The European Union has rejected a formal complaint from the Irish Congress of Trade Unions (Ictu) about the Government's decision to retain and expand the Business Expansion Scheme.

Minister for Finance Brian Cowen announced plans in the Budget to extend the scheme, used mainly by small companies to raise investment.

But Ictu complained to the European Commission, alleging that the scheme constituted illegal State aid as investors get tax breaks for putting their cash into scheme funds. It said it was used by wealthy people as a "shield" against paying tax.

Paul Sweeney, Ictu's economic adviser, said he was not surprised that the EU had upheld the scheme, but was disappointed it had taken such a short amount of time to deal with Ictu's formal request. However, he said Ictu's move had been successful in drawing attention to the scheme.

"Congress is happy that it raised the issue of spending up to €200 million of taxpayers' euro in tax, forgone without any economic evaluation whatsoever. We will continue to press Government that such expenditure is evaluated to ensure that we get value for money," he said.

Mr Sweeney said Ictu would highlight what it regarded as tax shelters unless the Government could prove they generated more in economic activity and employment than what was being given to investors in tax breaks.

Ictu's decision to lodge its complaint with the EU last December was greeted then with "utter disbelief" by Minister for Enterprise, Trade and Employment Micheál Martin. A spokesman for the Minister said yesterday that he would not comment specifically on the outcome of the case.

"The Minister has always made clear that his sole aim is to support small and medium-sized businesses, which employ 800,000 people," he said. "The measures which the Minister has put forward have been well received by small companies, a fact underlined by the announcement of 1,260 new jobs by 76 start-up companies this week."