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March 22, 2002

Spanish yards may have to repay special tax credits
Spain’s publicly owned shipyards, which these days operate under the Izar name, may well have to repay some tax credits granted them in 1998. The European Court of Justice has ruled that special credits granted Spanish shipyards were incompatible with European Community law relating to state aid.

In August 1997, the European Commission allowed Spain’s publicly owned yards special tax credits for restructuring. Before August 1995 the yards had been part of the state owned INI group and could offset losses against the profits of other INI companies. But in August 1995, the yards were transferred to another stateholding company AIE. Since AIE was loss making, it couldn’t offset the yards’ losses and the European Commission authorized the special tax credits as a form of state aid.
In 1997, however, the yards were switched to yet another holding company, SEPI. This enabled them to again take advantage of the rule allowing losses to be offset against profits. So, in 1998 the yards not only got a general tax credit corresponding to their losses in 1997, but also took a special tax credit to the tune of 18.45 billion pesetas (about $123 million).

The European Commission ruled that this amounted to illegal state aid and that the yards must repay it, with interest. In the case just decided, Spain asked the European Court to annul this ruling. The Court must still rule on a countersuit brought by the Commission.