By Paul Day and Foo Yun Chee
MADRID/BRUSSELS (Reuters) - European Union regulators will close an investigation into the way Spanish banks use tax credits after Spanish authorities announced changes to head off concerns that the tool may break state aid rules, an EU official said on Monday.
Spain said earlier it would change the way that Deferred Tax Assets (DTAs), an instrument that grants tax breaks to companies when reporting losses or against certain provisions, are taxed.
The changes would be in place as of next year, and would mean Spanish banks, the main beneficiaries of DTAs, make a retroactive payment of 1.5 percent against the tax breaks granted due to these instruments, it said.
The reform was agreed on jointly by the European Commission, the Bank of Spain and the treasury and economy ministries, the Economy Ministry said in a statement.
The change to the law will allow the European Commission to drop an investigation of Spanish banks' use of tax credits.
"We will no longer look into this measure, as long as the Spanish authorities implement the changes as announced. It addresses our concerns sufficiently," the EU official said.
The European Commission said in April that EU regulators were scrutinising the treatment of banks' DTAs by four EU countries, including Spain, to see if they constituted potentially illegal state aid.
The other countries the Commission was looking at were Italy, Portugal and Greece.
Some Spanish banks outperformed on the country's leading stock market on Monday at 1020 GMT, with Caixabank up 0.7 percent and Banco Sabadell rising 1.1 percent, while the IBEX was down 0.1 percent. Santander (MADRID:SAN) and BBVA (MADRID:BBVA) underperformed, dropping 0.6 percent and 0.95 percent respectively.