July 6, 2018 / 9:50 AM / 4 months ago

EU to probe Portuguese tax deal for island of Madeira

BRUSSELS/LISBON (Reuters) - The European Commission said on Friday it had opened an in-depth investigation into tax exemptions for companies on the Portuguese island of Madeira due to concerns the scheme benefitted firms that do not contribute to the region’s growth.

Critics, including European parliament members Ana Gomes of Portugal and Markus Ferber of Germany, have long claimed the regional aid programme converted Madeira into a tax haven for wealthy individuals and shady companies that have received billions of euros in tax benefits.

The Commission said it had “doubts that Portugal complied with its requirements” of making sure profits of companies benefitting from the scheme originated from Madeira-based activities and that they created and maintained jobs there.

It said in a statement it was assessing whether the benefits constituted illegal state aid.

“In particular, the Commission has concerns that tax exemptions granted by Portugal to companies established in the Madeira Free Zone are not in line with the Commission decisions and EU State aid rules,” said the Commission, which oversees competition in the European Union.

The Portuguese government reacted by saying the scheme, established in 1987 and approved by the Commission in 2007 and 2013, did benefit the island and the archipelago around it, and it was ready to provide all necessary clarifications.

Portugal set up the regional aid scheme to the so-called Madeira Free Zone to attract companies to the island by reducing corporate taxes and providing exemptions from other levies.

Brussels had specified from the very start that the Madeira Free Zone was not allowed to operate as an offshore tax haven.

Portugal’s foreign ministry said the scheme was important for the social and economic development of the region, noting it had passed all previous scrutiny after clarifications provided by the authorities.

“The Portuguese government reiterates its full readiness to clarify all doubts that the Commission may still have,” it said, noting the opening of the investigation “does not necessarily imply a negative decision”.

Reporting by Robert-Jan Bartunek and Andrei Khalip; Editing by Axel Bugge and Mark Potter

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