EU: CJEU rejects appeal from General Court decision that Madeira Free Zone scheme not implemented in line with approved conditions (Portugal)

The Court of Justice of the European Union (CJEU) on November 13, 2025, rejected an appeal (Case C-808/23) from a General Court decision upholding a determination by the European Commission (EC) that the Madeira Free Zone State aid scheme was not implemented in line with approved conditions.

Summary

The Madeira Free Zone scheme, which provides corporate income tax reductions and other tax benefits for companies established in the region, was initially approved by the EC in 1987 as compatible regional aid. The scheme was subject to several successive amendments and approvals by the EC. The final version of the scheme (Regime III) was authorized by the EC through two decisions which covered the period January 1, 2007, through December 31, 2014. The approvals explicitly linked the amount of aid granted to jobs created or maintained in the region and to activities carried out locally.

Following concerns triggered during its standard monitoring of the implementation of State aid decisions, the EC in 2020 concluded that Regime III was not implemented in line with approved conditions. In particular, the EC found that the tax benefits were granted with respect to income that was not derived from activities carried out in the Autonomous Region of Madeira and to companies that did not create or maintain jobs in the region. The EC required Portugal to recover aid granted to companies that did not meet the approved conditions. Portugal and several Portuguese companies appealed the EC’s decision to the General Court (case T-95/21 and case T-721/22, respectively) which decided that the EC was correct to conclude that Regime III was not implemented in line with approved conditions and dismissed the appeal.

One of the Portuguese companies appealed the General Court decision to the CJEU, arguing that the General Court erred in law by concluding that the “job creation” criterion was not met. The company also argued that the EC's decision infringed on the principles of legal certainty and legitimate expectations.

The CJEU held that the General Court had not distorted the facts in finding that the EC did not require Portugal to apply the full-time equivalent (FTE) or work-units-per-year (WU/Y) methodologies when assessing the job-creation criterion. Rather, the EC had merely indicated that Portugal’s chosen methodology was insufficient to verify the existence and permanence of the declared jobs, while referring to FTE and WU/Y as possible, but not mandatory, alternatives. The CJEU emphasized that many of the company’s arguments targeted the General Court’s factual assessments, and such matters fall outside the CJEU’s jurisdiction on appeal. With respect to the second ground of appeal, the CJEU upheld the General Court’s conclusion that the company had not demonstrated the existence of any precise, unconditional, and consistent assurances from the EC capable of giving rise to “legitimate expectations,” particularly in circumstances where the aid was granted in breach of EU law.

Read a December 2025 report prepared by KPMG’s EU Tax Centre