The European Commission on Wednesday required Spain to recover some tax breaks that buyers of Spanish-made ships had enjoyed, although only tax benefits offered between May 2007 and 2011 need to be repaid.
The EC, the European Union's executive arm, said state subsidies provided to so-called economic interest groupings, or EIGs, and their investors between the start of the scheme in 2002 and April 30, 2007, when the Commission "publicly declared a similar French scheme incompatible," did not need to be paid back.
That is because until that time there was legal uncertainty as to whether the Spanish scheme was compatible with the rules of the 28-member bloc, EU Competition Commissioner Joaquin Almunia said.
The decision was more favorable for Spain's shipbuilding industry than initially feared because Almunia had earlier hinted that tax breaks received between 2005 and 2011 would need to be repaid.
It is up to the Spanish government to determine which companies must pay back tax benefits, how to proceed to recover the funds and the amount to be reimbursed, Almunia said.
In describing the complex scheme, the EC said "the economic interest grouping acts on behalf of the maritime transport company purchasing the ship, acquires it on a financial leasing basis and pays it off in the three to five years after work starts on its construction."
The EIG "then benefits from taxation exclusively on the basis of tonnage, which is a special scheme applicable under the European rules to maritime transport companies," and eventually sells the ship to the transport company without paying capital gains tax.
The scheme enables the maritime transport company to acquire the ship "with a reduction ranging from 20 percent to 30 percent on the purchase price charged by the shipyard," the press release said.
According to the EC, the parties that benefited from the scheme - the EIGs and their investors - may not "pass on the repayment obligations to third parties (such as shipyards), even under existing contracts."
The EC launched its two-year investigation in response to complaints from shipbuilders in other EU member states.
Regarding the future of the shipbuilding sector in Spain, a country with an unemployment rate of 27 percent, Almunia issued a call for calm.
"As regards the future, there is a non-selective tax scheme which was approved by the Commission in November 2012 and which can be used, among other things, to finance the shipbuilding industry," he said.
This scheme is "fully compatible with the European rules and therefore provides investors with all the legal certainty they require." EFE