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State Aid

PR(10)19: EFTA Surveillance Authority requires abolition of favourable tax treatment of captive insurance companies in Liechtenstein


The EFTA Surveillance Authority decided today that tax exemptions applicable to captive insurance companies in Liechtenstein are unlawful state aid measures incompatible with the EEA Agreement. The Authority concluded a formal investigation into the measures by ordering that unlawful state aid granted to the companies since 2001 through their reduced tax liabilities must be re-paid to the Liechtenstein Government.

Captive insurance companies are subsidiary companies formed to insure or reinsure the risks of their parent or associated group companies. They are usually formed to provide alternative risk management solutions to the conventional insurance market, and are often located apart from their parent and other group companies in a low tax jurisdiction. The Liechtenstein Tax Act exempts captive insurance companies from payment of corporate income and coupon tax, and provides that they pay only half of the rate of capital tax applicable to other companies.

The Authority concluded that such favourable treatment provided the companies with an advantage that is unavailable to other companies in a similar position.

In July 2002, in one of a succession of fiscal aid investigations, the European Commission disallowed similar tax measures applicable to captive insurance companies in Åland, Finland. Given the Commission's approach to such cases and in order to ensure consistency across the European Economic Area, the Authority has accepted that, in light of uncertainty concerning taxation of intra-group activities in that period, beneficiaries in Liechtenstein may have had legitimate expectations that the aid was lawful when the measures were introduced in January 1998. The Authority also concludes, however, that by the time of publication of the Commission's decision to open a formal investigation into the Finnish captive insurance tax measures on 6 November 2001, at the latest, it should have been clear that the tax exemptions may involve incompatible state aid. It has therefore ordered that all aid paid from that date onwards must be recovered.

For further information, please contact:

Maria Segura Catalán

Deputy Director
Competition & State Aid
Tel. (+32)(0)2 286 18 53

Dylan Hughes

Competition & State Aid
Tel. (+32)(0)2 286 18 80

Bjørnar Alterskjær

Deputy Director
Legal & Executive Affairs
Tel. (+32)(0)2 286 18 98

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