In an investigation spanning 5 years, the Commission has found that a new interpretation of a Spanish tax scheme that provides certain taxpayers with a selective economic advantage to be incompatible with State Aid rules. The Commission has ordered Spain to recover the aid from the taxpayers.

The case is far from straightforward, and this week’s outcome is the result of several years of apparent to-ing and fro-ing between the Commission and the Spanish authorities. The scheme at the heart of the investigation allows companies to deduct financial goodwill arising from the acquisition of indirect shareholdings in foreign companies form their corporate tax base. The Commission previously ruled on this scheme (October 2009 and January 2011) ordering Spain to abolish the provision. According to the Commission, administrative practice demonstrates that from 2002 to 2012 the initial scheme (the subject of the Commission’s 2009 and 2011 decisions) applied only to direct shareholding acquisitions in non-resident operating companies. Spanish authorities adopted a new administrative interpretation extending the scheme’s remit to indirect shareholding acquisitions. July 2013 saw the Commission open an in-depth investigation to determine if the new interpretation was compatible with EU state aid rules, ultimately finding that it constitutes new state aid and as a consequence, have ordered Spain to recover aid granted through the amended application of the tax scheme.

For further details see the Commission’s press release.