ECJ judgment on tax devolution in Basque country

Preliminary ruling (about 24 pages) of the European Court of Justice on questions referred by a Spanish court about the possibility of illegal State aid in the Basque country's corporation tax arrangements, which lead to a lower tax burden than the regime in the rest of Spain.

In line with the principles set out in the Azores judgment, the court's response is that a tax measure established by a devolved Government is not a State aid provided that three conditions are met:

In the case of the Basque country, the information in the judgment implies that the first two conditions are satisfied, but the position on the third condition is not clear due to the “particularly complex” nature of the financial arrangements for devolution in Spain. In any event, it is for the Spanish court to examine the evidence and make its decision on the case before it.

The European Commission intervened in support of a view that there was insufficient financial autonomy. The UK intervened in the case in support of the proposition that there was financial autonomy (and therefore no constraint from State aid law). This presumably implies that the UK Government would consider its own devolution arrangements for Scotland, Northern Ireland and Wales, to be protected from interference on State aid grounds (but the current UK Government has shown no sympathy for differential rates of business taxation in the devolved nations).

For further information or advice please contact Franck Latrémolière.

Filed under ECJ/CFI.

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