95/455/EC: Commission Decision of 1 March 1995 on the arrangements for reducing the social security contributions paid by firms in the Mezzogiorno and for assigning to the State some of those contributions (Only the Italian text is authentic) (Text with EEA relevance)
Date: 1995-03-01
Institutions: European Commission
Subjects: Mezzogiorno, State aid, aid to undertakings, employment policy, social security, tax exemption













EUR-Lex - 31995D0455 - EN






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31995D0455

95/455/EC: Commission Decision of 1 March 1995 on the arrangements for reducing the social security contributions paid by firms in the Mezzogiorno and for assigning to the State some of those contributions (Only the Italian text is authentic) (Text with EEA relevance)  


Official Journal L 265 , 08/11/1995 P. 0023 - 0029 





COMMISSION DECISION of 1 March 1995 on the arrangements for reducing the social security  contributions paid by firms in the Mezzogiorno and for assigning to the State some of those  contributions (Only the Italian text is authentic) (Text with EEA relevance) (95/455/EC) THE COMMISSION OF THE EUROPEAN COMMUNITIES, Having regard to the Treaty establishing the European Community, and in particular the first  subparagraph of Article 93 (2) thereof, Having requested the parties concerned to submit their comments pursuant to Article 93, Whereas: I (1)  By letter dated 8 October 1992 the Italian authorities notified the Commission, pursuant  to Article 93 (3) of the EC Treaty, of draft Law No 1536 of 8 September 1992 containing inter alia  the following provisions: -  Article 1, providing for the refinancing of the reduction in social security contributions  provided for in Law No 64 of 1 March 1986 on arrangements for special aid to the Mezzogiorno. -  Article 2, providing for the assignment to the State of social security contributions entailing  a further selective reduction in social security contributions for firms in the Mezzogiorno. The measures should have applied from 1 December 1991 to 30 November 1992 as regards Article 1, and  from 1 January 1992 to 31 December 1993 as regards Article 2. The draft Law replaced Decree-Law No  14 of 21 January 1992, which covered the same subject, was not notified pursuant to Article 93 (3)  of the EC Treaty and was finally reproduced in a Decree-Law of 21 July 1992, also not notified, in  response to which the Commission initiated the procedure provided for in Article 93 (2) of the EC  Treaty by Decision of 25 June 1992  (1). (2)  Since the aforementioned Decree-Laws had not become laws within the time-limit imposed by the  Italian Constitution and had been replaced by draft Law No 1536, the Commission stated in its  notice of 18 November 1992, pursuant to Article 93 (2) of the EC Treaty  (2), that its Decision of  25 June 1992 had become void, and it initiated the procedure provided for in Article 93 (2) of the  EC Treaty in respect of draft Law No 1536 as regards the said measures. This notice was communicated to Italy on 18 November 1992, and the other Member States and other  parties concerned were informed through its publication in the Official Journal of the European  Communities. Italy, the other Member States and the other parties concerned were given notice of  one month within which to submit their comments. No other Member States or parties availed themselves of this opportunity. The Italian Government  initially requested an extension of the deadline. A number of interdepartmental meetings were then  held: on 14 December 1992, 11 February 1993, 15 February 1993, 1 July 1993, 4 February 1994, 4 July  1994, 1 August 1994, 25 October 1994, 24 November 1994 and 10 January 1995. The Commissioner  responsible met the Italian Minister for the Budget and Economic Planning on the matter on 13  January 1995. II (3)  Law No 64 of 1 March 1986, which allows the Italian authorities to reduce the social  security contributions of firms in the Mezzogiorno, was declared compatible with the common market,  subject to certain conditions, by Commission Decision 88/318/EEC  (1). In Italy the contributions  amount on average to 45  % of taxable income. In the case in point, the reduction took the form, as  regards all non-agricultural firms, of total exemption from contributions during the first ten  years for each new job created and a general reduction equivalent to 8,5  % of taxable income.  Further, very substantial reductions were also authorized, determined by the recruitment date. The  budget allocation for this measure under Article 18, within the total amount of Lit 120 billion  (ECU 60  000 million) for Law No 64 as a whole, was Lit 30  000 billion (ECU 15  000 million). The Italian authorities have made use of the option allowed them regarding social security  contributions. They have over the years adopted various acts enabling firms in the Mezzogiorno to  enjoy uninterruptedly the maximum reductions allowed. The average reduction per firm (basic rate  and additional reductions) has been about 20  %. Since the budget allocation of Lit 30  000 billion  was used up in 1989, the measure was refinanced under a number of legislative measures, not  notified under Article 93 (3) of the EC Treaty, the total amount of refinancing being Lit 8  188  billion (ECU 4  094 million). In its Decision of 2 October 1991, the Commission declared the  refinancing measures compatible with the common market. (4)  Article 1 of the draft Law under consideration extends the reductions in social security  contributions in the Mezzogiorno from 1 December 1991 to 30 November 1992, limits the total  exemption to one year, lowers the general reduction to 7,5  % and provides for total refinancing of  Lit 6  766 billion (ECU 3  383 million). (5)  Since the end of the 1970s, the Italian authorities have in addition granted certain firms  other reductions in social security contributions, under a policy known as 'fiscalizzazione`,  whereby some such contributions are assigned to the State. Starting with an initial Decree-Law No  102 of 7 February 1977, such measures have been provided for by dozens of legislative measures. The policy whereby some social security contributions are taken over by the State is aimed at  charging to taxation social welfare policies (notably health care) which, although extended to  include the whole of the population, were historically financed by social security contributions  paid by firms. According to information provided by the Italian authorities during the meetings  referred to in point 2 above, such contributions represented 17  % of taxable income, with social  security contributions as a whole amounting to 45  %. For historical reasons, these contributions  are larger in manufacturing than in other sectors. Since the national budget could not bear the  burden of an operation on this scale in a single instalment, the scheme was implemented gradually  and in stages. The result has been over the years an initially variable reduction in social  security contributions by sector and, following Law No 687 of 28 October 1980, by region. In  particular, as from 1 July 1990, pursuant to Law No 687, firms in the Mezzogiorno have benefited  from a selective reduction, compared with firms in the other Italian regions, of 2,54  %. Following  further legislative measures, this advantage reached the level of 6,2  % under Decree-Law No 210 of  4 June 1990. Since 1990, sectoral differences have been eliminated. (6)  The Commission was informed of the initial legislative acts providing for the scheme up to and  including Decree-Law No 633 of 30 December 1979 and assessed them under Article 92 of the EC  Treaty, in Decision 80/932/EEC  (2). Given the fact that the scheme involved, directly or indirectly, sectoral differences in the  taking-over of social security contributions by the State, the Commission took the view that some  of the differences, because they were temporary or marginally selective, could be considered not to  constitute aid. Since then, no legislative act relating to the scheme has been notified under Article 93 (3) of the  EC Treaty, with the exception of the draft Law now being examined. (7)  Article 2 of the new draft Law increases - until 31 December 1993 - the extent to which social  security contributions are charged to general taxation: the increase is 1,44  % for the  Centre-North and 1,4  % for the other regions. As the Italian authorities pointed out in the course  of the discussions referred to in point 2 above, this meant that the relative advantage enjoyed by  firms from the Mezzogiorno as a result of '  fiscalization`, which amounted to 6,2  % by virtue of  Decree-Law No 210 of 4 June 1990, was reduced by 0,04  % to 6,16  %. Lastly, Article 2 (4) introduces a new exemption of 0,4  % for certain firms in the building and  construction industry. The Italian authorities have explained that this measure is the same for the  whole of Italy and does not involve sectoral selectivity because the building and construction  industry was excluded nationwide from the measure applied to all other sectors. The fact that the  State has shouldered 0,4  % of contributions throughout the country is a first step towards  reversing this discrimination, and therefore the measure does not constitute aid. The amount allocated to these new measures under the scheme is Lit 4  200 billion (ECU 2  100  million). III (8)  During the proceedings the Italian authorities argued - leaving aside their comments on  the facts as reported above - that due account should be taken of the difficulty, even in social  terms, of reviewing aid measures in the disadvantaged regions and the employment-boosting  legislation adopted by the Italian Government. (9)  Since then the measures provided for in the notified draft Law have entered into force through  various provisions, particularly Decree-Laws last amended by Law No 151 of 20 May 1993, which in  turn was amended by Decree-Law No 245 of 20 July 1993. More integrated regulations were adopted by  Law No 21 of 14 January 1994, which inter alia established the rate of reduction in social security  contributions up to 30 June 1994. None of those instruments was notified to the Commission pursuant to Article 93 (3) of the EC  Treaty. It should be noted that Article 1 (4) of Decree-Law No 12 of 18 January 1993 - which has  not become law - provides for the Minister for Labour and Social Welfare, working in conjunction  with the Ministers for the Treasury and the Budget, to establish the criteria for reviewing State  aid to promote employment as to whether or not it is compatible with Community policy. That  provision is incorporated in Law No 21 of 14 January 1994, which empowers the three ministers inter  alia to adopt new rates of reduction. Implementation of the measures provided for in the draft Law examined in the present Decision, as  contained in all the above acts, entailed the following: -  the reductions in social security contributions in the Mezzogiorno were renewed until the  payment period ending 30 June 1994, -  total exemption from social security contributions for new jobs was limited to one year. The  general reduction was reduced from 8,5  % to 5  %. The average rate per firm was 16  %, -  authorization was given for the assignment of social security contributions as provided for in  the draft Law up to 31 December 1994. During the interdepartmental discussions the Italian authorities argued that the statement in  Decree-Law No 12 of 18 January 1993, to the effect that the Government had taken account of the  compatibility of aid measures for the Mezzogiorno with Community guidelines when carrying out its  review, constituted a first step towards bringing the Italian system into line with the principles  of the common market. IV (10)  Whatever their economic or social objective, the measures providing for a selective  reduction in social security contributions referred to in Articles 1 and 2 of draft Law No 1536  constitute aid within the meaning of Article 92 (1) of the EC Treaty, since they have the effect of  reducing the costs borne by firms in the Mezzogiorno. They thus distort competition and are liable  to affect trade, since they apply to all firms in that region. They are consequently aid that is  prohibited per se under Article 92 (1) of the EC Treaty. The Commission would stress, in connection with the so-called 'fiscalization` measures, that  measures of a general character designed to reduce to cost of social security contributions  uniformly in a Member State do not constitute aid. However, selective reductions that favour  certain firms compared with others in the same Member State, whether such selectivity is  individual, sectoral or regional (as in this case), do constitute aid within the meaning of Article  92 (1) of the EC Treaty, at least as far as the differential portion of the reduction is  concerned. Although the reductions in social security contributions enshrined in Law No 64/86 were deemed by  the Commission to be compatible with the common market pursuant to 92 (3) (a) of the EC Treaty in  its Decisions on the compatibility of Law No 64/86, their refinancing for the period after 30  November 1991, particularly in view of the fact that they must be seen in conjunction with the  'fiscalization` differential available to firms in the Mezzogiorno from 4 June 1990 at the latest,  and the differential itself, as contained in 'fiscalization` legislation after the adoption of  Article 2 of the draft Law in question, are not in themselves compatible with the common market. In its Decision on the compatibility of the Law on the Mezzogiorno, the Commission took the view  that only the - already substantial - reductions in social security contributions provided for in  Law No 64 of 1 March 1986 were compatible, because of the clearly defined circumstances governing  the granting of such reductions. Such circumstances restricted the powers of the Italian  authorities, which could grant firms situated in the Mezzogiorno total exemption for ten years in  respect of each new job created, a general reduction of 8,5  % and additional reductions throughout  the period of assistance - i.e. until 31 December 1993. However, beginning with Decree-Law No 210 of 4 June 1990, the Italian authorities have granted such  firms much larger reductions in social security contributions, through the legislative provisions  on the assignment of contributions to the State. Firms in the Mezzogiorno have, by way of a  reduction in social security contributions, enjoyed an advantage over their Italian competitors  through total exemption in respect of all new jobs created, a reduction in the basic rate plus the  'fiscalization` differential and additional reductions. The average rate per firm was consequently  around 27  % when the present proceedings were initiated. This substantial increase in the reduction percentage which the Commission deemed compatible in the  Mezzogiorno has significantly distorted the impact of the reductions authorized by the Commission  for the benefit of firms in this region. V (11)  The Italian authorities pointed out that by virtue of the provisions adopted and  implemented after proceedings had been initiated under Article 93 (2) of the Treaty, the advantages  conferred by the reductions in social security contributions authorized for firms in the  Mezzogiorno had been significantly reduced, since: -  total exemption for new jobs created, previously valid for ten years, had been limited to one  year, -  the general reduction had been cut from 8,5  % to 5  %, -  the 'fiscalization` differential had been cut from 6,2  % to 6,16  %. The average rate of reduction per firm was thus cut, at 30 June 1994, to 16  % plus 6,16  %  'fiscalization` differential. Furthermore, this reduction was merely to be the start of a comprehensive review of the system, to  be carried out gradually with the long-term aim of eradicating both the reductions authorized under  Law No 64 and the 'fiscalization` differential. (12)  With this in view, by letter of 5 August 1994 from the Ministers for Labour, the Treasury and  the Budget, the Italian authorities communicated to Mr Van Miert the text of the interministerial  decree of that date extending the reduction rates for social security contributions under Law 64/86  until 30 November 1996. The letter also stated that the Italian Government was prepared to withdraw  any reductions granted outside Law 64/86 by 31 December 1997 according to an attached timetable,  and to phase out the 'fiscalization` differential. The timetable for dismantling the system of reductions in social security contributions granted  outside Law 64/86 was accordingly established in terms of the overall reduction rate per firm: -  14,6  % at 1 July 1994 -  14  % at 1 December 1994 -  10,6  % at 1 December 1995 -  6,8  % at 1 December 1996 -  0  % at 1 December 1997. In the cases of Abruzzi and Molise, which no longer met the conditions for exemption from the  prohibition on aid enshrined in Article 92 (3) (a) of the Treaty, the following timetable applied: -  12  % at 1 July 1994 -  0  % at 1 December 1994. Finally, in all the regions of the Mezzogiorno the one-year exemption from social security  contributions for each new job created prior to 31 December 1997 was confirmed. (13)  By letter dated 16 December 1994, amended by letter dated 17 January 1995, the Italian  Minister for the Budget notified, pursuant to Article 93 (3) of the Treaty, a comprehensive project  for State aid to Italian firms which confirmed the measures already examined and included a project  for the gradual dismantling of the 'fiscalization` differential enjoyed by firms in the Mezzogiorno  until then. The differential was to be phased out according to the following timetable: in regions other than Abruzzi -  5  % at 1 July 1995 -  4  % at 1 January 1996 -  3  % at 1 January 1997 -  2  % at 1 January 1998 -  1  % at 1 January 1999 -  0  % at 1 January 2000 in Abruzzi -  5  % at 1 July 1995 -  3  % at 1 January 1996 -  1  % at 1 July 1996 -  0  % at 1 January 1997. VI (14)  The Commission - deciding on other measures of the comprehensive scheme within the  framework of aid measure N 40/95 - considers that the reductions being examined and the  differential in the extent to which social security contributions are taken over by the Italian  authorities are, all in all, incompatible with the common market, but that if the dismantling plan  were to be adopted, aid granted as part of this plan would be rendered compatible. The regions other than Abruzzi and Molise meet all the requisite conditions for exemption under  Article 92 (3) (a) covering aid to firms for regional development purposes. The figures for per  capita GDP in these regions, expressed as a percentage of the Community average, are as follows:  Campania 69,75  %, Basilicata 64,98  %, Apulia 74,3  %, Calabria 58,6  %, Sicily 68,35  %, Sardinia  74,4  %. The method for the application of Article 92 (3) (a) and (c)  (1) provides for the  granting of aid in those regions on condition that it is degressive. In view of the situation of  the regions concerned, which have been worse affected than the others by the recent recession and  are classified by the Community as Objective 1 areas of the Structural Funds, it is unthinkable  that the weak production system could cope overnight with a sharp increase in labour costs  generated by a rise in social security contributions as a result of the outright withdrawal of  relief. These reductions must be dismantled at a reasonable pace; the timetable applied and  proposed by the Italian authorities, which in cumulative terms amounts to approximately 5  % per  annum, strikes the right balance between competition requirements and the need to maintain viable  production infrastructure in the interest of the regions concerned. The extension ratione temporis  of the 'fiscalization` differential is justified not merely by the low level of residual aid but  also by the burden that absorbing it would represent for the national budget, in that the  'fiscalization` process would have to be speeded up in the Centre-North. (15)  As regards Abruzzi and Molise, there is no justification for according exemption from the  prohibition of aid pursuant to Article 92 (3) (a) of the Treaty. Although some socio-economic  indicators still suggest that these regions are experiencing difficulties as compared with the  Centre-North, these are not such as to imply an abnormally low standard of living or serious  structural underemployment. Furthermore, the per capita GDP of these regions measured in purchasing  power standards by the Statistical Office of the European Communities - which is the indicator  required under the said method for the application of Article 92 (3) (a) and (c) of the Treaty - is  equivalent to 89,85  % of the Union average in the case of Abruzzi and to 78,97  % in the case of  Molise. In other words, it is significantly above the threshold qualifying regions for Article 92  (3) (a) of the EC Treaty, which is set at 75  % by the method. Accordingly, the difficulties in  question are elements which should be taken into consideration for exemption under Article 92 (3)  (c) of the Treaty. Taken as a whole, the provinces of the two regions (NUTS level III) meet the  conditions for such exemption: under the first phase of the aforementioned method, the provinces of  Pescara (GDP 77,54  %), Chieti (unemployment 119,68  %), Isernia (GDP 81,75  %, unemployment 114,15   %) and Campobasso (GDP 75,17  %, unemployment 140,75  %), the national index being 100; under the  second phase (relative weakness of industry, increasing youth unemployment, isolation and ageing of  the population), the provinces of Aquila and Teramo. Both these regions are covered by Objective 1  of the Structural Funds; in the case of Abruzzi, this is limited to 31 December 1996. The  aforementioned method does not provide for the awarding of operating aid to the regions qualifying  under Article 92 (3) (c). However, the Commission takes into account that the two regions qualified  for the exemption under 92 (3) (a) until 31 December 1993 and that in the only comparable case of a  region meeting the same conditions (no longer qualifying for Article 92 (3) (a) but eligible for  Article 92 (3) (c)) the Commission, by Decision 88/318/EEC  (1), had deemed it to be appropriate  and compatible with the common market provided that trading conditions were not affected to an  extent contrary to the common interest, that temporary accompanying measures - including certain  operating aid measures - should be authorized with a view to helping firms in the region, which  were still badly affected by development problems, to adapt to new, less incisive forms of economic  support. The Commission considers that this is a general principle which takes account of any  objective peculiarities of situations which are not comparable to those of the other regions which  may qualify for exemption pursuant to Article 92 (3) (c), and it intends to continue applying that  principle, whilst accepting that in the same circumstances minor operating aid may be granted on an  exceptional, temporary basis. Accordingly, it considers the measures set out by the Italian  authorities as part of the comprehensive project, or more specifically, as regards the present  decision, the relief from social security contributions authorized in the two regions by the  interministerial decree of 5 August 1994 and the gradual reduction in the 'fiscalization`  differntial, which takes into account the different levels of development in Molise and Abruzzi, to  be compatible with the common market in the present case. Furthermore, the one-year exemption from social security contributions on new jobs created before  31 December 1997 is deemed to be compatible in all the regions concerned. This is an aid measure to  promote job creation, the intensity of which is considerably below that of the aid normally  approved for this purpose. (16)  The Commission is forced to conclude that all the reductions enjoyed to date by firms in the  Mezzogiorno as from 1 December 1991 as regards relief from social security contributions already  governed by Law No 64/86 and as from 1 July 1990 as regards the 'fiscalization` differential are  unlawful because they were awarded in breach of Article 93 (3) of the Treaty. (17)  The Commission considers that in view of the concerns expressed as to the maintenance of  production infrastructure in the regions concerned and the difficulty in estimating with any degree  of accuracy the advantage accruing to each recipient, it would not be appropriate to order the  Member State to recover aid improperly received, HAS ADOPTED THIS DECISION: Article 1 The aid in the form of exemption and relief from social security  contributions in the Mezzogiorno referred to in Articles 2, 3 and 4, is deemed compatible with the  common market in accordance with the conditions set out therein. Article 2 The one-year exemption from social security contributions on all new jobs created shall  be limited to new jobs created by 31 December 1997 at the latest. Article 3 In Campania, Basilicata, Apulia, Calabria, Sicily and Sardinia the overall reductions  in social security contributions as defined in Article 1 of the relevant Italian interministerial  decree of 5 August 1994 shall be limited to: -  14,6  % as from 1 July 1994 -  14  % as from 1 December 1994 -  10,6  % as from 1 December 1995 -  6,8  % as from 1 December 1996 -  0  % as from 1 December 1997. In Abruzzi and Molise these reductions shall be limited to: -  12  % as from 1 July 1994 -  0  % as from 1 November 1994. Article 4 In Campania, Basilicata, Apulia, Calabria, Sicily, Sardinia and Molise the  'fiscalization` differential with the regions of the Centre-North shall be limited to: -  5  % as from 1 July 1995 -  4  % as from 1 January 1996 -  3  % as from 1 January 1997 -  2  % as from 1 January 1998 -  1  % as from 1 January 1999 -  0  % as from 1 January 2000. In Abruzzi this differential shall be limited to: -  5  % as from 1 July 1995 -  3  % as from 1 January 1996 -  1  % as from 1 July 1996 -  0  % as from 1 January 1997. Article 5 Italy shall adopt all general measures necessary to comply with Articles 2 and 3 by 30  June 1996. It shall notify the Commission thereof by 30 July 1996. Italy shall adopt all general measures necessary for compliance with Article 4 by 15 April 1995. It  shall notify the Commission thereof by 30 April 1995. Article 6 This Decision is addressed to the Italian Republic. Done at Brussels, 1 March 1995. For the Commission Karel VAN MIERT Member of the Commission (1)  OJ No C 212, 12. 8. 1988, p. 2.  (1)  OJ No L 143, 10. 6. 1988, Articles 2, 3, 4 and 7.