TAXATION : SPAIN MUST REPEAL GOODWILL MEASURE ON NON-EU SHAREHOLDINGS.
Madrid is being ordered to repeal a provision of its corporate tax legislation that allows Spanish companies to amortise financial goodwill on the acquisition of shareholdings in companies in third countries. The European Commission's order, issued on 12 January, concluded its investigation begun in 2007 to determine whether the disputed measure offered Spanish firms an unfair advantage.
The measure, Article 12(5) of the Spanish corporate tax code, establishes that a Spanish company may amortise financial goodwill on the acquisition of a large shareholding in a foreign company over a 20-year period. The principle of amortisation of the excess' price paid for the acquisition of a business compared with the market value of its assets is not under challenge. What is problematic, on the other hand, is its restriction to shareholdings in foreign companies.
The Commission concluded, in 2009, that the scheme constituted illegal state aid since it gave more favourable treatment to foreign acquisitions than to Spanish acquisitions, and banned Madrid from applying it for shareholdings acquired in EU companies. It then continued its investigation with respect to non-EU companies. Spain maintained that the measure was necessary to offset fiscal and legal obstacles outside the EU. However, the Commission "identified no such obstacles in most of the third countries whose legislation was examined".
It has therefore ordered Spain to repeal the measure and to recover any aid' granted in this way after 2007, with the exception of that pertaining to goodwill for the acquisition of majority shareholdings in a limited number of third countries where fiscal and legal obstacles were identified (China and India).