The European Court of Justice in the case of Territorio Histórico de Vizcaya – Disputación Foral de Vizcaya and Others v Commission has upheld the European Commission's finding that State Aid in contravention of the EC Treaty was at play on tax exemptions granted to three territories in Spain. The upholding of the appeal will result in the recovery of State Aid from the taxpayers who benefited from it.

Article 88 of the EC Treaty requires Member States to notify the Commission of all State Aid proposals and provides that no such aid can be provided without the Commission's approval. If the Commission identifies State Aid that does not qualify for exemption under the Treaty, the Member State is required to recovery the State Aid from the beneficiary.

The State Aid in dispute was introduced in 1993. The Commission gave a decision in 2001 which found that the tax exemption measures in question were State Aid incompatible with the common market on foot of complaints made by various Spanish business representative groups. The Commission instructed Spain to abolish the tax exemptions and recover the Aid from the beneficiaries.

The Spanish regional authorities who implemented the tax exemption then took a case against the Commission's decision to the European General Court on the grounds that the tax measures in question were “existing aid” at the time of the Commission's 2001 decision and therefore could not be subject to a decision to recover Aid already paid. The General Court rejected this argument and the matter was then appealed to the ECJ. In its decision delivered on 9 June, the ECJ found that the regional authorities involved may not rely on the length of the procedure conducted by the Commission as the basis for not recovering the aid as they contributed to the situation themselves by failing to cooperate and notify the aid to the Commission. Other arguments put forward included a claim that the Commission's behaviour have given rise to a legitimate expectation and therefore recovery of aid was not required under the term of the Treaty. Again this claim was dismissed by the ECJ and recovery of aid appears to be unavoidable.

For full details go to http://curia.europa.eu/jcms/upload/docs/application/pdf/2011-06/cp110056en.pdf