2003/193/EC: Commission Decision of 5 June 2002 on State aid granted by Italy in the form of tax exemptions and subsidised loans to public utilities with a majority public capital holding (notified under document number C(2002) 2006) (Text with EEA relevance)
Date: 2002-06-05
Institutions: European Commission
Subjects: Italy, State aid, control of State aid, corporation tax, interest rate subsidy, public service, tax exemption, type of business

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COMMISSION DECISION

of 5 June 2002

on State aid granted by Italy in the form of tax exemptions and subsidised loans to public utilities
with a majority public capital holding

C 27/99 (ex NN 69/98)

(notified under document number C(2002) 2006)

(Only the Italian text is authentic)

(Text with EEA relevance)

(2003/193/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,

(4)

(5)

The Commission decision to initiate the procedure was
the European
published in the Official
Communities (2). The Commission invited interested
parties to submit their comments on the measures.

Journal

of

The Commission received comments from interested
parties. The comments were forwarded to Italy, which
replied with its own observations on the followings
dates:

Having called on interested parties to submit their comments
pursuant to the provisions cited above (1) and having regard to
their comments,

(cid:151) 2 August 1999: first submission,

Whereas:

(cid:151) 15 October 1999: request

for postponement of

deadline for presenting observations,

1. PROCEDURE

(cid:151) 28 October 1999: observations on loans from Cassa

Depositi e Prestiti (CDDPP),

On 3 March 1997 the Commission received a
complaint concerning alleged State aid granted by Italy
in the form of tax exemptions and access to subsidised
loans to various public utilities.

(cid:151) 14 December 1999: request for postponement of

deadline for presenting observations,

(cid:151) 3 February 2000: additional observations,

On 12 May, 16 June and 21 November 1997 the
Commission asked the Italian authorities
initial
information concerning the measures in question. By
letter of 17 December 1997, registered as received by
the Commission on 23 December, the Italian authorities
provided some of
the
request of the Italian authorities, a meeting was held in
Rome on 19 January 1998.

the information requested. At

for

(cid:151) 8 February 2001: letter stating that Italy would not
referred to in the

be
comments from Federazione Gas Italian (Gas-it),

adopting the measure

(cid:151) 31

and

July

2001:
postponement of
for
Commission letter of 25 July 2001,

3 August
deadline

request
answering

for
the

By letter dated 17 May 1999, the Commission informed
Italy that it had decided to initiate the procedure laid
down in Article 88(2) of the EC Treaty in respect of the
measures referred to in the complaint.

(cid:151) 25 October 2001: comments on the (cid:145)transfer tax

exemption(cid:146) (see recital 16),

(1)

(2)

(3)

(1) OJ C 220, 31.7.1999, p. 14.

(2) See footnote 1.

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(cid:151) 22 November 2001: comments on CDDPP loans,

(cid:151) 5 October 1999: reminder following the letter of

23 August 1999,

(cid:151) 21 December 2001: comments on CDDPP loans.

(6)

The Commission received comments from interested
parties as follows:

(cid:151) 10 September 1999:

submitted by
Azienda Elettrica Municipale SpA (AEM) and ACEA
SpA (ACEA),

comments

(cid:151) 25 October 1999: letter extending the deadline for

presenting further observations,

(cid:151) 4 February 2000: letter forwarding to Italy further

observations by third parties,

(cid:151) 21 January 2000: reminder following the letter of

23 August 1999,

(cid:151) 31 August 1999: comments

submitted by the

(cid:151) 11 and 14 April 2000: forwarding to Italy further

Bundesverband der Deutschen Industrie (BDI),

observations by third parties,

(cid:151) 21 January 2000: additional comments from AEM

and ACEA.

(cid:151) 25 April 2000: reminder of the obligation to notify
new aid measures under Article 87 of the Treaty in
connection with the measure referred to by Gas-it,

(7)

The Commission received further
interested third parties on the following dates:

comments

from

(cid:151) 16 March 2000: comments from Confservizi Cispel

(Cispel),

(cid:151) 25 July 2001:

letter requesting clarification of the

(cid:145)transfer tax exemption(cid:146) (see recital 16),

(cid:151) 17 August 2001: extension of
presenting further observations.

the deadline for

(cid:151) 13 March and 7 April 2000: comments from Gas-it
concerning a new measure planned by the Italian
State which, combined with the measures already
under investigation, allegedly involve further aid,

(10)

The Commission also had meetings with representatives
from ACEA and AEM on 18 November 1999,
23 March 2000 and 20 June 2000. On 14 April 2000
it also met with representatives from Gas-it.

(cid:151) 11 April

2000:

comments

from Azienda

Mediterranea Gas e Acqua SpA (AMGA).

(11)

The Commission met
October 2001.

the Italian authorities on 24

(8)

Lastly, the Commission received other comments from
AMGA, ACEA and AEM on 12 June 2000. On 7 July
to the
comments
2000 the
Commission concerning the Court of First
Instance’s
judgment in Alzetta Mauro (3).

same parties

sent

(9)

The Commission also wrote to the Italian authorities on
the following dates:

(12)

(cid:151) 23 August 1999: first letter following the decision

to initiate the procedure,

(cid:151) 1 October 1999:
observations,

letter forwarding third parties’

2. DESCRIPTION OF THE MEASURES

2.1. National legal background

In Italy municipalities have
traditionally provided
directly or indirectly (4) various services to their local
communities (such as distribution and treatment of
water, public transport, gas distribution, etc.) through
different organisational arrangements. In 1990 Law No
142 of 8 June 1990 (Law No 142/90) reformed the
legal arrangements available to municipalities to provide
those services.
In accordance with Article 22 of this
Law, subsequently amended by Article 17(58) of Law
No 127 of 15 May 1997, a municipality may provide
the services:

(3) Judgment of the Court of First Instance in Joined Cases T-298/97,
T-312/97, T-313/97, T-315/97, T-600/97 to 607/97, T-1/98,
T-3/98 to T-6/98 and T-23/98 [2000] ECR II-2319.

(4) Normally through a separate administrative accounting entity

known as a municipal undertaking (azienda municipalizzata).

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(a) directly (in economia);

(a) Article 3(69) of Law No 549 of 28 December 1995,
read in conjunction with Article 13a of Decree-law
No 6 of 12 January 1991 (7);

(b) through a separate administrative accounting entity

(azienda speciale);

(c)

through an institution for non-commercial services;

(d) through licences granted to public or private

undertakings (concessione a terzi);

(e) by setting up a joint stock company (societ(cid:224) per
azioni) or a limited liability company (societ(cid:224) a
limitata) with a majority public
responsabilit(cid:224)
shareholding.

(13) A further option for administering such services was
introduced by Article 12 of Law No 498 of 1992 (Law
No 498/92), namely the possibility of setting up a joint
stock company with a minority public shareholding.

(14) As a general rule, in the case of public services provided
directly by a municipality or by a separate accounting
entity, the service provider cannot operate outside the
joint
territory of
stock companies set up under Law No 142/90 are not
limited by law to a predefined territory or activity and
in general
their business as normal
commercial entities, subject to the rules of private and
commercial law (6).

the municipality itself (5). However,

they conduct

(b) Article 3(70) of Law No 549, read in conjunction
with Article 66(14) of Decree-law No 331 of 30
August 1993 (8); and

(c) Article 9a of Law No 488 of 9 August 1986
converting and amending Decree-law No 318 of
1 July 1986 in respect of urgent provisions for
public
of
financing
Decree-law No 318/1986).

(hereinafter Article

9a

(16) Article 3(69) and (70) of Law No 549/95 provides for a
special
tax regime for joint stock companies with a
majority public shareholding set up under Law No
142/90 and in particular:

(a) exemption from all

transfer taxes related to the
conversion of special and municipal undertakings
into joint
tax
companies
exemption);

transfer

stock

(the

(b) a three-year income tax exemption, up to the tax
year 1999,
stock companies with a
majority public shareholding (the (cid:145)three-year income
tax exemption(cid:146)).

joint

for

2.2. Detailed description of the measures

(15)

In its decision initiating the procedure, the Commission
explained that it had doubts whether certain national
provisions applicable to joint stock companies with a
majority public shareholding set up under Law No
142/90 constituted State aid within the meaning of
Article 87 of the Treaty and were compatible with the
common market. The provisions in question are:

(5) Although, under Article 5(1) of Decree No 902 of 4 October 1986,
a municipality may, with the agreement of other
interested
municipalities, widen the territorial scope of its undertaking to the
territories of those municipalities. However,
Italian case-law has
for instance,
imposed strict conditions on this possibility: see,
Council of State No 1291, Session IV of 29 September 1988,
No 1159, Session V of 3 August 1995, No 1374, Session V of
14 November 1996.

(6) See for instance Court of Cassation, Sezioni unite, No 4989,

6.5.1995.

(17) More specifically, Article 3(69) of Law No 549/95, by
making reference to Article 13a of Decree-law No 6 of
12 January 1991 (Article 3(69)) provides
the
transfer of assets linked to the conversion of special and
municipal undertakings into joint stock companies set
up under Laws Nos 142/90 and 498/92 is not subject
to the following taxes:

that

(a) registration tax;

(b) stamp tax;

(c)

tax on the increase in value of real estate properties
(INVIM);

(7) As converted and amended by Law No 80 of 15 March 1991.
(8) Converted into Law No 427 of 29 October 1993.

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(d) mortgage tax and cadastral duty;

(e) any other transfer taxes.

(18)

The tax regime provided for in Article 3(69) was later
confirmed in Articles 115(6) and 118(1) and (2) of
Decree-law No 267 of 18 August 2000.

(Article 3(70)), provides

(19) Article 3(70) of Law No 549/95, read in conjunction
with Article 66(14) of Decree-law No 331 of 30 August
1993 (9)
stock
companies set up under Law No 140/90 qualify for
exemption from income tax (tax on incomes of legal
persons (IRPEG) and local income tax (ILOR)) for three
years starting from their incorporation and, in any case,
not beyond the tax year ending on 31 December 1999.

joint

that

(20) Article 9a of Decree-law No 318/1986 allowed joint
stock companies with a public majority shareholding
which provide public services to contract loans directly
with CDDPP. According to information from the Italian
authorities,
such loans were granted to joint stock
companies set up under Law No 142/90 from 1994 to
1998 (10). Only loans granted to such companies in
accordance with Article 9a of Decree-law No 318/1986
are concerned by this Decision.

3. COMMENTS FROM INTERESTED PARTIES

(21)

The Commission received comments
interested parties.

from various

(22)

Several firms (AEM, AMGA and ACEA) commented as
follows:

(a)

the measures do not constitute State aid. As the
in
sectors
question operate were not open to competition, the
measures could not distort competition. Thus an

in which the joint

stock companies

(9) The provisions stipulate that the same tax regime applicable to a
local authority controlling joint stock companies set up under Law
No 142/90 applies to the joint stock company itself for three years
after
the
three-year income tax exemption.

incorporation. As a result,

the latter qualifies

for

(10) Comments from the Italian authorities of 28 October 1999 and

21 December 2001.

essential requirement for a measure to be regarded
is
as State aid,
missing;

it distorts competition,

that

i.e.

(b)

in any event, even if the measures constituted State
aid, they should be regarded as existing aid;

(c)

furthermore, the aid should be regarded as being
compatible under Article 87(3)(c) because, although
the measures were temporary, their purpose was to
facilitate the transformation and restructuring of the
companies with a view to helping them to cope
with the transition from a closed to a liberalised
market.

(23) As

(a)

the joint

regards point

in the preceding recital,

the
abovementioned firms argued that
stock
companies provided services on the basis of exclusive
rights in the territory of the municipality to which they
belonged. At the same time, they did not tender for the
provision of
the services in the territories of other
municipalities. There was apparently only one exception
to this, see the tender for the management of
the
Arezzo municipal waterworks, in which ACEA, AMGA
and Compagnie GØnØrale des Eaux took part (11).
In
addition, AMGA and Lyonnaise des Eaux submitted a
Valdarno
bid
of
waterworks (12). The firms also maintained that
the
stock
measures
companies an advantage in entering new markets. The
tax advantage was not significant when compared with
the cost of expanding into new markets (e.g.
in the
telecoms sector).

in question did not give the joint

for management

the Alto

(24) With regard to recital 22(b), the firms argued that the
classification of
the measures in question as existing
State aid was based on two sets of considerations. First,
it should be stressed that municipalities and municipal
undertakings have been exempt from income tax since
the century. The new joint stock
the beginning of
companies under Law No 142/90 are,
from an
economic viewpoint, the same special undertakings that
used to benefit
from the exemption. The three-year
income tax exemption provided for in Article 3(70) is
thus in fact a limitation of a prior tax exemption. As
Article 3(70) does not therefore constitute either a new
measure or an amendment to an existing one, it must
be classified as existing aid.

(11) AEM and ACEA comments of 21 January 2000, paragraph 28.
(12) AMGA comments of 11 April 2000, paragraph 23. It is not clear
whether the comments refer to the same tender mentioned by
AEM and ACEA in their comments of 21 January 2000.

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(25)

Second, and more generally, as they entered into force
when the markets in which the joint stock companies
operated were closed to competition, all
the above
measures should now be classified as existing aid (see in
particular Article 1(b)(v) of Council Regulation (EC) No
659/1999 of 22 March 1999 laying down detailed rules
for the application of Article 93 of the EC Treaty (13)
and the Court of First Instance’s judgment in Alzetta
Mauro (14).

(26) With regard to recital 22(c), AEM, AMGA and ACEA
explained that
the measures were aimed solely at
favouring the transition from a monopolistic market
structure to a competitive one allowing private capital
and private ownership to participate in the management
of local services. This being so, the measures should be
regarded as being covered by Article 87(3)(c) since they
constitute aid facilitating the development of a certain
economic activity,
local public
services. The Commission has already decided that aid
facilitating the transition from a monopolistic market
structure to a competitive one may be compatible under
Article 87(3)(c)
the Commission
(see in particular
decisions on the Milk Marketing Board (15) and Dutch
public transport (16)).

the provision of

i.e.

themselves the provision of certain services on their
territory or grant licences to third parties together
with exclusive
thus no
there
competition,
the measure cannot be regarded as
constituting State aid under Article 87(1);

rights. As

is

(b) the measures were

intended to facilitate

the
conversion of public-sector undertakings governed
by public law into firms governed by common law
via a transition from a monopolistic situation to a
competitive one. They did not discriminate between
private- and public-sector undertakings because the
they did not
latter were in a different position:
require any changes in order to operate in the
market. The measures should therefore be regarded
least as compatible aid under Article 87(3)(c),
at
which provides for aid aimed at
facilitating the
development of certain economic activities;

(c)

(27)

Finally, the firms argued that the measures were not
discriminatory because it was not necessary for possible
joint stock companies set up
private competitors of
under Law No 142/90 to become private companies in
order to operate freely on the market and that the State
had not forgone any resources to which it was entitled
because the loss in tax revenue was offset by higher
profits for the municipalities.

(28)

Cispel, an association representing such joint
stock
companies and special undertakings, commented as
follows:

(i)

the joint

in addition, the measures do not constitute State aid
stock companies are not
because:
undertakings for the purposes of competition law;
(ii) the measures simply offset the extra cost of the
public service entrusted to them; (iii) they are not
financed from State resources as the State forgoes
tax revenues at central level but gains at local level;
(iv) they are general measures; (v) they are justified
by the nature and general scheme of the system:
the legislator has a wide
under Italian tax law,
taxable
margin of manoeuvre
persons and was therefore able to exempt the joint
stock companies for a transitional period; (vi) they
did not affect trade between Member States since
the goods and services produced by the recipients
are not traded between Member States but intended
only for the local market;
the transfer tax
exemption does not confer any advantage on the
joint stock companies as the municipality would
have been liable for the taxes in any case.

in determining

(vii)

(a) at the time the measures in question in the sector
concerned were
legal
adopted,
monopoly. Local authorities could either reserve for

there was

a

(13) OJ L 83, 27.3.1989, p. 1.
(14) See footnote 3.
(15) Case C 45/93 (N 663/93) (OJ C 100, 9.4.1994, p. 9).
(16) Case N 199/99 (Dutch local public transport services) (OJ C 379,

31.12.1999, p. 11.)

(29)

Cispel also argued that the measures in question were
justified by the exemption in Article 87(3)(b) of
the
Treaty which provides for (cid:145)aid to remedy a serious
disturbance in the economy of a Member State(cid:146) and by
Article 86(2).

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(30)

The Bundesverband der Deutschen Industrie observed
that tax exemptions and soft loans for firms controlled
by the State would distort competition not only in Italy
but also in Germany.

entitled. Being part of the public administration, the
recipients were already exempt from tax even before
they were converted into joint stock companies.
Rather, the State earned revenue at the level of the
municipalities.

(31) Gas-it, an Italian association of private companies
distributing gas on the basis of concessions granted by
local authorities, considered that the measures referred
to by the Commission constitute State aid. In particular,
the three-year exemption from income tax is clearly
State aid because private firms engaged in the same
activity as the joint stock companies are, unlike the
latter, subject
to a tax on profits of almost 50 %.
Furthermore, Gas-it stressed that Article 87(3)(c) could
not be invoked to justify the measures as they were not
aimed at
facilitating the development of a whole
economic sector but rather at granting advantages to
certain firms operating in the sector on the basis of
their legal status (entity transformed into a joint stock
company) and shareholding structure (public majority
and private minority). Finally, Gas-it pointed out that
the Italian authorities were discussing a draft law that
contained
stock
companies. However, on 8 February 2001 the Italian
authorities informed the Commission that discussion of
the draft law had been blocked.

advantages

other

joint

the

for

4. COMMENTS FROM THE ITALIAN AUTHORITIES

(32)

The Italian authorities stated that the measures under
examination applied only to companies
that were
they
almost exclusively involved in providing what
described as local public services, i.e. services on a local
scale in the sectors of electricity, gas, water, transport,
waste,
Italian
authorities argued that the measures did not constitute
State aid for the following reasons:

products. The

pharmaceutical

and

(a)

they did not distort competition because when they
were adopted the sectors in which the joint stock
companies operate were not open to competition;

(b) they did not affect trade between Member States
because the companies operated on a purely local
level;

(33)

The authorities also argued that, if the measures were
regarded as State aid, they should constitute existing aid
because the economic sectors concerned were not open
to competition when they were adopted.
In addition,
compatible under Article 87(3)(c)
they would be
(restructuring aid) or Article 86(2)
(service of general
economic interest).

services

(34) As regards the exemption in Article 87(3)(c), the Italian
authorities argued that the measures in question enabled
the public undertakings providing local
to
acquire a more competitive market structure. They also
claimed that the Commission had already declared aid
to be compatible if it facilitated the transition from a
monopoly to a situation of
free competition. They
added that the requirement in Article 87(3)(c) that aid
must not
trading conditions to an
extent that is contrary to the common interest(cid:146) was met
because of the very weak degree of competition (17) in
the sectors concerned.

(cid:145)adversely affect

(35) As regards the exemption in Article 86(2), the Italian
authorities claimed that all the firms concerned provided
services of general economic interest and that, therefore,
the Article should cover the measures, which applied to
all public undertakings providing this type of service.
Only the three-year income tax exemption applies solely
to firms with a majority public shareholding, but this
can be explained by the fact that the control of public
authorities in this kind of company is greater than in
companies where the public authorities have only a
minority shareholding.

(36) As to Article 3(69), the Italian authorities also pointed
out that (i) as the municipalities would in any case be
liable for the taxes, the measure could not be regarded
as conferring an advantage on the joint stock companies
and (ii) exemption from the transfer tax should be
regarded as a measure which is justified by the nature
and scheme of the system.

(c)

they were not financed from State resources as the
to which it was
State did not

forgo resources

(17) Italian authorities’ observations of 2 August 1999, p. 10.

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(37) As regards the latter argument, the Italian authorities
that setting up a joint stock company
stressed first
under Law No 142/90 could not be treated in the same
way as the setting-up of a normal commercial
firm.
Second, the exemption in question is an application of
is
the principle of
enshrined
the
transformation of the legal status of a firm (i.e. when
the legal status of a firm changes but the firm remains
the same from an economic viewpoint). According to
this principle, simply changing the legal status of a firm
is not relevant for tax purposes because it does not
confer an economic advantage on the firm.

tax neutrality. This principle

law and underlies

in Italian tax

(38) With particular regard to Article 9a of Decree-law No
318/1986, the Italian authorities claimed that the loans
from CDDPP were granted only to allow the joint stock
companies to carry out the public service task entrusted
to them and that the measure should accordingly be
considered compatible under Articles 87(3)(c) or 86(2).
Moreover, as from 1999, CDDPP can grant loans to any
provider of public services
legal
status (18).

regardless of

its

(39) As regards the issue of the comparison between the
interest rate applied by CDDPP to its loans and the rate
that the joint stock companies might have obtained on
the Italian authorities claimed in their
the market,
comments of 2 August 1999 that
the interest rate
applied by CDDPP was lower than market rate only
when (cid:145)it was clear beyond any doubt that the activities
in question were not subject to competition(cid:146). In their
comments of 28 October 1999, they argued that the
interest rate applied by CDDPP was substantially in line
with the market rate. They reached that conclusion by
applied by CDDPP with the
comparing the
maximum rate for loans to local authorities, which is
fixed by the Treasury.

rate

(40)

In their comments of 22 November 2001, the Italian
authorities repeated the arguments set out in recitals 38
and 39. The maximum interest
rate fixed by the
Treasury for loans to local authorities should serve as
the reference rate for the Commission’s assessment. In
any event, the articles of association of the joint stock
companies as well as the case-law prohibited them from

operating outside the territory of the municipality to
which they belonged. However, they also added that
CDDPP practice had been not to grant loans to firms
when (cid:145)it was clear that they would engage in activities
outside their own municipalities(cid:146).

(41)

in their comments of 21 December 2001, the
Lastly,
Italian authorities added that they could not agree that
the interest
rate applied by CDDPP conferred an
advantage on the companies in question as CDDPP rates
were consistently higher than other rates for soft loans,
which are fixed according to parameters established by
the Treasury Minister.

5. ASSESSMENT OF THE MEASURES

(42) As

already stated in its decision to initiate
the
procedure, the Commission (cid:145)having regard to the broad
and abstract nature of the legislation concerned ((cid:133)) has
instituted the present procedure in relation only to the
specific aspects identified in the preceding analysis (19)(cid:146).
The Commission’s analysis therefore concerns the aid
schemes consisting in the measures in question, and not
individual grants of aid to particular undertakings (20).
The
schemes are the instruments by which Italy
conferred advantages on all firms satisfying the relevant
conditions (i.e. joint stock companies set up under Law
No 142/90).

(43)

Italy did not grant the tax advantages on an individual
basis or notify any individual cases to the Commission,
together with all
the information necessary for the
Commission to assess it. Accordingly, the Commission
is bound by the nature of the measures to carry out a
general and abstract examination to determine both
whether they constitute State aid under Article 87(1) of
the Treaty and whether such aid is compatible with the
common market. Thus, all the elements necessary to
assess whether
involve State aid and
whether
such aid is compatible with the common
market are to be found in the schemes themselves. The
Treaty, Regulation (EC) No 659/1999 and the case-law

the schemes

(18) See Decree-law No 284 of 1 September 1999.

investigate individual grants of aid made under
(section 3).

(19) See section 3.
(20) In its decision,

the Commission had reserved the right

to
the scheme

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of the Court (21) empower the Commission to conduct
such an analysis.

(44)

The Commission will therefore not be examining the
application of the measures in individual cases. It should
also be borne in mind that in the present case Italy has
not asked the Commission to analyse the individual
applications of the schemes. The Commission does not
know the exact number or identity of the beneficiaries
of
the relevant
information and is unaware of
the amounts of aid
granted in individual cases.

the measures (22), does not have all

take account of

(45) As regards CDDPP loans, both entitlement and the
interest rate were provided for in a general way and did
not
the specific conditions of each
beneficiary. The Italian authorities did not notify the
Commission of the individual loans granted to the joint
stock companies by CDDPP. They simply provided a list
of joint stock companies benefiting from CDDPP loans,
which, as it does not contain any relevant information
on the financial situation of the companies, does not
allow the Commission
individual
assessment. The Commission considers that it would be
required to assess individual cases only if the national
authorities had requested it to do so and had supplied it
with all
the information necessary to conduct an
assessment, i.e. all the information that would normally
have to be provided to the Commission when individual
aid under Article 88(3) of the EC Treaty was notified.
Italian
Since
authorities have been fully aware of the Commission’s
doubts concerning the scheme. If they considered that
some particular cases, because of their specific features,
should have been assessed on an individual basis, they

the opening of

the procedure,

to make

the

an

(21) Judgment

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

(22) In their letter of 2 August 1999, the Italian authorities stated that
some 100 joint stock companies were incorporated pursuant to
Law No 142/90. In their letter of March 2000, they provided a
list of 31 joint stock companies that benefited from the tax
measures under examination. As the tax measures at issue are
applicable to any joint
the moment of
incorporation,
it is not even clear how many beneficiaries are
involved.

stock company at

should have informed the Commission of the features
an
and provided all
individual assessment to be made.

information needed for

the

5.1. Article 87(1)

(46) A State measure constitutes State aid within the

meaning of Article 87(1) of the Treaty if:

(a)

it is granted by a Member State or through State
resources in any form whatsoever;

(b)

it favours certain undertakings or the production of
certain goods (grants a selective advantage);

(c)

it distorts or threatens to distort competition;

(d)

it affects trade between Member States.

(47)

The Commission notes that the three-year exemption
from income tax and the loans granted under Article 9a
of Decree-law No 318/1986 meet all the requirements
of Article 87(1). The measures therefore comprised State
aid within the meaning of Article 87(1). On the other
hand, the Commission is of the opinion that the transfer
tax exemption is not State aid within the meaning of
Article 87(1) in view of the nature and general scheme
of the system.

Aid granted by a Member State or through state resources

a direct

the State,

cash outflow for

(48) Although the three-year income tax exemption does not
involve
it
nevertheless directly affects the public budget as the
State forgoes tax revenue to which it is legally entitled
and which it would normally have claimed. It is thus
clear that the aid is granted through state resources. The
Court of Justice has consistently held that (cid:145)a measure
whereby
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
taxpayers,
financial position than other
constitutes State aid within the meaning of Article 92(1)
of the Treaty(cid:146) (23).

the public

authorities

grant

(49) As

regards

the soft

the
Italian
that, under
Commission notes
legislation, CDDPP was established and fully controlled

loans granted by CDDPP,

the relevant

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

paragraph 16.

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the Treaty,

by the Treasury, now the Ministry of Economic and
Financial Affairs, which provides the chairman for its
managing board and appoints its members and the
Director-General. CDDPP’s activities are supervised by
Parliament through a specific committee. According to
the Court of Justice, in order to determine if a measure
can be regarded as constituting State aid within the
meaning of Article 87 of
(cid:145)no distinction
should be drawn between cases where aid is granted
directly by the State and cases where it is granted by
public or private bodies established or appointed by the
State to administer the aid(cid:146) (24). The individual CDDPP
loans to the joint stock companies were indeed granted
under Article 9a of Decree-law No 318/1986. Moreover,
under Italian law, CDDPP is explicitly defined as a State
administration (25). The fact
the funds
managed by CDDPP are from private sources and must
be reimbursed is not relevant in this context. Even if the
sums corresponding to the measure in question were
not permanently held by the Treasury, the fact that they
times under public control and thus
remain at all
available
is
competent national authorities
sufficient for them to be classed as State resources (26).

that some of

to the

(52)

(53)

(50)

loans

It is clear from a number of elements that, although the
loans were granted by CDDPP, they are attributable to
the State (27). CDDPP is an integral part of
the
structures of the public administration, it is subject to
supervise its
public law and the public authorities
management. The
expressly
are
provided for in Article 9a of Decree-law No 318/1986
and must comply with the conditions (in particular the
interest
in
accordance with Article 9(3) of the same instrument. All
these elements clearly show involvement of the public
authorities in the granting of CDDPP loans. Accordingly,
loans granted by CDDPP are granted by a Member State
or through State resources.

laid down by Treasury decree

themselves

rate)

measures which, while not being in the nature of a
subsidy, are capable of producing the same economic
effects. In particular, this concept is thus wider than that
of a subsidy because it embraces not only positive
benefits, such as the subsidies themselves, but also
forms, mitigate the
in various
interventions which,
charges which are normally included in the budget of
an undertaking and which have the same effect (28).

The three-year income tax exemption has the same
effect as a direct subsidy as it eliminates a cost item
which otherwise would have been included in the
the beneficiary (29). The beneficiary’s net
budget of
profit is thus increased compared with that of any other
firm in a comparable situation.

the

comments

from the

Italian
received
In
authorities (30) and other parties, it is pointed out that,
in the relevant period,
joint stock companies were
subject to income tax amounting to around 50 % of
profits. The
exemption in question enabled only
municipal undertakings that had become joint stock
companies under Law No 142/90 to avoid for three
years (but not after the tax year 1999) the standard rate
of income tax applicable to joint stock companies on
condition that at least a majority of the share capital
remained public.

(54)

The measure therefore favoured certain undertakings
within the meaning of Article 87(1) of the Treaty.

Aid that favours certain undertakings or the production of
certain goods

(55) According to established case-law (31) the granting of a
loan by State-controlled entities such as CDDPP to a
firm may favour that firm within the meaning of Article
87(1) of the Treaty if the borrower is granted terms that
are more favourable than those that
it would have
obtained in the capital market.

(51) According to settled case-law, State aid should not be
limited to capital grants or subsidies but includes all

(24) Case C-305/89 Italy v Commission [1991] ECR I-1603, paragraph

13.

(25) Decree-law No 284/1999.
(26) See Case C-83/98 P France v Ladbroke Racing and Commission
[2000] ECR I-3271, paragraph 50, and Case C-482/99 France v
Commission,
reported,
paragraph 37. See also Case T-358/94 Air France v Commission
[1996] ECR II-2109, paragraphs 65 to 68.

judgment of 16 May 2002, not yet

(27) See Case C-482/99 France v Commission, op cit., paragraphs 55 and

56.

(56)

stock companies

In order to determine whether the CDDPP loans to the
joint
the CDDPP
interest rates must be compared with the interest rate
that they would have obtained over the same period on

favoured them,

(28) Judgment

in Case C-387/92 Banco Exterior [1994] ECR I-877,

paragraph 13.

(29) See Case C-387/92 Banco Exterior, op cit.
(30) Italian authorities’ comments of 2 August 1999, p. 4.
(31) Case C-142/87 Belgium v Commission [1986] ECR 231.

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In order

to carry out

the capital market (32).
the
comparison, the Commission must also use a general
rate, given the general and abstract nature of
the
measure in question.
It is clear that the Commission
cannot accept as reference rates the rates proposed by
the Italian authorities. These by definition are not
market rates since they are determined according to
criteria established by the public authority. Moreover,
the maximum rate for loans to local authorities does
not even appear to be a rate that should be available to
the
subsidised credit
undertakings while
operations
to be more
specifically
are
favourable than market rates.

for
designed

rates

(60)

The measure therefore favoured certain undertakings
within the meaning of Article 87(1) of the Treaty since
only joint stock companies under Law No 142/90 (i.e.
in which the municipalities retained a majority holding)
and not other firms in a similar position were allowed
to benefit from CDDPP loans.

Aid that distorts or threatens to distort competition

(57)

The market rate to be used as a reference point for this
comparison is therefore the rate laid down for the
evaluation of regional State aid schemes (33).

(61)

Competition is distorted when State aid reinforces the
competitive position of the recipient firm in relation to
its competitors (34).

(58)

(59)

table below compares

The
communicated to the Commission by the
authorities, with the said reference rate.

the CDDPP

rate,

as
Italian

CDDPP interest rate and Commission reference rate

CDDPP rate

Reference rate

1994

1995

1996

1997

1998

9,00

9,00

8,81

7,48

5,53

11,9

11,35

11,35

10,86

8,20

12,37 (*)

8,21 (*)

6,95 (**)

(*) Rate applicable as from 1 August to 31 December of the relevant

year.

(**) Rate applicable as from 1 June to 31 December of the relevant year.

the

that

joint

table

shows

stock companies
The
In addition, the
benefited from a selective advantage.
Commission notes
that CDDPP applied a uniform
interest rate each year without taking into account the
specific risk associated with each financing operation. In
effect, loans at below market rates gave the joint stock
companies access to the capital market at a lower cost
than that available to other firms.

(62)

(63)

The measures strengthen the competitive position of the
joint stock companies in question in relation to other
firms intending to provide the same services. Firms that
are not joint stock companies and a majority of whose
find
shares are not held by the local authorities
themselves in a disadvantaged position if they intend to
compete for the granting of a licence to provide a
particular service in a given territory.

income

three-year

tax exemption removes

a
The
significant cost item from the budget of these firms that
they would otherwise have borne. At the same time, the
beneficiary’s net profit is thus increased in relation to
that of another firm in a comparable situation. The
profit can be used to distribute higher dividends
(therefore making capital
investments in such firms
particularly profitable, with distorting effects on the
capital market) or to make investments without
the
need to call on the market for the necessary financial
resources (and so affect competition on the market
where the investment is made). On the other hand, the
advantages resulting from the exemption allow the firms
to operate under conditions that would not otherwise
be possible. The same holds for the financial advantage
inherent in the loans granted at below market rate by
CDDPP to the joint stock companies in question.

(32) Case T-16/96 Citiflyer [1998] ECR II-0757.
(33) Reference rate for the monitoring of State aid as defined by the
Commission notice on the method for setting the reference and
discount
rates (OJ C 273, 9.9.1997, p. 3), as amended by
Commission notice (OJ C 241, 26.8.1999, p. 9).

(34) See Case 730/79 Philip Morris [1980] ECR 2671, paragraph 11
and the opinion of the Advocate General; see also Case 259/85
[1987] ECR 4393, paragraph 24. See also the opinion of the
Advocate General
in Case C-280/00 Altmark not yet published,
paragraph 103, where he notes that this requirement is very easy
to fulfil since it can be assumed that any State aid distorts or
threatens to distort competition.

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(64)

The additional financial resources may help the firms to
expand into other markets, thus also distorting sectors
other than local public services (35). They may also
make it more difficult for firms in other Member States
to enter
the Italian markets where the joint stock
companies are present.

State to another. In this sector, firms compete for the
award of concessions to provide services in the various
municipalities. Firms benefiting from the measures in
question may possibly offer lower prices for concessions
in different municipalities, thus reducing the available
market for actual or potential competitors(cid:146) (41).

Effect on trade

(68)

It is worth noting that the market for concessions for
local public utilities is open to Community competition
and to all Community firms and is subject to the rules
of the Treaty (42).

(65)

(66)

other

compared with

firm is not itself

(cid:145)When State financial aid strengthens the position of an
undertaking
undertakings
competing in intra-Community trade the latter must be
regarded as affected by that aid(cid:146) (36), even if
the
involved in exporting (37).
recipient
Similarly, where
aid to
grants
undertakings operating in the service and distribution
it
industries,
recipients
is not necessary for
to carry on their business outside the
themselves
the aid to have an effect on
Member State for
Community trade, especially in the case of
firms
established close to the frontier between two Member
States (38).

a Member

State

the

In the sectors where joint stock companies set up under
Law No 142/90 are mainly active (as claimed by the
Italian authorities), i.e. local public services, competition
often is not related to the sale of a service in the same
area as another competitor. Most of the services are in
fact provided on the basis of exclusive rights covering
the municipality (39).
part or all of
Competition
companies
established in Italy as well as in other Member States
bid for concessions or public procurement contracts to
provide the service in different municipalities in Italy or
in other Member States.

primarily when

the territory of

occurs

(69)

(70)

as

in so far

they injure

competitive prices

The measures under investigation affect trade between
Member States
foreign
companies bidding for local concessions in Italy, as
public firms benefiting from the scheme can bid at
foreign
more
competitors not benefiting from it.
the
less attractive for companies
scheme would make it
from other Member States to invest
in the utilities
sector in Italy (e.g. by acquiring majority holdings) since
any companies acquired would not be entitled to (or
may lose) the aid because of the nature of their new
shareholders.

than national or

In addition,

for

foreign
sell

In general, aid to local service providers may create an
obstacle
establish
in Italy (43) and
themselves or
therefore affects trade between Member States. These
factors are sufficient,
to
satisfy the requirement in Article 87(1) that the measure
affects trade between Member States (44).

firms wishing
services

in the Commission’s view,

their

to

(67) As noted in the decision instituting the procedure (40),
(cid:145)in the case of services, as in the present case, trade does
not involve a physical flow of goods from one Member

(35) This risk of distortion of competition is real. It is well known and
there is confirmation from information in the Commission’s
possession that some joint stock companies have entered other
markets which do not fall within the definition of local public
services given by the Italian authorities.

(36) See Case 730/79, paragraph 11, and Case 259/85, paragraph 11

(see footnote 34).

(37) Case C-75/97 Maribel bis/ter [1999] ECR I-3671.
(38) Case C-310/99 Italy v Commission, judgment of 7 March 2002, not

yet reported.

(39) This, however, does not apply to all the sectors that have been
stock
for
it does not apply to the retail sale of

indicated by Italy as
companies. For instance,
pharmaceutical products and services relating to waste.

the main sectors

the joint

(40) Section 3(3).

(71)

The Italian authorities argued that very few concessions
were awarded by selective procedure during the period

(41) It should be borne in mind that the award of a concession to a
third undertaking is one of the possibilities under Law No 142/90
that is available to municipalities in organising the provision of
local public services.

(42) See Commission interpretative communication on concessions

under Community law (OJ C 121, 29.4.2000, p. 2).

(43) See Commission Decision of 14 October 1998 SociØtØ Marseillaise
de crØdit (OJ L 198, 30.7.1999, p. 1), Case C-475/99 Ambulanz
Glockner [2001] ECR I-8089, paragraph 49, and the opinion of the
Advocate General in the same case, paragraph 170.

(44) The Commission does not need to base its appraisal of the effect
on trade on evidence of the real effect of the aid on competition
or trade between Member States (see Joined Cases T-204/97 and
T-270/97 EPAC [2000] ECR II-2267, paragraph 85, Joined Cases
T-298/97, T-312/97, T-313/97, T-315/97, T-600/97 to 607/97,
T-1/98, T-3/98 to T-6/98 and T-23/98 Alzetta Mauro [2000] ECR
II-2319, paragraph 76.

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Official Journal of the European Union

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the measure

it does not prevent

in which the measures were applied. They added that, as
the firms in question provided services at a local level,
the effect on trade was insignificant. These arguments
accepted. According to well-established
cannot be
case-law, even if
trade between Member States in a
certain economic sector and at a given point in time is
limited,
from
constituting State aid (45), especially where the limited
amount of trade might be the result of a breach of
Community law. Otherwise, Member States could have
an incentive to hamper the development of trade in that
sector in order to prevent the application of the rules of
the Treaty on State aid. It cannot be ruled out that the
very existence of the aid for the joint stock companies
encouraged the municipalities to entrust them directly
with the services instead of granting licences by open
tender procedure. Lastly, it must be noted that, as the
Italian authorities carried out few selective procedures
over the relevant period, that situation might be also the
consequence of an infringement of Community rules
and principles on public procurement and concessions.
This
of
infringement proceedings initiated by the Commission
against Italy (46). Moreover, (cid:145)the relatively small amount
of aid or the relatively small size of the undertaking
the
it does not as
which receives
be
possibility
intra-Community
that
affected(cid:146) (47). By the same token,
the
recipient does not itself export its products to other
level does not
Member States or operates at a local
mean that trade between Member States might not be
affected (48).

such exclude
trade might
that
the fact

infringement

the matter

currently

is

Commission notices and secondary legislation (49)
is
clearly not applicable as such to the measures under
examination. However, it cannot be ruled out that some
individual
fall below the de minimis
thresholds. In those particular cases the measures would
be deemed to fall outside the scope of Article 87(1) of
the Treaty and of this Decision.

cases might

should also be noted that

It
the measures under
trade between Member
examination could also affect
States because some of the sectors referred to by the
Italian authorities as the main sectors of activity for the
joint stock companies at the time that the measures in
certainly already
implemented were
question were
involved in trade between Italy and other Member States
(e.g. pharmaceutical products, electricity, waste). Trade
was thus not only foreseeable but already existed to a
certain extent.

the joint

States. As was noted by

Finally,
in question can
stock companies
choose to operate in markets for other products traded
the
between Member
Commission when it initiated the procedure and as was
later confirmed by some of the firms that submitted
comments, several
joint stock companies have entered
other markets characterised by very intensive trade
between Member States (50). It was therefore foreseeable
that the measures could affect trade in sectors other
than utilities.

(73)

(74)

(72) As nothing in the aid schemes ensures that the aid to be
granted in each individual case will comply with the de
minimis criteria, the de minimis principle laid down in

(45) Joined Cases T-132/96 and T-143/96 Volkswagen [1999] ECR
II-3663, paragraph 211;
Joined Cases T-447/93, T-448/93 and
T-449/93 Associazione Italiana Tecnico Economica del Cemento, British
Cement Association, Blue Circle Industries plc, Castle Cement Ltd, The
Rugby Group plc and Titan Cement Company SA v Commission
[1995] ECR II-1971, paragraphs 139 and 140.

(46) Infringement proceedings No 1999/2184, letter of formal notice

dated 8 November 2000.

(47) Case C-142/87 Tubemeuse [1990] ECR I-959, paragraphs 42 and
43; Case C-310/99 Italy v Commission, judgment of 7 March 2002,
not yet reported, paragraph 86.

(48) Case C-142/87 Kingdom of Belgium v Commission [1990] ECR
I-959, paragraph 35; Case 102/87 French Republic v Commission
[1988] ECR 4067, paragraph 19; Case C-75/97 Kingdom of
Belgium v Commission (Maribel bis/ter scheme) [1999] ECR I-3671,
paragraph 49;
Joined Cases T-298/97, T-312/97, T-313/97,
T-315/97, T-600/97 to 607/97, T-1/98, T-3/98 to T-6/98 and
T-23/98 Alzetta Mauro [2000] ECR II-2319, paragraph 91; Case
T-55/99 CETM [2000] ECR II-3207, paragraph 86.

(75) Accordingly,

the Commission concludes

the
three-year income tax exemption and the loans granted
to the joint
stock companies under Article 9a of
Decree-law No 318/1986 constitute State aid within the
meaning of Article 87(1) of the Treaty (51).

that

(49) See the Community guidelines on State aid for

small and
medium-sized enterprises
the
Commission notice on the de minimis rule for State aid (OJ C 68,
6.3.1996, p. 9 and Commission Regulation (EC) No 69/2001 of
12 January 2001 on the application of Articles 87 and 88 of the
EC Treaty to de minimis aid (OJ L 010, 13.1.2001, p. 30).

(OJ C 213, 19.8.1992, p. 2);

(50) For example, ACEA and AEM entered the telecommunications
market; AMGA has declared that it is also involved in the supply
of network management software and specialised services to other
undertakings, e.g. in the water distribution sector.

(51) In so far as it could be argued that the measures in question are
not State aid because they offset the net cost of a service of
general economic interest, see the reasoning below concerning
compatibility within the meaning of Article 86(2).

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(76)

(77)

5.2. The transfer tax exemption is not covered by
Article 87(1)

The Italian authorities acknowledge that the transfer tax
exemption is a special tax regime applicable only to the
conversion of municipal or special undertaking into
joint stock companies. However, the selective nature of
a measure may be justified by (cid:145)the nature or general
scheme of the system(cid:146) (52), in which case the measure is
not State aid.

income tax exemption,

three-year
tax
exemption applies to any conversion of a special or
municipal undertaking into a joint
stock company,
regardless of the latter’s shareholding composition.

the transfer

cannot

(80) At the same time, it is also clear that the conversion of
a special or municipal undertaking into a joint stock
normal
company
incorporation of a company since it is not a transaction
that would be carried out by a private investor but a
public authority decision regarding the choice of legal
instrument offered by Law No 142/90 for the provision
of certain services at local level (54).

treated

like

the

be

economic

entities. When

the Commission notes first

that
In this connection,
transfer taxes normally apply to the creation of a new
economic entity or to the transfer of assets between
different
a municipal
undertaking is converted into a joint stock company
under Law No 142/90, it seems, merely because of the
technicalities of the Italian legal system, as if a new
economic entity has been created. This, however, is in
the municipal undertaking and the
appearance only:
joint
same
substantially
are
stock
economic entity operating under a different legal form.

company

the

(81)

In the light of the foregoing, the Commission concludes
that the reasons for the exemption are consistent with
the proper functioning and efficiency of the tax system.
tax
The exemption is based on the principle of
neutrality, which is a basic principle of the tax system.
The measure in question is therefore justified by the
nature or general scheme of the system and does not
constitute State aid within the meaning of Article 87(1)
of the Treaty.

(78) As indicated in the preparatory work by the Italian
Senate (53), the Italian legal system makes no provision
in its general rules on conversions of the legal form of
companies for conversion of a municipal undertaking
into a joint stock company. The conversion therefore
had to take place by (cid:145)technically(cid:146) winding up the
municipal undertaking and setting up a (cid:145)new(cid:146) joint stock
company. The upshot is that a new economic entity is
apparently created although, as already stated, it is the
same economic entity operating under a different legal
status. It is thus justifiable that the normal tax rules on
transfers of assets for the setting-up of a new economic
entity should not apply in this case.

(82)

5.3. Nature of the aid: new or existing

the sectors

There are two questions
to be answered in this
connection. The first is based on the argument that, at
the time of the entry into force of the measures under
stock
consideration,
companies were
to
operating were
competition. As a result, all the measures in question
should be regarded as existing aid under Article 1(b)(v)
of Regulation (EC) No 659/99 and by virtue of
the
Court of First Instance’s judgment in Alzetta Mauro (55).

in which the joint

open

not

(79)

The Italian authorities also claimed that
the simple
conversion of the legal form of companies is governed
by the principle of tax neutrality because the conversion
in itself is not an indication of an increase in income or
in the capacity to produce income. The transfer tax
exemption is therefore a specific application of
that
principle to this particular case. And indeed, unlike the

(83)

This argument cannot be accepted. The measures under
examination must be examined as aid schemes. They are
capable of benefiting all
joint stock companies set up
under Law No 142/90. These are firms that are allowed
to operate directly or indirectly in whatever economic

(52) Case 173/73 Italy v Commission [1974] ECR 709. Commission
notice on the application of
the State aid rules to measures
relating to direct business taxation (OJ C 384, 10.12.1998, p. 3,
point 12).

(53) Parliamentary acts of the XIIth Legislature, Senate of the Republic,

(54) Essentially, the choice facing the municipality is whether to limit
the operation of its undertaking to the provision of local public
services within its own territory or to set up a company that is
entitled to operate in different economic sectors and wherever it
can seize business opportunities.

p. 18, No 2157.

(55) See footnote 3.

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sector they and/or their shareholders choose. There is
nothing in these schemes to indicate that the aid was to
be
restricted exclusively to sectors not open to
competition.

enjoyed by the joint stock companies is not therefore a
new tax measure but the application of an existing one.
Rather than introducing new State aid, Article 3(70) of
Law No 549/95 had the effect of limiting to three years
the
tax exemption in question and abolishing a
provision that distorted competition.

(84) Moreover,

to

the

that

Italian

indeed

contrary

there was

the
shows

authorities’
information in the Commission’s
submissions,
possession
some
competition in at least some of the sectors indicated by
the Italian authorities as being those in which the joint
stock companies were mainly operating when the
measures were put into effect. Examples of such sectors
are pharmaceutical products, waste, gas and water. This
Italian authorities
analysis was
themselves when they claimed that there was a (cid:145)very
weak
sectors
competition(cid:146)
concerned (56). Even if competition in a particular
economic sector and at a given point in time is limited,
Member States are not free to adopt State aid measures
that might prevent the development of competition or
reduce existing competition.

confirmed by the

degree

the

of

in

(85)

(86)

is

In conclusion, the claim that all the sectors in which the
joint stock companies were operating at the time of the
entry into force of the measures were not subject to any
competition
under
examination cannot therefore be regarded as existing aid
on the basis of that argument, except for the possibility
that
in
question is regarded as existing aid by virtue of the
recipient’s special situation.

individual aid granted under

The measures

the schemes

unfounded.

the

beginning

The second question to be resolved is the claim that the
three-year income tax exemption should be regarded as
existing aid. The argument runs substantially as follows.
century, municipal
Since
undertakings and then special undertakings ranked as
local authorities for tax purposes and, as such,
they
were not liable for the tax in question. The joint stock
of municipal
the
have
companies
income tax exemption
undertakings. The three-year

taken

place

the

of

(87)

(88)

Leaving aside the question of whether municipal and
then special undertakings were really exempt from all
income tax, the Commission concludes that the concept
of existing aid does not cover the three-year income tax
exemption in question.

the

field of activity of

The leading case-law on the concept of existing aid is
the Namur Ducroire case (57), where the Court answered
a decision authorising the
the question whether
enlargement of
a public
undertaking (OND in this case) implies that aid granted
to such an undertaking becomes new aid. The Court
noted that legislation predating the entry into force of
the Treaty defined (i) the purpose and areas of operation
of OND in very general
terms (provision of export
guarantees), (ii) provided for some advantages, and (iii)
contained no restriction in terms of subject matter or
geographical area on OND’s activity (58).
In these
circumstances OND, which for many years limited its
activity to the insurance of certain export risks, decided
(with the necessary consent of the Belgian Government)
to provide
to western
European countries.

insurance

also for

export

(89)

The Court observed that the question of whether aid is
new or existing aid must be answered by reference to
the provisions laying down the measure. It held that the
decision to expand the export risks covered by OND
(which did not go beyond the original description of the
scope of OND’s activity) did not amend the legislation
granting those advantages either in regard to the nature
of those advantages or in regard to the activities of the
public undertaking. Accordingly, the aid was existing
aid.

(90) None

of

the

the
abovementioned ruling for a measure to be regarded as
existing aid are met in the present case.

requirements

referred

to

in

(56) Italian authorities’ observations of 2 August 1999, p. 10. At the
same time, the Italian authorities suggested that the joint stock
companies also engage in activities open to competition.
In addition, AMGA, one of the firms that submitted comments,
after denying the existence of any competition, acknowledges that,
in reality, there was some competition. Indeed, in point 35 of its
observations of 11 April 2000, it argued the three-year income
tax exemption was aimed at removing a distortion of competition.

(91)

There was no statutory provision for the three-year
income tax exemption for the joint stock companies

(57) Case C-44/93 [1994] ECR I-3829.
(58) Op. cit., paragraphs 23 and 24.

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shareholdings

to the entry into force of

prior
the Treaty. The
in Article 66(14) of
exemption is provided for
Decree-law No 331 of 30 August 1993 and Article
3(70) of Law No 549/95.
In 1990, when Law No
142/90 enabled municipalities to set up joint stock
to
companies with public majority
manage
local public utilities, no exemption from
income tax was envisaged for the joint stock companies.
Any joint stock companies set up between 1990 and
the entry into force in 1993 of Article 66(14) of
Decree-law No 331 was liable for income tax. This is
clearly confirmed by the preparatory work carried out
by the Italian Senate (59), which reports that the tax
exemption in question was granted on the basis that,
without it, joint stock companies set up under Law No
142/90 would be liable for income tax (60). Hence, in
order to extend to the joint stock companies the same
tax treatment as that for local authorities, Italy had to
enact new legislation several decades after the entry into
force of the Treaty.

extension of
the purposes and areas of operation
resulted directly from Law No 142/90 and from the
subsequent conversion of municipal and then special
undertakings into joint stock companies.

(93)

In conclusion, the three-year tax exemption for joint
set up under Law No 142/90
stock companies
constitutes new State aid.

5.4. Compatibility with the common market

(94) Having concluded that

income

three-year

tax
the
exemption and the loans granted under Article 9a of
Decree-law No 318/1996 constitute State aid within the
meaning of Article 87(1) of the Treaty for the joint
stock companies, the Commission must assess whether
the aid is compatible with the common market. The
assessment covers the two measures, unless otherwise
stated.

(92)

the purposes nor

In addition, neither
the areas of
operation of the municipal undertakings were defined in
general terms. Municipal and special undertakings are
limited to the provision of certain public services to the
local community. They are thus subject to statutory and
case-law limitations as to object or geographical area.
The law does not impose similar limitations on joint
stock companies set up under Law No 142/90, which
may engage in any kind of economic activity in any
territory (61). Unlike in the case of OND, therefore, the

(95)

(59) Parliamentary acts of the XIIth Legislature, Senate of the Republic,
p. 18, No 2157. The relevant part reads as follows: (cid:145)on the ground
(cid:147)new(cid:148) subjects would not have benefited from the not
that
inconsiderable
local bodies
tax concessions granted to the
(exemption from income tax (IRPEG) and local income tax (ILOR))
(...) a (cid:147)moratorium(cid:148) is provided for (...) which is intended to
remove the disincentives connected with the sudden loss of all tax
concessions(cid:146).

(60) AMGA, ACEA and AEM, by acknowledging that

the measure
constitutes existing aid, recognise that, in the absence of the new
legislation,
the simple conversion of municipal undertakings
would have entailed the application of income tax to the joint
stock companies (see AMGA observations of 11 April 2000,
paragraph 11, and ACEA and AEM observations of 21 January
2000, point 7).

(61) As the Italian Court of Cassation (meeting in plenary session) has
(cid:145)Le SpA a prevalente capitale pubblico locale sono da
stated,
(joint
considerarsi a tutti gli effetti soggetti societari privati (cid:133)(cid:146)
stock companies with public majority shareholding must be
regarded as private companies for all purposes);
judgment of 6
May 1995, No 4989. Indeed, joint stock companies set up under
Law No 142/90 were and are operating outside the territory of
the controlling municipality even outside Italy or have entered
markets that are not markets in local public services.

and

is
to

culture

promote

The aid is not compatible under Article 87(2) since it is
not aid having a social character, granted to individual
consumers, or 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
the aid compatible under Article
Germany. Nor
87(3)(d)
heritage
(aid
conservation) or (e) (such other categories of aid as may
be specified by decision of the Council). The Member
exceptions.
invoked any of
State has not
Furthermore, the aid is not compatible under Article
87(3)(b). The reorganisation of the Italian public utilities
sector cannot be considered a (cid:145)project of common
the
European interest(cid:146) since it will essentially benefit
economic operators of one Member State and not the
Community as a whole and since it will not promote a
specific and well-defined project. The aid does not
(cid:145)remedy a serious disturbance in the economy of a
Member State(cid:146) either, since there is no evidence that the
Italian local public services sector was suffering from a
systemic crisis.

these

(96)

The aid extends throughout Italy and therefore cannot
be regarded as compatible under Article 87(3)(a) and (c)
(development of certain areas).

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Article 87(3)(c)

(97) As for compatibility under Article 87(3)(c) (development
of certain economic activities), the measures in question,
by reducing the charges normally included in a firm’s
budget, may in practice have helped some firms to
reorganise,
increase their efficiency and become more
competitive (62). However, the conditions for applying
the Community guidelines on State aid for rescuing and
restructuring firms in difficulty (63) are not met. The aid
was not notified individually to the Commission and no
restructuring plan was submitted, although the measures
also concerned large firms. The aid is not designed to
benefit only firms
it been
recipients were in difficulty.
demonstrated that all
Moreover, the aid is not intended to restore the firms’
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. There is no trace of
any such measure.

in difficulty nor has

(98)

the Commission notes that

The measures are not limited to SMEs. As far as aid to
SMEs is concerned,
the
scheme can apply to firms other than SMEs and that the
advantages do not qualify as investment aid or as aid in
respect of expenditure that can otherwise be regarded as
compatible under the rules on aid to SMEs.

(99)

It is not quite clear what is meant by the argument that
the three-year
income tax exemption is compatible
under Article 87(3)(c) because it was aimed at favouring
the restructuring of the undertakings in question and
the transition from a monopolistic to a competitive
market structure.

(100)

this argument

If
unfounded. All
their municipality from the

then it
the joint stock companies benefit
same

interpreted literally,

exclusive

is
in
rights

is

(62) See AEM and ACEA comments of 21 January 2000, point 42.
(63) OJ C 288, 9.10.1999, p. 2. The previous Community guidelines
on State aid for rescuing and restructuring firms in difficulty (OJ C
368, 23.12.1994, p. 12) and the rules set out in 1979 in the
Eighth Competition Report (points 177, 227 and 228) apply to
aid granted before publication of the new guidelines in the Official
Journal. For the purposes of this case, the content of all these
rules is identical and the application of any set of rules has no
impact on the assessment.

previously

enjoyed by

previously
the municipal or
special
they replaced. This was confirmed
undertakings that
repeatedly by the Italian authorities, which stated that
every municipality that set up a joint stock company
under Law No 142/90 directly entrusted it with the
the municipal
tasks
undertakings.
submitted
that
the
comments also stressed that the joint stock companies
are responsible for exactly the same local monopolies
previously
special
undertakings (64). In addition, the advantages granted to
the joint stock companies go beyond the conversion of
their legal form and last for three years thereafter.

entrusted to the municipal or

by
firms

Similarly,

carried

out

(101) Accordingly, the fact that the Commission has decided
in respect of measures of a different kind that aid
facilitating the transition from a monopolistic market
structure to a competitive one may be regarded as being
completely
compatible
irrelevant for the purpose of assessing the measure in
question (65).

under Article

87(3)(c)

is

(102) On the other hand, this argument may be construed as
meaning that the measure in question was aimed at
assisting the privatisation of the undertakings controlled
by the local authorities with a view to promoting
greater liberalisation and participation of private capital
in the provision of local services.

this argument.

(103) The reasons set out above are already sufficient for the
Commission to reject
It can also be
added that, if the aim of the aid in question was really
to help the transition towards a more liberalised market
then this
and the participation of private capital,
forms of
measure should have been applied to all
privatisation or applied with greater intensity where the
privatisation was more
a
municipality retained a minority stake in a joint stock
the measure was not
company). On the contrary,
stock
applied uniformly, but only
in question (i.e. with a majority public
companies
shareholding).
in accordance with the
principle of equal treatment of public and private firms,
the fact
to assist
privatisation of a firm is not, as a rule, a ground for
declaring the aid to be compatible.

the aid is granted in order

In any event,

(e.g. where

extensive

to the

joint

that

(64) See comments of 21 January 2000, recital 6.
(65) See recital 26.

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(104) The

argued

to convert

that without

Italian authorities

the
three-year income tax exemption it would have been
extremely costly for municipalities
their
special undertakings into private-law firms. However, it
is normal for an undertaking that changes its legal form
(in this case from special undertaking to joint stock
company) to enjoy the rights and advantages of the new
legal form (freedom to operate outside the territory of
the municipality and in any economic sector) and to
assume the responsibilities linked to the new legal form,
including different tax treatment. It is also logical that
such consequences are passed on to the owner of the
undertaking. In any case, it has not been demonstrated
that, without the measure, the conversion would not
have taken place or the advantage was commensurate
with the objective pursued. Finally, as already stated, the
aid was not accompanied by any measure to reduce the
inherent distortion of competition.

(105) This assessment is not at odds with Commission policy,
in particular its decision on Dutch local transport (66),
as claimed by the Italian authorities. In the latter case,
unlike the present one:

(cid:151) the recipients were prohibited from participating in
tenders throughout the duration of the aid measure
until such time as their home markets were exposed
to
non-discriminatory
open,
procedures,

transparent,

and

Article 86(2) of the Treaty

(107) The Italian authorities stated that the three-year income
tax exemption and the loans under Article 9a should be
regarded as compatible State aid under Article 86(2) of
the Treaty. They argued that most of the activities of the
joint stock companies are services of general economic
interest and that, without the measures in question, it
the
would have been impossible for them to fulfil
general interest task entrusted to them.

interest

(108) The Commission does not agree that Article 86(2)
covers the aid in question as it cannot accept that the
measures represent a system of compensation for a
general
stock
companies. In its Communication on services of general
the Commission stressed that
interest
three principles underlie the application of Article 86(2)
and the question of compensation for obligations of
general economic interest:

task entrusted to the

in Europe (67),

joint

(a) neutrality;

(b) Member States’ freedom to define what they regard

as public services; and

(c) proportionality.

(cid:151) the aid was granted on condition that

the firm

produced a detailed business plan.

the Commission does not
(109) Neutrality means
question whether
for
providing the general interest service should be public
or private. On the other hand, the rules of the Treaty
apply regardless of the ownership of an undertaking.

that
the undertaking responsible

(106) The Commission therefore concludes that the aid in the
form of the three-year income tax exemption and the
loans granted under Article 9a of Decree-law No
318/1986 cannot be considered compatible with the
Treaty under Article 87(3)(c), which also stipulates that
the aid must (cid:145)not adversely affect trading conditions to
an extent
a
to the
contrary
the
in view of
requirement which,
Commission considers has not been satisfied in the
present case. The main effect of
in
question is not
to make the Italian market more
competitive but to strengthen certain Italian firms (i.e.
those still controlled by local authorities) in comparison
with their competitors in other Member States and to
impede the latter’s access to the Italian market.

common interest(cid:146),
the foregoing,

the measures

is

interest

freedom to define services of general
(110) Member States’
limited only by Commission
economic
control of abuse or manifest error.
(cid:145)However, in every
case, for the exception provided for by Article 86(2) to
apply, the public service mission needs to be clearly
defined and must be explicitly entrusted through an act
of public authority (including contracts)(cid:146). This obligation
is necessary to ensure
certainty as well as
transparency vis-(cid:224)-vis the citizens and is indispensable
its proportionality
for the Commission to carry out
assessment (68).

legal

(111) Proportionality implies that the means used to fulfil the
interest mission do not create unnecessary

general

(66) See footnote 16.

(67) OJ C 17, 19.1.2001, p. 4.
(68) Point 22 of the Communication.

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distortions of
is necessary to
trade or exceed what
guarantee fulfilment of the mission. Performance of the
service of general
interest must be ensured. As the
undertaking concerned must be able to carry the
specific burden, the State may therefore cover the net
task assigned to that
extra cost of
undertaking.

the particular

(112) The Italian authorities’ reference to Article 86(2) must
be rejected,
first because the measures discriminate
between private and public firms and are therefore
incompatible with the principle of neutrality enshrined
in Article 295 of the Treaty and with the principle of
equal
treatment and non-discrimination, which is a
general principle of Community law.

(113) The aid was not

in fact granted because of

the
imposition of general service obligations but only on
the shareholding composition of certain
the basis of
firms. Soft
from CDDPP and the three-year
loans
income tax exemption apply only to undertakings
converted into joint stock companies under Law No
142/90 (i.e. where the municipalities retain at least the
majority of the capital). Firms in which the municipality
has only a minority share and fully private-sector firms
are not entitled to those advantages, even if
they
provide the same service.

It

service obligations.

any specific public
cannot
therefore be regarded as an act that clearly defines the
public service mission and specifically entrusts certain
firms with carrying out
that mission. The Italian
submitted any other evidence,
authorities have not
to the
legislation or
definition or to the allocation of
the public service
mission.

information relating

either

(117) Third,

is

to

also

there

failure

respect

the
a
proportionality principle. The Italian Government has
not indicated the general service obligations imposed on
the firms,
the net extra costs deriving from these
obligations or even the amount of public funds granted
to the joint stock companies by these measures or
through other instruments. As a consequence,
is
impossible for the Commission to check proportionality.
In addition, the advantage deriving from the three-year
exemption is related to the amount of the company’s
taxable income and not to the net cost resulting from
any public service obligation. As to the CDDPP loans,
the Italian authorities failed to prove that they were
the costs resulting from
always justified because of
specific public service obligations.

it

(118)

(114) The fact that the measures are not linked to any public
service obligations and their discriminatory nature are
evident if it is borne in mind that a joint stock company
its
set up under Law No 142/90 would have lost
entitlement to the three-year income tax exemption and
the CDDPP loans if, during the period of application of
the aid measures, the municipality had reduced its stake
to below the majority threshold.

It is therefore clear that the measures have nothing to
do with the reimbursement of the extra net cost arising
from the fulfilment of a general service mission: had
this been true, the reimbursement could not be linked
to the shareholding composition but
to the
imposition of specific obligations. On the contrary, the
measures
shareholding
solely
composition and there is no evidence of any general
service obligation that applies only to joint
stock
companies set up under Law No 142/90 because of
their legal status and not to other firms providing the
same kind of services.

linked

rather

the

are

to

(115) Second, the Commission notes that the principles of
definition and mission allocation have not been
complied with in the present case.

(116) As stated by the Italian authorities,

the joint stock
companies engage in certain activities that may qualify,
in principle, for exemption under Article 86(2). Article
22 of Law No 142/90 allows municipalities to provide
public services via joint stock companies. However, the
Law does not specify which services should be regarded
as public services and to what extent. Nor does it list

(119) Lastly,

to are

abolished,

acceptable

the measures objected

it is clear from the foregoing that the Italian
authorities have not set out in detail their reasons why,
if
the
performance of the task of general economic interest
be
under
jeopardised. They have not therefore complied with the
principle established by the Court of Justice according
to which (cid:145)it is incumbent on the Member State which
a derogation from the
invokes Article 86(2),
as
the
to show that
fundamental

conditions would

the Treaty,

economic

rules of

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conditions for the application of
fulfilled(cid:146) (69).

that provision are

December 1995 does not constitute State aid as it
the
accords with the nature and general scheme of
system.

(120) The Commission concludes that the aid in the form of
the three-year income tax exemption and the loans
granted under Article 9a of Decree-law No 318/1986
cannot be regarded as compatible with the common
market pursuant to Article 86(2) and that the measures
do not constitute a form of compensation for a possible
general service mission entrusted to the firms.

Compatibility with other provisions of the Treaty

(121) Lastly, the Commission finds that the State aid is also
incompatible with the common market for an additional
reason. The measures apply to different economic
sectors (water, gas, electricity, etc.) but not to all firms
operating in such sectors. The eligibility of a firm for
the scheme depends only on its legal
form (former
public entity transformed into a joint stock company)
and on the nature of
its shareholders (public-sector
majority).

same

the conditions

sector on the

(122) Firms operating in the same sectors but in which, for
example, private investors hold a majority or all of the
share capital are not entitled to the aid measures. In
particular,
for benefiting from these
measures can never be fulfilled by firms from other
Member States with a secondary establishment in Italy.
The aid therefore discriminates between firms operating
in the
their
shareholding structure and, in effect, of the country in
which their headquarters are established, without this
treatment being justified by any objective
different
reason. The measure is thus contrary to the principle of
non-discrimination on grounds of nationality, which is a
general principle of EC law, and to that of freedom of
the EC
establishment provided for in Article 43 of
Treaty. It is established case-law that (cid:145)State aid, certain
conditions of which contravene other provisions of the
Treaty, cannot therefore be declared by the Commission
to be compatible with the common market(cid:146) (70).

sole basis of

(124)

(125)

It further finds that Italy has, in breach of Article 88(3)
of
the Treaty, unlawfully implemented the State aid
schemes provided for in Article 3(70) of Law No 549
and Article 9a of Decree-law No 318/1986. It concludes
that the State aid is incompatible with the common
market.

In accordance with established case-law and with Article
14 of Regulation (EC) No 659/1999, the Commission
concludes that the Member State concerned should take
all necessary measures to recover the aid from the
recipients.
the Italian authorities
have not argued that the recovery of the aid would be
contrary to a general principle of Community law and
the Commission would point out that no such principle
prevents the recovery of the aid.

In the present case,

(126) This Decision concerns the two aid schemes in question
and must be implemented immediately, in particular as
regards the recovery of all individual aid granted under
the schemes. The Commission also notes that a decision
on aid schemes is without prejudice to the possibility
that individual aid may be deemed, wholly or partially,
compatible with the common market on its own merits
(for instance, because the individual grant of aid is
covered by the de minimis rules or in the context of a
future Commission decision or by virtue of
an
exemption regulation).

(127) The aid to be recovered includes interest which,

in
accordance with the Commission’s practice, is calculated
on the basis of the reference rate used to calculate the
grant equivalent of regional aid,

HAS ADOPTED THIS DECISION:

Article 1

6. CONCLUSION

The exemption from transfer tax provided for in Article 3(69)
of Law No 549 of 28 December 1995 does not constitute aid
within the meaning of Article 87(1) of the Treaty.

(123) The Commission finds that the transfer tax exemption
provided for in Article 3(69) of Law No 549 of 28

Article 2

(69) Case C-159/94 GDF [1997] ECR I-5815, paragraphs 94 and 101.
(70) Case C-156/98 Germany v Commission [2000] ECR I-6857,

paragraph 78.

The three-year exemption from income tax provided for by
Article 3(70) of Law No 549 of 28 December 1995 and by

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Article 66(14) of Decree-law No 331 of 30 August 1993,
converted into Law No 427 of 29 October 1993, and the
advantages resulting from loans granted under Article 9a of
Decree-law No 318 of 1 July 1986, as converted and amended
by Law No 488 of 9 August 1986, to joint stock companies
with majority public shareholdings set up in accordance with
Law No 142 of 8 June 1990, constitute State aid within the
meaning of Article 87(1) of the Treaty.

Such aid is incompatible with the common market.

of its recovery. Interest shall be calculated on the basis of the
reference rate used for calculating the grant equivalent of
regional aid.

Article 4

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

Article 3

Article 5

Italy shall take all necessary measures to recover from the
beneficiaries the aid granted under the schemes referred to in
Article 2 and unlawfully made available to the beneficiaries.

Recovery shall be effected without delay and in accordance
with the procedures of national law provided that they allow
the immediate and effective execution of the Decision.

The aid to be recovered shall include interest from the date on
which it was at the disposal of the beneficiaries until the date

This Decision is addressed to the Italian Republic.

Done at Brussels, 5 June 2002.

For the Commission

Mario MONTI

Member of the Commission