The European Commission has criticised the tax exemptions granted by Portugal to companies established in the Madeira Free Zone (ZFM).
“It is illegal aid, which is not in line with the Community market”, the commission said.
According to the preliminary conclusions of an in-depth investigation into Portugal’s regional aid scheme, Brussels has doubts that “the company profits benefitting from the income tax reductions originated exclusively from activities carried out in Madeira” and “that the beneficiary companies actually created and maintained jobs in Madeira”.
Therefore, Brussels has asked Portugal to present, in a month’s time, “every document, bit of information and data required to assess the compliance of the aid/measure”.
The European Commissioner for Competition, Margrethe Vestager, has sent a notice to the Portuguese minister for foreign affairs, Augusto Santos Silva, asking for “a complete list of all the companies registered in ZFM from 2007 to 2014, which should include the aid amounts received per year” and prove the companies’ activities were carried out in Madeira and created jobs.
“Every illegal benefit should be retrieved from the companies”, she recalled.
In July 2018, Brussels opened an in-depth investigation to examine whether Portugal has applied the Madeira Free Zone regional aid scheme in conformity with the 2007 and 2013 Commission decisions approving it.
The Commission approved successive versions of the ZFM regional aid scheme under EU state aid rules on several occasions between 1987 and 2014.
EU state aid rules provide ample scope for Member States to support the economic development of outermost regions, such as Madeira, and to address the structural challenges of companies active in such regions.
Under the approved ZFM regional aid scheme, the amount of aid granted to companies through corporate income tax reductions or other tax reductions is linked to the number of jobs that they create in Madeira.