The legal base of the aid scheme concerned is contained in the Spanish Corporate Tax Law (Real Decreto Legislativo 4/2004, de 5 de marzo, por el que se aprueba el texto refundido de la Ley del Impuesto sobre Sociedades, hereinafter ‘TRLIS’), in particular in Article 12(5) read in conjunction with Article 21 thereof.

Article 12(5) TRLIS, which entered into force on 1 January 2002, introduced the possibility for a Spanish resident company to deduct from the corporate tax base the financial goodwill arising from the acquisition of shareholdings in a non-resident company whose income is eligible for the tax exemption provided in Article 21 TRLIS (previous Article 20(bis) LIS).

Financial goodwill is defined by Article 12(5) TRLIS as the part of the difference between the purchase price of the shareholding and its book value on the date of the acquisition that has not been booked under the goods and rights of the non-resident company. That part of the difference would be deductible from the tax base, up to the annual maximum of one twentieth of its value. This is without prejudice of the applicable accounting rules.

1. (a)

   The percentage of shareholding — direct or indirect — in the equity of the non-resident company must be at least 5 %. In addition, the shareholding must be owned by the resident company for at least one uninterrupted year7;

2. (b)

   The non-resident company has to be subject to a foreign tax similar to corporate tax. This condition is presumed to be met if the country of residence of the target company has signed a tax convention with Spain to avoid international double taxation, which contains a clause on exchange of information8;

3. (c)

   The profits should stem from business activities carried out abroad. Such a condition is met when at least 85 % of the income meets the following criteria9:

   1. (i)

      The revenues of the non-resident company are obtained abroad and cannot be included in the tax base due to the application of international fiscal transparency rules. In particular, the revenues are considered to meet this requirement if they derive from the following activities:

      • Wholesale trade when the goods are made available to the purchasers in the country or territory of residence of the non-resident company or in any country or territory other than Spain, as long as the operations are carried out by the non-resident company;

      • Services provided in the territory where the non-resident company has its tax domicile, as long as the operations are carried out by the non-resident company;

      • Financial services provided to clients that do not have their tax domicile in Spain, as long as the operations are carried out by the non-resident company;

      • Insurance services relating to risks located in a territory or country other than Spain, as long as the insurance services are carried out by the non-resident company.

   2. (ii)

      Dividends or shares on profits in non-resident companies deriving from indirect shareholdings that meet the requirements contained in Article 21(1)(a) TRLIS. In addition, capital gains resulting from the transmission of shareholdings in non-resident companies as long as they comply with the requirements of Article 21(2) TRLIS.

It is worth noting that although Article 12(5) cross refers to Article 21 TRLIS, the latter is originally conceived to lay down the conditions for exempting from corporate tax dividends and income of foreign origin that derive from the acquisition of shareholdings in non-resident companies with the aim to avoid double international taxation10.

Financial goodwill is a fiscal concept which was introduced by the Spanish legislator in Article 12(5) TRLIS and which is linked to the accounting notion of goodwill.

Goodwill is an intangible asset that represents the value of a well-represented business name, good customer relations, employee skills and other such factors expected to translate into greater than apparent earnings in the future. From an accounting point of view, goodwill is calculated as the difference between the purchase price of a company minus the book value of its net worth.

According to the information submitted by the Spanish authorities, if the price paid for a shareholding in a company exceeds its book value, this can be due to two different reasons: (1) to the intrinsic added value of the assets of the company; (2) to an overprice paid due to an expectation of obtaining higher revenues in the future. The latter category corresponds to the financial goodwill.

According to Article 12(5) TRLIS, the part of the difference between the purchase price of a shareholding and its book value on the date of the acquisition should be booked under the goods and rights of the non-resident company pursuant to the criteria laid down in Royal Decree 1815/1991 on consolidation of accounts. Financial goodwill is the part of that difference that has not been booked under the goods and rights of the non-resident company. The financial goodwill can be deducted from the tax base, up to a maximum of one twentieth of its value per year.

1. (i)

   To calculate of the difference between the purchase price and the book value of the shareholding of the non-resident company on the date of the acquisition, The book value should reflect the share of equity that corresponds to the shareholding and its book value.

2. (ii)

   To book that difference under the goods and rights of the non-resident company according to the criteria established in Royal Decree 1815/1991 on consolidated accounts.

3. (iii)

   The amount (of that difference) that could not be booked under the goods and rights of the non-resident company is the financial goodwill. It can be deducted from the tax base up to one twentieth per year.

A direct acquisition is considered to be the purchase by a company of shareholdings in the equity of a company. An indirect acquisition is the purchase by a company of shareholdings in the equity of a company at second or ulterior levels as a consequence of a previous direct acquisition. Therefore, the acquiring company indirectly acquires shareholdings in the companies situated at second or ulterior levels.

However, in the light of the information provided by the Spanish authorities and the third interested parties, the Commission notes that the controversy in the present case boils down to the indirect acquisition of shareholdings as a consequence of a direct acquisition of shareholdings in a non-resident holding company. Indeed, holdings are companies whose main business aim is to own the shares of other operating companies. Holdings do not carry out an economic activity as such and therefore, they cannot generate goodwill (and consequently, no financial goodwill). Goodwill is generated at subsequent levels by operating companies that do carry out an economic activity. Hence, the matter at stake in the present case is to determine whether indirectly acquired shareholdings through a direct acquisition of a shareholding in a non-resident holding can benefit from the deduction of Article 12(5) TRLIS.

1. (a)

   Article 12(5) TRLIS is a method for depreciating an investment, depreciation that affects directly the tax base. The management of the deduction requires control of the investment and such a control can only be exercised through a direct acquisition of shareholdings in operating companies located at first level.

2. (b)

   The requirements laid down in Article 21 TRLIS of carrying out an economic activity abroad by the non-resident company and being subject to tax similar to corporate tax have their rationale in anti-abuse tax rules.

3. (c)

   Furthermore, Article 12(5) TRLIS is limited to acquisitions carried out in the first level given that Article 21 TRLIS only requires for the application of the deduction of Article 12(5) TRLIS the acquisition of at least a 5 % of the shares in the equity of the non-resident company. This percentage neither implies consolidation with the non-resident company located at first level nor consolidation with subsidiaries of the non-resident company situated at second or ulterior levels. It is only after consolidation that goodwill could arise at second or ulterior levels.

4. (d)

   Moreover, the tax Administration needs to monitor the application of the deduction of the financial goodwill. This control can only be done through the Spanish resident company. Indeed, the Spanish tax administration can easily monitor if the shareholdings are located at the first level because the shareholdings are part of the assets of the Spanish resident company. It would be more difficult for the Spanish tax administration to monitor the goodwill arising in non-resident companies located at subsequent levels because the shareholdings are booked under the assets of the non-resident companies, which are not under the obligation to be subject to the control of the Spanish tax administration.

In the course of the formal investigation procedure that led to the adoption of the present decision, the Spanish authorities were required to provide a list of the administrative interpretations (consultas) of the tax administration that related to the application of Article 12(5) TRLIS. The Spanish authorities provided15 a copy of administrative interpretations 1490-02 of 4 October 2002 and V0391-05 of 10 March 200516. These administrative interpretations confirm that since the adoption of Article 12(5) TRLIS the DGT explicitly excluded indirect acquisitions of shareholdings that result from the direct acquisition of shareholdings of a holding from the application of Article 12(5) TRLIS.

1. (a)

   One of the requirements of Article 12(5) TRLIS is that the goodwill arising from the difference between the purchase price of the shareholdings and their book value should be attributed to the assets of the non-resident acquired company.

2. (b)

   Goodwill generates in operating companies. Indeed, as a result of the performance of an economic activity, an intangible asset is generated deriving from the client portfolio, geographic location, know-how, human resources, prestige etc. In the end, this results into a higher purchase price than the one accounted as book value. Therefore, financial goodwill can only arise due to the direct acquisition of an operating company resulting from the difference between the purchase price and book value, as long as this difference is not attributable to the tacit added value generated by the assets of the company.

3. (c)

   In order to determine the amount of financial goodwill (the difference between the purchase price and book value not attributable to the non-resident company's net worth), it is necessary to apply the following three steps: (1) to calculate the difference between the purchase price of the shareholding and its book value. The book value should reflect the share of equity that corresponds to the stake that the resident company has in the non-resident company; (2) the difference between the two abovementioned values should be assigned to the assets of the non-resident company up to the limit of the market value of the asset in question according to the criteria established in the accounting consolidation rules19; (3) the amount that remains is the financial goodwill that can be deducted from the tax base up to a maximum limit of one twentieth per year.

4. (d)

   Holdings are entities whose main business aim is to own shares of other operating entities. Therefore, holdings do not carry out a business or economic activity as such. According to Article 12(5) TRLIS, if a company resident in Spain acquires a shareholding in a non-resident holding company (whose main activity is the possession of shares and management of assets of other operating companies) the difference between the purchase price and the book value of the equity of the holding should be booked as an asset of the holding company up to the limit of the market value of the asset in question. As the assets of a holding are the shareholdings in non-resident operating companies, the market value of its assets equates to the purchase price of the shares and therefore, no financial goodwill would arise. Under this interpretation, financial goodwill can only arise due to a direct acquisition of an operating company resulting from the difference between the purchase price and book value, as long as this difference is directly attributable to the intrinsic added value generated by the goods and rights of the acquired company.

The consistent administrative practice of the Spanish authorities that allowed the deduction of the financial goodwill arising exclusively from direct acquisitions of shareholdings of operating companies continued to be in place even after the adoption of the First and Second Decision20.

On 21 March 2012, following a request for a tax opinion by a Spanish company, the DGT adopted the binding interpretation V0608-1221, which establishes that Article 12(5) TRLIS would allow the deduction of financial goodwill not only from direct acquisitions of shareholdings of operating companies, but also from indirect acquisition of shareholdings resulting from a previous direct acquisition of shareholdings of a holding company.

In the abovementioned consulta vinculante, the DGT acknowledged a departure from its initial interpretation of Article 12(5) TRLIS with regard to its application to indirect acquisition of shareholdings. As a result, the DGT modified the criterion on which it had based its previous responses to questions raised by Spanish companies on that issue.

In addition, the TEAC in a Resolution of 26 June 201222 aligned with the position adopted by the DGT with regard to the application of Article 12(5) TRLIS to indirect acquisitions of shareholdings. Although the Resolution related to another matter and the incumbent was another company than the one of the abovementioned ‘consulta vinculante’ of the DGT of 21 March 2012, the TEAC acknowledged a departure from its previous doctrine by extending the application of the deduction of the financial goodwill to indirect acquisitions of shareholdings that result from a direct acquisition of a holding.

1. (a)

   First, the DGT and TEAC refer to Article 21(1)(c) TRLIS in order to argue that indirect acquisitions can also benefit from the deduction of Article 12(5) TRLIS. According to the DGT and the TEAC, the requirement of carrying out an economic activity can be met when the operating company is also in second or ulterior levels. In particular, the DGT and the TEAC refer to Article 21(1)(c) 2^o TRLIS where it is explicitly stated that dividends deriving from direct or indirect shareholdings will also be covered by the provision. The DGT and the TEAC conclude that the fact that the operating company is situated at a second or ulterior level should not be an obstacle for the application of the deduction of Article 12(5) TRLIS.

2. (b)

   Second, the DGT and the TEAC refer to the rationale of the provision: given that Article 12(5) TRLIS aims at fostering the internationalisation and foreign investment of Spanish companies, it would go against the spirit of the provision to exclude from the application of Article 12(5) TRLIS investments made by Spanish companies in non-resident holdings. Moreover, the DGT and TEAC claim that the economic reality shows that the acquisition of shareholdings in non-resident companies is often carried out through the acquisition of a holding company. The fact that an investment is carried out via the acquisition of shares of a holding is an exogenous circumstance that does not depend on the company that acquires the holding, but on how the market is structured. The presence of intermediate companies like holdings should not be an obstacle for carrying out investments nor should it discriminate between different types of acquisitions.

3. (c)

   Third, the DGT and the TEAC argue that constant references were made both to direct and indirect acquisitions in the wording of the First and Second Commission Decisions. The DGT and TEAC infer from the wording of the two decisions that the European Commission accepts the deduction of the financial goodwill both for direct and indirect acquisitions of shareholdings.

4. (d)

   Fourth, the DGT also acknowledges that this interpretation is done in spite of the obligation to provide information contained in Article 15 of the Implementing Regulation of the Corporate Tax Law. Article 15 of the Regulation exclusively requires providing information on the acquisition of the directly acquired company in order to be able to apply Article 12(5) TRLIS. If this deduction were also applicable to indirect acquisitions, it would have been logical to include indirect acquisitions as well, for the sake of a better transparency. However, this should not be deterrent for a wide interpretation of Article 12(5) TRLIS.

5. (e)

   Finally, in order to apply the deduction to indirect acquisitions it is necessary to turn the indirect shareholding into a direct shareholding via a previous merger operation. It would be against the principle of fiscal neutrality to treat differently from a fiscal point of view an acquisition that leads to a business combination and an acquisition of shareholdings that does not result into a business combination. The DGT and TEAC conclude that the deduction should also be possible in different shareholding levels. For that matter, it is necessary to prove by means of a consolidated balance sheet or any other legal means that a part of the purchase price of the shareholding corresponds to the financial goodwill existing in an ‘indirectly’ acquired shareholding of an operating company.

The two TEAC Resolutions 00/2842/2009 and 00/4871/2009 were appealed before the Audiencia Nacional, a Spanish specialised High Court. The Audiencia Nacional in its judgement of 6 February 201423 did not uphold the new administrative interpretation and confirmed the initial criteria used by the DGT and TEAC, whereby indirect shareholding acquisitions that result from a direct shareholding acquisition of a holding company are excluded from the application of Article 12(5) TRLIS. In its judgment, the Audiencia Nacional considers that goodwill, and therefore financial goodwill, can only generate in operating companies that carry out an economic activity. Holdings are companies whose main aim is to own shares of other operating companies. Given that holdings do not carry out an economic activity, they cannot generate goodwill (and therefore, financial goodwill).

The Spanish authorities referred to the initial administrative interpretation of the DGT, contained in consultas 1490-02 of 4 October 2002 and V0391-05 of 10 March 2005, which allowed for the deduction of financial goodwill with regard to direct acquisitions of shareholdings in non-resident operating companies, as long as the income generated by the non-resident company complied with the conditions established in Article 21 TRLIS. The Spanish authorities explained that the reasoning behind their original administrative interpretation of Article 12(5) TRLIS, as reflected in the two consultas concerned, is that no goodwill can arise in the individual accounts of a holding.

The Spanish authorities and the interested parties argue that the administrative interpretation is not a relevant administrative practice. The administrative interpretations of the DGT are not a source of Law and are binding for neither the Courts nor the citizens; they exclusively bind the tax administration. This binding character means that the tax administration is obliged to use the same criteria if there is an identity of facts and circumstances among taxpayers. Moreover, the Spanish authorities explained that consulta 1490-02 is not binding for the tax administration and merely has an informative character towards third parties. Consulta V0391-05 is binding towards the tax administration. In the event that there is discrepancy with regard to the criteria established in the administrative interpretation, the taxpayer could appeal before the competent courts. Therefore, the national courts are not bound by the criteria laid down in the administrative interpretation.

According to the Spanish authorities, the Commission is mistaken when stating in the Opening decision that ‘the new interpretation of the Finance Ministry was confirmed by a Resolution of the TEAC of 26 June 2012’. The DGT and TEAC are independent institutions: the DGT is part of the Administration and the TEAC has been qualified as a Court by the European Court of Justice26. The TEAC reviews the application of the tax law and lays down the doctrine and criteria to be applied by the rest of the Administration. The interested third parties claim that the TEAC is not a Court, but an entity integrated within the tax administration, dependent upon the Ministry of Finance. They also argue that the TEAC's doctrine is not part of the legal order. Although its doctrine binds the tax administration, it is subject to the control of subsequent court instances.

1. (a)

   The response to a request for the interpretation of fiscal provisions will have binding effects for the tax Administration.

2. (b)

   As long as the jurisprudence or the law applicable to the case is not modified, the criteria contained in the tax interpretation will be applied to the incumbent.

3. (c)

   The tax administration in charge of tax enforcement should apply the criteria contained in the tax interpretations as long as there is an identity of facts and circumstances between the incumbent and the addressee of the administrative tax interpretation.

Furthermore, the third interested parties claim that the initial administrative interpretation cannot be defined as a consolidated practice of the tax administration. According to some of the third interested parties, it only consists of four administrative interpretations and one Resolution of the TEAC27. Moreover, according to some of the interested third parties, even before the DGT consulta and the TEAC resolution of 2012, the administrative interpretation was progressively modified by a resolution of the TEAC 1 of June 2010 and a judgment of the Audiencia Nacional of 13 October 2011. The issue analysed in the TEAC resolution and the Audiencia Nacional judgement related to the application of Article 12(5) TRLIS to intra-group acquisition of shareholdings. The judgement of the Audiencia Nacional of 13 October 2011 was upheld by the Spanish Supreme Court in a judgment of 24 June 2013.

The Spanish authorities also state that the requests made by the companies about the deduction of financial goodwill for indirect acquisitions of shareholdings were not systematically denied, as indicated by the Commission in the Opening decision of 2013. There was not a systematic denial because the tax collection system does not require the incumbent to request the application of Article 12(5) TRLIS. The tax collection system for corporate tax is based on a ‘self-assessment’ system (autoliquidación), whereby the incumbent has to go through all the tax operations, such as the interpretation of the law, qualification of the tax operations and calculation of the final tax amount due. The tax authority does not intervene in that process. However, the ‘self-assessment’ tax operations can be checked and monitored by the tax administration, which eventually will determine the final tax assessment.

The Spanish authorities and the interested third parties state that, despite of the initial administrative interpretation of the DGT, Spanish companies were applying the deduction of the financial goodwill to indirect acquisitions of shareholdings. According to the Spanish authorities, those taxpayers who believed that they had the right to apply Article 12(5) TRLIS to indirect acquisitions, did apply it. The existence of a different interpretation by the DGT was not an impediment for its application: on the one hand, those taxpayers that were not subject to a tax inspection confirmed de facto their criteria after the deadline of prescription four years; on the other hand, those taxpayers that were subject to a tax inspection were able to appeal the criteria established by the DGT in subsequent instances.

Both the Spanish authorities and the interested third parties allege that Article 12(5) TRLIS has not undergone substantial modifications and that the administrative interpretation of the scope of a provision cannot be considered a modification of the aid. The fact that the administrative interpretation has been modified by the DGT does not affect the scope of application of Article 12(5) TRLIS.

The Spanish authorities and interested third parties argue that the scope of application has not been modified by the new administrative interpretation because Article 12(5) TRLIS already cross-referred to Article 21 TRLIS, which mentioned in its paragraph 1(a) direct and indirect acquisitions of at least 5 % shareholdings. Such a requirement has not been altered since the introduction of Article 12(5) TRLIS to the Spanish Corporate Tax Law.

In order to support their view that the measure would not amount to new aid, the Spanish authorities and interested third parties claim in substance that the previous administrative interpretation was not final, could always be subject to appeal before the courts and was not a consistent practice.

These arguments are irrelevant for the purposes of this decision. Indeed, the Commission, in the First and the Second Decisions, has examined a State aid scheme as implemented by the Spanish authorities. The circumstance that the regime could be modified or altered (either by the administration or by the courts) at some point in the future, has no bearing on the scope of the investigation and thus of the Decisions.

In any case, the arguments of the Spanish authorities have to be rejected for the following additional reasons:

As regards the argument that the initial administrative interpretation was not a relevant and consolidated practice of the tax administration, the Commission notes that all the DGT's consultas and resolutions from the TEAC provided by the Spanish authorities evidence a systematic and consistent approach when excluding from the scope of Article 12(5) TRLIS indirect acquisitions of shareholdings that result from a direct acquisition of shareholdings of a holding company.

The Spanish authorities and the interested third parties also allege that the initial administrative interpretation is not a relevant and final administrative practice given that it is not a source of law and can always be subject to appeal before the competent courts.

The Commission considers that the fact that the administrative interpretation and the resolutions of the TEAC can be appealed in subsequent judiciary instances does not imply that these consultas — and especially the resolutions of the TEAC — do not have legal effects for the incumbent. As laid down in Article 89 of the General Tax Law 58/2003 of 17 December, the responses given in the context of a request for a tax opinion have binding effects for the tax Administration. This means that the tax administration is obliged to use the same criteria when there is an identity of facts and circumstances between the taxpayers. Therefore, a diligent and prudent operator would expect from the tax administration a consistent approach in situations where there is identity of facts and circumstances between taxpayers.

The Spanish authorities and some of the interested third parties claim that the initial administrative interpretation is not a consistent administrative practice since the criteria contained in an administrative interpretation can always be subject to further modifications. However, as explained by the Spanish authorities, Article 89 of Law 58/2003 requires having a consistent application of the criteria contained in an administrative interpretation insofar as the jurisprudence or the applicable Law does not modify it. The Commission notes that all the DGT consultas and TEAC resolutions evidence that for the period 2002-12 there was a consistent practice, which was neither modified by the Law nor by the jurisprudence.

The Spanish authorities and some of the interested third parties claim that the administrative interpretation was progressively modified by a resolution of the TEAC of June 2010 and a judgement of the Audiencia Nacional of 13 October 201138, which was subsequently upheld by the Spanish Supreme Court in a judgement of 24 June 201339. The Commission considers that the abovementioned judgements do not evidence a modification in the fiscal treatment of indirect acquisitions of shareholdings in the context of Article 12(5) TRLIS. The TEAC resolution, the judgments of the Audiencia Nacional and the Spanish Supreme Court related to intra-group acquisitions of shareholdings, which is a different matter from the one at stake. Both judgements do not refer explicitly to the matter of indirect shareholding acquisitions and do not enter in the discussion on the existence of financial goodwill as such, since the existence of the financial goodwill was already assessed by the Court a quo and fell out of the scope of the appeal. In this respect, the administrative practice of the Spanish tax authorities in the recovery procedure has been to look first at the indirect or direct character of the acquisitions — irrespective of whether they are intra-group acquisitions — in order to determine if they lead or not to fiscal benefits.

The Spanish authorities and the interested third parties also contest the Commission's statement in the opening decision of 17 July 2013 that the deductions of financial goodwill that related to indirect acquisitions contained in the tax declarations were systematically denied. The Spanish authorities and interested third parties claim that the deduction could not be systematically denied given that the Spanish tax collection system is based on a ‘self-assessment system’ (the so-called autoliquidación).

The Commission holds the view that the existence of a self-assessment tax collection system does not remove the new aid character of the measure. Indeed, the fact that the Spanish tax collection system is based on a ‘self-assessment’ system does not guarantee the correctness, and eventually legality, of each of the tax operations carried out by the incumbent. The tax administration has the power to check and monitor the self-assessment tax operations executed by the tax payers. In fact, as the Spanish authorities indicated, if a tax payer that had deducted the financial goodwill arising from indirect acquisitions was subject to a tax inspection, the tax administration, which is bound by the obligation to apply the same criteria when facing situations where there is identity of facts and circumstances between taxpayers, would have not accepted the deduction of the financial goodwill contained in the company's tax declaration. Therefore, the existence of a ‘self-assessment’ tax system does not contradict the Commission's view that the requests made by the companies relating to the deduction of financial goodwill in the context of indirect shareholding acquisitions were systematically denied.

Moreover, the fact that some tax payers disregarded the existing administrative interpretation deducting the financial goodwill for indirect shareholding acquisitions is irrelevant for the purpose of this analysis. Pursuant to Article 89 of Law 58/2003, the tax administration is obliged to use the criteria contained in the tax interpretations when there is an identity of facts and circumstances between tax payers. Therefore, the tax payers that deducted the financial goodwill for indirect acquisitions and that were subsequently subject to a tax inspection would have to correct their tax declarations.

In conclusion, the consultas of the DGT and the resolutions of TEAC confirm that at the time of the First and Second Decision, and even after their adoption (until March 2012), the consistent administrative practice of the Spanish authorities was to apply the tax scheme concerned only to direct acquisitions of shareholdings of non-resident operating companies whereas all tax deductions for indirect acquisitions of shareholdings that resulted from a direct acquisition of shareholdings of a holding company were systematically refused. Moreover, the Commission considers that the self-assessment nature of the Spanish tax collection system does not change the fact that the new administrative interpretation has enlarged the scope of application of Article 12(5) TRLIS.

Both the Spanish authorities and the interested third parties allege that Article 12(5) TRLIS has not undergone substantial modifications and that the administrative interpretation of the scope of a provision cannot be considered a substantial modification of the aid. Moreover, the fact that the administrative interpretation has been modified by the DGT and the TEAC does not affect the scope of application of Article 12(5) TRLIS.

Nevertheless, there is no doubt that an extension of the scope of the fiscal advantage (which may entail the granting of billions of euros of State aid) to indirect acquisitions of shareholdings constitutes a substantial modification of the scope of application of the regime40.

Indeed, there has been a modification in the calculation method of financial goodwill, which has been re-designed to allow the deduction of the financial goodwill arising from indirect acquisitions of shareholdings of non-resident companies through the direct acquisition of shareholdings of a holding company. This modification of the calculation method has clearly enlarged the scope of application of Article 12(5) TRLIS.

Having preliminarily established that the scheme at issue involves State aid within the meaning of Article 107(1) of the TFEU, it is necessary to consider whether the amended scheme can be found to be compatible with the internal market pursuant Article 107(2) and (3) of the TFEU. The Spanish authorities did not present any argument in this respect.

The Commission considers that the new administrative interpretation of Article 12(5) TRLIS cannot be considered compatible with the internal market. In this respect, the Commission considers that the same reasoning followed in the First and Second Decision applies. Therefore, the Commission refers to paragraphs 140 and following of the First Decision and to paragraphs 166 and following of the Second Decision.

In particular, as regards the application of Article 107(3)(c), the tax deductions granted under Article 12(5) TRLIS are not related to investment, job creation or specific projects. The tax deductions relieve the undertakings of charges normally borne by those undertakings, and must therefore be considered as operating aid. As a general rule, operating aid does not fall within the scope of Article 107(3)(c) since it distorts competition in the sectors in which it is granted. The aid cannot be considered compatible with the internal market, as it does neither facilitate the development of any activities or economic areas nor it is limited in time, digressive or proportionate to what is necessary to remedy that specific economic situation in the areas concerned. In conclusion, the Commission does not consider the measure compatible with the internal market.

The Commission considers that there is no reason to depart from the considerations expressed in the Opening Decision. Indeed, the Commission did neither violate the estoppel principle nor the legal certainty principle.

The ‘consulta vinculante’ of 21 March 2012, which introduced the new administrative interpretation, is the result of a choice made by the Spanish authorities. This administrative act, which gave rise to a situation of new aid illegally granted without having been previously notified to the Commission, is an act of the Spanish authorities and not an act of the Commission. Therefore, the estoppel principle is irrelevant.

As regards the alleged violation of the legal certainty principle, the Commission reminds that, according to the ECJ case-law, the scope of a State aid decision must be determined not only by reference to the actual wording of that decision but also by taking account of the aid scheme as described and concretely applied by the Member State concerned61.

In this respect, if a violation of this principle may be found, the Commission considers that it was Spain that would have infringed the legal certainty principle. Moreover, the Commission believes that the creation of legal uncertainty, if any, would stem from the imprecise and unclear character of the wording of certain provisions of the scheme.

The contested measure has been implemented without having been notified in advance to the Commission in accordance with Article 108(3) of the Treaty. Therefore, the measure constitutes unlawful aid.

Where unlawfully granted State aid is found to be incompatible with the internal market, the consequence of such a finding is that the aid should be recovered from the recipients pursuant to Article 14 of Regulation (EC) No 659/1999. Through recovery of the aid, the competitive position that existed before it was granted is restored as far as is possible. The amount to be recovered should be such as to eliminate the economic advantage given to the beneficiaries.

No arguments raised by the Spanish authorities or by the thirty parties justified a general departure from this basic principle. Spain should therefore be required to recover the incompatible aid.

For a given year and a given beneficiary, the value of the aid corresponds to the tax reduction provided by the application of Article 12(5) TRLIS for indirect acquisitions of shareholdings of non-resident operating companies that result from previous acquisitions of shareholdings of holding companies.

The Spanish authorities and the interested parties argue that the legitimate expectations recognised in the First and Second Decision should also apply to indirect acquisitions of shareholdings that result from a direct acquisition of shareholdings of a holding company. In this regard, they claim that legitimate expectations should be recognised due to the references made to indirect acquisitions in the wording of the First and Second Decisions, the replies to written parliamentary questions and the acquisitions mentioned in the press release of the 2007 opening Decision.

The Commission does not agree with the arguments presented by the Spanish authorities and interested third parties and considers that the legitimate expectations that were recognised in the First and Second Decision cannot be extended to situations (indirect acquisitions of shareholdings that result from the acquisition of shareholdings of a holding company), which were not covered by the scope of application of the measure at the time of the adoption of these Decisions. Indeed, legitimate expectations can be based only on factual elements known at the moment of the adoption of a decision and not on future events, such as the introduction of a new administrative interpretation.

In accordance with settled case-law62, the right to rely on the principle of protection of legitimate expectations applies to any individual in a situation in which an institution of the European Union, by giving that person precise assurance, has led him to entertain well-founded expectations. Such assurances, in whatever form they are given, constitute precise, unconditional and consistent information.

The absence of explicit restrictions in the aid scheme in question cannot be deemed to constitute a precise, unconditional and consistent statement made by the Commission to the undertakings concerned with regard to the application of the measure also to indirect acquisitions of shareholdings that result from the direct acquisition of shareholdings of a holding company. Therefore, the absence of those explicit restrictions cannot create legitimate expectations for the undertakings concerned that the measure could be lawfully applied also to indirect acquisitions.63

Even if it had been the case that the references made to indirect acquisitions in the First and Second decisions could have created an expectation for the undertakings concerned, it is necessary to consider whether the expectation reached on that basis is a legitimate one64. The Commission is of the opinion that the undertakings that carried out indirect acquisitions cannot plead a legitimate expectation that the indirect shareholding acquisitions were covered by Article 12(5) TRLIS, given that these undertakings were well aware of the administrative practice of the tax administration and the TEAC that was in place until 2012. These undertakings were aware that the tax scheme communicated to the Commission — Article 12(5) TRLIS — was implemented at that time excluding from its scope indirect shareholding acquisitions that result from a direct shareholding acquisition of a holding company.

The Spanish authorities allege that the existence of a restrictive administrative interpretation does not diminish the legitimate expectations that the operators that carried out indirect acquisitions of shareholdings through a direct acquisition of shareholdings of a holding company might have had on the validity of Article 12(5) TRLIS. This is because: (1) Article 12(5) TRLIS is a clear provision; (2) it expressly refers to Article 21 TRLIS, which mentions direct and indirect acquisitions; (3) it contains a express reference to the consolidated accounting rules; (4) it aims at fostering the international investment of Spanish companies.

The Commission does not agree with the abovementioned statement. Article 12(5) TRLIS has proven to be an unclear provision because of the undetermined reference to the consolidation accounting rules and the imprecise extrapolation to the criteria contained in Article 21 TRLIS. Indeed, Article 21 is initially conceived for laying down the conditions for exempting dividends and income of foreign origin. The reference of Article 21 to indirect acquisitions contrasts with the requirement of carrying an economic activity by the directly acquired company. Moreover, legitimate expectations cannot be founded on the rationale of an aid scheme, Article 12(5) TRLIS, which had already been declared unlawful and incompatible aid in the First and Second Decisions due to the differential tax treatment between foreign acquisitions and domestic acquisitions carried out by companies resident in Spain. The Commission believes that the imprecise and unclear character of the provision led to a controversy in its interpretation. In fact, this controversy is evidenced in most of the consultas of the DGT and TEAC resolutions. Therefore, the Spanish authorities cannot claim that, despite the restrictive administrative interpretation, Article 12(5) TRLIS could have created legitimate expectations for those undertakings that carried out indirect acquisitions of shareholdings.

As regards more specifically the acquisition of Scottishpower by Iberdrola, the Commission observes that the merger decision (COMP M.4517) clearly indicated that it was neither necessary nor appropriate to determine if Article 12(5) TRLIS constituted State aid (see paragraph 42 of the decision) for the purposes of the merger decision.

With reference to the allegations of Spain and of the interested third parties, according to which the replies to the written parliamentary questions created legitimate expectations for the beneficiaries of the aid, the Commission observes that the written parliamentary questions did not focus on the differentiation between direct and indirect acquisition, but questioned whether the scheme provided for in Article 12(5) TRLIS might constitute State aid. Therefore, it could not be inferred from the replies given by the Commission to the written parliamentary questions that both direct and indirect acquisitions would have been covered.

As regards the allegation according to which the First and Second decisions would create new legitimate expectations, since they both make reference to indirect acquisitions, the Commission recalls that those references were exclusively made because the national legal provisions mention both direct and indirect acquisition. More precisely, Article 12(5) TRLIS cross-refers to Article 21 TRLIS, which requires that at least 5 % of the shareholdings of the non-resident company must be held directly or indirectly by the Spanish company for an interrupted period of one year. The fact that the Spanish authorities were applying Article 12(5) TRLIS only to direct acquisitions is not contested neither by Spain nor by the interested third parties. As already indicated above, the Commission is therefore entitled to rely on the explanations provided by the Member State concerned and therefore it could legitimately assume that the regime was applied as the Member State had indicated.

Moreover, the Commission considers that even though the communication between the Spanish authorities and the Commission — whereby it was explained that in practice it could only be deducted the financial goodwill arising from direct shareholding acquisitions of operating companies — is not reflected in the wording of the decisions, it does not create legitimate expectations for the beneficiaries of the aid that indirect acquisitions were also covered by Article 12(5) TRLIS. The beneficiaries of the aid were already aware of the consistent and systematic administrative practice that excluded indirect shareholdings acquisitions through the shareholding acquisition of a holding from the scope of application of Article 12(5) TRLIS and which had been in place until 2012.

In conclusion, the legitimate expectations recognised in the First and Second Decisions cannot be extended to situations that were not covered by the scope of application of the contested measure at the time of the First and Second Decisions.