European Commission rules Spanish shipbuilding tax breaks illegal

The European Commission has ruled that tax breaks granted between 2007 and 2011 to firms investing in the Spanish shipbuilding industry are illegal and must be returned.

In announcing the decision yesterday, European competition commissioner Joaquín Almunia, a Spaniard, described the tax benefits as “incompatible” with EU trading norms. “This system allowed…companies to take undue advantage of a reduction in corporate tax.”

The tax lease framework in place during the period in question meant that firms that bought vessels or financed shipbuilding were able to do so at well below market price.

The money in question must be returned to the Spanish treasury. Although Mr Almunia did not put a figure on the amount to be paid back, saying that was to be decided by the government, it is estimated to be over €2 billion.

The ruling had been widely anticipated but was less harsh than originally expected following reports that tax benefits dating back as far as 2005 would have to be returned.

Spain lobbied hard for Brussels to rule in its favour and on Monday local media revealed that prime minister Mariano Rajoy had telephoned European Commission president José Manuel Barroso on the issue.

“The illegal help has to be returned, but this applies only to those who benefitted from it, the investors,” said Mr Almunia.

Politicians
Many Spanish politicians and members of the industry responded with dismay yesterday due to concerns over the potential impact of the tax return.

“Today’s decision doesn’t exactly contribute to generating confidence in the future of the sector,” said Iñigo Urkullu, premier of the Basque region, part of the shipbuilding heartland in northern Spain.

His counterpart in the northwestern region of Galicia, Alberto Nuñez Feijóo, described the ruling as “legally questionable because it is disproportionate and discriminatory”.

While industry minister José Manuel Soria said the ruling was better than had been expected, he added that the government was considering appealing against it before the European Court of Justice.

Around 85,000 people are employed in Spain’s shipbuilding industry. Many of them have been campaigning over the last month in the hope of preventing the sanction.