# CJEU Upholds Recovery of Madeira Tax Aid > The CJEU confirms that Madeira tax benefits granted in breach of approval conditions must be recovered as unlawful State aid. Source: https://www.mtrlegal.com/en/cjeu-upholds-recovery-of-madeira-tax-aid/ · Language: en · Updated: 2026-10-30 --- The Europäische Gerichtshof (EuGH, Court of Justice of the European Union – CJEU) dismissed the appeal brought by several Brazilian companies in connection with tax benefits in the Madeira Free Trade Zone ([EuGH, judgment of 8 October 2026](https://eur-lex.europa.eu/./legal-content/AUTO/?uri=CELEX:62025CJ0173) – case no. C‑173/25 P). The Seventh Chamber thereby upheld the judgment of the Fifth Chamber of the Gericht der Europäischen Union (General Court of the European Union) of 18 December 2024 in case no. T‑716/22. In particular, the EuGH ruled on the statement of reasons for the Commission decision, the classification as [State aid](https://www.mtrlegal.com/wiki/beihilferecht/), the requirements governing existing aid, and the protection of legitimate expectations and legal certainty. ## Tax benefits in the Madeira Free Trade Zone The Madeira Free Trade Zone encompasses various tax benefits within the framework of the International Business Centre of Madeira, the Madeira International Shipping Register and the Industrial Free Trade Zone. The European Commission first approved the scheme in 1987 as regional aid compatible with the internal market. Subsequent decisions authorised its extension and later a second aid scheme. ### Approval of the third aid scheme On the basis of the Guidelines on national regional aid for the period from 2007 to 2013, the Commission approved a third scheme, known as Scheme III, on 27 June 2007. It was intended to apply from 1 January 2007 to 31 December 2013. The Commission classified the scheme as operating aid compatible with the internal market. It was intended to promote regional development and the diversification of Madeira’s economic structure as an outermost region within the meaning of Art. 349 AEUV (Treaty on the Functioning of the European Union – TFEU). Scheme III provided for the following benefits in particular: - Corporate income tax on profits from activities actually and materially carried out in Madeira was reduced to 3 per cent for the years 2007 to 2009, 4 per cent for the years 2010 to 2012 and 5 per cent for the years 2013 to 2020. - Certain municipal and local levies were exempt from collection. - An exemption from real estate transfer tax applied to the establishment of a company in the Free Trade Zone. - The maximum aid amounts were determined by ceilings on the taxable base. Those ceilings depended on the number of jobs maintained by the respective beneficiary during a financial year. Access to Scheme III was restricted to the activities listed in the Commission’s 2007 decision. Financial and insurance intermediation, related ancillary activities and intra-group services such as coordination, treasury and distribution services were excluded. ### Amendment and extension of the scheme By decision of 2 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. However, the ceilings on the taxable base to which the reduced corporate income tax rate applied were increased by 36.7 per cent. The Commission subsequently authorised an extension, initially until 30 June 2014 and thereafter until the end of 2014. ## Review by the European Commission On 12 March 2015, the Commission began monitoring Scheme III for the years 2012 and 2013. This was based on Art. 108(1) AEUV and the procedural rules on State aid applicable at the time. By letter of 6 July 2018, the Commission informed Portugal that it was opening the formal investigation procedure under Art. 108(2) AEUV. Its doubts concerned two key requirements: first, the granting of tax exemptions for income from activities actually and materially carried out in the Autonomous Region of Madeira and, second, the link between the amount of aid and the actual creation or maintenance of jobs in Madeira. ### Negative decision and recovery Following completion of the investigation procedure, the Commission adopted Decision (EU) 2022/1414 on 4 December 2020. According to that decision, Portugal had unlawfully implemented Scheme III in breach of Art. 108(3) AEUV insofar as its implementation departed from the 2007 and 2013 decisions. To that extent, the scheme was incompatible with the internal market. Portugal was required to recover the incompatible aid from the beneficiaries. In addition, the Member State was required to abolish the contested scheme to the extent identified and to suspend all outstanding payments from the date on which the decision was notified. Recovery was to be immediate and effective; the Commission set a period of eight months from notification for implementation. ## Action before the Gericht der Europäischen Union On 14 November 2022, several companies brought an action seeking annulment of Arts. 1 and 4 of the Commission decision. The Gericht dismissed the action by judgment of 18 December 2024. The applicants relied essentially on five pleas in law: - The Commission had breached its duty to state reasons. - The benefits granted to Portuguese holding companies, known as SGPS, had been incorrectly assessed as unlawful and incompatible with the internal market. - The corporate income tax reduction applied to SGPS had been incorrectly classified as State aid. - Portugal had not implemented Scheme III contrary to the 2007 and 2013 decisions. - The Commission decision infringed the principles of the protection of legitimate expectations and legal certainty, as well as the right to property. The Gericht did not accept those objections. In its assessment, the Commission decision made it sufficiently clear that the requirement to create or maintain jobs in Madeira applied to all undertakings registered in the Free Trade Zone and therefore also to SGPS. The Gericht considered the question of whether the applicant companies, as pure holding companies, constituted undertakings within the meaning of Art. 107(1) AEUV to be irrelevant to the lawfulness of the Commission decision. That question could potentially concern national recovery measures, but not the validity of the decision itself. ## Appeal to the Europäische Gerichtshof Notice of the appeal in case no. C‑173/25 P was published in the Official Journal of the European Union on 22 April 2025. The language of the proceedings was Portuguese. The appellants requested that the judgment of the Gericht be set aside and that the relief sought at first instance—annulment of Arts. 1 and 4 of the Commission decision due to an inadequate statement of reasons, or at least insofar as those provisions applied to SGPS—be granted. The Commission requested that the appeal be dismissed. The companies raised four grounds of appeal. They challenged the statement of reasons for the Commission decision, the classification of Scheme III as State aid with respect to SGPS, a distortion of the evidence concerning the alleged exemption from the job-creation requirement, and infringements of the principles of the protection of legitimate expectations, legal certainty and legality. ## Adequate statement of reasons for the Commission decision The EuGH dismissed the first ground of appeal as unfounded. Under Art. 296(2) AEUV, the statement of reasons for an EU act must be appropriate to the nature of the act and must disclose clearly and unequivocally the reasoning followed by the institution that adopted it. The parties concerned must be able to ascertain the reasons for the measure, while the competent court must be able to exercise its power of review. It is not necessary for all relevant factual and legal considerations to be expressly stated. Whether the statement of reasons is sufficient must be assessed not only by reference to its wording, but also to its context and the applicable rules. ### Job-creation requirement also applied to SGPS The EuGH upheld the assessment of the Gericht that the Commission had implicitly but necessarily proceeded on the basis that the requirement to create or maintain jobs in Madeira applied to all undertakings registered in the Free Trade Zone, including SGPS. Accordingly, the 2007 and 2013 decisions did not contain an exemption for those companies. The statement of reasons was sufficient to enable the appellants to understand the effects of the decision on SGPS. Since Scheme III, as actually implemented, had failed to comply with the job-creation requirement, it could to that extent be classified as new and unlawful aid. ## Status of the holding companies as undertakings By their second ground of appeal, the companies challenged their classification as undertakings within the meaning of Art. 107(1) AEUV. They argued that SGPS were pure holding companies under Portuguese law and were not permitted to engage in any economic activity. They merely held shareholdings and did not manage, control or direct other companies. The EuGH declared that ground of appeal inadmissible. Insofar as the arguments concerned Portuguese law, the Court of Justice could only review on appeal whether the Gericht had distorted that national law. However, the appellants were in substance seeking a fresh examination of the national provisions without alleging any such distortion. ## No approved exemption from the job-creation requirement The third ground of appeal concerned whether Portugal had validly notified an exemption for SGPS from the obligation to create or maintain jobs. The appellants considered the contrary assessment by the Gericht to be legally erroneous and regarded it as a distortion of the evidence. ### Notification of the scheme in 2006 The Gericht had found that SGPS provided services relating to the management of shareholdings in other companies. In its assessment, these could be regarded as other services not excluded from Scheme III. The EuGH found no manifest distortion of the documents before the Court. In particular, the appellants had not identified any evidence demonstrating the alleged statutory restrictions on the activities of SGPS. It had therefore not been established that those companies were unable to provide services within the meaning of the notified scheme. The reference to allegedly identical treatment of SGPS under the preceding Scheme II was likewise unsuccessful. The companies had not demonstrated that, when notifying Scheme II in 2002, Portugal had already validly communicated a corresponding exemption from the job-creation requirement. Similar treatment under both schemes therefore did not release Portugal from its duty of sincere cooperation when notifying Scheme III. ### Significance of Portugal’s 2013 letter The appellants further argued that the Gericht had misinterpreted Portugal’s letter of 30 April 2013 and the preceding correspondence with the Commission. In their view, the commitments contained therein related solely to a subsequent aid scheme. By contrast, the EuGH upheld the interpretation adopted by the Gericht. In the letter, Portugal had accepted that the aid granted to SGPS would be made subject to the ceilings laid down in the relevant regulatory framework. Those ceilings depended on the number of jobs maintained by a beneficiary in each tax year. The fact that the letter also contained commitments for the period from 2014 onwards did not alter that conclusion. It also concerned the acknowledgement that aid for SGPS was subject to the requirements of Scheme III and, in particular, the applicable ceilings. The Gericht had therefore manifestly distorted neither the content of the letter nor the correspondence or recital 19 of the 2013 decision. Insofar as the appellants sought a fresh assessment of the facts, their arguments were inadmissible. In any event, they were unfounded. The third ground of appeal therefore failed partly on grounds of inadmissibility and partly on the merits. ## Legitimate expectations, legal certainty and property By their fourth ground of appeal, the companies invoked the protection of legitimate expectations, legal certainty and the principle of legality. They argued that the tax benefits had already been regarded as compatible with the internal market in 2002, 2007 and 2013. They also asserted that the Commission had failed to intervene over a long period. The EuGH considered those arguments to amount, in essence, to a request for a fresh assessment of facts already examined by the Gericht. The appellants did not allege that those facts had been distorted. That part of the ground of appeal was therefore inadmissible. The submissions concerning the protection of property likewise failed to satisfy the requirements governing an appeal. The companies had merely put forward general considerations without identifying a specific error of law in the judgment under appeal. The EuGH therefore declared the fourth ground of appeal inadmissible in its entirety. ## Appeal dismissed in its entirety Since none of the four grounds of appeal was successful, the EuGH 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 makes clear that an approved aid scheme must be implemented within the conditions laid down by the Commission. If a requirement intended to ensure compatibility with the internal market is not met in the scheme’s actual implementation, the benefits concerned may be treated as new aid that was unlawfully implemented and is incompatible with the internal market. An exemption that has not been validly notified does not become part of the approval merely because national authorities assume it to be applicable. ## Significance for tax law matters The classification of tax benefits as State aid can have significant consequences for companies and investors, particularly where recovery is under consideration or the scope of an approval decision must be determined. For questions concerning the tax implications of EU State aid decisions, MTR Legal provides individual [tax law advice](https://www.mtrlegal.com/rechtsberatung/steuerrecht/).