The European Commission today announced in a press release its long-awaited Decision on the compatibility of the Spanish tax-lease arrangements for the financing of the construction of marine vessels.

The text of the Decision is not yet public, but according to the press release the main elements are as follows:

  1. The Commission considers that the Spanish tax lease system applicable to the financing of new shipbuilding contracts from 2002 to 2011 was partially incompatible with EU state aid rules.
  2. The recipients of the illegal aid were the investors in the economic interest groupings (EIGs) that were set up to finance the acquisition of new ships. Neither the shipbuilders nor the ship owners are considered recipients of illegal aid.
  3. It is the investors in the EIGs, therefore, that will be obliged to pay back the aid on the amount that exceeds the acceptable level of aids under the Commission’s Guidelines on State Aids to Maritime Transport.
  4. Any aids awarded before April 2007 (date when the Official Journal made public the Commission’s state aid Decision on the French Tax Lease) will not be subject to recovery, as until such date there was legal uncertainty as to whether the Spanish provision was compatible with EU Law.
  5. Those Spanish shipyards that had given indemnities to participants in the tax-lease structure on their full compliance with EU provisions cannot be forced to honor such commitments, as they were illegal under EU Law.

There is still some uncertainty as to the practical effects of the Decision for several reasons. First, the Decision may be appealed before the General Court of the EU, which may suspend its execution. In addition, the Spanish tax administration must identify the specific tax investors that are not protected by the rule preventing recovery of aid granted before April 2007 and must calculate the exact amount of aid which exceeds the allowable amount under the EU guidelines on aids to the maritime sector.

Despite these uncertainties, we recommend tax investors who benefitted from tax savings as a result of the scheme after the cut-off date to carefully review their legal position, including possible courses of action before the EU and the Spanish courts. In Cuatrecasas, Gonçalves Pereira we have formed an integrated team of lawyers specializing in EU Competition, Maritime and Tax law who will be delighted to assist in this important matter. Please refer to your habitual contact at our law firm for any further information.