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            COMMISSION DECISION         

of 6 September 2005         

on the aid scheme implemented by Italy for certain undertakings for collective investment in transferable securities specialised in shares of small- and medium-capitalisation companies listed on regulated markets

(notified under document number C(2005) 3302)

(Only the Italian text is authentic)

(Text with EEA relevance)

(2006/638/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community, and in particular the first subparagraph of Article 88(2) thereof,

Having regard to the Agreement on the European Economic Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments pursuant to the provisions cited above (1),

Whereas:

I.   PROCEDURE

II.   DESCRIPTION OF THE MEASURE

General framework

Taxation of revenue accruing to investment vehicles acting as financial intermediaries subject to substitute tax in Italy

Taxation of revenue accruing to investment vehicles subject to Italian substitute tax and acting as participants in other investment vehicles

Taxation of operating income accrued or distributed to other participants in investment vehicles not subject to the substitute tax

III.   GROUNDS FOR INITIATING THE PROCEDURE

IV.   COMMENTS FROM ITALY AND INTERESTED PARTIES

V.   ASSESSMENT OF THE MEASURE

State aid within the meaning of Article 87(1) of the Treaty

Selective advantage for specialised investment vehicles

Selective advantage for small- and mid-caps whose shares are held by specialised investment vehicles

State resources

Effect on competition

Lawfulness of the scheme

Compatibility

VI.   CONCLUSIONS

HAS ADOPTED THIS DECISION:

Article 1

The state aid in the form of tax incentives for undertakings for collective investment in transferable securities specialised in shares of small- and medium-capitalisation companies listed on a regulated European market provided for by Article 12 of Decree-Law No 269/2003, unlawfully put into effect by Italy in breach of Article 88(3) of the EC Treaty, is incompatible with the common market.

Article 2

The Italian Republic shall withdraw the aid scheme referred to in Article 1 with effect from two months following the date of notification of the present decision.

Article 3

1.   Within two months of the date of notification of the present decision, the Italian Republic shall inform all the financial intermediaries, including the undertakings for collective investment in transferable securities specialised in shares of small- and medium-capitalisation companies and all the other parties concerned by the application of the state aid scheme referred to in Article 1, of the Commission decision deeming the scheme to be incompatible with the common market.

2.   The Italian Republic shall take the necessary measures to recover the aid referred to in Article 1 and unlawfully made available to its beneficiaries from the corporate investment vehicles or, as the case may be, from the undertakings managing the contractual investment vehicles, without prejudice to any subsequent recourse under national law.

Within two months of the date of notification of the present decision, the Italian Republic shall inform the Commission of the identity of the beneficiaries, the amount of aid granted individually and the methods by which such amounts were determined.

3.   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 decision.

4.   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 in accordance with the provisions laid down in Chapter V of Commission Regulation (EC) No 794/2004.

Article 4

The Italian Republic shall inform the Commission, within two months of the date of notification of this decision, of the measures taken and planned to comply with it. It shall provide this information using the questionnaire attached in Annex 1 of this decision. It shall submit within the same period all documents showing that the recovery proceedings have been initiated against the beneficiaries of the unlawful aid.

Article 5

This decision is addressed to the Italian Republic.

Done at Brussels, 6 September 2005.

For the Commission

Neelie KROES            

Member of the Commission

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(1)OJ C 225, 9.9.2004, p. 8.

(2)OJ L 83, 27.3.1999, p. 1.

(3)  See footnote 1.

(4)OJ L 375, 31.12.1985, p. 3.

(5)  The main difference between SICAVs (corporate funds) and contractual investment funds is that, in the case of SICAVs, there is no distinction between company capital and capital invested. The participating shares in a SICAV are its capital.

(6)  The tax rate applicable to the net operating result of pension funds is not directly reduced by Article 12 of Decree-Law No 269/2003 because special tax rules apply to them. However, pension funds investing in specialised investment vehicles benefit from a specific tax credit which allows them to apply the specific 5 % rate to the portion of their revenues deriving from specialised investment vehicles.

(7)  The difference between open-ended and closed-end funds is that, for the latter, the number of shares issued by the fund is fixed at the outset for a certain number of years, the participants do not have the right to request redemption of their shares at any time, and new issues of shares are also restricted. Open-ended funds are not subject to any of these restrictions (cf. Provvedimento del Governatore 27 agosto 2003 of the Bank of Italy amending the provisions on UCITS in the previous Provvedimento of 20 September 1999 and taking into account the changes to the provisions governing closed-end funds introduced by Decree No 47 of 31 January 2003).

(8)  This limit is set at two months in the case of closed-end funds.

(9)  A company can therefore be classified as a small- or mid-cap for one or more quarters, depending on stock market fluctuations.

(10)  The scheme does not directly affect taxation of foreign investment vehicles falling outside the scope of Directive 85/611/EEC.

(11)  To be more precise, while the foreign UCITS that distribute their net operating result to individual Italian investors apply Italian withholding tax upon distribution, the portion of the net operating result accruing to Italian investment vehicles from their participation in foreign UCITS is eligible for relief from double taxation by means of the exclusion of part of the net operating result deriving from such foreign UCITS.

(12)  Pursuant to Article 10b of Law No 77/1983, revenue from foreign investment vehicles not governed by Council Directive 85/611/EEC is included in the net operating result as it is not subject to withholding tax.

(13)  As a general rule, only 40 % of the net operating result accruing to an Italian investment vehicle from a foreign investment vehicle is taxable in Italy. This means that the foreign income accruing to an Italian investment vehicle is effectively taxed at 5 % (12,5 % of 40 % corresponds to a tax rate of 5 %). By excluding from the net operating result of an investment vehicle the entire amount of capital revenue deriving from a specialised investment vehicle subject to the reduced rate of 5 %, the scheme achieves the objective of ensuring equal treatment between investments made in Italian specialised investment vehicles and those made in foreign specialised investment vehicles.

(14)  Article 12 of Decree-Law No 269/2003 maintains the existing 15 % tax credit with a view to ensuring that the 5 % reduced tax levied on specialised investment vehicles is borne by the participating investor, which would be the case if the credit had been limited to 5 % (corresponding to the 5 % substitute tax paid by the investment vehicle) instead of 15 %. In short, the 15 % tax credit makes it possible to avoid higher taxation at the level of the investor, resulting in an aggregate rate of tax of 5 %. However, to prevent the participating investors from unduly benefiting from the full 15 % credit, while tax has been effectively paid at only 5 %, the scheme states that the tax credit constitutes a limited tax credit as regards the part not covered by the substitute tax on the accrued net operating result, i.e. 9 %, which cannot be reimbursed or used to offset income taxes due in tax years in which the revenue was taxed. To grant relief against withholding tax, Italian tax law provides for a tax refund to foreign (non-resident) investors participating in investment vehicles subject to tax in Italy, which qualify for a tax refund equal to 15 % of the amount distributed by the investment vehicles offsetting the tax previously charged. The scheme limits the refund to 6 % for distributions by specialised investment vehicles subject to the reduced substitute tax of 5 % under Article 12 of Decree-Law No 269/2003.

(15)  The effective 5 % substitute tax on the income accruing to pension funds from foreign specialised investment vehicles is realised because, under the specific tax provisions for pension funds, they may deduct from their net operating result, taxed at 11 %, the 54,55 % of the revenue distributed by a foreign specialised investment vehicle, with the result that applying the reduced rate of 11 % to 45,45 % corresponds to the imposition of a 5 % on total revenue. On the other hand, the revenue accruing to pension funds from Italian specialised investment vehicles is subject to an 11 % substitute tax although it qualifies for a 6 % tax credit to offset the tax already paid by such specialised investment vehicles.

(16)OJ C 235, 21.8.2001, p. 3, paragraph IV.1.

(17)  Case C-8/03 BBL, paragraphs 42 and 43.

(18)  Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (OJ L 145, 13.6.1977, p. 1).

(19)  Case 89/81 Hong-Kong Trade Development Council [1982] ECR 1277, paragraph 6.V. See also Case C-317/94 Elida Gibbs [1996] ECR I-5339, paragraph 20.

(20)  First Council Directive 67/227/EEC of 11 April 1967 on the harmonisation of legislation of Member States concerning turnover taxes (OJ 71, 14.4.1967, p. 1301; English Special Edition, Series I, Chapter 1967, p. 14).

(21)  Case T-55/99 CETM v Commission [2000] ECR II-3207, paragraph 40, and Joined Cases T-92/00 and T-103/00 Territorio Histórico de Álava and Others v Commission [2002] ECR II-1385, paragraph 58.

(22)  Case C-156/98 Germany v Commission [2000] ECR I-6857, paragraphs 24 to 28, and Case T-93/02 Confédération nationale du Crédit mutuel v Commission, judgment of 18 January 2005, not yet reported, paragraph 95.

(23)  Case T-214/95 Het Vlaamse Gewest v Commission [1998] ECR II-717.

(24)  Case C-142/87 Belgium v Commission [1990] ECR I-959.

(25)OJ C 235, 21.8.2001, p. 3.

(26)  Case C-156/98 Germany v Commission [2000] ECR I-6857, paragraph 69.

(27)  See footnote 2.

(28)OJ L 10, 13.1.2001, p. 30.

(29)OJ L 140, 30.4.2004, p. 1.

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ANNEX

Information regarding the implementation of the Commission decision on aid scheme C 19/2004 — Italy: Direct tax incentives for undertakings for collective investment in transferable securities specialised in shares of small- and medium-capitalisation companies listed on regulated markets

1.   Total number of beneficiaries and total amount of aid to be recovered

2.   Measures already taken and planned to recover the aid

3.   Information by individual beneficiary

Please provide details for each subject from whom the tax incentives unlawfully granted under the scheme are to be recovered in the table overleaf.

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(*1)  Amount put at the disposal of the beneficiary (in gross grant equivalent; at ... prices).

(1)

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