EU Probes Spain for Subsidizing Corporate Buys

Spanish companies may be getting illegal tax breaks that provide an advantage in making acquisitions.
Stephen TaubOctober 10, 2007

The European Union is investigating reports that the Spanish government is giving Spanish companies an unfair advantage by offering tax breaks to subsidize their acquisitions of foreign companies, the Associated Press reported.

A number of specific deals were cited in the AP report, including Telefonica SA’s purchase of shares in British mobile phone company O2 and Iberdrola SA’s acquisition of Scottish Power. The EU also reportedly heard complaints that tax breaks helped three companies, Sacyr, Albertis, and Cintra, bid for highway concessions in France.

“Many believe this scheme gives an advantage to Spanish companies buying foreign companies,” said EU competition commissioner Neelie Kroes, according to the AP. “Opening this investigation will let us find out whether these concerns are justified.”

If the EU determines that the tax breaks are an illegal state subsidy, it can order Spain to require an additional payment from the companies that benefited, the wire service noted.

According to the report, Spain began granting the tax breaks in 2002. They permit a Spanish company to write off part of the cost of buying more than 5 percent of a foreign company for 20 years after the purchase.

Meanwhile, in a separate report, the EU said it will investigate whether the Romanian government undersold a car plant to Ford Motor Co. and offered to write off the factory’s debts in exchange for Ford’s promise to retain workers and produce a specific number of cars. If the EU finds that Ford will benefit from a debt write-off not offered to other would-be bidders, it could halt that part of the deal.

Already, the EU has ordered Romania to immediately stop providing state subsidies to the factory until it finishes its investigation into how the government privatized the plant when the previous owner, South Korea’s Daewoo Motor Co., went bankrupt in 2000.

The AP noted that EU rules prevent governments from using public money to favor one company over its competitors.