WRITTEN QUESTION E-1228/00

by Sebastiano Musumeci (UEN) to the Commission

(14 April 2000)

Subject: Reduction of the tax and social contributions burden on undertakings in southern Italy

Given that the Commission has allowed other Member States, including Ireland, the Netherlands and Portugal, to provide assistance to firms operating in disadvantaged and run-down areas and that in southern Italy, and particularly Sicily, the development of small and medium-sized undertakings is seriously limited by Italy's draconian fiscal policy, could the Commission state whether it considers that the following could be envisaged for southern Italy:

1. measures to assist undertakings by reducing the burden of tax and social charges to which they are subject with a view to increasing investment and employment?

2. inclusion of the unemployment rate as a benchmark criterion for the allocation of Community funds?

Answer given by Mr Monti on behalf of the Commission

(9 June 2000)

Provided that the conditions laid down by the EC Treaty are met, the Commission authorises the aid which a Member State decides to grant in order to pursue certain objectives, such as the economic development of areas where the standard of living is abnormally low or where there is serious underemployment, the execution of important projects of common European interest or to remedy a serious disruption in the economy of a Member State, or the development of certain economic activities or of certain economic areas, or culture and heritage conservation. Through the Structural Funds, the Commission may contribute to the co-financing of national aid schemes, which it has first authorised.

Aid intended for regional development which a Member State decides to grant firms by reducing the burden of tax and social contributions with a view to increasing investment and employment may be considered to be compatible with the EC Treaty if it complies with all the conditions laid down by the Community Guidelines on national regional aid and the Guidelines on aid to employment(1) and, where appropriate, by the Commission notice on the application of the state aid rules to measures relating to direct business taxation(2). The latter states in particular that, if it is to be considered by the Commission to be compatible with the common market, state aid intended to promote the economic development of particular areas must be in proportion to, and targeted at, the aims sought.

Tax measures or measures to reduce social contributions which are not directly linked to initial investment or to job creation but are aimed at reducing a firm's current expenses are normally prohibited. Exceptionally, however, such aid may be granted in regions eligible under the derogation in Article 87(3) (formerly Article 92(3)) of the EC Treaty provided that (i) it is justified in terms of its contribution to regional development and its nature and (ii) its level is proportional to the handicaps it seeks to alleviate. It is for the Member State to demonstrate the existence of any handicaps and gauge their importance.

On 1 March 2000 the Commission decided that the south of Italy satisfied the eligibility criteria for the derogation in Article 87(3)(a) of the EC Treaty for the duration of the new regional aid map, i.e. until 31 December 2006.

In the case of the Structural Funds, the unemployment rate is one of the criteria used by the Commission to apportion between the Member States the commitment appropriations allocated under Objectives 1 and 3 for the period 2000-06. The unemployment rate is also one of the criteria used by the Commission to determine in each Member State concerned the population ceiling eligible for Objective 2.

(1) OJ C 74, 10.3.1998, and OJ C 334, 12.12.1995.

(2) OJ C 384, 10.12.1998.