Spain Asked To Phase Out Tax Incentives For Companies Which Invest Abroad

by Ulrika Lomas, for LawAndTax-News.com, Brussels

24 March 2006

The European Commission on Wednesday formally requested Spain under EC Treaty state aid rules to abolish tax incentives in favour of Spanish companies investing 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 other Member States), provided such investments are linked to the export of goods or services from Spain.

The incentives also include 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.

The Commission has requested that the incentives are gradually eliminated by the end of 2010, as they are distorting competition and trade within the Single Market.

Spain has one month to accept this request, failing which the Commission may open a formal state aid investigation.

“I am sure that Spain will cooperate with the Commission and rapidly abolish these long-standing incentives, which seriously distort trade and competition in the Single Market. I would not hesitate to act in case Spain does not fully comply with these recommendations” commented Competition Commissioner Neelie Kroes.

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