EU Court issues verdict in case of Basque 'tax holidays'

The European Court of Justice will rule on Thursday whether "tax breaks" offered to firms in the Basque Country during the 1990s are illegal, such as the European Commission in Brussels deems, and must be recovered .

The ruling of the European Court of Justice marks the end of a long judicial process as none of the parties can appeal against the final sentence.

The Basque Provincial Councils of Biscay, Alava and Guipúzcoa defended the legality of the economic measures and requested the abandonment of the trial being held at the Court of the First Instance (now the General Court).

The Court supports the decision of the European Commission to declare the aid incompatible with Community law and order its reimbursements.

The EU executive, supported by the government of La Rioja, meanwhile argued that the measures constituted illegal state aid which were detrimental to competition and requested that the European Court of Justice impose a huge fine on Spain for not having recovered the total amount of aid.

Basque tax system

The "tax incentives" being debated in the Brussels court were offered to newly-created firms in the Basque Country between 1995 and 2000, exempting them from having to pay corporation tax for ten successive tax years. About 300 companies benefited from these tax schemes.

Since that time, the EU has ruled that the Basque "tax breaks" were in fact illegal.

The Spanish region of La Rioja took action against the tax schemes which they believe caused an ''economic drain'' from other regions of the Spanish state by offering more favorable circumstance in the Basque Country.

The European Court ruled in 2001 that the tax aid schemes in the Basque provinces broke state aid rules within the meaning of the EC Treaty and could be considered illegal because no notification was made before they were introduced.

Confebask, the association of Basque companies, appealed against the court decision.