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EU General Court Annuls 2009 and 2011 European Commission Decisions that Spain's Financial Goodwill Amortization Rules Constituted Illegal State Aid — Orbitax Tax News & Alerts

On 7 November 2014, the General Court of the European Union (EGC) announced two judgments annulling European Commission decisions that Spanish amortization rules for foreign investments constituted illegal State aid.

The decisions annulled are in regard to the Spanish law on corporation tax, where a company which is taxable in Spain, acquires a shareholding in a foreign company of at least 5% and holds it without interruption for at least one year, the goodwill resulting from that shareholding may be deducted through amortization of the basis of assessment for the corporation tax for which the undertaking is liable. The Commission issued decisions in 2009 and 2011 stating that the goodwill amortization rule constituted illegal State aid because the rule resulted in significant advantages for Spanish companies over their competitors when acquiring shares in EU and non-EU companies.

In the judgments, the EGC stated that in order for a regime to be considered illegal State aid, the regime must be shown to be selective (among other factors), with different treatments for different categories of undertakings under an EU member state's laws. The EGC found that the Commission failed to show the required selectivity because the Spanish regime is not aimed at any particular category of undertakings or the production of goods, but rather a category of economic transactions.

As a result of the judgments,  recovery of the benefits by Spain as per the 2009 and 2011 decisions will likely be suspended. However, these judgments are not necessarily final, because they may still be appealed by the Commission with the Court of Justice within two months from the notification.

A related decision was issued by the Commission on 15 October 2014, requiring the recovery of Spanish tax benefits related to allowing companies to take deductions for goodwill arising from the acquisition of indirect shareholdings in nonresident holding companies. The EGC judgments have no impact on this decision, but indicate how the EGC may treat the decision if brought before the Court.