1999/148/EC, ECSC: Commission Decision of 13 May 1998 on State aid granted by Italy by way of tax relief under Law No 549/95 to firms in the motor vehicle, shipbuilding and synthetic fibres industries and to steel firms covered by the ECSC Treaty (notified under document number C(1998) 1434) (Only the Italian text is authentic) (Text with EEA relevance)
Date: 1998-05-13
Institutions: European Commission
Subjects: Italy, State aid, aid to industry, aid to undertakings, tax relief

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 13 May 1998

on State aid granted by Italy by way of tax relief under Law No 549/95 to firms in
the motor vehicle, shipbuilding and synthetic fibres industries and to steel firms
covered by the ECSC Treaty

(notified under document number C(1998) 1434)

(Only the Italian text is authentic)

(Text with EEA relevance)

(1999/148/EC, ECSC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community, and in particular Articles 92 and 93 thereof,

Having regard to the Treaty establishing the European
Coal and Steel Community,

Having regard to Commission Decision No 2496/96/
ECSC of 18 December 1996 establishing Community
rules for State aid to the steel industry (1), and in particular
Article 6(5) thereof,

Having given interested parties notice to submit their
comments (2), and having regard to those comments,

Whereas:

I

By letter dated 5 March 1996 from the Office of the
Italian Permanent Representative to the European Union,
the Italian authorities notified the Commission of Law
No 549 of 28 December 1995 (hereinafter ‘the Law'),
which, inter alia, grants tax relief to certain firms.

(1) OJ L 338, 28. 12. 1996, p. 42.
(2) OJ C 268, 4. 9. 1997, p. 4.

The Law provides for investment aid in the form of tax
exemptions on reinvested profits. The scheme applies to
all firms in Objective 1, 2 or 5(b) areas and to microen-
terprises outside such areas. Microenterprises are defined
as firms which,
in
progress on 12 June 1994, generated a turnover of less
than ITL 5 billion and which have a workforce of not
more than 20.

in the tax period following that

Under the Law, 50 % of reinvested profits are exempt
from tax. Eligibility for this relief is restricted to profits
intended for the financing of investment carried out in
1996 that exceeds the average amount of
investment
carried out in the previous five years. Eligible investment
is investment in new plant, investment for the extension
and modernisation of an existing establishment and
in the purchase of new capital goods,
investment
including
through leasing
capital
contracts.

acquired

goods

A ministerial circular dated 14 February 1997 spelled out
the provisions of the Law with regard to the definition of
eligible firms, the aid intensities allowed, the methods for
calculating the aid, and eligible expenditure.

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Those provisions stipulate that:

— firms covered by the Community definition of small
or medium-sized enterprises (hereinafter ‘SMEs') given
in the Community guidelines on State aid for SMEs (3)
and other firms in the Objective 1, 2 or 5(b) areas
which are eligible for the derogations provided for in
Article 92(3)(a) and (c) qualify for the aid,

— of the firms in the Objective 1, 2 or 5(b) areas that are
not eligible for the derogations provided for in Article
92(3)(a) and (c), only those that are covered by the
Community definition of SMEs qualify for the aid,

— in the other areas to which the Law applies, both
microenterprises as defined in the Law and SMEs
qualify for aid.

Since the only sectors excluded from the scope of the Law
were banking and insurance, the Commission had to
conclude that it did not contain any provisions on aid to
sensitive sectors.

In their letter of 13 February 1997 the Italian authorities
stated among other things that, in implementing the Law,
they did not intend to comply with the Community rules
governing the motor vehicle and synthetic fibres indus-
tries and steel firms covered by the ECSC Treaty. No
details were given in this respect regarding the ship-
building industry. The Italian authorities appeared to take
the view that the Community provisions relating to sensi-
tive sectors were not applicable, since the scheme was
horizontal in nature. They considered that those provi-
sions applied only where a scheme had sectoral objectives.

In view of the foregoing and while generally approving
the Law in the light of the Community rules on regional
aid, the Commission informed the Italian Government,
by letter of 21 May 1997, of
its decision to initiate
proceedings pursuant
to Article 6(5) of Decision No
2496/96/ECSC and Article 93(3) of the EC Treaty in
respect of application of the aid scheme in question in
sensitive sectors such as the steel, motor vehicle, ship-
building and synthetic fibres industries.

II

As part of the proceedings the Commission invited the
Italian Government
and
to submit
informed the other Member States and interested parties
by publishing a notice in the Official Journal of the
European Communities (4).

comments,

its

(3) OJ C 213, 13. 7. 1996, p. 4.
(4) See footnote 2.

In response to that notice, four interested parties and one
Member State submitted comments to the Commission:
the International Rayon and Synthetic Fibres Committee
(letter of 12 September 1997), British Steel (letter of 15
September 1997), the UK Steel Association (letter of 16
September 1997), Wirtschaftsvereinigung Stahl (letter of
25 September 1997) and Denmark (letter of 2 October
1997).

In their comments, the interested parties and Denmark
expressed support
the Commission’s decision to
initiate proceedings.

for

By letter of 24 October 1997 the Commission passed on
the above comments to the Italian authorities. As of 20
April 1998, the Italian authorities had not made any
formal reply to that letter or to the letter of 21 May 1997
by which the Commission had informed them of its
decision to initiate proceedings.

III

The measures in question constitute aid to firms since
they have the effect of selectively reducing, for the recipi-
the costs normally borne by competing firms.
ents,
Furthermore, only certain firms qualify for these reduc-
tions, more specifically firms located in Objective 1, 2 or
5(b) areas, microenterprises as defined in the Law, and
SMEs.

The aid, granted in the form of tax relief, consequently
distorts competition between firms and is liable to affect
intra-Community trade.

the Law to steel

As regards the application of
firms
covered by the ECSC Treaty, Article 4(c) of that Treaty
stipulates that subsidies or aids granted by States in any
form whatsoever are recognised as incompatible with the
common market for coal and steel and must accordingly
be abolished and prohibited within the Community. The
only derogations that might possibly be granted from that
general ban are listed exhaustively in Decision No 2496/
96/ECSC. These are aid for research and development
(Article 2), aid for environmental protection (Article 3)
and aid for closures (Article 4).

The Italian authorities have not relied on any of these
derogations to justify the application of the State aid
measures concerned to the steel industry. It is further-
more clear from the file that none of the above deroga-
tions can apply to the aid in question.

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Neither does the Law lay down any limit in respect of the
nature and purpose of the investments qualifying for tax
relief.

and Italy was therefore required by the code to notify any
aid which it planned to grant to firms in the industry.

The application of the tax exemptions concerned to steel
firms covered by the ECSC Treaty must consequently be
regarded as illegal since it was not previously authorised
by the Commission. It is also incompatible with the
common market for coal and steel since it does not
qualify for any of the possible derogations allowed by
Decision No 2496/96/ECSC.

IV

As regards the application of the aid scheme in question
to shipbuilding and ship repair firms, the latter are subject
to the special State aid rules laid down in Council
Directive 90/684/EEC of 21 December 1990 on aid to
shipbuilding (5), the validity of which was extended by
Council Regulation (EC) No 2600/97 (6). Article 11(2)(b)
of the Directive stipulates that Member States must notify
the Commission in advance of any decision to apply a
general or regional aid scheme to the firms covered by the
Directive, and must not put such a decision into effect
before it is authorised.

firms must

Each case in which the Law is applied to shipbuilding or
therefore be notified to the
ship repair
Commission, which alone has
to assess
whether the aid is in conformity with the rules laid down
in Article 6 of the Directive.

the powers

As far as the application of the Law to the synthetic fibres
industry is concerned, in 1997, in view of the low average
rate of productive capacity utilisation in the synthetic
fibres industry, the resulting job losses and the risk that
any new aid could aggravate the situation and distort
competition, the Commission adopted a code on aid to
the synthetic fibres industry in order to impose tighter
control on the granting of aid by Member States to
synthetic fibre producers.

The code has been periodically revised. The current
version (7) entered into force on 1 April 1996 and expires
on 31 March 1999. It replaced the previous version (8),
which expired on 31 March 1996. A Community code on
aid to the industry was therefore in force throughout 1996

Because

Lastly, as regards application of the Law to the motor
in 1989 the Commission decided to
vehicle industry,
adopt a framework for State aid to the motor vehicle
industry (9).
the
tough
of
increasingly
competition in the sector,
the framework makes the
granting of aid subject to stricter rules, so as to ensure that
the competitiveness of the Community industry is not
distorted by unfair competition. In particular, it requires
Member States to notify in advance major aid measures
for the motor vehicle industry in accordance with strict
rules.

Since 1989 the framework has been renewed four times,
in 1991 (10), 1992 (11), 1995 (12) and 1997 (13). With reference
to the provisions of the Law, therefore, a Community
framework was in force throughout 1996 and Italy was
required by the framework to notify any aid for an invest-
ment project in the motor vehicle industry costing more
than ECU 17 million.

Even if the tax exemptions in question could be regarded
as compatible with the common market, on the grounds
that they fulfil some of the conditions laid down in the
relevant sectoral rules, the aid granted in the above sensi-
tive sectors should be declared illegal since it was granted
without the prior approval of the Commission, which is
exclusively empowered to assess its compatibility.

inform the
therefore
Italian authorities must
The
Commission in good time of
the individual cases in
which they intend to apply the Law to firms in the above
sensitive sectors and provide it with all the necessary
information and explanations enabling it to assess the
compatibility of the aid in the sectors in question. If the
Commission were not to receive from the Italian author-
ities the information required for the purpose of assessing
the compatibility of the aid with the common market, it
would have to base its assessment on the information in
its possession at the time it took its final decision; in view
of the misgivings about aid in the sectors concerned
which the Commission expressed when it initiated the
proceedings, a negative final decision cannot be ruled out
at this stage in the procedure.

V

In the light of the foregoing, and in particular Parts III
and IV, it must be concluded that the aid granted under
the Law by Italy in 1996 by way of tax relief to steel firms
and firms in the other sensitive sectors mentioned in this
Decision is illegal since it was not notified and, a fortiori,
was not approved by the Commission before it was

(5) OJ L 380, 31. 12. 1990, p. 27.
(6) OJ L 351, 23. 12. 1997, p. 18.
(7) OJ C 94, 30. 3. 1996, p. 11.
(8) OJ C 142, 8. 6. 1995, p. 4.

(9) OJ C 123, 18. 5. 1989, p. 3.
(10) OJ C 81, 26. 3. 1991, p. 4.
(11) OJ C 36, 10. 2. 1993, p. 17.
(12) OJ C 284, 28. 10. 1995, p. 3.
(13) OJ C 279, 15. 9. 1997, p. 1.

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granted. The aid to steel firms covered by the ECSC
Treaty is furthermore incompatible with the common
market since it does not qualify for any of the possible
derogations provided for by Decision No 2496/96/ECSC.
On the question of the compatibility of the aid in the
other sensitive sectors, the Commission will determine its
position when it has received the information that Italy is
required to communicate,

HAS ADOPTED THIS DECISION:

Article 1

The State aid granted by Italy under Law No 549/95 by
way of tax relief to steel firms covered by the ECSC
Treaty is illegal, since it was granted in breach of Article
6(1) of Decision No 2496/96/ECSC.

It is also incompatible with the common market for coal
and steel by virtue of Article 4(c) of the ECSC Treaty.

Article 2

Italy shall recover the aid referred to in Article 1 in
accordance with the provisions of Italian law relating to
the recovery of amounts owed to the public authorities. In
order to counteract the effects of the aid, interest shall be
charged on the amount of the aid from the date on which
it was granted until the date it is reimbursed. The interest
rate applicable shall be that used by the Commission to
calculate the net grant equivalent of regional aid schemes
in the period in question.

Article 3

Italy is required to provide the Commission, within one
month of the notification of this Decision, with all the
necessary information and explanations enabling it to
assess the compatibility with the common market of the
State aid granted under Law No 549/95 to firms in the
shipbuilding, motor vehicle and synthetic fibres indus-
tries.

That aid is illegal, since it was granted in breach of the
prior notification requirement laid down in Article 93(3)
of the EC Treaty.

Article 4

Italy shall inform the Commission, within two months of
the notification of this Decision, of the measures taken to
comply herewith.

Article 5

This Decision is addressed to the Italian Republic.

Done at Brussels, 13 May 1998.

For the Commission

Karel VAN MIERT

Member of the Commission