EU Wins in Key Spanish Government Aid Case

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By Joe Kirwin

The European Commission won an important court battle over how to interpret illegal government aid in a July 25 ruling involving a Spanish leasing system meant to boost the nation’s shipbuilding industry.

The European Court of Justice overturned ( C-128/16P) a lower court’s 2015 ruling that had backed the Spanish system, saying the lower court “committed an error of law.”

The much-anticipated case could have an important bearing on other high-profile government-aid cases involving companies such as Apple Inc., Starbucks Corp., and Inc.

The leasing scheme allowed maritime shipping companies to buy sea-going vessels built by Spanish shipyards at prices reduced by 20 percent to 30 percent. The scheme provided a rebate, equal to the price of the vessel, to maritime shipping companies that purchased the vessels.

The earlier ruling from the General Court had argued the European Commission, the EU’s competition authority, hadn’t proved the companies participating in the leasing scheme received a “selective advantage.” Such an advantage is a key principle in determining whether a benefit amounts to illegal aid.

The Spanish leasing scheme “could not be regarded as selective, since those operations were available, on the same terms, to any undertaking, without distinction,” the ECJ said in a July 25 news release.

The commission ruled in 2009 and 2011 the tax deductions provided selective advantage and illegal state aid.

The Spanish government didn’t return a request for comment.

A Narrower Definition

The issue of selective advantage is a key legal argument made by the Irish, Dutch, and Luxembourg governments in appealing European Commission government-aid rulings against Apple, Starbucks, and Amazon, respectively. The governments argue that because tax rulings are available to all companies they haven’t provided selective advantage.

In 2016, the EU high court also backed the European Commission’s stance ( C-20/15 P), overturning a lower court judgment concerning Spanish tax deductions to companies that invest in foreign firms.

“This ruling narrows the principle of selective advantage and makes it harder to argue that a tax scheme is not state aid just because it is open to everybody,” Kai Struckmann, a Brussels-based competition lawyer with White & Case LLP. Struckmann, told Bloomberg Tax July 25.

Who Will Pay?

Struckmann, who previously worked as a competition lawyer with the European Commission, said that based on the ruling, the European Commission General Court will have to consider how to reinterpret the argument of illegal state aid based on the narrow definition.

The ruling has major ramifications for investors in the Spanish leasing system, as they may be required to pay back the tax deductions they received.

Indicative of the economic stakes involved in the case was the fact that about 30 parties intervened in the case, including leading Spanish banks. The list includes Banco Santander SA, Caixabank SA, Bankia SA, Unicaja Banco SA along with the Spanish Banking Association.

“The question now is who is going to have to pay back the state aid,” Struckmann said. “From this judgment the investors or beneficiaries of the tax scheme could be on the hook. That is why so many of them intervened in this case as they have a lot riding on what ultimately happens.”

Struckmann added that if the Spanish shipbuilding industry, which was the ultimate beneficiary of the scheme, was required to pay back the illegal state aid, it “would bankrupt them.” He added that according to various estimates, the amount of illegal aid that may have to be repaid totals more than $8 billion.

Shipbuilder Complaints

Miguel Munoz-Perez, a tax expert with Ernst & Young LLP and based in Madrid, told Bloomberg Tax in a July 25 email that he views the definition of an “undertaking,” or company, as the most important legal aspect of the decision.

This, he said, is especially important as related to the Economic Interest Groupings that served as middlemen between the shipbuilders and the investors. The groupings, made of banks and investors, argued they were not beneficiaries of the state aid.

“The ECJ highlights once again the idea that the concept (undertaking) is absolutely independent on the nature or the legal or fiscal regime of the entity,” Munoz said.

According to the European Commission, the dispute over the Spanish tax leasing scheme stems from complaints from the shipping industries in northern EU member nations, who insisted the scheme put them at a disadvantage. Previously the European Commission had ruled a similar French tax leasing scheme was illegal state aid.

The European Commission said in a July 25 statement it “welcomed” the decision as it reaffirmed its arguments.Banco Santander SA declined to comment. The Spanish Banking Association and Bankia SA didn’t respond to a request for a comment.

The Madrid-based Lico Leasing SA and the Pequenos y Medianos Astilleros Sociedad de Reconversion SA, both of which were also parties to the legal dispute, also didn’t respond to a request for comment from Bloomberg Tax.

To contact the reporter on this story: Joe Kirwin in Brussels at

To contact the editor responsible for this story: Penny Sukhraj at

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