62005CC0427_EN
Opinion of the Advocate-General
Opinion of the Advocate-General
I – Introduction
1. By order of 19 November 2005, the Commissione Tributaria Regionale di Genova (Provincial Tax Court, Genoa) referred to the Court for a preliminary ruling two questions on the interpretation of Article 21(3) of Council Regulation (EEC) No 4253/88 of 19 December 1988 laying down provisions for implementing Regulation (EEC) No 2052/88 as regards coordination of the activities of the different Structural Funds between themselves and with the operations of the European Investment Bank and the other existing financial instruments, (2) as amended by Council Regulation (EEC) No 2082/93 of 20 July 1993 (3) (‘Regulation No 4253/88’ or ‘the Regulation’).
2. The questions were raised in proceedings between the Genoa 1 Office of the Agenzia delle Entrate (Revenue Authority of the Italian Ministry of Finance, ‘the Revenue Authority’) and Porto Antico di Genova SpA (‘Porto Antico’) concerning Porto Antico’s application for reimbursement of tax the amount of which had been calculated on the basis, inter alia, of grants received from Community Funds and Ligurian regional funds. Against that background, the referring court essentially wishes to ascertain whether Article 21(3) of Regulation No 4253/88 must be interpreted as precluding national tax legislation which takes sums received from Community Structural Funds into account for the purposes of determining taxable income.
II – Legal framework
A – Community law
3. Article 21 of Regulation No 4253/88 (4) falls within Chapter VI of that Regulation, entitled ‘Financial Provisions’, and is itself entitled ‘Payments’. The second subparagraph of Article 21(3) provides as follows:
‘The payments shall be made to the final beneficiaries without any deduction or retention which could reduce the amount of financial assistance to which they are entitled.’
B – Relevant national law
4. The pertinent national provisions on the assessment of income tax are contained in Decree of the President of the Republic No 917 of 22 December 1986 (‘DPR No 917’). (5) Article 55(3) of DPR No 917, in the version in force at the material time – that is to say, during the year 2000 – is worded as follows:
‘[The following items] shall also be regarded as extraordinary income:
…
(b) income, in cash or in kind, obtained by way of contribution or donation, with the exception of the payments referred to in points (e) and (f) of Article 53(1) and those for the purchase of depreciable assets, whatever the type of financing used. Such items of income shall count towards earnings either in respect of the tax year in which they are received or, on a straight line basis, in respect of the tax year in which they are received and of the tax years thereafter, but not beyond the fourth tax year thereafter. …’
III – Factual background, procedure and questions referred
5. It appears from the order for reference that, in its tax return duly filed for the 2000 tax year, Porto Antico had included grants received from the European Regional Development Fund (ERDF) and from Ligurian regional funds as assets for the purposes of the assessment of the income taxes IRPEG (Imposta sul Reddito delle Persone Giuridiche – Tax on the income of legal persons) and IRAP (Imposta Regionale sulle Attivita Produttive – Regional tax on businesses) for the year 2000. Porto Antico was accordingly assessed and paid tax on that basis.
6. In the belief that it had erred by including those grants as assets for the purposes of the assessment to tax, Porto Antico applied, without success, for reimbursement of the sums paid in excess, amounting in total to LIT 336 989 000, from the Amministrazione Finanziaria. Porto Antico relied in that regard on Article 21(3) of the Regulation.
7. Porto Antico brought an appeal before the Commissione Tributaria Provinciale di Genova against the implied decision of the Amministrazione Finanziaria rejecting the claim for reimbursement. By decision of 10 April 2003, that court granted the appeal.
8. The Revenue Authority appealed against that decision to the referring court, arguing that the financial assistance received cannot be exempt from tax under Article 21 of the Regulation.
9. Against that background, the Commissione Tributaria Regionale di Genova decided that a ruling on that question is necessary to enable it to decide the case – since any declaration that the national tax rules are incompatible with Regulation No 4253/88 would entail the dismissal of the Revenue Authority’s appeal – and has therefore referred the following questions to the Court for a preliminary ruling:
‘1. Is Article 55 of DPR No 917 of 22 December 1986 (in the version in force in the year 2000), under which EEC contributions are taken into account for the purpose of determining taxable income, compatible with Article 21(3) of Regulation No 2082/93, which provides that “[t]he payments shall be made to the final beneficiaries without any deduction or retention which could reduce the amount of financial assistance to which they are entitled”?
2. If there is a finding of incompatibility, will it apply solely to funds granted and payable by Community bodies or will it also apply to funds that are described in the SPD (Single Programming Document) as being payable by national bodies?’
IV – Legal analysis
A – The first question referred
10. By the first question, the referring court essentially wishes to know whether Article 21(3) of Regulation No 4253/88 must be interpreted as precluding national tax legislation under which sums received from Community Structural Funds are to be taken into account for the purposes of determining taxable income.
1. Main submissions of the parties
11. In the present proceedings, written observations have been submitted by the Governments of Italy, France, Ireland, the Netherlands, the United Kingdom and Sweden, as well as by the Commission and Porto Antico. Ireland, the Commission and Porto Antico were also represented at the hearing held on 15 February 2007.
12. All parties except for Porto Antico agree that Article 21(3) of the Regulation does not preclude national legislation such as DPR No 917 from providing that sums received from Structural Funds are to be taken into account for the purposes of determining taxable income and that the first question referred should accordingly be answered in the negative.
13. The Governments and the Commission maintain essentially that the prohibition of any ‘deduction or retention’ in Article 21(3) of the Regulation – laying down merely a modality of payment – relates to the time of payment and is intended to ensure that the beneficiary receives the full amount of the financial assistance, without being compelled to bear charges in respect of such matters as handling, distribution and administration. It does not, however, extend to taxes like those at issue, which are normally levied at a later stage – after the entirety of the financial assistance has already been received by the final beneficiary.
14. According to those parties, that follows from the wording of the Regulation, as well as from its subject-matter and purpose. Relying on the case-law of the Court, (6) they contend also essentially that the Regulation precludes only charges which are directly and inseparably linked to the amounts disbursed, which is not the case here. Some of the parties base their view also on the currently applicable Council Regulation (EC) No 1260/1999 of 21 June 1999 laying down general provisions on the Structural Funds, (7) which repealed Regulation No 4253/88, and which specifies inter alia that ‘no deduction, retention or further specific charge
which would reduce these amounts shall be made’ (emphasis added).
15. Porto Antico, by contrast, emphasises the fact that the imposition of taxes like those at issue has the effect of reducing the amount of the aid and that the practical effect of the Regulation would be compromised if a Member State were allowed to impose such taxes. It points out that by levying such taxes, Member States are able to frustrate the socio-economic aims pursued by the Community in paying the funds and can even redirect a part of the financial aid into their own State budgets. Moreover, according to Porto Antico, there is a risk that the imposition of direct taxes by the various Member States will give rise to a breach of the principle of equality since, in the absence of harmonisation of direct taxes in the Community, the tax systems differ from one Member State to another.
2. Appraisal
16. It should be noted, first of all, that the wording of the second subparagraph of Article 21(3) of the Regulation does not in itself rule out the application of that provision also to the levying of taxes such as those at issue in the present case.
17. As the Commission rightly observed, the terms ‘deduction or retention’ are in principle also suitable for describing reductions of the financial assistance through taxation. In the present case, however, only the term ‘deduction’ can be pertinent since the disputed tax amount was not retained on the occasion of the payment of the assistance, but was levied subsequently by way of income tax imposed on Porto Antico.
18. It should be added that the recitals in the preamble to the Regulation are silent as to whether the prohibition of any deduction also covers deductions by way of direct taxation.
19. Moreover, it cannot be maintained that a national tax rule of the kind at issue would be precluded by Article 21(3) of the Regulation for the sole reason that direct taxation falls within the competence of the Member States. It should be recalled in that regard that, according to constant case-law, although direct taxation falls within their competence, the Member States must none the less exercise that competence consistently with Community law. (8) In particular, the measure in question must not interfere with or impair the mechanism set up by the Regulation, (9) which must be interpreted with regard to its wording, its context and its objective. (10)
20. The Court has already – in Commission v Portugal
– had the opportunity to rule, in the context of amounts paid by way of aid from the Guidance Section of the European Agricultural Guidance and Guarantee Fund (‘EAGGF’), on the meaning and scope of the second subparagraph of Article 21(3) of the Regulation, which permits no levy on subsidies granted to beneficiaries. (11) Before that, the Court had also ruled on comparable provisions regarding the Guarantee Section of the EAGGF which required aid to be paid in full to the beneficiary. (12)
21. In Commission v Portugal, the Court made it clear that it considered the principles that derive from the latter case-law on provisions of the regulations governing the Guarantee Section as also applicable with regard to assistance granted by the Guidance Section of the EAGGF under Article 21 of Regulation No 4253/88. In that regard, the Court referred to the feature common to the Guarantee and Guidance Sections, namely the fact that they are both funded by the Community budget, and are thus able to grant financial assistance in the form of subsidies for actions in their respective spheres of competence. The Court pointed out that ‘[s]uch assistance, which has the same single financial source, is subject in each case to the same rules for payment, such as the rule which requires that the amount received by the beneficiary must be the same as the one granted to him’. (13)
22. Although the present case is concerned with financial assistance from yet another Structural Fund, namely the ERDF, there is nothing to suggest that the requirement, laid down in Article 21(3) of the Regulation, that aid is to be paid in full should not be interpreted for present purposes along the same lines as in the abovementioned case-law.
23. According to that case-law, the prohibition on deductions cannot be interpreted in a purely formal manner as covering only deductions which are actually made on the occasion of payment. Rather, the prohibition on any deduction must be interpreted as extending to all charges which are directly and inseparably linked to the amounts disbursed. (14)
24. The key question is not, therefore, at which stage or in which way, technically, the deduction is effected from the payments made, but rather whether the deduction is specifically linked to the payment of the financial aid. To illustrate that requirement, it is appropriate to recall the deductions which the Court has found to be precluded by Community law.
25. Thus, in Kellinghusen and Ketelsen, the Court held that the requirement that payments be made in full prohibits the Member States, inter alia, from demanding the payment of administrative fees – charged for processing applications for the compensatory aid concerned – which have the effect of reducing the amount of the aid. (15)
26. In Sweden v Commission, the Court regarded as covered by the prohibition at issue a fee charged for the issue of maps which was directly linked to the payment of compensatory aid on account of the fact that no aid application could be submitted without that map, supplied by the national authorities. (16)
27. Finally, in Commission
v Portugal, the charges levied, which were intended as payment for services rendered by IFADAP – a national body entrusted with management tasks relating to financial assistance from the Guidance Section of the EAGGF – were directly and inseparably linked to the amounts disbursed in that they were payable as a result of the submission of applications for aid and corresponded to a percentage of the amount of the project financed in the context of assistance granted by the Guidance Section of the EAGGF. (17)
28. In the present case the situation is significantly different. As was confirmed by the representative of Porto Antico at the oral hearing, after the financial aid has been received by the company concerned and made available for its business activities, it becomes a component of the assets of the company and, like other revenues and expenses of the company, is taken into account for the calculation of the basis of assessment of income tax. Amounts received by way of financial aid are thus taxed in accordance with the general system and at the rates provided for by the Italian legislation on income tax.
29. It cannot be maintained, therefore, that the levying of the tax in issue would constitute a deduction which is directly and inseparably linked to the amounts disbursed as envisaged by the abovementioned case-law, even if, as Porto Antico argues, it is possible to identify the tax amount which arises due to the financial aid received. In particular, it should be observed in that regard that the payment of the financial aid concerned was not – and indeed could not be – conditional upon it being subsequently taken into account for the purposes of determining taxable income.
30. Of course, Porto Antico is not entirely wrong in submitting with regard to the prohibition of deductions that even direct taxes like those at issue lead in the final result to a reduction of the amount of the aid received that remains at the disposal of the beneficiary. However, the Court has, I reiterate, restricted the prohibition of deductions laid down in the second subparagraph of Article 21(3) of the Regulation to charges which are directly and inseparably linked to the amounts disbursed. Reductions with a more remote link to the Community aid concerned, such as those effected by way of an income tax as in the present case, do not therefore prejudice the effective application of the Regulation and, in consequence, are not precluded by Community law.
31. Indeed, as several parties have maintained, it seems unlikely that the prohibition of deductions laid down in Article 21 of the Regulation – which refers, after all, to ‘payments’ – was intended by the legislature to be so far-reaching.
32. It should be noted next that financial aid thus received in its entirety, as required under the second subparagraph of Article 21(3) of the Regulation, has to be used by the beneficiary under the economic and legal conditions prevailing in the Member State concerned, including not only the level of taxation, but also other relevant factors such as the costs of the infrastructure available or the general price level.
33. Admittedly, this means that the aid may ultimately be ‘worth’ less in some Member States than in others. But that is the consequence of the differences which still exist between the Member States in those areas, notably that of direct taxation, which are not yet harmonised as Community law currently stands.
34. Contrary to Porto Antico’s assertions, such differences as arise merely on account of permissible differences between the economic and legal systems of the Member States, including systems of taxation, cannot, however, be regarded as contrary to the principle of equality. It should be added, moreover, that it has not been claimed that DPR No 917 would be discriminatory with regard to aids received from Community funds.
35. In the light of the foregoing, I propose that it should be stated in answer to the first question referred that Article 21(3) of the Regulation does not preclude national tax legislation such as Article 55 of DPR No 917, under which amounts received from Community Structural Funds are to be taken into account for the purposes of determining taxable income.
B – The second question referred
36. Since the second question arises only in the event of a finding of incompatibility, in the light of the answer to the first question it is not necessary to address it.
V – Conclusion
37. I therefore propose that the reply to the questions referred to the Court should be as follows:
National tax legislation such as Article 55 of Decree of the President of the Republic No 917 of 22 December 1986 (in the version in force in the year 2000), under which amounts received from Community Structural Funds are to be taken into account for the purposes of determining taxable income, is not precluded by Article 21(3) of Council Regulation (EEC) No 4253/88 of 19 December 1988 laying down provisions for implementing Regulation (EEC) No 2052/88 as regards coordination of the activities of the different Structural Funds between themselves and with the operations of the European Investment Bank and the other existing financial instruments, which provides that ‘[t]he payments shall be made to the final beneficiaries without any deduction or retention which could reduce the amount of financial assistance to which they are entitled’.
(1) .
(2)  –	OJ 1988 L 374, p. 1.
(3)  –	Council Regulation amending Regulation (EEC) No 4253/88 laying down provisions for implementing Regulation (EEC) No 2052/88 as regards coordination of the activities of the different Structural Funds between themselves and with the operations of the European Investment Bank and the other existing financial instruments (OJ 1993 L 193, p. 20).
(4)  –	The referring court – as well as some of the parties – makes reference in its questions to Article 21(3) of Regulation No 2082/93. However, since that is only the amending
regulation, I shall, more correctly, refer in the following to Article 21(3) of the amended
Regulation No 4253/88.
(5)  –	Also: Testo unico delle imposte sui redditi (Income Tax Act) GURI No 302, 31 December 1986, Ordinary Supplement.
(6)  –	In particular, Case C‑84/04 Commission
v Portugal
[2006] ECR I‑0000; Case C‑312/02 Sweden v Commission
[2004] ECR I‑9247; Joined Cases C‑36/97 and C‑37/97 Kellinghusen and Ketelsen
[1998] ECR I‑6337; and Case C‑132/95 Bent Jensen
[1998] ECR I‑2975.
(7)  –	OJ 1999 L 161, p. 1.
(8)  –	See, to that effect, in particular Case C‑319/02 Manninen
[2004] ECR I‑7477, paragraph 19, and the case-law mentioned therein.
(9)  –	See, to that effect, Joined Cases 36/80 and 71/80 Irish Creamery Milk
[1981] ECR 735, paragraph 15.
(10)  –	See, to that effect, inter alia Case 292/82 Merck
[1983] ECR 3781, paragraph 12.
(11)  –	Cited in footnote 6, paragraphs 29 and 30.
(12)  –	See Kellinghusen and Ketelsen, cited in footnote 6; Sweden
v Commission, cited in footnote 6; and Bent Jensen, cited in footnote 6.
(13)  –	See as to that reasoning Commission v Portugal, cited in footnote 6, paragraphs 31 and 32.
(14)  –	See Commission
v Portugal, cited in footnote 6, paragraph 35, and Sweden
v Commission, cited in footnote 6, paragraph 22.
(15)  –	See Kellinghusen und Ketelsen, cited in footnote 6, paragraph 21.
(16)  –	See Sweden
v Commission, cited in footnote 6, paragraphs 24 and 25.
(17)  –	See Commission
v Portugal, cited in footnote 6, paragraph 36.