EU Green Light for Canary Islands Tax Incentives
The EU’s Economic and Financial Affairs Council (Ecofin) has approved a report from the Code of Conduct Group on Business Taxation, concluding its analysis of the special tax regimes applicable to the Canary Islands. The review ended positively for the Canary Islands Special Zone (ZEC) and other incentives under the Islands’ Economic and Fiscal Regime (REF). The group found there was either no evidence, or only a limited impact, of mobile activities and structures not aligned with substantial economic activity.
Substantial Economic Impact Confirmed
In practical terms, the use of these tax incentives is reflected in the production of goods and provision of services. To date, the schemes have led to the creation of more than 914 companies in the Islands, generating over 12,000 jobs and a turnover exceeding €3.4 billion. This contributes approximately 1-2% of the Canary Islands’ GDP, a figure that rises to around 5% when considering only the permitted activities covered by the regimes.
Distinction from State Aid Rules
It is important to note that the Code of Conduct Group’s analysis differs from a State aid assessment. The latter examines compatibility with European State aid and competition rules, while the Code of Conduct aims to prevent member states from engaging in aggressive tax competition that harms each other’s tax revenues and, ultimately, their welfare systems.
A Model Based on “Substance”
In this context, the Code of Conduct permits tax incentives provided they are not based on purely artificial structures with no employees or assets. Complying with European substance requirements not only allows the regime to continue but is seen as positive for the Canarian economy. “It makes perfect sense,” stated the president of the Canary Islands Special Zone supervisory body. “If what we want is to create real jobs in the Canaries, this can only be achieved through real, substantial activities, not through money that comes in and out without generating added value in employment and the local territory. We are very pleased that in Europe we are seen as an example of a legitimate tax regime in this sense.”
Early Adoption Proves Advantageous
He added, “I believe we were one of the first regimes in the world to be based on substance and the new international standards, which in the early years limited our competitiveness against more aggressive territories. But now that countries have become serious about limiting tax havens, our structure based on substance and control is making us grow more than ever.”
No post found!