The Court of Justice of the European Union (CJEU) dismissed the appeal brought by several companies based in São Paulo in the dispute concerning tax advantages in the Madeira Free Zone (CJEU, judgment of 8 October 2026 – C‑173/25 P). The judgment of the General Court of the European Union dismissing the action against Articles 1 and 4 of European Commission Decision (EU) 2022/1414 therefore remains in force. The Commission stated on the day of the decision that it took note of the judgment, which confirmed its negative decision from 2020.
Tax Advantages in the Madeira Free Zone
The Madeira Free Zone scheme comprised various tax advantages relating to the Madeira International Business Centre, the Madeira International Shipping Register and the Industrial Free Zone.
The Commission first approved the scheme in 1987 as regional aid compatible with the internal market. Subsequent decisions authorised its extension. The Commission approved a later version, referred to as Scheme II, in December 2002.
Approval of Scheme III
On the basis of the Guidelines on National Regional Aid for 2007 to 2013, the Commission approved Scheme III in June 2007. It was intended to apply from 1 January 2007 to 31 December 2013. It was authorised as operating aid compatible with the internal market in order to promote regional development and the diversification of Madeira’s economic structure as an outermost region within the meaning of Article 349 of the Treaty on the Functioning of the European Union (TFEU).
The scheme provided for a reduced corporate income tax rate on profits from activities actually and materially carried out in Madeira. The tax rate was 3 per cent from 2007 to 2009, 4 per cent from 2010 to 2012 and 5 per cent from 2013 to 2020. It also provided exemptions from municipal and local taxes and from tax on the transfer of real estate when establishing a company in the Free Zone.
The maximum permissible amounts of aid were determined by caps on the annual tax base. Those caps depended on the number of jobs maintained by the respective beneficiary during the financial year concerned.
According to the Commission, the approved scheme was intended to support Madeira’s economic development by providing tax incentives to companies that created jobs in the region and actually and materially carried out activities there.
Restricted Range of Eligible Activities
Scheme III applied only to activities included in a list annexed to the Commission’s 2007 decision. The following activities, in particular, were excluded:
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Financial and insurance intermediation activities and related ancillary activities.
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Intra-group services, including coordination, financing and distribution centres.
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Other services provided predominantly to businesses, insofar as they fell within the specified exclusions.
In July 2013, the Commission approved an amended version of Scheme III for the period from 1 January to 31 December 2013. The existing conditions remained in place. Only the caps on the tax base to which the corporate income tax reduction could be applied were increased by 36.7 per cent.
Further Commission decisions initially extended the amended scheme until 30 June 2014 and subsequently until the end of 2014.
Commission Review and Negative Decision
In March 2015, the Commission began monitoring the application of Scheme III in 2012 and 2013. In July 2018, it informed Portugal that it had opened the formal investigation procedure under Article 108(2) TFEU.
The Commission had doubts as to whether the tax exemptions had been applied exclusively to income from activities actually and materially carried out in the Autonomous Region of Madeira. It also examined the link between the amount of aid and the creation or maintenance of actual jobs in Madeira.
Recovery Ordered
Following the conclusion of the investigation procedure, the Commission found in its decision of 4 December 2020 that Portugal had implemented Scheme III in breach of the 2007 and 2013 approval decisions to that extent. To that extent, the scheme had been unlawfully implemented in breach of Article 108(3) TFEU and was incompatible with the internal market.
Portugal was required to recover the incompatible aid from the beneficiaries. The Member State was also required to abolish the scheme to the extent identified and to suspend any outstanding payments from the date of notification of the decision. Recovery had to be immediate and effective; the Commission set a deadline of eight months from notification for implementation.
Action Before the General Court of the European Union
In November 2022, several companies brought an action for annulment of Articles 1 and 4 of the Commission decision. They relied essentially on five pleas in law:
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The Commission had failed to provide an adequate statement of reasons for its decision.
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It had incorrectly classified the advantages granted to Portuguese shareholding management companies, known as SGPS, as unlawful and incompatible with the internal market.
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The corporate income tax reduction benefiting SGPS had incorrectly been classified as State aid.
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The finding that Portugal had implemented Scheme III contrary to the 2007 and 2013 decisions was vitiated by an error of law.
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The decision infringed the principles of the protection of legitimate expectations and legal certainty and the right to property.
By judgment of 18 December 2024 in Case T‑716/22, the General Court of the European Union dismissed the action. The decision was delivered by the Fifth Chamber. Notice of the appeal subsequently lodged was published in the C series of the Official Journal on 22 April 2025.
Statement of Reasons for the Commission Decision
The General Court of the European Union found no infringement of the obligation to state reasons under Article 296(2) TFEU. The recitals of the Commission decision made it sufficiently clear that the condition requiring the creation or maintenance of jobs in Madeira was intended to apply to all companies registered in the Free Zone. In the General Court’s assessment, this also included SGPS.
Status of SGPS as Undertakings
The General Court of the European Union considered irrelevant to the outcome the argument that the SGPS concerned were pure holding companies under Portuguese law and therefore not undertakings within the meaning of Article 107(1) TFEU.
In the General Court’s view, even if individual beneficiaries were not to be classified as undertakings, this would not have affected the legality of the Commission decision. Instead, that issue would have to be taken into account in the national recovery measures concerning the respective recipients.
No Approved Exemption for SGPS
The General Court of the European Union also found that no exemption from the employment-related condition had been validly notified. It could therefore not be regarded as having been approved by the 2007 decision.
Aid granted to SGPS without compliance with that condition could therefore not be regarded as existing aid within the meaning of Article 1(b)(ii) of Regulation (EU) 2015/1589. The General Court reached the same conclusion with regard to the 2013 approval.
In doing so, it took into account a statement made by Portugal on 30 April 2013. According to that statement, Portugal had accepted that aid paid to SGPS would be subject to the applicable caps. Those caps were determined by the number of jobs maintained during the respective tax year.
Legitimate Expectations and Legal Certainty
The General Court of the European Union found no infringement of either the principle of the protection of legitimate expectations or the principle of legal certainty. Recovery was the logical and proportionate consequence, consistent with Articles 107 and 108 TFEU, of the finding that the aid was unlawful and incompatible with the internal market.
Four Grounds of Appeal Before the CJEU
By their appeal, several companies sought to have the judgment of the General Court of the European Union set aside.
They also sought annulment of Articles 1 and 4 of the Commission decision on the grounds of an inadequate statement of reasons or, in any event, insofar as those provisions were applied to SGPS. The Commission contended that the appeal should be dismissed.
First Ground of Appeal: Obligation to State Reasons
The appellants argued that the General Court of the European Union had incorrectly held that the statement of reasons for the Commission decision was sufficient. The Commission had not expressly explained why the tax treatment applicable to SGPS constituted new aid that had been unlawfully implemented and was incompatible with the internal market.
The CJEU rejected that argument. The statement of reasons required under Article 296 TFEU had to disclose clearly and unequivocally the reasoning of the institution that adopted the measure. It had to enable the parties concerned to understand the reasons for the measure and allow the court having jurisdiction to exercise its power of review. However, it was not necessary to specify all relevant matters of fact and law expressly.
According to the CJEU, the General Court of the European Union was entitled to find that the Commission had implicitly but necessarily concluded that the employment-related condition applied to all companies registered in the Free Zone and therefore also to SGPS. The statement of reasons was sufficient to identify the effects of the decision on those companies. The first ground of appeal was therefore unfounded.
Second Ground of Appeal: Classification as State Aid
By their second ground of appeal, the companies challenged the finding that Scheme III, as applied to SGPS, could constitute State aid. They argued that, under the Portuguese regulatory framework applicable to them, SGPS were pure holding companies and were not permitted to carry on any economic activity.
The CJEU clarified that, in appeal proceedings, its review of the General Court’s assessment of national law was, in principle, limited to determining whether that law had been distorted. However, the appellants had not alleged any such distortion but had instead requested a fresh assessment of the Portuguese provisions. The second ground of appeal was therefore inadmissible.
Third Ground of Appeal: Notification of an Exemption
The third ground of appeal consisted of two parts. First, the appellants challenged the finding that, in 2006, Portugal had not validly notified an exemption for SGPS from the condition requiring the creation or maintenance of jobs. Second, they challenged the assessment of the 2013 approval decision and the correspondence between Portugal and the Commission.
The CJEU found no manifest distortion of the evidence. The General Court of the European Union had not exceeded the bounds of a reasonable assessment when it regarded the management of shareholdings in other companies as a service capable of falling within the notified scheme.
Furthermore, the appellants had not demonstrated, by reference to specific evidence, that statutory restrictions prevented SGPS from providing services in the relevant sense. The reference to allegedly identical treatment under the earlier Scheme II was likewise insufficient. It had not been established that Portugal had already validly notified a corresponding exemption when notifying that earlier scheme.
With regard to the 2013 decision, the CJEU also upheld the assessment of the General Court of the European Union. Portugal’s letter of 30 April 2013 also contained its agreement that aid granted to SGPS would be subject to the caps under Scheme III. Those caps depended on the number of jobs maintained.
Insofar as the appellants sought a fresh assessment of the facts, their arguments were inadmissible. In all other respects, the ground of appeal was unfounded.
Fourth Ground of Appeal: Legitimate Expectations, Legal Certainty and Legality
Finally, the appellants relied on the protection of legitimate expectations, legal certainty and the principle of legality. They argued, among other things, that the tax treatment of SGPS had already been approved in previous years. They also claimed that the Commission had failed to act for a long period.
The CJEU regarded the arguments concerning legitimate expectations and legal certainty as, in essence, a request for a fresh assessment of the facts by the General Court of the European Union. However, the appellants had not alleged that those facts had been distorted. That part of the ground of appeal was therefore inadmissible.
The arguments concerning the protection of property and the principle of legality likewise failed to satisfy the requirements for sufficiently specific grounds of appeal. According to the CJEU, the companies confined themselves to general submissions without identifying a specific error of law in the judgment under appeal. The fourth ground of appeal was therefore dismissed in its entirety as inadmissible.
Appeal Dismissed in Its Entirety
As none of the four grounds of appeal was successful, the CJEU dismissed the appeal in its entirety. In addition to bearing their own costs, the six appellants must pay the costs incurred by the European Commission.
The decision therefore confirms the assessment that the aid granted to SGPS could not be treated as existing aid insofar as it had been granted without compliance with the condition requiring the creation or maintenance of jobs in the Autonomous Region of Madeira. The recovery order contained in the Commission decision remains in force.
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