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Spanish Ship-Purchasing Tax Scheme Outlawed

by Ulrika Lomas, Tax-News.com, Brussels

26 July 2013


After an in-depth investigation, the European Commission has concluded that a Spanish scheme for the purchase of ships involving leasing and financing through tax relief is partly incompatible with European Union (EU) rules on state aid.

The scheme, first established in 2002, conferred a selective advantage on economic interest groupings (EIGs) and their investors over their competitors. Under this scheme, a maritime transport company can purchase a ship through a complex contractual and financial structure (rather than directly from a shipyard) involving an economic interest grouping, an investment vehicle held by investors wishing to reduce their basic taxable amount.

In practice, the economic interest grouping acts on behalf of the maritime transport company purchasing the ship, acquires it on a financial leasing basis and pays it off in the three to five years after work starts on its construction. The economic interest grouping then benefits from taxation exclusively on the basis of tonnage, which is a special scheme applicable under the European rules to maritime transport companies, and hands the ship over to the transport company without paying capital gains tax. The maritime transport company acquires the ship with a reduction ranging from 20% to 30% on the purchase price charged by the shipyard. However, as this reduction is awarded by the economic interest grouping, not by the state, the Commission has taken the view that it does not constitute state aid to the maritime transport company.

The Commission was not notified of the scheme for the purpose of prior authorization as required. Under European rules, the beneficiaries must now repay the aid to the Spanish state. In accordance with the principle of legal certainty, the Commission will not require the repayment of aid granted between the start of the scheme in 2002 and April 2007, when the Commission publicly declared a similar French scheme incompatible.

The Commission acknowledged that its 2001 Brittany Ferries decision (case N618/1998, and in particular recital 193) may have created legal uncertainty as to whether the Spanish scheme for leasing and financing through tax relief constituted aid. This uncertainty was cleared up with the publication, in April 2007, of the final decision in the investigation into the French scheme for fiscal economic interest groupings (case SA.16608) referred to in the 2001 decision. The Commission found that that scheme was incompatible with the single market. As regards the Spanish scheme, the Commission therefore found that the incompatible aid awarded before April 2007 did not have to be recovered.

Commission Vice-President Joaquin Almunia, responsible for competition, said: "Economic interest groupings and their investors have benefited unlawfully from tax advantages which they must now repay to the Spanish state. As regards the future, there is a non-selective tax scheme which was approved by the Commission in November 2012 and which can be used, among other things, to finance the shipbuilding industry. This scheme is fully compatible with the European rules and therefore provides investors with all the legal certainty they require. I hope that all parties will be able to use it as soon as possible."

In the Commission's view, the reduction passed on to the maritime transport companies contributed to an extent to achieving the objectives of common interest set out in the Guidelines on state aid for shipping. The Spanish authorities must now determine, in accordance with the Commission decision, the amounts of incompatible aid to be recovered from the economic interest groupings and their investors. The Commission's decision does not allow the beneficiaries to pass on the repayment obligations to third parties (such as shipyards), even under existing contracts.

The Commission reiterated that its decision does not call into question the Spanish tonnage tax scheme for maritime companies, as approved in 2002. Spanish shipyards will continue to benefit from aid granted under schemes approved by the Commission, such as aid for innovation, regional shipbuilding aid and export credits, the Commission clarified.

TAGS: tax | marine | European Commission | interest | law | construction | European Union (EU) | Europe

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