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Spain: Financial goodwill on the acquisition of foreign companies of state aid



Rafael Calvo and Salvador Pastoriza, Garrigues

On July 17 2013, the European Commission announced the commencement of a new state aid investigation procedure concerning the amortisation of the financial goodwill regulated in article 12 (5) of the Spanish Corporate Income Tax Law (CIT Law). This article allows companies that acquire holdings in the equity of non-resident entities (which meet certain requirements) to deduct for tax purposes the financial goodwill (difference between the price paid and the book value of the target not attributable to underlying assets or rights) disclosed on the acquisition, over a minimum of 20 years.

Already on October 28 2009 and January 12 2011, the Commission adopted respective negative decisions, which included the recovery of the aid granted to the beneficiaries in relation to acquisitions of subsidiaries resident in the EU (first decision) and outside the EU (second decision). However, in both cases, the Commission decided to limit the temporal scope of the recovery obligation because of the existence of legitimate expectations, mainly covering transactions performed before the publication of the decision initiating the investigation procedure (December 21 2007). The effects of both decisions were incorporated (retroactively) into the CIT Law.

Against this backdrop, the new decision initiating the formal investigation procedure questions the application of article 12 (5) to indirect acquisitions of subsidiaries (inside and outside the EU), on the grounds that an alleged change in the administrative position on this matter entails a change in the scheme already analysed and declared as aid (and, therefore, a new aid). This is because of the fact that, in the course of the procedure for recovering the above-mentioned illegal aid, the Commission acknowledged that the Spanish authorities had changed their interpretation of certain aspects of the application of the article in question (specifically, the possibility of applying the rule in the acquisition of holding entities in which the goodwill is found at the second or subsequent tier of operating subsidiaries – which the Commission calls "indirect acquisitions").

In the Commission's view, this change in interpretation entails an (un-notified) enlargement of the scope of application of a tax provision that had been declared illegal and incompatible aid, which would constitute new aid. Therefore, although the Commission recognises that the provisions of article 12 (5) of the CIT Law refer to both direct and indirect acquisitions, it also asserts that during the administrative procedure before the Commission, which ended with the adoption of the above-mentioned first and second decisions, the Spanish authorities had explained that in accordance with the administrative practice existing in Spain, this measure could only be applied to direct acquisitions. For this reason, the Commission considers that companies that have made indirect acquisitions of foreign holdings in the past can now, in certain circumstances, deduct the amortisation of financial goodwill which could not be deducted according to the former domestic administrative interpretation.

In addition, the Commission considers that, given that the new administrative practice did not form part of the scope of application of the measure when the first and second decisions were issued, it may not be possible to extend to the new aid the legitimate expectations that had been conferred with respect to the earlier aid.

Lastly, taking a highly unprecedented step, the Commission has issued a suspension injunction against the application of the alleged aid.

In our view, the initiation of this new procedure is surprising and paradoxical on several levels, since the change in the administrative position (which in no case alters a law that did not discriminate between direct and indirect acquisitions, nor defines its scope in a binding manner) was justified – among other technical reasons – on the grounds that the Commission's decisions expressly asserted that the rule was also applicable to indirect acquisitions. Furthermore, most of the taxpayers refused to follow the administrative position and (whether subsequently re-assessed or not) already applied the deduction on indirect acquisitions. Therefore, it is difficult to ascertain the new elements or possibilities pointed to by the Commission.

In addition, the argument that legitimate expectations only exist with respect to the transactions not questioned domestically by the Spanish authorities cannot be easily sustained, either. Leaving aside that the rule is the same, the legitimate expectations granted by the Commission in the first two decisions were based on the earlier public statements of the Commission itself – in the sense that the rule did not constitute aid- and not on what the Spanish authorities had communicated to the Commission, in the investigation procedure, regarding the application of the rule to direct or indirect acquisitions.

Be that as it may, the interested parties have a period of one month to submit their comments on the decision initiating the state aid procedure, a period which already started to run from the publication of the decision in the Official Journal on September 7.

Rafael Calvo ( and Salvador Pastoriza (

Garrigues Taxand

Tel: +34 91 514 52 00


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