EC Urges Greece To Suspend Significant Company Tax Breaks

by Ulrika Lomas, Tax-News.com, Brussels

25 October 2005

The European Commission announced on Friday that it has required Greece under the EU state aid rules to suspend further granting of illegal state aid in the form of tax breaks under Greek law.

Article 2 of Greek Law 3220/2004 allows companies to deduct up to 35% of profits in 2003 and 2004 from their tax base for projects in a series of sectors (among others, production of textile materials and basic metals, manufacturing of automobiles, energy production, mining, intensive agriculture and fishery, large international trading companies and specific tourism undertakings).

The companies must use their tax exempt income to finance expenses, such as construction, expansion and modernisation of plants and buildings, purchase of new equipment or vehicles, environmentally-motivated investments, leasing costs, studies, training, patent registration and many others.

Thousands of companies can claim this benefit directly from the tax authorities as the aid scheme is part of the Greek tax system. However, according to the EC, the measure was never notified to the Commission and is therefore illegal.

At the same time the Commission revealed that it has launched an in-depth investigation as it has doubts that such aid would be compatible with EC Treaty state aid rules (Article 87) because of the serious risk that it will distort competition in a way liable to affect trade between Member States.

If the Commission finds the aid to be contrary to the EC Treaty, it may require Greece to recover the unlawful aid paid to undertakings, including interest.

Competition Commissioner Neelie Kroes explained that:

“When Member States distort competition with illegal state aid I will seek the most effective remedy at my disposal, including an injunction to suspend the measures.”

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