THE TRADITIONAL «FORAL» SYSTEM OF THE ECONOMIC AGREEMENT OR CONVENTIONS, THE PROHIBITION OF STATE AID AND THE FREEDOM OF ESTABLISHMENT: CJCE JUDGEMENT OF 11th SEPTEMBER 2008 AND BACKGROUND

Abstract

ABSTRACT: Practically from the moment Spain joined the European Community, discussions have been ongoing on the compatibility between the traditional Economic Agreement in force in the Basque Country and community regulations, from the perspective of State aid and freedom of establishment. The Commission, in a Decision announced in 1993, considered that the «foral» fiscal incentives in 1988 were State aid and violated freedom of establishment, although, in relation to later regional regulations, it has abandoned the regional selectivity criteria and has analysed the said regulations strictly from a sector selectivity perspective. The spanish Supreme Court, on the other hand, considered, in 2004, that the regional tax regulations that established a lower rate than that applied in other regions was State aid, cancelling them insofar that the Commission had not been notified. The recent sentence by the Court of Justice dated 11th September 2008 confirms, however, that when institutional autonomy, procedural autonomy and financial or economic autonomy exists, as is the case of the Basque Departments, the existence or not of territorial selectivity must be seen in the light of the geographical scope of the said Departments. This does not exclude the possible violation of freedom of establishment if non-residents are subject to higher rates due to the application of the State’s tax regulations, although, paradoxically, this problem arises in relation to autonomous regions where the common regime is in force and not those affected by «foral» regimes.