Basque provinces Alava, Vizcaya and Guipúzcoa have "sufficient autonomy" to establish Corporation Tax and tax regulations different from the rest of Spain. That is the conclusion of the Juliane Kokott, advocate general at the EU's Court of Justice, who yesterday made her ruling on a question posed by the Higher Court of Justice Tribunal of the Basque Country. The German jurist thus gives her backing to the arguments deployed by the Basque authorities against the criticism of the Economic Agreement made by the European Commission and Spanish regions La Rioja and Castilla y León in the wake of the Basque "tax holidays".

What judges in the Basque Country wanted to know was if the 32.5 per cent Corporation Tax established for companies with headquarters in the three Basque provinces in 2005, as opposed to the 35 per cent in the rest of Spain, was to all effects "selective aid" and therefore illegal, a point of view upheld by neighbouring regions and the UGT trade union branch in La Rioja. Kokott has now concluded that the three Basque provinces fulfil the four conditions for tax autonomy already established in EU jurisprudence through sentences like the so-called Azores case in 2006, which accepted the possibility of a region setting a more advantageous tax rate.

In the legal text giving a public airing yesterday in Luxembourg, the advocate points out that no one, not the Basque court of justice or the two regions complaining of illegal aids, has called into question the fact that the Basque Country observes "institutional autonomy" requisite. As regards the second requirement, that central government does not have the ability to have a decisive influence in establishing tax regulations in the Basque Country, in Kokott's view it does not follow from the Constitution, the Statute of Autonomy or the Economic Agreement that "central government has the faculty to decide in the last instance." Furthermore, as included in the third criterion, the Basque Country has a wide margin for manoeuvre in defining a tax policy enabling to pursue its own economic policy goals.

With regard to the fourth condition, that a region that lowers a tax accepts the financial consequences of its decision with receiving compensation from central government, the advocate recognizes the difficulties inherent in deciding how far  "revenues from taxes in the three provinces and the modifications introduced by the new tax measures actually influence the final amount of economic transfers between the region and central government."

In other words, to what extent the Quota negotiated between the Basque regional government and central government in Madrid hides the kind of illegal aid that La Rioja and Castilla y León complained about. Kokott warns, however, that from the explanations received, the Quota "is the result of a political commitment" and not of the modification of "certain economic parameters" such as the amount of tax revenue harvested. She also says that if the Basque higher court of justice concludes that the modification of the tax revenues have not influenced the Quota, then "we have to say that the provinces in question have sufficient economic autonomy", which would effectively knock the heart out of the Brussels offensive against the Basque Economic Agreement.

Although there is no fixed period for the EU Court of Justice to pass judgement, cases usually take two years or so in the judicial process. The opinion of the advocate general is not binding but is followed by the judges at the European Court in the majority of cases.