End of the Madeira Tax Free Zone?

European Commission moves on Zona Franca

Press agency Lusa report that the tax exemptions granted by the Portuguese authorities to companies in the Madeira Free Zone (ZFM) constitute “illegal aid that can not be considered compatible with the internal market”, the European Commission said in a preliminary decision published today.
In the preliminary ruling on the in-depth investigation into the tax exemptions granted by the Portuguese authorities to companies in the ZFM, Brussels concludes “preliminarily that the scheme implemented by Portugal constitutes unlawful aid which can not be considered compatible with the internal market”.

“Serious doubts”

In particular, the European Commission has “serious doubts” about the application of “tax exemptions on income from activities actually and physically carried out in the region” and “linking the amount of aid to the creation and maintenance of effective jobs in Madeira” .
The EU executive has therefore asked Portugal to submit, within one month of receipt of the letter, signed by the European Commissioner for Competition, Margrethe Vestager, and addressed to the Minister of Foreign Affairs, Augusto Santos Silva, “all documents , information and data necessary to assess the compatibility of the aid / measure “.
This information includes “a complete list of all companies registered in ZFM for each year of the scheme, ie between 2007 and 2014, indicating the amounts of aid received each year”, as well as proof of origin of the income and the actual place of activity of the employees of the beneficiaries, and all “arguments that were not presented previously regarding the conditions of compatibility of the regime implemented by Portugal”.

Illegal aid to be recovered

“If not, the Commission will adopt a decision on the basis of the information available to it”, recalls the letter, in which Brussels reminds Portugal that “any illegal aid considered to be incompatible must be recovered from the beneficiary”.
On 6 July the European Commission announced that it had initiated an in-depth investigation into the tax exemptions granted by the Portuguese authorities to companies in the Madeira Free Trade Zone (ZFM), on the grounds that they were not in compliance with the State aid rules.
Brussels stated that “in monitoring the implementation of State aid decisions, the Commission carried out a preliminary assessment of the way in which Portugal applied the aid scheme to ZFM until its expiry at the end of 2014″ and ” has doubts as to whether the Portuguese authorities have complied with some of the basic conditions under which the scheme was approved by the 2007 and 2013 Decisions “, which is why it initiated an in-depth investigation.
The Commission stated that it had doubts as to whether Portugal had fulfilled two conditions: whether the profits of companies benefiting from income tax reductions were obtained exclusively from activities carried out in Madeira and whether the beneficiary companies effectively generated and maintained jobs in Madeira

5 thoughts on “End of the Madeira Tax Free Zone?”

  1. Bully boy tactics from the EU. What about Ireland and Luxembourg that are tax havens for the large US corporate giants? I suppose Portugal is regarded as an easy target and my advice is to tell them to ……………….

  2. In the article and EU statements the EU appears to be questioning whether the aid is being abused with benefits not accrewing to Maderians as whole. If not it seems fair ro all taxpayers that their taxes are not given away without a benefit obligation being met.

  3. It is the reasonableness of the demand for a lot of detailed information dating back to 2007 (12 years ago) to be produced within 1 month. I was not suggesting that the EU was wrong to ask for paperwork to show that the scheme was compliant, but to impose such a short timescale for submission shows why so many people now view the EU with contempt. Old records are often difficult to retrieve and it takes time to compile them in some order and it is not uncommon for old documents to be lost and with there will inevitably have been changes in staff over the past 12 years. That is why I suggested that this look like a bad case of bullying. I was not suggesting that if it can be shown that the scheme has been abused no action should be taken. It is just the way the EU is of going about that I find distasteful.

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