Vestager opposes Madeira’s “special tax regime” given its low job creation rate

Madeira’s exclusive business centre has been under the radar of the EU for a while now, facing criticism regarding the special tax regime existing in that area. The EU is highly critical about the regime, saying it has no real return to the economy. Margrethe Vestager, the competition commissary for the EU, defends that “no special regimes should be created solely for tax release purposes”. 

In a conversation with the Portuguese newspaper Jornal de Negócios, Vestager said that she considers it to be fundamental “to establish special regimes in ultraperipheral areas that are in disadvantage and that a remote island is indeed a good example of a place which fits that profile”. However, Madeira should only use that regime to promote economic growth in the whole region.

That special tax system has to be used “for the right reasons, it must create jobs, and increase the economic activity in the region”, Vestager, who will be a candidate for Jean-Claude Junker’s position, noted.

“We approve this type of exclusive tax systems so that jobs are created; we make certain compromises and allow for some exceptions to be made exactly because it is harder to live and start a business in these regions”, the commissary added. However, she defended that these tax systems should be accompanied by monitoring mechanisms that ensure all rules are being followed.

“I believe it is perfectly natural that every now and then, we check whether the regime is being applied correctly” in Madeira. “We have to understand whether these companies are there to create more job opportunities in Madeira, as they were supposed to in the first place”, she also said, adding that she is working closely with the local national authorities to ensure that the rules are followed.

In a preliminary ruling, the European Commission decided that the “tax exemptions in Zona Franca da Madeira, given by the Portuguese state to the companies in the area of zona franca represented an illegal support“. That accusation is the result of the lack of job creation, something with which the government strongly disagrees.

To defend itself from this accusation, the Portuguese state alleged that, according to Vestager’s letter sent in July to the Minister of Foreign Affairs, Augusto Santos Silva, the main goal of the regime is job creation — and according to the newspaper Público, the state also alleged that not all of the workers need to be placed in the island.