The GC confirms Commission’s Decision on Preferential Tax Scheme in Zona Franca da Madeira
In Cases T-724/22 and T-725/22, Neottolemo v. Commission (Zona Franca da Madeira (ZFM)), the General Court (GC) has confirmed the Commission’s decision declaring a scheme in the special economic zone on the Portuguese island of Madeira as incompatible with the internal market (SA. 21259).
Several Member States have special economic zones in which companies enjoy preferential tax treatment. The first ZFM regime, approved by the Commission in 2007, provided state aid in the form of reduced corporate income tax, exemptions from municipal/local taxes, and transfer tax exemptions on property for businesses in Madeira’s ZFM. Aid amounts were based on local job creation and retention, with a cap on tax liabilities through progressive ceilings.
Regarding the ZFM Scheme III, the GC has found that it extended the preferential tax treatment also to the operations of companies outside the island and that the Portuguese authorities failed to ensure that the aid beneficiaries created a certain minimum number of local jobs, as required by regional aid rules.
In this judgment, the GC reaffirms once more that Member States’ direct taxation powers must align with EU State aid law even if the beneficiary companies operate outside the territory and use the zone solely for fiscal advantages.
Finally, the applicants contended that the decision improperly incentivised tax evasion. The court found this argument as unfounded, noting that the Commission’s decision effectively discouraged artificial registrations and upheld compliance with EU tax rules.
For more information, see the Judgment of the General Court.