Spanish ‘Tax Lease’: new judgment reopens litigation in the European courts

The Court of Justice of the European Union (CJEU) rendered, on July 25, 2018, a judgment on the European Commission's appeal regarding the so called former “Spanish tax lease” (STL) system. Note that we are not discussing the current “tax lease” system (approved by Law 16/2012 adopting various tax measures), but the former tax lease system that had already been repealed.  

This CJEU judgment has quashed the earlier judgment by the General Court of the European Union  (GCEU ) of December 17, 2015, which itself had set aside the Commission decision of July 17, 2013, on this matter.

You are reminded that the interpretation in the GCEU judgment appealed in 2015 had been that the EC decision only identified the “investors” as beneficiaries, but, however, had not proved that the government’s prior authorization under the STL system was selective favoring the investors. Besides, any investor could participate in the STL system, so, according to the Autogrill case law then in force, it could not be held selective. According to the GCEU the decision had not been founded on the effects on intra-Community trade or competition either. For that reason, the GCEU had set the EC decision aside.    

The CJEU judgment contains very different reasoning, however. According to the CJEU, in the EC decision, the Economic Interest Groupings (EIGs) were not just vehicles that channeled aid to the investors, but were also direct beneficiaries of the aid themselves. 

For that reason, the judgment needs to review on appeal the role that the GCEU judgment attributed to the EIGs. The CJEU held that they carry on a specific economic activity (acquisition of vessels through lease contracts, bareboat chartering and resale of vessels), and therefore could be regarded as “undertakings” and, insofar as they had initially benefited from an advantage, they could be regarded as its beneficiaries, no matter whether they had later transferred it to their investor members through the tax transparency mechanism.

Similarly, according to the CJEU, the fact that the STL system was freely available to all investors -because any investor could decide to carry out transactions of this type and invest in an EIG - did not mean that it could not be selective. Again, the GCEU based its arguments on the flawed premise that the selectivity of the STL system had to be proved with regard to the investors, not with regard to the EIGs. Besides, that reasoning had been used by the GCEU in this case to rule out selectivity on the basis of the Autogrill judgment, but the CJEU has already set aside this latter judgment, which in its opinion made it necessary to set aside this judgment also. According to the CJEU, a specific category of beneficiaries does not need to be identified to find that selectivity exists, instead it only needs to be proved that the examined tax mechanisms afforded different treatment among operators that were in comparable legal and factual situations in light of the objective of the tax regime.

The conclusion in the CJEU judgment is to (i) set aside/quash the 2015 GCEU judgment and (ii) refer the matters back to the latter court for it to analyze the sufficiency of the previous proof (comparability of the situations of the beneficiaries and other entities that did not have access to the STL system)  and examine the grounds for setting aside submitted by Spain and other appellants that were not analyzed at the time and are therefore not necessarily adversely affected by the CJEU judgment. 

Therefore, the CJEU judgment has by no means ended the lawsuit, because there will necessarily have to be new judgments by the GCEU which could set aside the EC decision again for other different reasons.

Now that the GCEU judgment has been set aside, however, the 2013 EC decision on the tax lease will automatically come back into force. This could predictably set back in motion the national proceedings by the Spanish Tax Agency and the Economic-Administrative Tribunals before which some of these proceedings had arrived (and were interrupted in 2015 as a result of the original setting aside of the EC decision).