2002/581/EC: Commission Decision of 11 December 2001 on the tax measures for banks and banking foundations implemented by Italy (Text with EEA relevance) (notified under document number C(2001) 3955)
Date: 2001-12-11
Institutions: European Commission
Subjects: Italy, State aid, aid system, bank, control of State aid, redemption

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Official Journal of the European Communities

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COMMISSION

COMMISSION DECISION

of 11 December 2001

on the tax measures for banks and banking foundations implemented by Italy

(notified under document number C(2001) 3955)

(Only the Italian version is authentic)

(Text with EEA relevance)

(2002/581/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 and having regard to
their comments (1),

(2)

(3)

(4)

Whereas:

By letter dated 25 October 2000,
the Commission
informed the Italian Government that it had decided to
initiate the procedure laid down in Article 88(2) of the
EC Treaty in respect of the aid.

The Commission decision to initiate the procedure was
published in the Official Journal of the European Commu-
nities (2). The Commission invited interested parties to
submit their comments on the measure.

The Commission received comments from interested
parties. On 18 June 2001 it forwarded them to the
Italian authorities, who were given the opportunity to
react; their comments were received by letter dated 25
July 2001.

I. PROCEDURE

(1)

By letter dated 24 March 1999, the Commission, after
receiving a Parliamentary question on the subject,
requested the Italian authorities to supply information in
order to assess the scope and effects of Law No 461 of
23 December 1998 (‘Law 461/98’). By letters dated 24
June and 2 July 1999, the Italian authorities provided the
Commission with information on the Law and on the
related Legislative Decree No 153 of 17 May 1999
(‘Decree 153/99’). After examining the information
received, the Commission advised the Italian authorities
by letter dated 23 March 2000 that the aforementioned
Law and Decree were likely to contain aid elements and
requested them to halt any measures implementing
them. By letter dated 12 April 2000, the Italian authori-
ties informed the Commission that they had suspended
the implementation of
the two instruments. Further
information was supplied to the Commission by letter of
14 June 2000.

II. DETAILED DESCRIPTION OF THE AID

(5)

Law 461/98 and Decree 153/99 introduce tax advan-
tages for the consolidation of the banking sector:

five years after

1. the reduction to 12,5 % of the rate of income tax
(IRPEG) for banks which merge or engage in similar
the operation,
restructuring,
for
provided that
the profits are placed in a special
reserve which may not be distributed for a period of
three years. The profits which may be placed in the
special reserve may not exceed 1,2 % of the difference
between the sum of credits and debits of the post-
merger bank and the sum of credits and debits of the
largest pre-merger bank (Article 22(1) and Article
23(1) of Decree 153/99);

(1) OJ C 44, 10.2.2001, p. 2.

(2) See footnote 1.

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2. tax neutrality for transactions in which goods and
holdings in ancillary activities transferred to banks
pursuant
to Law No 218 of 30 July 1990 are
returned to the transferring institution (Article 16(3)
of Decree 153/99);

3. the imposition of a fixed amount

replacing the
indirect taxes normally due in connection with the
operations cited above in (1) and (2) (Article 24(1)
and Article 16(5) of Decree 153/99);

4. tax neutrality with respect to the local tax due on the
increase in the value of property at
the time of
change in ownership, in connection with the opera-
tions cited above in (1) and (2) (Article 24(1) and
Article 16(5) of Decree 153/99);

5. exemption from tax for the transfer to banking foun-
dations of banks’ holdings in the capital of the Banca
d’Italia (Article 27(2) of Decree 153/99).

Law 461/98 and Decree 153/99 also introduce tax
for banking foundations. The measures
advantages
concerning banking foundations will not be dealt with in
the present decision.

tax

savings

Decree 153/99 grants tax benefits in relation to merger
operations carried out in the years 1998-2004. Since the
implementation of the measures was suspended in 2000,
the
should concern only operations
completed in 1998, 1999 and 2000. However, should it
in fact transpire that operations carried out after the
suspension also benefited from the measure, these should
be treated in the same way as operations carried out
before the suspension, particularly when this decision is
executed.

On the basis of the 76 operations carried out in 1998,
1999 and 2000, the Italian authorities put at ITL 5 358
billion (EUR 2 767 million) the maximum theoretical
amount of tax benefits that beneficiaries of the measure
referred to in paragraph 5(1) above might have claimed
over the specified five-year period. This estimate does
not include tax benefits granted through measures indi-
cated in paragraph 5(2) to (5).

Formerly State-owned banks in Italy, which did not take
the form of public limited companies, were gradually
converted, and finally obliged by law to convert in 1993,
into public limited companies. Their shares were either
placed on the market or held by non-profit institutions
referred to as ‘banking foundations’. Law No 218 of 30
July 1990 introduced special tax rules by which the
banking foundations that owned or controlled the newly
created banks could transfer certain assets to those
banks. The measures indicated in paragraph 5(2) and (5)
refer to those same assets and define the conditions

(6)

(7)

(8)

(9)

under which they might be returned to the transferring
institution (i.e. the banking foundation).

(10)

The Commission provisionally considered that
aid
granted by Law 461/98 and Decree 153/99 in connec-
tion with bank mergers was likely to be incompatible
with the common market in the light of Article 87, for
the following reasons:

— Law 461/98 and Decree 153/99 grant tax advantages
for bank mergers that favour certain undertakings,
carrying out merger operations,
notably those
enabling them to grow in size and benefit
from
economies of scale at a lower cost. Being confined to
the banking sector, this constitutes a sectoral scheme
which falls within the scope of Article 87(1) of the
Treaty;

— The advantage is granted by forgoing tax revenues,
i.e.
through State resources. The aid affects trade
between Member States since it makes it easier for
Italian banks to expand abroad and more difficult for
foreign banks to enter Italy;

— The aid to banks is not within the de minimis limit.
The Italian authorities state that the tax advantages
for banks are justified by the fact that they are neces-
sary for the consolidation and modernisation of the
banking sector. The Commission had doubts as to
whether or not
this might make it possible to
consider the aid to be compatible on the basis of
Article 87(3)(c). The Treaty gives the Commission
sole competence for checking that aid projects meet
such a compatibility criterion and this is why it
requires prior notification. In addition, the aid does
not satisfy the conditions laid down by the Commu-
nity guidelines on State aid for rescuing and restruc-
turing firms in difficulty (3). The measures in question
are also likely to constitute operating aid in so far as
they are not linked to the carrying-out of specific
projects and reduce a firm’s current expenditure; the
Commission was unable to assess the precise volume
involved when it carried out its ex ante examination.

On these grounds, the Commission initiated the proce-
dure laid down in Article 88(2) of the EC Treaty.

III. COMMENTS FROM INTERESTED PARTIES

(11)

(12)

The Commission has received a number of comments
from beneficiaries of the aid, most of them being similar
to those made by the Italian authorities.

It was argued mainly that, even in the event that the
Commission considered the measures as incompatible
aid, there would be grounds for ruling out the recovery
of the aid because of the legitimate expectations of the
recipients.

(3) OJ C 288, 9.10.1999, p. 2.

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(13)

These expectations would be justified by the fact that the
Commission did not call into question Law No 218 of
30 July 1990, which granted similar benefits. In fact, in
its notice pursuant to Article 88(3) in the case of aid
granted by Italy to Banco di Napoli (4) the Commission
took the view that: ‘By allowing the assets to be revalued
under a partial tax-exemption system and providing for
the recapitalisation of certain public banks that have
always been undercapitalised […] in order to comply
with the minimum capital levels laid down in the new
Community Directives on banking, the “Amato” Law
made it possible to replace an unlimited State guarantee
for public banks with limited capital injections. This was
the first step towards treating public and private banks
in the same way, thus limiting distortion of competition.
[…] Consequently, it must be concluded that the capital
contributions
the
“Amato” Law do not constitute State aid within the
meaning of Article 92(1) of the EC Treaty’.

to the bank provided for under

(14)

The operations had also been cleared by the Banca
d’Italia, which is the relevant competition authority for
the credit sector.

(15)

The recovery of the aid would also run counter to the
proportionality principle. Merger operations were carried
out on the basis of the tax incentive; recovery could
produce financial
instability for the beneficiaries and
would alter the conditions on which they had based their
merger decisions.

IV. COMMENTS FROM ITALY

(16)

In its response to the initiation of the procedure, the
Italian Government stated that the banking system in
Italy has been subject since 1936 to strict public control
and direct Government intervention in the management
of a large majority of banks. Banks had been divided into
institutional categories, with different opera-
different
tional limits (‘specialisation principle’). This had adversely
affected the efficiency and competitiveness of the system.
For this reason the authorities took several steps from
the early 1980s onwards to abandon the specialisation
principle, privatise State-owned banks and encourage an
increase in the average size of Italian banks. Law No 218
of 30 July 1990 had previously granted tax advantages
to banks similar to those being considered in this deci-
sion. Law 461/98 and Decree 153/99 should be seen as
part of
the same process aimed at modernising the
banking sector.

(17) While this process was taking place, the Italian Govern-
ment also undertook a general reform of the taxation

(4) Commission notice pursuant to Article 93(2) of the EC Treaty to
other Member States and interested parties concerning aid granted
to Banco di Napoli (Case C 40/96; OJ C 328, 1.11.1996, p. 23).

the ‘Dual

system. The general reform involved the introduction in
1997 of
Income Tax’
the
(IRAP) (6).
‘Imposta Regionale sulle Attività Produttive’
Those two taxes were applied to banks at less favourable
conditions than to other economic sectors by way of
compensation for the other more specific tax advantages
envisaged for banks.

(DIT) (5) and of

(18) Accordingly, the measures do not represent a derogation
rather, special and
tax rules but,
from the normal
temporary measures justified by the process of consoli-
dation of
the banking sector. The Italian authorities
submit that the Court of First Instance has ruled that a
special system of levies which does not constitute a dero-
gation from the tax arrangements generally applied to
other activities has to be evaluated solely in the context
of
tax arrangements applicable to the
sector (7). It is therefore legitimate for the Italian legis-
lator to seek to adapt the tax system to the specific char-
acteristics of the banking sector where this does not
imply a decrease in the general tax burden, as in the
present case, with respect to the rest of the economy.

the special

(19)

(20)

The Italian authorities also reckon that rules on State aid
cannot hinder an improvement in the general fairness
and consistency of the system where it could be demon-
strated that the initial situation was penalising certain
undertakings or sectors. They add figures showing that
banks contribute 20 % of overall company tax revenues
while accounting for only 5 % of the country’s value
added. Other figures support the claim that the banking
sector is subject to a higher tax burden. While a reduc-
tion of the tax burden could have been achieved by
granting banks the same taxation rules as other sectors,
the Government decided instead to offer incentives for
the consolidation of the sector.

The measures should be considered to be of a general
nature. All banks, including Italian branches of foreign
banks, are eligible for the tax breaks. As for the differ-
ence in treatment with respect to other sectors, this is
justified by the nature and general scheme of the system.
The banking sector is subject to very specific regulation
and, as a result, banks constitute a peculiar category of
taxpayers. Banks are subject to many additional obliga-
tions with respect to other undertakings. As a result, a
difference in tax treatment is objectively justified and is
typical of this sector (8).

(5) Legislative Decree No 466 of 18 December 1997.
(6) Legislative Decree No 446 of 15 December 1997.
(7) Case T-67/94 Ladbroke Racing Ltd v Commission [1998] ECR II-1.
(8) Case T-55/99 Confederación Española de Transporte de Mercancías

(CETM) v Commission [2000] ECR II-3207.

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(21)

in ancillary activities

The measures in paragraph 5(2) and (5) and, to some
in paragraphs 5(3) and (4) concern goods and
extent,
holdings
transferred to banks
pursuant to Law No 218 of 30 July 1990. At the time of
the conversion of the public banks into public limited
companies owned by banking foundations, operators
had to assign those assets to the banks instead of the
foundations, in order to avoid taxation on revaluation of
assets. In the case of the holdings in the capital of Banca
d’Italia, the choice of placing them in the foundation was
not even available. According to Law 141 of 7 March
1938, the newly created foundations were not among
the institutions eligible to be shareholders of the Banca
d’Italia. Decree 153/99 modified those rules and allowed
foundations to hold shares in the Banca d’Italia. These
assets, while increasing the capital of the banks, do not
contribute to their activity and therefore lower their
profitability indices. The measures in question merely
provide for a tax-exempted transfer of these assets to the
foundations in order not to penalise banks for the conse-
quences of the privatisation process.

(22)

The measures in question do not distort competition.
There is no distortion of competition among banks oper-
ating in Italy, including those of other Member States.
There is no distortion between banks operating in Italy
and banks operating abroad since the initial situation is
very unfavourable to those established in Italy.

(23)

trade between Member
The measures do not affect
States. They would not make it easier for Italian banks to
expand abroad and more difficult for foreign banks to
enter Italy. On the contrary, foreign banks may partici-
pate in mergers in Italy and benefit from the tax breaks.

(24)

implementation of

specific operations. As

The measures do not involve the use of State resources.
The tax advantage is not automatic but conditional upon
the
for
measures in paragraph 5(2), (3), (4) and (5), where those
operations would have involved a tax burden, it is unli-
kely that they would have taken place in the absence of
the tax benefit. As for measures in paragraph 5(1), the
temporary reduction in company tax would be compen-
sated in the long term by the likely increase in the profit-
ability of the interested banks and by the taxation of that
increase.

(25)

In the rejected hypothesis that the measures constituted
it would be compatible under Article 87(3)(b).
aid,
the
Consolidation of

the banking system is part of

important Community project of introducing the euro
and of creating a single internal market
in banking
services. It is also important to consolidate the banking
sector in order to avoid a possible generalised crisis in
the system, an initial symptom of which was evidenced
by the financial difficulties of Banco di Sicilia and Banco
di Napoli.

The description of the measures as ‘operating’ aid is not
correct. The tax advantages are granted only in relation
to a specific and well-identified project, such as a merger.
The amount of aid is determined on the basis of objec-
tive and transparent parameters. The measures do not
reduce current expenditure but, rather, outlays related to
operations of an exceptional nature.

The tax measures would also qualify for compatibility
under Article 87(3)(c) since they are intended to facilitate
the development of banking activity without adversely
affecting trade to an extent contrary to the common
interest. The possibilities of resorting to Article 87(3)(c)
are not exhausted by the circumstances indicated in the
Community guidelines on State aid for rescuing and
restructuring firms in difficulty. The Commission has
recognised on other occasions that consolidation of the
banking sector is inevitable in the present circumstances.

(26)

(27)

(28)

If the Commission does not accept the above general
argument
in favour of compatibility under Article
87(3)(c), it then has to verify case by case, i.e. by looking
at each individual beneficiary of the measures, whether
the conditions for applying Article 87(3)(c) are met.

V. ASSESSMENT OF THE AID

(29)

the Commission’s analysis is an aid
The subject of
i.e. an instrument by which a Member State
scheme,
offers tax advantages to any financial
institution that
fulfils the conditions laid down in the scheme. The
Member State in question did not grant advantages on
an individual basis and did not notify each individual
case to the Commission. Consequently, given the very
nature of the measure, the Commission has to undertake
a general and abstract examination of the scheme, both
as regards the question of aid and as regards the question
of compatibility; it is competent to undertake such an
examination pursuant to the Treaty, Regulation (EC) No
659/1999 and the case law of the Court (9). It is not
examining the scheme’s application in each of the 76

(9) Case 248/84 Germany v Commission [1987] ECR 4013, paragraphs
17-18; Case C-47/91 Italy v Commission [1994] ECR I-4635, para-
graphs 20-21; Case C-75/97 Belgium v Commission [1999] ECR I-
3671, paragraph 48; Joined Cases C-15/98 and C-105/99 Italy and
Sardegna Lines v Commission [2000] ECR I-8855, at paragraph 51.

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merger operations referred to or in an unknown number
of asset transfers between banks and banking founda-
tions.

(30)

the openness of

The scheme itself was conceived and implemented by
the Member State with a view to achieving a specific and
clearly expressed effect: consolidation of
the Italian
banking sector. Thus, all of the elements necessary to
assess whether
the scheme involves State aid and
whether it is compatible with the common market are to
be found in the scheme itself. In addition, in view of the
specific circumstances of the case, the assessment of aid
granted under the scheme would probably not change in
an individual case. Indeed, because of their nature, the
beneficiaries will normally be considered to be undertak-
ings within the meaning of Article 87(1) of the EC
the
Treaty. As a consequence of
Community banking sector, the advantages given to a
specific bank are bound to affect trade between Member
States and to distort competition. In addition, in the light
of the requirements laid down (notably, the prior exis-
tence of a restructuring plan), it is unlikely that any of
the specific operations rank as restructuring of an under-
taking in difficulty within the meaning of the Commu-
nity guidelines on State aid for rescuing and restruc-
turing firms in difficulty (10). It is even less likely that the
advantages not related to new investments can excep-
tionally be considered as compatible under the Guide-
lines on national regional aid (11) In this respect, it could
be added that
rarely
confined to banks active only in areas eligible for
regional aid. Finally, no other element suggests that indi-
vidual aid might be considered to be compatible on any
other ground.

consolidation operations are

(31)

The Commission notes that Italy has asked it to analyse
each individual case of aid. However, it does not consider
that, for this reason alone, it is obliged to do that at this
stage of these proceedings. In its view, any such request
would have to be accompanied at least by all the infor-
mation necessary for the Commission to conduct an
assessment of each individual case, i.e. all the informa-
tion that should normally be provided to the Commis-
sion in the context of a complete notification of an indi-
vidual
Italian
aid pursuant
the Commission’s doubts
authorities were aware of
If they considered that some
concerning the scheme.
particular cases, because of their specific features, should
have been assessed on an individual basis, they were
under a duty to inform the Commission of these features
and to provide all the information needed for an indivi-
dual assessment.

to Article 88(3). The

(32)

The Commission acknowledges that the peculiar nature
of banking could, in principle, justify the introduction of

specific tax rules for the sector. However, the measures
under examination do not represent an adaptation of the
general system to the distinctive features of banking, but,
rather, ad hoc aid having the effect of improving the
competitiveness of certain undertakings, i.e. the merging
banks, and only in relation to certain operations. The
fact that the banking sector might be in need of restruc-
turing at a particular time is an extrinsic factor bearing
no relation to the normal operation of the tax system in
the banking sector; therefore, it does not imply that it is
in the nature or general scheme of the system that
banking should benefit from more favourable rules on
mergers. For these reasons, it cannot be accepted that
the measures in question are justified by the nature or
general scheme of the system. They represent a deroga-
tion from the normal tax rules. ‘According to the case-
law of the Court, aid in the form of an aid programme
may concern a whole economic sector and still be
covered by Article 92(1) of
the Treaty (now Article
87(1)) and a measure designed to give the undertakings
of a particular industrial sector a partial reduction of the
financial charges arising from the normal application of
the general social security system, without there being
any justification for this exemption on the basis of the
nature or general scheme of
this system, must be
regarded as aid’ (12). It is equally well established that the
tax nature of the measure in question cannot suffice to
shield it
the
Treaty (13).

from application of Article 87(1) of

(33)

It

The measures confer an advantage on banks, enabling
them to grow in size and benefit from economies of
scale at a lower cost. This advantage is selective in
nature.
is also selective vis-à-vis banks within the
sector since it is confined to those companies involved
in merger or consolidation operations. Moreover, the aid
measure described in paragraph 5(1) is not neutral with
respect to the relative size of the companies involved. If,
for simplicity’s sake, we consider an acquisition involving
two banks, the tax benefits will be directly proportional
to the size (sum of credits and debts) of the smaller one.
Accordingly, if the purchasing bank is smaller than the
purchased bank, its tax advantage will be lower than the
one accruing to a hypothetical larger buyer of the same
bank. This might place smaller buyers at a disadvantage
with respect to larger ones.

(34)

In addition, to the extent that smaller buyers are placed
at a disadvantage and since the tax benefit applies to
Community banks only as regards the branches estab-
lished in Italy, which tend to be rather limited in size,
there may be an element of selectivity not only within
the sector but also between foreign and Italian banks.

(10) OJ C 288, 9.10.1999. Since some of the aid was granted after 9
October 1999, these guidelines apply by virtue of point 7.5, para-
graph 101.

(11) OJ C 74, 10.3.1998, p. 9.

(12) Case C-75/97 Kingdom of Belgium v Commission (‘Maribel bis/ter’

scheme) [1999] ECR I-3671, paragraph 33.

(13) Case 173/73 Italy v Commission [1974] ECR 709, paragraph 13.

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The fact that the aid is available also to branches of
foreign banks does not seem sufficient to eliminate the
bias in favour of mergers between Italian operators.

(35)

Even if the aid covered all banking operators without
differentiating between them, the measures would still
constitute aid to the sector. Merger operations having
the same expected profitability might not be carried out
in other sectors that do not benefit from the aid. These
selectivity elements do not disappear in cases where the
banking sector is generally subject
to a heavier tax
burden. If the bias in the tax system is justified by the
nature of the business, it does not call for compensation;
otherwise, it is the bias itself that should be corrected. A
selective measure might be justified by the specificity of
the activity covered by it, but not by the presence of
other selective measures.

(36) Moreover, the measures allow banks to acquire holdings
in other undertakings more cheaply when these are
owned by other banks involved in the operation. As
indicated in the reply of the Italian authorities, the opera-
tions might also concern different companies, e.g. finan-
cial or insurance companies, although the tax breaks are
granted only to the banks involved and in proportion to
the size of banking business.

(37)

(38)

The same considerations which apply to the measure in
paragraph 5(1), with the exception of the non-neutrality
with respect to the relative size of the participants, also
apply mutatis mutandis to the other tax benefits described
in paragraph 5(2), (3) and (4). In addition, they apply
only to banks involved in merger or consolidation opera-
tions or in transfers of assets and also represent aid to
the sector. Similar operations performed in other sectors
do not benefit from the same tax rules. Accordingly, the
measures are not of a general nature and confer a selec-
tive advantage upon the beneficiaries.

Somewhat different considerations have to made with
respect to the measure in paragraph 5(5) concerning the
holdings in the capital of the Banca d’Italia. In this case,
it might be argued that a tax exemption on the transfer
of assets does not represent a derogation from the
general taxation rules since the initial placement of the
holdings with the bank was a temporary operation for
which there was no alternative at the time and did not
reflect a business choice of the operators.

(39)

The reasoning in paragraph 38, however, would not
apply if the holdings in Banca d’Italia were obtained free
of charge and sold to the foundations or had been reva-
lued. If the placement of the holdings in the bank has to
be seen as a mere temporary operation, with the
preferred solution of assigning the asset to the founda-

tion not being available, then the bank should derive no
benefit with respect
to the hypothetical situation in
which the holdings were originally placed in the founda-
tion. In other words, the bank should not be penalised
by taxes on an operation that offsets a non-voluntary
transfer. Nor should it benefit from a tax exemption on
an operation that allows the bank to convert into cash
the value of
those holdings or increases the bank’s
capital. It is therefore considered that a tax exemption
on the transfer of shares of Banca d’Italia constitutes aid
only to the extent that the joint operation of assigning
the shares to the bank and transferring them to the foun-
dations has no impact on the bank’s balance sheet.

(40)

(41)

The situation regarding the shares of Banca d’Italia is
different from that of the other assets that could have
been placed either in the bank or in the foundation. The
choice was made at the time, taking into account the
different implications of the two options in terms of the
capital structure and tax liabilities of the two institutions.
Further transfers are not aimed at correcting a previous
non-voluntary transfer but are the result of a business
decision: as such, they do not justify special tax treat-
ment. Moreover, the tax exemption on the transfer of
these assets from the bank to the foundations represents
a selective advantage to those operators who originally
opted in favour of placing assets in the bank in order to
avoid the tax on capital gains.

The line of reasoning in paragraph 34 suggests that there
could be an effect on trade between Member States.
Generally speaking, aid that benefits undertakings in a
sector exposed to cross-border trade would be regarded
as affecting such trade. As the Court of
Justice has
observed, ‘when State financial aid strengthens the posi-
tion of an undertaking compared with other undertak-
the latter
ings competing in intra-Community trade,
must be regarded as affected by that aid’ (14).
In this
respect, there is no doubt that for many years financial
services and providers or consumers of financial services
have actually and potentially, directly and indirectly,
crossed frontiers between Member States. The liberalisa-
tion of financial services and the integration of the finan-
cial market have had the effect of greatly increasing the
sensitivity of intra-Community trade to distortions of
competition. Aid granted to credit undertakings offering
financial services in competition with other European
credit establishments is certainly likely to distort intra-
Community trade. This tendency is heightened by the
introduction of the single currency and the complete
opening-up of markets, which increase competitive pres-
sures between Community countries. It should also be

(14) Case 730/79 Philip Morris Holland v Commission [1980] ECR 2671,

paragraph 11.

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borne in mind that, although banks can carry out their
activities, which consist essentially in collecting deposits
and granting loans, on a cross-border basis, they often
encounter obstacles when expanding abroad. Such obsta-
cles are frequently due to the fact that local banks are
well established, which makes it more costly for foreign
competitors to enter the market. As liberalisation will
increasingly offer banks the opportunity to provide their
services in other Member States, any aid granted to
is likely to
them, whether international or domestic,
hamper them in so doing. Aid aimed at ensuring the
survival of even local banks that would otherwise have
been forced out of the market owing to their low profit-
ability and competitiveness is thus liable to distort
competition in the Community since it makes it more
difficult for foreign banks to enter the Italian market.
Even aid of a small amount and/or to small banking
operators may affect trade between Member States. As
stated by the Court of Justice, even aid of a relatively
small amount is liable to affect trade between Member
States where there is strong competition in the sector in
question (15).

(42)

the Treaty’ (16). The argument

The advantage is granted by forgoing tax revenues, i.e.
through State resources. The Court of Justice has consis-
tently held that ‘A measure whereby the public authori-
ties grant to certain undertakings a tax exemption which,
although not
involving a transfer of state resources,
places the persons to whom the exemption applies in a
more favourable financial position than other taxpayers
constitutes State aid within the meaning of Article 92(1)
of
the operations
would not have taken place in the absence of
the
measures, with the aid increasing state revenues, cannot
it cannot be ruled out that
be accepted. First of all,
operations of the type covered by the scheme would
have taken place anyway. Secondly, such an assertion
would imply that
tax rules, applying to
mergers in other sectors, are designed to discourage
merger operations rather than raise revenues. The fact
that, overall, an aid scheme increases the number or the
amount of taxable operations and therefore creates addi-
tional revenue for the State is not relevant
in this
context.

the normal

that

(43)

For the above reasons, the measures in question consti-
tute State aid.

(44)

The aid to banks is generally outside the de minimis limit.
It cannot be ruled out, however, that in certain individual
cases some of the measures, particularly those indicated

(45)

(46)

at paragraph 5(2), (3), (4) and (5), might fall within the
de minimis thresholds. In those cases, the measures would
be deemed to fall outside the scope of Article 87(1) of
the Treaty.

is

The aid is not compatible under Article 87(2). It is not
aid having a social character that is granted to individual
consumers, aid to make good the damage caused by
natural disasters or exceptional occurrences or aid
granted to the economy of certain areas of the Federal
Republic of Germany affected by the division of
Germany. Nor
the aid compatible under Article
87(3)(d) (aid to promote culture and heritage conserva-
tion) or (e) (such other categories of aid as may be speci-
fied by decision of the Council). Nor has the Member
State invoked any of these derogations. Furthermore, the
aid is not compatible under Article 87(3)(b). The
strengthening of the Italian banking system cannot be
considered a ‘project of common European interest’ since
it will benefit mostly the economic operators of one
Member State and not the Community as a whole and
since it will not promote a concrete, precise and well-
defined project; nor does it ‘remedy a serious disturbance
in the economy of a Member State’ since there is no
evidence that the Italian banking system was suffering
from a systemic crisis.

The aid extends across the whole territory of
the
Member State and cannot therefore be considered to be
compatible under Article 87(3)(a) or (c) (as far as the
development of certain regions is concerned). In addi-
tion, with respect to the ranking of the aid as ‘operating’
aid, this category, for the purposes of assessment under
the relevant regional guidelines, embraces all types of
expenditure not related to ‘initial investment’, i.e. invest-
ment in fixed capital relating to the setting-up of a new
establishment, the extension of an existing establishment
or the starting-up of an activity involving a fundamental
change in the product or production process of an
existing establishment (17). Accordingly,
the
measure concerned expenditure linked to a specific
merger or acquisition project in an assisted region,
it
would still be assessed as operating aid and normally
prohibited.

even if

(47) As for compatibility under Article 87(3)(c) (as far as the
development of certain economic activities is concerned),
the conditions for applying the Community guidelines
on state aid for rescuing and restructuring firms in diffi-
culty (18) are not met. The scheme is not limited to SMEs.
The aid was not notified individually to the Commission

(15) Case C-303/88 Italy v Commission [1991] ECR I-1433, paragraph

27.

(16) Case C-6/97 Italian Republic v Commission [1999] ECR I-2981, para-

graph 16.

(17) See Guidelines on national regional aid (OJ C 74, 10.3.1998, p. 9)

and in particular points 4.1, 4.4, 4.15.

(18) OJ C 288 of 9.10.1999. Since some of the aid was granted after 9
October 1999, these guidelines apply by virtue of point 7.5, para-
graph 101.

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and no restructuring plan was submitted either. The
banks that benefit from the aid are normally not in diffi-
culty and the aid is not intended to restore their long-
term viability. The guidelines require that measures must
be taken to mitigate as far as possible any adverse effects
of the aid on competitors. In the present case the aid is
intended instead to strengthen the position of the benefi-
ciaries with regard to competitors which do not benefit
from the measures. As far as aid to SMEs is concerned,
the Commission notes that the scheme applies to under-
takings other than SMEs and that the advantages do not
qualify as investment aid or as aid to expenditure that
can otherwise be considered to be compatible. No
further feature of the scheme allows the Commission to
consider it as compatible for other reasons under Article
87(3)(c). Moreover, this provision requires that the aid
‘does not adversely affect trading conditions to an extent
contrary to the common interest’, a condition which, in
the Commission’s view, is not met in the present case.
Indeed, with respect to previous measures (19) that may
have made it easier for public banks to adopt the status
of public limited companies, thereby placing them on a
more even playing field with other banking institutions
(see also the considerations in paragraphs 51 to 54), the
present measures have mainly the effect of improving
the competitiveness of the beneficiaries in a sector where
international competition is strong.

compliance with the procedure laid down in that article.
A diligent operator should normally be able to determine
whether that procedure has been followed’ (21). The aid
in question was granted without prior notification.

the subject of

(51) As regards the fact that the Commission did not call into
it should be
question Law No 218 of 30 July 1990,
noted that
the Law was not notified by the Italian
Government. The Commission assessed only certain
aspects of
the Law in connection with individual
cases (22): in particular, it was the capital injection that
was
the Commission’s appraisal, an
element not present in the measures at issue here. It was
considered that
injection granted by Law
218/90 provided for the recapitalisation of certain public
banks. This operation and the other advantages linked to
it made it possible to replace an unlimited state guar-
antee for public banks with limited capital injections. It
was in the interests of competition that public banks and
bodies should be transformed into public limited compa-
nies and that there should be equal treatment of public
and private banks.

the capital

(48) Apart from possible de minimis aid, there appear to be
no other circumstances in which the measures in ques-
tion would be deemed compatible in individual cases. In
any event, those cases should have been notified indivi-
dually to the Commission under Article 88(3). In addi-
tion, the Italian State has not provided sufficient infor-
mation justifying compatibility in individual cases.

(52)

The above justification, however, would not apply in the
present case. As pointed out in the reply of the Italian
authorities, public banks, with very few exceptions, had
already converted to public limited companies by the
end of 1992. Such conversion was later made compul-
sory by Law No 489 of 26 November 1993.

(49)

(50)

In accordance with Article 14 of Regulation (EC) No
659/99 (20), where negative decisions are taken in respect
of unlawful aid, the Commission must decide that the
all necessary
Member State
measures to recover the aid from the beneficiary. The
Commission need not require recovery of the aid if this
would be contrary to a general principle of Community
law.

concerned must

take

The Commission considers that no general principle of
Community law stands in the way of recovery. In parti-
cular, as to legitimate expectations, the Court of Justice
stated that:
‘in view of the mandatory nature of the
supervision of State aid by the Commission under Article
87 of the Treaty, undertakings to which an aid has been
granted cannot, in principle, entertain a legitimate expec-
tation that the aid is lawful unless it has been granted in

(19) In particular, Law No 218 of 30 July 1990.
(20) OJ L 83, 27.3.1999, p. 1.

(53) Moreover, the fact that the Commission did not at the
into question the other measures, which are
time call
perhaps more similar
to the ones implemented by
Decree 153/99, does not mean that it should consider
those latter measures favourably. A tax exemption on
the transfer of assets from a banking foundation to the
related banking institution does not necessarily have to
be assessed in the same way as a similar transfer from
the banking institution back to the foundation. Indeed,
the one-off transfer of ancillary assets to the banking
institution could have had the effect of facilitating the
conversion of public banks into public limited compa-
nies;
those assets to the foundations,
possibly revalued under tax exemption, has the purpose
(and effect) of improving the profitability indicators of
the bank.

the return of

(21) Case C-169/95 Spain v Commission [1997] ECR I-135, paragraph

51.

(22) Commission Decision of 20 May 1992 concerning the recapitalisa-
tion of two main Sicilian banks (OJ C 160, 26.6.1992, p. 8) and
Commission notice pursuant to Article 93(2) of the EC Treaty
concerning aid granted by Italy to Banco di Napoli (OJ C 328,
1.11.1996, p. 23). See also Commission Decisions of 29 July 1998
giving conditional approval to the aid granted by Italy to Banco di
Napoli (OJ L 116, p. 36) and of 10 November 1999 conditionally
approving the aid granted by Italy to the public banks Banco di
Sicilia and Sicilcassa (OJ L 256, 10.10.2000, p. 21).

(54)

(55)

(56)

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L 184/35

Lastly, even if Law 218/90 had the same mechanism and
effects as the measures in question, something which the
Commission does not accept, it would still remain an ad
hoc measure. As such, it could be justified, in principle,
by the specific circumstances relating to its introduction,
but similar measures could not be considered compatible
at all times with the common market.

exemption for the transfer to banking foundations of
banks’ holdings in the capital of
the Banca d’Italia
(Article 27(2) of Decree 153/99), to the extent that the
joint operation of assigning the shares to the bank and
transferring them to the foundations has no impact on
the bank’s balance sheet.

Regarding the fact that the operations had been cleared
by the Banca d’Italia, which is the relevant competition
authority for the credit sector in Italy, it should be noted
that the Banca d’Italia has no competence over state aid
aspects.

For the above reasons, the beneficiaries of the aid could
not entertain a legitimate expectation that the measures
were compatible with the common market. In deciding
to carry out an aided merger operation, a diligent
operator should have taken into account the possibility
that the aid might be declared incompatible. If the tax
advantage represented a sine qua non for the profitability
of
the merger, a prudent operator would not have
carried out the operation. For those reasons, it cannot be
claimed that the recovery of the aid would run counter
to the proportionality principle.

(57)

The aid to be recovered must include interest which, in
is to be
accordance with the Commission’s practice,
calculated on the basis of the reference rate used for
calculating the grant equivalent of regional aid.

(60)

The aid benefits undertakings that operate in a sector
characterised by cross-border activity; the aid is, there-
fore, deemed to affect that trade.

(61)

The aid to banks generally falls outside the de minimis
limit and is not compatible under Article 87(3).

(62)

(63)

The Commission finds that the State aid is incompatible
with the common market and requires the Member State
to recover it. It also considers that there are no grounds
for the beneficiaries of the aid to entertain a legitimate
expectation that the measures were compatible with the
common market.

This decision concerns the aid scheme and must be
implemented immediately,
including by recovering all
individual aid granted under the scheme. The Commis-
sion also recalls that a decision on an aid scheme does
not prejudice the possibility that individual aid may be
considered,
in whole or in part, compatible with the
common market on its own merits in the context of a
future Commission decision or by virtue of the exemp-
tion regulations. However, in the light of the foregoing
considerations, possible compatibility of individual aid
appears extremely unlikely in the circumstances of the
present case,

VI. CONCLUSION

HAS ADOPTED THIS DECISION:

(58)

(59)

The Commission finds that Italy has unlawfully imple-
mented Law 461/98 and Decree 153/99 in breach of
Article 88(3) of
the Treaty. The legislative measures
confer an advantage on banks, enabling them to grow in
size and benefit from economies of scale at lower cost.
Law 461/98 and Decree 153/99 also introduce tax
for banking foundations. The measures
advantages
applicable to banking foundations are not the subject of
the present decision and will be dealt with separately.

The advantage is granted by forgoing tax revenues, i.e.
through State resources. The aid granted to banks is
selective.
It discriminates within the sector and with
respect to other sectors. The measures in question do
not represent an adaptation of the general system to the
distinctive features of the banking sector but, rather, ad
hoc aid having the effect of improving the competitive-
ness of certain undertakings, i.e. the merging banks. The
justified by the nature and general
measure is not
scheme of the system, with the sole exception of the tax

Article 1

Without prejudice to Article 2, the State aid to banks which
Italy has granted under Law No 461 of 23 December 1998 and
Legislative Decree No 153 of 17 May 1999, and in particular
on the basis of Articles 16(3) and (5), 22(1), 23(1), 24(1) and
27(2) of Legislative Decree No 153 of 17 May 1999, is incom-
patible with the common market.

Article 2

The advantages provided for in Article 27(2) of Legislative
Decree No 153 of 17 May 1999 do not constitute state aid in
so far as the joint operation of assigning the shares in the
capital of the Banca d’Italia to the bank and transferring them
to the foundation has no impact on the bank’s balance sheet.

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Article 3

Article 5

Italy shall withdraw the scheme referred to in Article 1.

Article 4

1.
Italy shall take all necessary measures to recover from the
beneficiaries the aid granted under the scheme referred to in
Article 1 and unlawfully made available to the beneficiaries.

Recovery shall be effected without delay and in accor-
2.
dance with the procedures of national law provided that they
allow the immediate and effective implementation of the Deci-
sion. 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 on the basis
of the reference rate used for calculating the grant equivalent of
regional aid.

Italy shall inform the Commission, within two months of notifi-
cation of this Decision, of the measures taken to comply with
it.

This Decision is addressed to the Italian Republic.

Article 6

Done at Brussels, 11 December 2001.

For the Commission

Mario MONTI

Member of the Commission