Gift Day for EU Companies This Week? Not Dec. 25

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By Ben Stupples

This year, Christmas may come four days early for Ana Botin, the chairman of Banco Santander SA.

That all depends, though, on whether Europe’s highest court supports Santander in a seven-year legal tussle on tax breaks Spanish companies gained from buying shares in foreign entities.

On Dec. 21, the Court of Justice of the European Union will rule on an appeal from the European Commission in response to the EU General Court’s November 2014 verdict that the commission was wrong to judge Spain’s tax breaks to its native companies as illegal state aid.

A loss for the commission would benefit Spanish companies like Santander, the country’s biggest bank by market capitalization, which received tax breaks through domestic rules that permit amortization of goodwill arising from the purchase of big stakes in non-Spanish entities.

Yet a victory for the European Commission, the European Union’s executive arm, could lead to the Spanish companies paying back the millions of euros they have received through the tax relief.

It will also make the managing executives at Inc., McDonald’s Corporation and Apple Inc.—who are all involved in European state aid tax disputes—increasingly anxious about their cases.

“People think that that it will have an implication for the state aid cases,” says Bill Dodwell, a partner and head of U.K. tax policy at Deloitte. It could either “open” the floodgates, “or shut them down.”

Advocate General

However, for the multinational companies hopeful of the European Court of Justice supporting the November 2014 ruling that Spain engaged in a lawful form of state aid, the odds are against them.

The EU’s General Court, the bloc’s second-highest tribunal, misunderstood the concept of selectivity behind state aid, EU Advocate General Melchior Wathelet said in a July 28 opinion on the case. The advocate general’s verdict is non-binding, but the Court of Justice usually follows that opinion.

A measure “is selective once it benefits companies that have cross-border operations and not those companies that have comparable operations at the national level,” Melchoir Wathelet wrote July 28.

“Such a measure is in my view particularly fatal for the internal market because it creates an immediate distortion of the exchanges between” the EU’s member nations, Wathelet added.

Case Background

Introduced in 2000, the tax laws in question allowed Spanish companies to break down the goodwill—the value of a business’s intangible property, such as trademarks—arising from the acquisition of at least a 5 percent direct shareholding in a non-Spanish entity based in the EU.

The tax breaks helped to spur large Spanish companies into action in Europe, especially in the U.K. In October 2005, Madrid-based telecommunications services company Telefonica SA agreed to buy U.K. rival O2 Plc for $31.4 billion, while Bilbao-based electric power company Iberdrola bought out another U.K.-based rival, Scottish Power U.K. Plc, for $23.1 billion in November the following year.

In 2004, meanwhile, Santander purchased U.K. bank Abbey National Plc in a $15 billion deal, which generated 10.3 million euros ($10.8 million) in goodwill, according to its annual report. That accounts for 61 percent of Santander’s goodwill in 2004, according to data compiled by Bloomberg BNA.

“These are big companies that would have taken some advantage of this relief,” said Vaughan Lister, a London-based tax principle and international corporation tax consultant at BDO. “It was just Spain to introduce” the laws, “which is why the EU took offense: everyone said that it was state aid.”

European Commission

The European Commission issued two rulings against Spain’s shareholding tax relief between 2009 and 2011, labeling it as state aid partly based on the argument that a non-Spanish company would not have received the same relief if it bought at least a 5 percent stake in a Spanish company.

Santander, with multinational food and beverage retailer Autogrill Spa, challenged the European Commission on the state aid verdict, which prompted the General Court’s November 2014 ruling.

The European Commission is asking the Luxembourg-based Court of Justice of the European Union to set aside the November 2014 ruling and send it back for consideration to the General Court.

“We’re all waiting to see if the Court of Justice is going to uphold the commission on state aid or is it going to find against the commission,” Dodwell said. “The advocate’s opinion, while it’s obviously not binding, led people to think the commission’s stance on state aid could actually be upheld.”

A spokeswoman for Santander declined to comment in a Dec. 19 e-mailed statement.

To contact the reporter on this story: Ben Stupples in London at

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

For More Information

Documents relating to the Dec. 21 ruling are at

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