Daewoo Electronics Manufacturing SA (DEMESA) would have received aid in the form of investment subsidies and too important tax exemptions. Therefore in June 1996, three manufacturer's associations filed a complaint against DESEMA.

In December 1997, the European Commission opened the procedure by decision notified to Spain.

According to the European Commission, the three following aids are incompatible with the common market and have to be recovered:

  • the occupation of a site during nine months without economic counterpart
  • the acquisition of a land at a price below the market price
  • the excess in 5% of 20% of the costs eligible under the EKIMEN scheme.

The two tax benefits are also incompatible and have to be withdrawn. These benefits are about the fiscal credit granted by the Provincial Government of Alava corresponding to 45% of the cost of the investment and a reduction of the tax base. These constitute State aid by reason of their selective nature and from the fact that they are not justified by the nature or general scheme of the system.

The European Commission decided that only the investment aid (20% of the eligible costs) was compatible with the common market. Its service was of the opinion that this aid was in conformity with the EKIMEN regional aid scheme in view of the difficult situation of the refrigerators and freezers market.

In the present case, the European Commission took this decision but by no means called into question the taxation powers of the three Basque Provincial Governments. Moreover, the position of the European Court of Justice on a pending prejudicial ruling requested by the Basque Country Superior Court is not prejudged.

This article is based and incorporates information provided by the European Commission (press releases) and is intended for general information. Specialist advice should be sought before acting on it.