of the
shares, and (ii) the net book value of the subsidiary up to
the amount that could not be attributed to unrealized gains
in the subsidiary’s underlying assets in accordance with
Spanish GAAP accounting rules.
On 28 October 2009 and 12 January 2011, respectively,
the European Commission (the Commission) issued the two
contested decisions (the Decisions) finding that the Spanish
financial goodwill amortization rule constituted unlawful
State aid, as it resulted in significant advantages for Spanish
companies over their competitors when acquiring shares in
EU and non-EU companies.
Both Decisions were challenged before the General Court
by many of the beneficiaries (but not by Spain), on several
grounds, including an alleged misinterpretation of the concept
of selectivity. On 7 November 2014, the General Court issues
its judgment annulling both Decisions, since the Commission
failed to establish the selective nature of that regime.1
The General Court held that the Spanish regime did not
exclude, a priori, any category of undertakings from taking
advantage of the regime since it was aimed at a category of
economic transactions (in short: acquisitions of shareholdings
of at least 5% in foreign companies) and not at any concrete
category of undertakings. Therefore, the General Court found
that the Commission had failed to demonstrate that the
measure at issue was selective, because it did not identify a
category of undertakings which were exclusively favored by
it. According to the General Court, the identification of such
a category of beneficiaries is a prerequisite for recognizing
the existence of State aid. The mere finding of a derogation
from the common or “normal” tax regime cannot give rise to
selectivity where such derogation is (potentially) available to
all undertakings.
The CJEU’s judgment
On 21 December 2016, the CJEU set aside the two
judgments of the General Court and referred the cases back
to the General Court. The CJEU held that, in applying the
selectivity condition – one of the conditions that must be
satisfied in order for a measure to be classified as State aid –
the General Court erred in law in finding that a category of
undertakings exclusively favored by the measure at issue
had to be identified. The CJEU stated that the key criterion
to establish the selectivity of a national tax measure is the
question whether that measure favors certain undertakings
over other undertakings which, in the light of the objectives
of the general tax system concerned, are in a comparable
factual and legal situation and therefore treated in a
discriminatory manner. Contrary to the ruling of the General
Court, the Commission is not required to identify a particular
category of undertakings that exclusively benefit from the
measure.
The CJEU stated that the Commission classified the measures
as selective on the ground that those measures derogate from
the general Spanish corporation tax system and discriminate
between undertakings that are in a comparable situation
in light of the objective pursued by that system: companies
that are resident in Spain that acquire a 5% shareholding in
another company resident in Spain cannot receive the tax
advantage conferred by the measure at issue. In contrast,
the measure’s benefit is reserved exclusively to undertakings
that make acquisitions of at least 5% shareholdings in a
foreign company. The CJEU added that a condition for the
application of aid may be grounds for a finding of selectivity
if that condition discriminates against undertakings that
are excluded from it. Consequently, the CJEU held that the
General Court erred in law in concluding that the Commission
had not demonstrated that the measure was selective on
the basis that it had not identified a particular category of
undertakings that were exclusively favored by the measure.
Effects of the CJEU’s judgment
The importance of this recent judgment has to be highlighted
from two different perspectives.
As to the specific case of the Spanish goodwill amortization
facility, the issue of selectivity has not been definitively
resolved. According to the Commission, the main practical
effect of the judgment will be that the obligation on Spain
to recover the alleged aid may revive. In this context, the
Commission will request that Spain lift the suspension of the
pending national procedures pertaining to the amortization
facility provided by article 12 of the Spanish Corporate Income
Tax Law.
On the other hand, in a broader perspective, the judgment
endorses a broad interpretation of the concept of selectivity
of fiscal measures. This means that the Commission may have
more leeway in State aid investigations into tax measures as it
will not have to identify a specific category of beneficiaries.
Global Tax Alert
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Endnote
1. Cases T- 219/10, Autogrill España vs Commission, and T-399/11, Banco de Santander and Santusa vs. Commission. See
EY Global Tax Alert, General Court of the European Union annuls EU Commission’s Decisions finding Spanish financial
goodwill amortization rule constituted unlawful State aid, dated 7 November 2014.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Abogados, Madrid
• Miguel Munoz Perez
+34 91 567 5338
Ernst & Young Belastingadviseurs LLP, Utrecht
• Steven Verschuur
+31 88 407 3207
Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Munich
• Klaus von Brocke
+49 89 14331 12287
Ernst & Young LLP, Global Tax Desk Network, New York
• Jose A. (Jano) Bustos
+1 212 773 9584
[email protected]
[email protected]
[email protected]
[email protected]
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