CELEX: 62004TJ0222
State aid
Scheme of aid granted by the Italian authorities to certain public utilities in the form of tax exemptions and loans at preferential rates
Decision declaring the aid incompatible with the common market
Existing aid or new aid
Article 86(2) EC

Background to the dispute
1.
National legal context
Legge n. 142 ordinamento delle autonomie locali (Law No 142 on the organisation of local authorities of 8 June 1990, GURI No 135 of ) (‘Law No 142/90’) brought about a reform in Italy of the legal arrangements available to municipalities for the management of public services, in particular in the water, gas and electricity distribution sectors and in the transport sector. Under Article 22 of that law, as amended, municipalities can set up companies in a variety of legal forms to provide public services. Those include joint stock companies and limited liability companies with a majority public shareholding (‘companies set up under Law No 142/90’).
In that context, under Article 9a of legge n. 488 di conversione in legge, con modificazioni, del decreto legge 1
o
luglio 1986, n. 318, recante provvedimenti urgenti per la finanza locale (Law No 488 of converting and amending Decree-Law No 318 of and introducing urgent provisions for financing local authorities, GURI No 190 of ), loans were granted between 1994 and 1998 at a preferential rate of interest by the Cassa Depositi e Prestiti (‘the CDDPP’) to companies set up under Law No 142/90 providing public services (‘the CDDPP loans’).
Moreover, under Article 3(69) and (70) of legge n. 549 (su) misure di razionalizzazione della finanza pubblica (Law No 549 on measures to rationalise public finances of 28 December 1995, Ordinary Supplement to GURI No 302 of ) (‘Law No 549/95’), in conjunction with decreto legge n. 331 (su) armonizzazione delle disposizioni in materia di imposte sugli oli minerali, sull’alcole, sulle bevande alcoliche, sui tabacchi lavorati e in materia di IVA con quelle recate da direttive CEE e modificazioni conseguenti a detta armonizzazione, nonché disposizioni concernenti la disciplina dei centri autorizzati di assistenza fiscale, le procedure dei rimborsi di imposta, l’esclusione dall’ILOR dei redditi di impresa fino all’ammontare corrispondente al contributo diretto lavorativo, l’istituzione per il 1993 di un’imposta erariale straordinaria su taluni beni ed altre disposizioni tributarie (Decree-Law No 331 harmonising tax provisions in various fields of , GURI No 203 of ) (‘Decree-Law No 331/93’), the following measures were introduced for the benefit of companies set up under Law No 142/90:
—
exemption from all transfer taxes in connection with the conversion of special and municipal undertakings into companies set up under Law No 142/90 (‘the transfer tax exemption’);
—
a three-year income tax exemption, namely in respect of the tax on the incomes of legal persons and local income tax, up to the tax year 1999 (‘the three-year income tax exemption’).
2.
Administrative procedure
After receiving a complaint concerning those measures, the Commission asked the Italian authorities for information in that regard by letters of 12 May, and .
By letter of 17 December 1997, the Italian authorities provided some of the information requested. A meeting was then held at the request of the Italian authorities on .
By letter of 17 May 1999, the Commission informed the Italian authorities that it had decided to initiate the procedure laid down in Article 88(2) EC. That decision was published in the
Official Journal of the European Communities
(
OJ 1999 C 220, p. 14
).
After receiving comments from interested parties and the Italian authorities, the Commission asked the latter for additional information on a number of occasions. Meetings were also held between the Commission and, respectively, the Italian authorities and the interested parties involved.
Certain companies set up under Law No 142/90, including ACEA SpA, AEM SpA and Azienda Mediterranea Gas e Acqua SpA (AMGA), which also instigated proceedings for the annulment of the decision at issue in this case (Cases T-297/02, T-301/02 and T-300/02 respectively), argued in particular that the three types of measure in question did not constitute State aid.
The Italian authorities and the Confederazione Nazionale dei Servizi (Confservizi), a confederation of, inter alia, companies set up under Law No 142/90 and special municipal undertakings in Italy, essentially supported that position.
On the other hand, the Bundesverband der deutschen Industrie eV (BDI), a German association for industry and suppliers of related services, was of the view that the measures in question could bring about distortions of competition not only in Italy but also in Germany.
Similarly, Gas-it, an Italian association of private operators in the gas distribution sector, stated that the measures in question, in particular the three-year income tax exemption, constituted State aid.
On 5 June 2002, the Commission adopted Decision 2003/193/EC on State aid granted by Italy in the form of tax exemptions and subsidised loans to companies set up under Law No 142/90 (
OJ 2003 L 77, p. 21
) (‘the contested decision’).
3.
The contested decision
The Commission points out, first of all, that its analysis concerns only the aid schemes of general application introduced by the contested measures and not individual grants of aid to particular undertakings and its analysis in the contested decision is therefore general and abstract. It states that the Italian Republic ‘did not grant the tax advantages on an individual basis or notify any individual cases to [it], together with all the information necessary for the Commission to assess it’. The Commission states that it therefore considered itself bound to carry out a general and abstract examination of the schemes in question in order to determine both whether they constituted State aid and whether such aid was compatible with the common market (recitals 42 to 45 in the preamble to the contested decision).
According to the Commission, the CDDPP loans and the three-year income tax exemption (together, ‘the contested measures’) are State aid. The effect of such advantages being conferred through State resources on companies set up under Law No 142/90 is to strengthen their competitive position by comparison with that of all other undertakings wishing to supply the same services (recitals 48 to 75 in the preamble to the contested decision). The contested measures are incompatible with the common market because they meet the requirements of neither Article 87(2) and (3) EC nor Article 86(2) EC and, furthermore, infringe Article 43 EC (recitals 94 to 122 in the preamble to the contested decision).
On the other hand, according to the Commission, the transfer tax exemption does not constitute State aid within the meaning of Article 87(1) EC, since such taxes are payable on the creation of a new economic entity or the transfer of assets between different economic entities. Municipal undertakings and the companies set up under Law No 142/90 are, substantially, the same economic entities. Exemption from those taxes for such companies is therefore justified by the nature or general scheme of the system (recitals 76 to 81 in the preamble to the contested decision).
The enacting terms of the contested decision are worded as follows:
‘
Article 1
The exemption from transfer tax … does not constitute aid within the meaning of Article 87(1) [EC].
Article 2
The three-year exemption from income tax … and the advantages resulting from [CDDPP] loans constitute State aid within the meaning of Article 87(1) [EC].
Such aid is incompatible with the common market.
Article 3
Italy shall take all necessary measures to recover from the beneficiaries the aid granted under the schemes referred to in Article 2 and unlawfully made available to the beneficiaries.
Recovery shall be effected without delay and in accordance with the procedures of national law provided that they allow the immediate and effective execution of the [contested] decision.
The aid to be recovered shall include interest from the date on which it was at the disposal of the beneficiaries until the date of its recovery. Interest shall be calculated on the basis of the reference rate used for calculating the grant equivalent of regional aid.
…’
Procedure and forms of order sought by the parties
On 8 August 2002, the Italian Republic brought an action for annulment of the contested decision before the Court of Justice, which was registered as Case C-290/02. The Court of Justice considered that that action and those in Cases T-292/02, T-297/02, T-300/02, T-301/02 and T-309/02 concerned the same subject-matter, namely the annulment of the contested decision, and were connected, since the pleas put forward in each of the cases overlapped to a very large extent. By order of , the Court of Justice stayed the proceedings in Case C-290/02, in accordance with the third paragraph of Article 54 of its Statute, pending the final decision of the Court of First Instance in Cases T-292/02, T-297/02, T-300/02, T-301/02 and T-309/02.
By order of 8 June 2004, the Court of Justice decided to refer Case C-290/02 to the Court of First Instance, upon which jurisdiction has been conferred to adjudicate on actions brought by Member States against the Commission, in accordance with Article 2 of Council Decision 2004/407/EC, Euratom of amending Articles 51 and 54 of the Protocol on the Statute of the Court of Justice (
OJ 2004 L 132, p. 5
). That case was registered at the Registry of the Court of First Instance under reference T-222/04.
Pursuant to Article 14 of the Rules of Procedure of the Court of First Instance, and on the proposal of the Eighth Chamber, the Court decided, after hearing the parties in accordance with Article 51 of the Rules of Procedure, to refer the case to a Chamber sitting in extended composition.
Upon hearing the report of the Judge-Rapporteur, the Court of First Instance (Eighth Chamber, Extended Composition) decided to open the oral procedure.
By order of the President of the Eighth Chamber, Extended Composition, of the Court of First Instance of 13 March 2008, Cases T-292/02, T-297/02, T-300/02, T-301/02, T-309/02, T-189/03 and T-222/04 were joined for the purposes of the oral procedure, in accordance with Article 50 of the Rules of Procedure.
The parties presented oral argument and replied to the questions put by the Court at the hearing which took place on 16 April 2008.
The Italian Republic claims that the Court should:
—
annul Article 2 of the contested decision.
The Commission contends that the Court should:
—
dismiss the action as unfounded;
—
order the Italian Republic to pay the costs.
Law
In essence, in support of its action, the Italian Republic puts forward a number of pleas, which it is appropriate to group together and examine as follows:
—
infringement of Article 87(1) EC as regards the classification of both the three-year income tax exemption and the CDDPP loans as State aid, and failure to state reasons in that regard;
—
an error in so far as the contested measures were classified as new aid, and infringement of Article 88(1) EC in that regard;
—
misapplication of Article 86(2) EC;
—
infringement of procedural rules on account of the fact that the investigation was incomplete.
1.
The first plea, alleging infringement of Article 87(1) EC as regards the classification of both the three-year income tax exemption and the CDDPP loans as State aid
In this plea, the Italian Republic submits that the contested measures do not constitute State aid. The plea can be divided into three parts, relating, respectively, to the absence of competition and any effect on trade between Member States, the claim that the contested measures were not selective in nature, and a failure to state reasons.
Arguments of the parties
The first part of the plea, alleging the absence of competition and any effect on trade between Member States
The Italian Republic argues that the companies set up under Law No 142/90 may, in principle, operate only in the public services sector, which is not subject to competition. In fact, special undertakings and companies set up under Law No 142/90 enjoy a statutory or de facto monopoly as regards the provision of pubic services in their controlling municipality. Moreover, such public services are necessarily local in nature.
The objects of companies set up under Law No 142/90 are determined by law and such companies were established in order to provide for the management of one or more services falling within the competence of the controlling local authorities. Therefore, since such companies have the legal status of entities governed by private law, they must necessarily operate in accordance with their statutory aims and their purpose should be the management of public services. It follows that companies in which all or a majority of the share capital is in public ownership and which are intended to operate public services, such as companies set up under Law No 142/90, must confine their activities to the provision of public services.
Accordingly, in the view of the Italian Republic, companies set up under Law No 142/90 are, in principle, subject to limitations as to object and geographical area. They can therefore operate outside the controlling municipality only under two strict conditions, namely where there is, on the one hand, a contract or prior agreement between the municipalities or provinces concerned and, on the other, a functional link between the activities pursued outside the reference territory and the requirements of the controlling municipality. The award of local public services contracts in other municipalities and the extension of the operations of companies set up under Law No 142/90 to other sectors are therefore mere possibilities. No example was given or any evidence adduced in the contested decision to demonstrate that companies set up under Law No 142/90 have extended their sphere of activities. In only two cases did one or more companies set up under Law No 142/90 take part in tendering procedures for the award of public services concessions in areas other than their controlling municipality. Moreover, those cases involved small-scale contracts.
The Italian Republic states that the services set out in the list which appears in Article 1 of legge n. 103 (sulla) assunzione diretta dei pubblici servizi da parte dei comuni (Law No 103 on the direct performance of public services by municipalities of 29 March 1903, GURI of ) are to be provided under a monopoly arrangement or through direct operation, whereas other services are to be provided under a competitive arrangement. Law No 142/90 has not altered that situation.
After pointing out the duty incumbent upon the Commission to identify and assess the facts which may demonstrate that the aid is capable of having an adverse effect on competition and on trade, the Italian Republic observes that it is possible for financial aid to affect intra-Community trade, provided that the recipient undertaking operates on a market that is highly competitive. It submits that that is not the case here.
The Commission contests the Italian Republic’s arguments.
The second part of the plea, alleging that the contested measures were not selective in nature
The Italian Republic submits that no advantage for the purpose of Article 87(1) EC was conferred by the contested measures.
The Italian Republic maintains that the three-year income tax exemption is not selective because it is governed essentially by the same legal regime as applies to municipal undertakings.
As regards the CDDPP loans, the Italian Republic submits that no advantage was conferred in the circumstances, since the maximum rate of interest applied by the CDDPP was not below the maximum reference rate. In any event, the recipients of the CDDPP loans, which are entities in which a majority of the share capital is owned by public institutions and are engaged in very stable economic activities, such as the provision of public services, are particularly prompt payers. Moreover, the CDDPP loans were fixed-rate, long-term loans and, as a result, tended to offer rates that were more favourable than variable or short-term rates during the period in which interest rates were continually rising. In the light of all those factors, it was appropriate to apply to companies set up under Law No 142/90 a lower rate than that applied to ‘normal’ undertakings. In the main, what that amounted to was the market rate.
The Commission rejects the Italian Republic’s arguments.
The third part of the plea, alleging failure to state reasons
The Italian Republic submits, in essence, that, in order to comply with its duty to state reasons, the Commission could not omit to carry out an examination, be it only a partial one, of the activities of the beneficiaries of the contested measures and the extent of those activities within the domestic and Community market. In that context, it also maintains that the statements in the contested decision as to the competitive nature of the markets in question and the effect of the three-year income tax exemption on trade between Member States are not borne out by the facts. Moreover, the contested decision does not contain any reference to the market conditions prevailing in other Member States or to the markets in which the beneficiaries of the exemption operated.
The Commission considers that an adequate statement of reasons was given in the contested decision.
Findings of the Court
As a preliminary point, it should be noted that classification as aid within the meaning of Article 87(1) EC requires all the conditions set out in that provision to be fulfilled. First, there must be an intervention by the State or through State resources. Second, the intervention must be liable to affect trade between Member States. Third, it must confer a selective advantage on the recipient. Fourth, it must distort or threaten to distort competition (see Case
C-280/00
Altmark Trans and Regierungspräsidium Magdeburg
[2003] ECR I-7747
(‘the judgment in
Altmark
’), paragraphs 74 and 75 and the case-law cited, and Case
C-172/03
Heiser
[2005] ECR I-1627
, paragraph 27).
In the circumstances, it is clear that, according to the Italian Republic, three of the four conditions that must be satisfied for a measure to be classified as State aid within the meaning of Article 87(1) EC, namely those relating to the effect on intra-Community trade, the effect on competition and the existence of a selective advantage, are not met in the present case.
The alleged absence of competition and of any effect on trade between Member States
With regard to the second and fourth conditions referred to at paragraph 39 above, according to established case-law, in its assessment of those two conditions, the Commission is required not to establish that the aid has a real effect on trade between Member States and that competition is actually being distorted, but only to examine whether the aid is liable to affect such trade and distort competition (see Case
C-148/04
Unicredito Italiano
[2005] ECR I-11137
, paragraph 54 and the case-law cited).
It should also be noted that, in the case of an aid scheme, the Commission may confine itself to examining the characteristics of the scheme in question in order to determine, in the grounds of its decision, whether, by reason of the terms of the scheme, it is likely to benefit in particular undertakings engaged in trade between Member States (Case
C-310/99
Italy
v
Commission
[2002] ECR I-2289
).
A further point to be made is that any grant of aid to an undertaking pursuing its activities in the Community market is liable to cause distortion of competition and affect trade between Member States (see Joined Cases
T-92/00 and T-103/92
Diputación Foral de Álava
v
Commission
[2002] ECR II-1385
, paragraph 72 and the case-law cited).
Moreover, there is no threshold or percentage below which trade between Member States can be said not to be affected. The relatively small amount of aid or the relatively small size of the undertaking which receives it does not as such exclude the possibility that trade between Member States might be affected (Case
C-142/87
Belgium
v
Commission
[1990] ECR I-959
(‘
Tubemeuse
’), paragraph 43; Joined Cases
C-278/92 to C-280/92
Spain
v
Commission
[1994] ECR I-4103
, paragraph 42; and the judgment in
Altmark
, paragraph 39 above, paragraph 81).
Furthermore, the Court of Justice stated that it was not impossible that a public subsidy granted to an undertaking which provides only local or regional transport services and does not provide any transport services outside its State of origin may none the less have an effect on trade between Member States within the meaning of Article 87(1) EC. Where a Member State grants a public subsidy to an undertaking, the supply of transport services by that undertaking may for that reason be maintained or increased with the result that undertakings established in other Member States have less chance of providing their transport services in the market in that Member State (see the judgment in
Altmark
, paragraph 39 above, paragraphs 77 and 78).
In the present case, with regard, first, to the condition relating to the effect on competition, the contested measures cover only a specific category of undertakings, namely companies set up under Law No 142/90.
However, according to the Italian Republic, the contested measures do not distort competition because companies set up under Law No 142/90 pursued their activities in the public services sector, which was not subject to competition.
As regards the context in which companies set up under Law No 142/90 were created, the areas principally covered by the contested measures are, as is apparent from recital 32 in the preamble to the contested decision, local public services sectors, such as the distribution and treatment of water, public transport, gas and electricity distribution, waste treatment and the retail supply of pharmaceutical products.
It is appropriate to point out, as stated at recitals 73 and 84 in the preamble to the contested decision, that there was a certain amount of competition in some of the sectors concerned, such as the retail supply of pharmaceutical products, waste, gas, and water sectors, when the contested measures were put into effect.
Moreover, as stated by the Commission, in the sectors in which the companies set up under Law No 142/90 operate, undertakings compete for the award of local public services concessions in the various municipalities and the market for those concessions is open to competition (recitals 67 and 68 in the preamble to the contested decision).
The Italian Republic’s argument that there was no competition in the local public services sector, since concessions for such services were awarded on the basis of the particular characteristics of the undertakings concerned, must be rejected. First, the fact that concessions were awarded on that basis does not alter the finding made in the preceding paragraphs that there was, at the very least, a certain amount of competition on the market in question. Second, that argument serves, rather, to demonstrate the restrictive effects of the contested measures on competition and not the absence of competition on that market. As the Commission stated at recital 71 in the preamble to the contested decision, it cannot be ruled out that the very existence of the aid for companies set up under Law No 142/90 encouraged the municipalities to entrust them directly with the services instead of granting licences by open tender procedure.
With regard, in particular, to whether the contested measures distorted or threatened to distort the level of competition on the market, it must be noted that those measures strengthened the competitive position of the companies set up under Law No 142/90 by comparison with that of any other Italian or foreign undertaking operating on that market. As the Commission correctly pointed out at recital 62 in the preamble to the contested decision, undertakings that are not joint stock companies and a majority of whose shares are not held by local authorities find themselves in a disadvantaged position if they intend to compete for the granting of a licence to provide a particular service in a given territory.
Moreover, the contested measures can facilitate the expansion of companies set up under Law No 142/90 in other markets which are open to competition and thus distort competition even in sectors other than local public services sectors. It is apparent from Law No 142/90, as interpreted by the Corte suprema di cassazione (Supreme Court of Cassation, Italy) in Judgment No 4989 of 6 May 1995 and by the Consiglio di Stato (Council of State, Italy) in Judgment No 4586 of , that it is permissible for companies set up under Law No 142/90 to operate in other geographical areas both within Italy and abroad and in fields other than that of public utilities stipulated in their articles of association, unless that deprives them to a significant extent of resources and means and is liable adversely to affect the controlling local authorities. Furthermore, it is apparent from newspaper articles annexed to the defence that some of the companies set up under Law No 142/90 have engaged in activities other than the provision of public services stipulated in their articles of association and have done so in areas outside their controlling municipality.
It follows from the foregoing that the contested measures distort or threaten to distort competition within the meaning of Article 87(1) EC.
Second, as regards the condition relating to the effect on inter-State trade, it should be pointed out, first of all, that the fact that companies set up under Law No 142/90 operate only on the national market or even in their territory of origin is not decisive. Inter-State trade is affected by the contested measures when undertakings established in other Member States have less chance of providing their services in the Italian market (see paragraph 45 above).
Accordingly, the Commission was correct in stating at recital 70 in the preamble to the contested decision that the contested measures could create an obstacle for foreign firms wishing to establish themselves or sell their services in Italy and therefore affect trade between Member States within the meaning of Article 87(1) EC.
First, the contested measures adversely affect foreign companies bidding for local public services concessions in Italy, since the public undertakings benefiting from the scheme in question can bid at more competitive prices than national or Community competitors not benefiting from it. Second, the contested measures make it less attractive for companies from other Member States to invest in the utilities sector in Italy (for example, by acquiring majority holdings), since any companies acquired would not be entitled to (or may lose) the benefit of the measures because of the nature of their new shareholders (see recital 69 in the preamble to the contested decision).
It follows from the foregoing that the Commission did not err in taking the view that the conditions relating to the effect on trade and the distortion of competition were met in the present case. The first part of the first plea in law must therefore be rejected.
The selective advantage conferred by the contested measures
Article 87(1) EC prohibits State aid which ‘favours certain undertakings or the production of certain goods’, that is to say, selective aid (see Case
C-66/02
Italy
v
Commission
[2005] ECR I-10901
, paragraph 94).
As regards the assessment of the condition of selectivity, which is a constituent factor in the concept of State aid, it is clear from settled case-law that Article 87(1) EC requires it to be determined whether, under a particular statutory scheme, a State measure is such as to favour certain undertakings or the production of certain goods in comparison with other undertakings which are in a legal and factual situation that is comparable in the light of the objective pursued by the scheme in question (see Case
C-88/03
Portugal
v
Commission
[2006] ECR I-7115
, paragraph 54 and the case-law cited).
Moreover, according to settled case-law, the concept of aid embraces all measures which, in various forms, mitigate the charges which are normally borne by the budget of an undertaking and which, without therefore being subsidies in the strict meaning of the word, are similar in character and have the same effect (Case
C-387/92
Banco Exterior de España
[1994] ECR I-877
, paragraphs 13 and 14).
(a) The three-year income tax exemption
One of the contested measures in the present case consists of an exemption from all income taxes for a period of three years, up to the tax year 1999, for all companies set up under Law No 142/90.
It is indisputable that the three-year income tax exemption mitigates the charges which are normally borne by the budget of undertakings and thus confers a financial advantage on undertakings benefiting from the exemption by comparison with those which are liable to tax in the normal way.
It is apparent that, under the normal rules of the Italian tax scheme applicable to capital companies, income tax is payable by all companies operating on the market and that the three-year income tax exemption is a departure from that scheme. Given that all companies set up under Law No 142/90 enjoyed the tax exemption, which was not granted to undertakings in other sectors or to other undertakings in the same sector or, indeed, to undertakings with a majority private sector holding, the selective character of the exemption is established.
Moreover, it is manifestly clear from the nature and the limited duration of the three-year income tax exemption, namely three years from the acquisition of the status of legal person up to the end of the tax year 1999 at the latest, that it is not justified by the nature or general scheme of the tax scheme in question.
Lastly, the Italian Republic’s argument that, in essence, municipal undertakings were governed by the same legal system does not alter the fact that the three-year income tax exemption is selective. It must be noted that whether a measure is selective is determined by taking all undertakings into account and not just the undertakings within the same group which enjoy the same advantage. In fact, even if municipal undertakings had also benefited from the measure in question, the fact remains that the tax measure would have benefited only a specific group of undertakings and is therefore selective.
(b) The CDDPP loans
The measures referred to at paragraph 61 above include loans granted by the State or by a State-controlled body to undertakings enabling the latter to take advantage of more favourable conditions than those they would have obtained on the capital market. If that were the case, in the same way as a loan at a reduced rate of interest, an economic advantage would be thus conferred for the purpose of Article 87(1) EC.
The Italian Republic does not accept that the loans in question conferred an advantage on the undertakings benefiting from them because the CDDPP rates were the same as the market rates.
It is evident from recitals 56 and 57 in the preamble to the contested decision that, in order to determine whether the CDDPP loans to the companies set up under Law No 142/90 might favour them, the Commission compared the CDDPP interest rates with the interest rates that they would have obtained over the same period on the capital market.
The Commission used as a reference point the rate laid down for the evaluation of regional aid schemes, as published periodically in the Official Journal. As the Commission pointed out, those were favourable rates, applicable to successful undertakings, which were used, where the scheme at issue had been notified, in order to determine whether it contained aid elements. That practice must be regarded as legitimate (see, to that effect, Case
C-457/00
Belgium
v
Commission
[2003] ECR I-6931
, paragraph 72, and Case
C-278/00
Greece
v
Commission
[2004] ECR I-3997
, paragraph 62). Moreover, the Italian Republic has not challenged that practice.
For the same reason, the rates proposed by the Italian authorities cannot be accepted as reference rates. As the Italian Republic stated, those rates are maximum rates laid down by decree of the Ministry of the Treasury for bank loans to local and regional public bodies. As the Commission observed, those rates are not fixed in accordance with market conditions, since they are set by reference to other criteria laid down by the public administration. Furthermore, since local and regional public bodies pose less of a risk than undertakings, it is inappropriate to use such rates as the reference rate for the purpose of comparison with the CDDPP rates.
In any event, during most of the period under consideration, the CDDPP rates were lower than the maximum bank rates applicable to local bodies.
The Italian Republic’s argument that, given that the CDDPP loans were long-term loans, on the assumption that there would be an overall reduction in interest rates, the rates applied by the banks were likely to be lower than the maximum legally authorised rate must be rejected. The Italian Republic has failed to substantiate that argument by adducing any evidence for the period in question (1994 to 1998).
The Commission was therefore entitled to conclude that the CDDPP loans, which were granted at a reduced rate by comparison with the reference rate, conferred an economic advantage on companies set up under Law No 142/90, that is to say, on certain undertakings within the meaning of Article 87(1) EC.
It follows from the foregoing that the second part of the first plea in law must be rejected.
Whether the obligation to state reasons was complied with
First, it must be noted that the obligation to provide a statement of reasons laid down in Article 253 EC is an essential procedural requirement which must be distinguished from the question whether the reasoning is well founded, which is concerned with the substantive legality of the measure at issue. To that end, the statement of reasons required by Article 253 EC must be appropriate to the act at issue and must disclose in a clear and unequivocal fashion the reasoning followed by the institution which adopted the measure in question in such a way as to enable the persons concerned to ascertain the reasons for the measure and to enable the competent Community judicature to exercise its power of review (Case
C-17/99
France
v
Commission
[2001] ECR I-2481
, paragraph 35, and
Italy
v
Commission
, paragraph 42 above, paragraph 48).
Next, the requirements to be satisfied by the statement of reasons depend on the circumstances of each case, in particular the content of the measure in question, the nature of the reasons given and the interest which the addressees of the measure, or other parties to whom it is of direct and individual concern, may have in obtaining explanations. It is not necessary for the reasoning to go into all the relevant facts and points of law, since the question whether the statement of reasons meets the requirements of Article 253 EC must be assessed with regard not only to its wording but also to its context and to all the legal rules governing the matter in question (see
France
v
Commission
, paragraph 76 above, paragraph 36, and
Italy
v
Commission
, paragraph 42 above, paragraph 48).
Finally, whilst it is undisputed that, in the grounds of its decision, the Commission is bound to refer at least to the circumstances in which aid has been granted where those circumstances show that the aid is such as to affect trade between Member States (Case
248/84
Germany
v
Commission
[1987] ECR 4013
, paragraph 18), it is not bound to demonstrate the actual effect of aid already granted. If it were so bound, that requirement would ultimately give Member States which grant aid in breach of the duty to notify laid down in Article 88(3) EC an advantage over those which notify aid at the planning stage (see, to that effect, Case
C-301/87
France
v
Commission
[1990] ECR I-307
(‘
Boussac
’), paragraph 33).
In the circumstances of the present case, it is sufficient to observe that the contested decision sets out clearly and applies to the situation in this case the criteria which must be satisfied in order for a measure to constitute State aid.
First, at recitals 61 to 75 in the preamble to the contested decision, the Commission explained in general terms the reasons for which the contested measures were liable to distort competition and affect trade between Member States.
In particular, at recitals 66 to 68 in the preamble to the contested decision, the Commission stated that the sectors involved in the present case are local public services sectors, whose services can often be provided on the basis of exclusive rights, and for which the undertakings therefore competed, primarily in order to be awarded concessions in the various municipalities.
Next, after stating at recital 68 in the preamble to the contested decision that the market for concessions for local public utilities is open to Community competition and is subject to the rules of the EC Treaty, the Commission illustrated by way of example, at recital 69, the manner in which the contested measures are liable to affect intra-Community trade by referring to the fact that public firms benefiting from the scheme in question can bid at more competitive prices than their national or Community competitors which do not benefit from the scheme. Moreover, at recitals 73 and 74, the Commission pointed out that the contested measures could also affect intra-Community trade for other reasons, which it went on to explain.
Lastly, as regards the alleged failure to state reasons concerning the advantage deriving from the three-year income tax exemption, it is sufficient to point out that, at recitals 52 to 54 in the preamble to the contested decision, the Commission gave an adequate explanation of the reasons for which that measure could strengthen the position of the beneficiaries by comparison with that of their competitors and of the effect which the measure could have on the market.
It is therefore apparent that, in the light of the requirements laid down by case-law, the Commission did not fail in the circumstances in its obligation to state adequate reasons in the contested decision with regard to the advantage deriving from the three-year income tax exemption and the effect on competition and on trade between Member States.
Accordingly, the third part of the first plea in law must also be rejected.
It follows that the first plea in law must be rejected in its entirety.
2.
The second plea, alleging an error in so far as the contested measures were classified as new aid
Arguments of the parties
In this plea, the Italian Republic submits that the three-year income tax exemption is existing aid and, therefore, by the contested decision, the Commission infringed Article 88(1) EC. It maintains that the provision under a monopoly arrangement of services in the public interest by municipalities and municipal undertakings has been exempt from tax since the entry into force of Law No 603 of 6 August 1954 (GURI No 182 of ) and that the wording of the original scheme, in spite of changes made in the intervening period as a result of the adoption of various items of legislation, has remained substantially unaltered. The Italian Republic disputes the assertion made in the contested decision that, since the object of the beneficiaries of the scheme was extended, as well as the sectors and geographical areas in which they could operate, as a result of new legislation, the principle established in Case
C-44/93
Namur-Les assurances du crédit
[1994] ECR I-3829
(‘the judgment in
Namur
’) was not applicable in the present case.
Furthermore, without expressly referring to Article 1(b)(v) of Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article [88 EC] (
OJ 1999 L 83, p. 1
), the Italian Republic submits that the three-year income tax exemption should be classified as existing aid also on the basis that, when the exemption was introduced, the markets were closed to competition. It also argues that the same reasoning applies to the CDDPP loans.
Referring to recitals 86 to 91 in the preamble to the contested decision, the Commission submits that neither of the conditions laid down in the judgment in
Namur
, paragraph 87 above, is met in the circumstances of the present case.
Findings of the Court
The Court of Justice held in its judgment in
Namur
, paragraph 87 above (at paragraph 13), that it is clear from both the terms and purposes of Article 88 EC that aid which existed before the entry into force of the EC Treaty and aid which could be properly put into effect in accordance with the conditions laid down in Article 88(3) EC, including those arising from the interpretation of that article given by the Court in its judgment in Case
120/73
Lorenz
[1973] ECR 1471
, paragraphs 4 to 6, is to be regarded as existing aid within the meaning of Article 88(1) EC, while, on the other hand, measures to grant or alter aid, where the alterations may relate to existing aid or initial plans notified to the Commission, must be regarded as new aid subject to the obligation of notification laid down by Article 88(3) EC.
As regards existing aid, Article 1(b) of Regulation No 659/1999 reproduced and affirmed the rules established in the case-law.
According to that provision, existing aid means:
(i)
all aid which existed prior to the entry into force of the EC Treaty in the respective Member States;
(ii)
all authorised aid, that is to say, aid schemes and individual aid which have been authorised by the Commission or by the Council;
(iii)
all aid deemed to have been authorised without the Commission adopting a decision within a period of two months, in principle beginning on the day following the receipt of a complete notification of that aid, being the time available to the Commission for the purposes of carrying out a preliminary examination;
(iv)
all aid in respect of which the 10-year limitation period for recovery has expired;
(v)
all aid deemed to be existing aid because it can be established that, although it did not constitute aid at the time it was put into effect, it subsequently — without being altered by the Member State — became aid owing to the evolution of the common market. Where certain measures become aid following the liberalisation of an activity by Community law, such measures are not to be considered as existing aid after the date fixed for liberalisation.
Next, under Article 1(c) of that regulation, any existing aid that is altered is to be regarded as new aid.
Essentially, measures intended to grant aid or alter existing aid constitute new aid. In particular, where the alteration affects the actual substance of the original scheme, the latter is transformed into a new aid scheme. However, there can be no question of such a substantive alteration where the new element is clearly severable from the original scheme (Joined Cases
T-195/01 and T-207/01
Government of Gibraltar
v
Commission
[2002] ECR II-2309
, paragraphs 109 to 111).
In the present case, it is accepted that the contested measures do not fall within the second, third or fourth situations set out in Article 1(b) of Regulation No 659/1999, under which an aid measure may be regarded as existing aid. Furthermore, the Italian Republic has not claimed that those situations are applicable.
As regards the first of the situations referred to in Article 1(b) of Regulation No 659/1999, it should be noted, first of all, that the three-year income tax exemption was introduced by Decree-Law No 331/93 and Law No 549/95. In 1990, when Law No 142/90 reformed the legal arrangements available to municipalities for the purpose of managing local public utilities, which included the possibility of setting up limited liability companies with a majority public shareholding, no exemption from income tax was envisaged for such companies.
In fact, all companies set up under Law No 142/90 which were created between 1990 and the entry into force on 30 August 1993 of Article 66 of Decree-Law No 331/93 were liable to income tax.
Therefore, as the Commission correctly stated at recital 91 in the preamble to the contested decision, in order to extend to companies set up under Law No 142/90 the same tax treatment as that for local authorities, the Italian legislature had to enact new legislation several decades after the entry into force of the EC Treaty.
Moreover, even if it is accepted that the income tax exemption for municipal undertakings was introduced before the entry into force of the EC Treaty and remained in force until 1995, the fact remains that the companies set up under Law No 142/90 are substantially different from municipal undertakings. The extension of existing tax advantages enjoyed by municipal and special undertakings to a new class of beneficiaries, such as companies set up under Law No 142/90, constitutes an alteration that is severable from the original scheme. As stated in Judgment No 4586 of the Consiglio di Stato of 3 September 2001, there are statutory differences between companies set up under Law No 142/90 and municipal undertakings on account of the fact, in particular, that the former are not subject to the strict limitations as to geographical area imposed on the latter and the former’s sphere of activity is much wider. Accordingly, as already stated at paragraph 53 above, companies set up under Law No 142/90 can operate outside their reference territory, both in Italy and abroad, and in fields other than that of public utilities stipulated in their articles of association, unless that deprives them to a significant extent of resources and means and is liable adversely to affect the controlling local authorities.
Consequently, as the Commission explained at recital 92 in the preamble to the contested decision, even though companies set up under Law No 142/90 assumed the rights and obligations of municipal undertakings, the legislation which defined their substantive sphere of activity and the geographical area in which they could operate changed substantially.
It must therefore be concluded that the three-year income tax exemption introduced by Article 3(70) of Law No 549/95 in conjunction with Article 66(14) of Decree-Law No 331/93 does not fall within Article 1(b)(i) of Regulation No 659/1999.
With regard to the CDDPP loans, the contested decision concerns only loans granted to companies set up under Law No 142/90. Moreover, for reasons already given, if a Member State extends to a new class of beneficiaries advantages that already exist for other entities, the measure constitutes new aid. In the circumstances of this case, since the possibility was extended to companies set up under Law No 142/90 of benefiting from CDDPP loans — an advantage which had previously been granted to municipalities, municipal undertakings and special companies — that constituted new aid.
As regards the Italian Republic’s second argument, based on Article 1(b)(v) of Regulation No 659/1999, that provision is applicable only to measures which did not constitute aid at the time they were implemented. In that regard, it is sufficient to state, as explained by the Commission at recitals 83 to 85 in the preamble to the contested decision, that the contested measures were introduced at a time when the markets were in any event, albeit almost certainly to differing degrees, open to competition. The three-year income tax exemption cannot therefore be regarded as falling within Article 1(b)(v) of Regulation No 659/1999.
In the light of the foregoing, the contested measures cannot be regarded as constituting existing aid. The second plea in law must therefore be rejected.
3.
The third plea, alleging misapplication of Article 86(2) EC
Arguments of the parties
In this plea, the Italian Republic submits, in essence, that the beneficiaries of the contested measures pursue activities of general economic interest and, accordingly, the derogation provided for in Article 86(2) EC is applicable to them.
The Commission observes that, under Article 86(2) EC, the payment of aid may escape the prohibition laid down in Article 87 EC provided, in particular, that the aid in question is intended only to offset the additional costs incurred in providing services of general economic interest and the grant of such aid is necessary to enable the undertaking in question to perform its public service obligations under conditions of economic equilibrium. The Italian Republic has failed to demonstrate, either in the administrative procedure or in the course of the present proceedings, that that was the case with regard to the contested measures.
Findings of the Court
It must be pointed out, first of all, that what is at issue in this case is an aid scheme. Accordingly, it is necessary to show that the scheme satisfies of itself all the conditions necessary either to escape classification as State aid within the meaning of Article 87(1) EC or to qualify for the derogation laid down in Article 86(2) EC.
A State measure which constitutes compensation for the services provided by the recipient undertakings in order to discharge public service obligations, so that those undertakings do not enjoy a real financial advantage and the measure does not therefore have the effect of putting them in a more favourable competitive position than the undertakings competing with them, does not, as a general rule, constitute State aid within the meaning of Article 87(1) EC (see, to that effect, the judgment in
Altmark
, paragraph 39 above, paragraph 87).
However, for such compensation to escape classification as State aid, a number of cumulative conditions must be satisfied. Among these is the condition that the recipient undertaking must actually have public service obligations to discharge and the obligations must be clearly defined (the judgment in
Altmark
, paragraph 39 above, paragraph 89), as well as the condition that the compensation cannot exceed what is necessary to cover all or part of the costs incurred in the discharge of the public service obligations, taking into account the relevant receipts and a reasonable profit for discharging those obligations (the judgment in
Altmark
, paragraph 92).
The contested decision was adopted before the judgment in
Altmark
, paragraph 39 above, was delivered. However, the criteria set out in that judgment, which are based on an interpretation of Article 87(1) EC, are fully applicable to the factual and legal situation of the present case as presented to the Commission when it adopted the contested decision (see, to that effect, Case
T-289/03
BUPA and Others
v
Commission
[2008] ECR II-81
, paragraph 158).
The first condition laid down in the judgment in
Altmark
, paragraph 39 above, under which the recipient undertaking must actually have public service obligations to discharge, also applies in a case in which the derogation laid down in Article 86(2) EC has been invoked.
In both cases, a measure must, in any event, comply with the principles governing the definition and award of public services and the principle of proportionality (see, to that effect,
BUPA and Others
v
Commission
, paragraph 110 above, paragraph 160).
The Italian Republic has failed to provide any details concerning either the conditions laid down in the judgment in
Altmark
, paragraph 39 above, or the conditions for the application of Article 86(2) EC. Indeed, the only argument put forward by the Italian Republic is that undertakings constituted under Law No 142/90 pursue activities in the public economic interest and the rules governing State aid should not therefore be applicable to them.
It should also be noted that, in the light of the structure of the aid scheme in question, Law No 142/90 cannot be characterised as an act of a public authority creating and defining a specific measure for the provision of local public services in compliance with specified obligations. Furthermore, that law does not define clearly and precisely the public service obligations involved.
It must therefore be concluded that the condition relating to the principles governing the definition and award of public service missions is not satisfied.
Consequently, the third plea in law cannot be accepted.
4.
The fourth plea, alleging infringement of procedural rules on account of the fact that the investigation was incomplete
Arguments of the parties
The Italian Republic submits that, in the contested decision, the Commission made an abstract assessment which fails to take account of the relevant facts, in breach of the procedural rules governing State aid. In the contested decision, the Commission confined itself to referring, in an abstract manner, to certain economic activities and failed to take account of either the actual conditions in the Italian public services market or the activities actually pursued by the beneficiaries. Since the contested measures do not constitute State aid or, in the alternative, constitute existing aid, the Italian authorities were fully entitled not to refer specific cases to the Commission for the purpose of individual assessment. If the Commission entertained doubts as to precisely how those measures were to be classified, it was incumbent upon it to ascertain whether there were any special cases.
The Commission maintains that the plea under consideration is inadmissible, since it is a new plea within the meaning of Article 48(2) of the Rules of Procedure. Should that plea be regarded as admissible in part, the Commission contends that it is unfounded.
Findings of the Court
As regards, first, the plea of inadmissibility raised by the Commission, it is sufficient to point out that, in its application, the Italian Republic stated that the Commission could not omit to carry out an examination of the activities pursued by the beneficiaries of the contested measures and of the extent of those activities within the domestic market and the Community market in order to be in a position to determine whether those measures were liable to affect trade between Member States.
The argument which is alleged to be inadmissible is therefore put forward in support of the claim for annulment of the contested decision.
The objection of inadmissibility must therefore be rejected and the plea under consideration is admissible.
Second, as regards whether the present plea is well founded, it should be pointed out that what is at issue here is the assessment of an aid scheme of general application.
It should also be noted that, in accordance with Regulation No 659/1999 and the case-law, the Commission is not required to analyse individual measures granted under an aid scheme. The Commission can simply confine itself to examining the characteristics of the scheme at issue in order to determine whether, by reason of the terms of the scheme, it gave an appreciable advantage to the recipients by comparison with their competitors and was likely to benefit in particular undertakings engaged in trade between Member States (
Germany
v
Commission
, paragraph 78 above, paragraph 18, and
Italy
v
Commission
, paragraph 42 above, paragraph 89).
In the present case, even if the analysis carried out by the Commission in the contested decision is of a general nature in the sense that it covers all the sectors to which the contested measures relate, it none the less has regard to the effects which the measures are liable to have on competition and trade between Member States. There was no need for the contested decision to include an analysis of the aid granted in individual cases under the scheme. In any event, it is apparent from the documents before the Court that the Commission never received from the Italian Republic or the undertakings which were involved in the administrative procedure before it all the information necessary to enable it to examine the individual situations of the alleged beneficiaries.
It follows from all the above that the fourth plea in law must be rejected.
In the light of the foregoing considerations, the action must be dismissed in its entirety.
Costs
In accordance with Article 87(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party’s pleadings. Since the Italian Republic has been unsuccessful, it must be ordered to pay the costs, in accordance with the form of order sought by the Commission.

On those grounds,
THE COURT OF FIRST INSTANCE (Eighth Chamber, Extended Composition)
hereby:

1.
Dismisses the action;

2.
Orders the Italian Republic to bear its own costs as well as those incurred by the Commission.

Martins Ribeiro
Šváby
Papasavvas
Wahl
Dittrich
Delivered in open court in Luxembourg on 11 June 2009.
[Signatures]
(
*1
)	Language of the case: Italian.