An investigation into Spanish tax breaks that cut costs for Spanish companies when buying shares in foreign businesses was opened by the E.U. regulators Wednesday.
They said they had received complaints that the tax breaks encouraged Telefonica SA to purchase shares in British mobile phone company O2, Spanish energy company Iberdrola SA to buy up Scottish Power and helped Sacyr, Albertis and Cintra bid for highway concessions in France.
"Many believe this scheme gives an advantage to Spanish companies buying foreign companies," said EU Competition Commissioner Neelie Kroes. "Opening this investigation will let us find out whether these concerns are justified."
If the EU finds that the tax breaks are an illegal state subsidy, it can order Spain to demand payment from the companies that benefited from it.
The European Commission said it has received complaints from unnamed rivals and questions from EU lawmakers alleging that the program was unlawful because it gave Spain-based businesses "selective advantages" to buy abroad instead of taking over rivals at home.
It could also encourage holding companies to set up in Spain, it said.
The tax deductions date back to 2002 and allow a Spanish company to set off against tax part of the cost of buying more than 5 percent of a foreign company for the first 20 years after the purchase. A company can deduct the difference between the real cost of buying the shares and the market value of the target's underlying assets.