European Commission vs Spain, December 2016, European Court of Justice, Case C-20/15P, C-21/15P

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The issue in these cases was tax provisions in Spain stipulating that, when a company in Spain acquires a share holding in a foreign company of at least 5%, goodwill resulting from that acquisition can be deducted for tax purposes through amortization (much like the US asset deal-regs).

The Commission found these provisions to be in violation of EU State Aid rules.

In 2014, the General Court annulled these Decisions, finding that the Commission had failed to establish the selective nature of the alleged aid measure. The General Court argued that for the selectivity condition to be satisfied, it is always necessary that a particular category of undertakings be identified that are exclusively favoured by the measure concerned and that can be distinguished by reason of specific properties common to them and characteristic of them. If that is not possible, then the measure is effectively open to all undertakings and thus not selective.

The decision was then appealed by the Commission to the European Court of Justice.

The European Court of Justice found that the General Court had erred in law by inferring a supplementary requirement from the case law. The Court explained that in the context of the “selectivity condition” what matters is whether the measure, irrespective of its form or the legislative means used, should have the effect of placing the recipient undertakings in a position that is more favourable than that of other undertakings, although all those undertakings are in a comparable factual and legal situation in the light of the objective pursued by the tax system concerned, cf. para 79. The fact that the number of potential beneficiaries is large and the criteria for the measure’s application are lax is not relevant – the measure is still selective.

The Court of Justice then refered the case back to the General Court, for examination of the remaining three pleas of the alleged aid beneficiaries.



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