2003/146/EC: Commission Decision of 22 August 2002 on the tax measures for banking foundations implemented by Italy C 54/2000/EC (ex NN 70/2000) (Text with EEA relevance) (notified under document number C(2002) 3118)
Date: 2002-08-22
Institutions: European Commission
Subjects: State aid, banking, control of State aid, foundation, tax relief

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COMMISSION

COMMISSION DECISION

of 22 August 2002

on the tax measures for banking foundations implemented by Italy

C 54/2000/EC (ex NN 70/2000)

(notified under document number C(2002) 3118)

(Only the Italian text is authentic)

(Text with EEA relevance)

(2003/146/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Commu-
nity, and in particular the first subparagraph of Article 88(2)
thereof,

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

Whereas:

I. PROCEDURE

(1)

By letter dated 24 March 1999, the Commission, after
receiving a Parliamentary question on the subject, asked
the Italian authorities to provide information in order to
assess the scope and effects of Law No 461 of 23
December 1998 (hereinafter Law No 461/98). By letters
dated 24 June and 2 July 1999, the Italian authorities
provided the Commission with information on the Law
and on Legislative Decree No 153 of 17 May 1999,
which followed it
(hereinafter Decree No 153/99).
Having examined the information received, the Commis-
sion advised the Italian authorities on 23 March 2000
that the aforementioned Law and Decree were likely to
contain aid elements and asked them to halt implemen-
tation of the measures. By letter dated 12 April 2000,
the Italian authorities informed the Commission that
they had suspended the implementation of the measures.
Further information was provided to the Commission by
letter of 14 June 2000.

(2)

(3)

(4)

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, which were given the opportunity to
react; their comments were received by letter dated 25
July 2001.

II. DETAILED DESCRIPTION OF THE AID

(5)

Law No 461/98 and Decree No 153/99 introduced the
following tax advantages for banking foundations:

1. Foundations that alter their statutes in line with the
Decree will be designated as non-commercial bodies
(Article 12(1) of Decree No 153/99). They will then
be entitled to the 50 % reduction in corporation tax
(IRPEG) provided for in Article 6 of Presidential
Decree No 601 of 29 September 1973 for bodies
active in the social assistance, health, education or
similar sectors (Article 12(2) of Decree No 153/99).

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

(2) See footnote 1.

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2. Capital gains arising from the transfer of holdings in
banks are not counted for the purposes of corpora-
tion tax (IRPEG) or the regional tax on production
(IRAP) where the transfers are made by the founda-
tions themselves or by the companies to which they
transfer their holdings pursuant to Law No 218 of 30
July 1990. This measure applies provided that the
transfer is made within four years of the date on
which the Decree came into force (Article 13 of
Decree No 153/99).

3. Tax neutrality of transactions by which goods and
holdings in ancillary banking activities transferred to
banks or other companies pursuant to Law No 218
of 30 July 1990 are returned to the transferring body,
and fixed amount payments of certain indirect taxes
(Articles 16(4), (5) and (6) and 17 of Decree No 153/
99).

4. Tax neutrality of transactions by which holdings in
the capital of the Banca d'Italia transferred to banks
or other companies pursuant to Law No 218 of 30
July 1990 are returned to the transferring body
(Article 27(2) of Decree No 153/99).

(6)

(7)

(8)

Law No 461/98 and Decree No 153/99 also introduce
tax advantages
for bank mergers and restructuring
operations. The measures applying to banks are dealt
with in the Commission Decision of 11 December 2001
in Case C 54/A/2000/EC.

Formerly State-owned banks in Italy which did not have
the status of public limited companies were gradually
converted into public limited companies (this was made
compulsory in 1993). Their shares were either placed on
the market or transferred to non-profit bodies called
‘banking foundations’. The measures described in recital
5(2) above lay down the conditions under which founda-
tions may transfer over a four-year period the holdings
they still have in banks. Foundations are obliged even-
tually to give up control of commercial banks.

Law No 218 of 30 July 1990 introduced special tax rules
whereby the banking foundations
that owned or
controlled the newly created banks could transfer certain
assets to the banks. The measures described in recital
5(3) and (4) above refer to those same assets and lay
down the conditions under which they may be returned
to the banking foundation.

(9)

The Commission found that tax advantages granted by
Law No 461/98 and Decree No 153/99 to banking
foundations may constitute State aid within the meaning
of Article 87 of the Treaty, for the following reasons:

— Law No 461/98 and Decree No 153/99 grant tax
advantages specifically to banking foundations. This
is a selective measure which confers an economic
advantage by forgoing tax revenue, i.e. through State
resources,

— although banking foundations are non-profit-making
bodies bound by corporate objectives laid down by
law and cannot pass on tax advantages to their
members or to others, they can still be described as
economic actors exercising an activity in commercial
sectors and may therefore fall within the scope of
Article 87 of the Treaty,

— since they are able to keep their holdings in banks or
to become shareholders in other undertakings, foun-
dations operate in the market for the ownership and
control of undertakings. The aid could therefore
bring about distortions in that market. In addition, it
cannot be ruled out that the tax advantages might
eventually benefit the banks and the undertakings in
which they have holdings. This could constitute State
in particular where the
aid to these undertakings,
foundations in question are subject to the influence
of the public authorities, with distortions thus being
caused in the markets in which they operate,

— the Italian authorities state that the tax advantages
apply only if the foundations decide to cede control
of their banks. This is likely to facilitate the privatisa-
tion process, which is in the general interest. Never-
theless, it can be argued, as the Italian Competition
and Market Authority (Autorità garante della concor-
renza e del mercato) has done, that the definition of
control laid down by Article 6 of Decree No 153/99
is too narrow and will enable foundations to retain
de facto control of their banks. A wider definition of
control, as provided for in banking legislation, would
be more in line with the general interest.

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

III. COMMENTS FROM INTERESTED PARTIES

(10)

(11)

The Commission has received a number of comments
from beneficiaries of the aid mainly repeating the argu-
ments put forward by the Italian authorities.

for the control of undertakings,

The point is made that, if the problem is distortion of
the market
then all
differential tax arrangements granted to different cate-
including other non-profit bodies,
investor,
gories of
should be called into question.

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(12)

(13)

It is also pointed out that the tax benefits are aimed at
offsetting the effect of a policy which forced on the
foundations a radical change in their statutes, a with-
drawal from banking activity and the sale of controlling
shareholdings in commercial companies.

The tax advantages granted to foundations cannot in any
to
way be transferred to the transferee banks or
commercial undertakings, but only have the effect of
increasing the resources that the foundations can devote
to pursuing their social goals. As such, these advantages
do not distort competition.

(14) As for the reduced rate of corporation tax, similar tax
advantages are very common in the Member States for
associations and foundations.

(15)

(16)

If the measures did constitute aid (an assumption that is
contested), then they would be compatible under Article
87(3)(d). Information on the foundations in 1998 shows
that 56 % of their activities are devoted to cultural and
environmental promotion and conservation. In fact, this
is one of the few areas in which foundations are allowed
and indeed obliged to operate.

that

is also pointed out

It
the Commission did not
contest Law No 218 of 30 July 1990, which granted
similar benefits. The Commission was aware of
the
content of Law No 218/90, having dealt with it — albeit
indirectly — in the cases of aid to Banco di Napoli,
Banco di Sicilia and Sicilcassa (3). Should the measures in
Decree No 153/99 be considered as incompatible aid,
this would breach the principle of equal treatment. The
Court of Justice has ruled that: ‘for the Commission to
be accused of discrimination, it must be shown to have
treated like cases differently, thereby subjecting some to
disadvantages as opposed to others, without such differ-
entiation being justified by the existence of substantial
objective differences’ (4). This would be the case if Decree
No 153/99 were to be assessed differently from Law No
218/90.

(17)

Furthermore, the fact that the Commission did not find
Law No 218/90 incompatible has created a legitimate
expectation on the part of the recipients, which means
that, even if the aid were judged to be incompatible, it
could not be recovered.

(3) 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, page 23),
Commission Decision 99/288/EC of 29 July 1998 (OJ L 116,
4.5.1999, p. 5) and Commission Decision 2000/600/EC (OJ L 256,
10.10.2000, p. 21).

(4) Case 250/83 Finsider v Commission [1985] ECR 131, paragraph 8.
(5) Case C-80/95 Harnas & Helm CV v Staatssecretaris van Financiën

[1997] ECR I-745, paragraph 15.

IV. COMMENTS FROM ITALY

(18)

In its response to the initiation of the procedure, the
Italian Government replied that banking foundations
cannot be considered ‘undertakings’ for the purposes of
the competition rules. Legislative Decree No 356 of 20
November 1990 (hereinafter Decree No 356/90) intro-
duced precise limits on the activities of
foundations,
which had to be in the public interest, have a social
function and could operate only in certain well-identified
areas. Decree No 356/90 further required foundations to
treat their holdings in banks as a purely financial invest-
ment. The Court of Justice has ruled that the mere acqui-
sition and holding of shares in a company is not to be
regarded as an economic activity (5).

(19) Decree No 153/99 confirms this approach. Article 1(d)
identifies the sectors (relevant sectors) in which founda-
tions can operate: scientific research, education, art,
environmental and cultural promotion and conservation,
health care and assistance for socially vulnerable groups.
Article 6(1) stipulates that foundations can control or
directly manage only undertakings active in those sectors
(instrumental undertakings). Article 3(2) prohibits foun-
dations from financing in any way, directly or indirectly,
bodies operating for profit or undertakings of any kind,
Instrumental
‘instrumental’ undertakings.
except
undertakings must have a field of activity and statutory
objective consistent with those of the foundation and
may not pursue a purely ‘commercial’ policy.

for

(20)

In fact, foundations can only donate funds or perform
activities in the social interest and must devote not less
than 50 % of their annual income to those activities. The
Italian authorities refer to the judgment by the Court in
Poucet and Pistre, which states that: ‘Sickness funds, and
the organisations involved in the management of the
public social security system, fulfil an exclusively social
function. That activity is based on the principle of
national solidarity and is entirely non-profit-making. The
benefits paid are statutory benefits bearing no relation to
the amount of
that
activity is not an economic activity and, therefore, the
organisations to which it is entrusted are not undertak-
ings within the meaning of Articles 85 and 86 of the
Treaty’ (6). The Italian authorities believe that similar
arguments should apply to foundations.

the contributions. Accordingly,

(6) Joined Cases C-159/91 and C-160/91 Poucet and Pistre [1993] ECR

I-637, paragraphs 18 and 19.

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(21)

Foundations cannot be considered undertakings on the
grounds of their shareholdings in banks. Decree No 153/
99 obliges foundations to withdraw from control within
four years. The concept of control is wider than that laid
down in the Civil Code because it also covers control
exercised via agreements with other shareholders. It is
also wider than the concept of control used in Commis-
sion Directive 80/723/EEC of 25 June 1980 on the
transparency of
relations between Member
States and public undertakings (7). Moreover, Decree No
153/99 stipulates that managerial positions in the foun-
dation are incompatible with managerial positions in the
‘transferee’ bank.

financial

(22) As in the case of foundations,

‘instrumental undertak-
ings’ cannot be considered undertakings within the
meaning of Article 87(1) since they have to operate
sectors and be directly
exclusively in the relevant
involved in pursuing the statutory object of the founda-
tion.

(23)

(24)

(25)

The measure described in recital 5(1) does not represent
a derogation from the normal
tax rules, but simply
confirms the application to foundations of a general
provision in Italian tax legislation. Presidential Decree
No 601 of 29 September 1973 grants a reduction in
corporation tax to all
legal persons operating in the
social assistance, health, education or similar sectors.

The measures described in recital 5(2) do not confer an
advantage on foundations, but merely prevent
them
from being further penalised by the forced sale of shares.
Indeed, any capital gains would not arise from an
ordinary transaction decided by the operator but from
an event imposed by law: application of the ordinary tax
rules would not be justified.

The measures described in recital 5(3) and (4) concern
goods and holdings in instrumental activities transferred
to banks pursuant to Law No 218 of 30 July 1990.
When the public banks were converted into public
limited companies owned by banking foundations,
operators transferred those assets to the banks rather
than the foundations in order to avoid taxation on reva-
luation of the assets.
In the case of holdings in the
capital of the Banca d'Italia, the choice of placing them
in the foundation was not even available. Under Law No
141 of 7 March 1938, the newly created foundations
were not among the bodies eligible to be shareholders in
the Banca d'Italia. Decree No 153/99 modified those
rules and allowed foundations to hold shares in the
Banca d'Italia.

(26) According to the Italian authorities,

the measures
described in recital 5(3) and (4) do not involve the use
of state resources. The tax advantage is not automatic

(7) OJ L 195, 29.7.1980, p. 35. Last amended by Directive 2000/52/EC

(OJ L 193, 29.7.2000, p. 75).

(27)

(28)

(29)

(30)

(31)

but conditional upon the carrying out of specific trans-
actions. If those transactions had attracted tax, it is unli-
kely that they would have taken place.

It is also argued that the measures described in recital
5(3) and (4)
introduce a derogation from the normal
rules only in some instances. Demergers already bene-
fited from tax neutrality as regards all companies in all
sectors, whereas certain indirect
taxes were already
calculated on a fixed basis in a number of instances.

Furthermore, the measures do not necessarily confer an
economic advantage. They provide for a tax-neutral
transfer of the assets in question to the foundations,
which means that any capital losses would not give rise
to a tax credit. Moreover, tax neutrality is not a tax
exemption: the tax burden is shifted onto the new owner
of the assets who, in the cases laid down by tax law, will
have to pay the tax on the total amount of capital gains.

In any event, even if the measures resulted in exemption
from a tax that should have otherwise been paid, the
particular nature of the transactions justifies special tax
treatment. These are not ordinary sales of assets but
transactions that correct the effects of previous non-
voluntary transfers. The assets involved should have
remained in the foundations but were temporarily trans-
ferred to the ‘transferee’ companies, either because of a
legal obligation (in the case of holdings in the Banca
d'Italia) or in order to avoid tax payments (in the case of
instrumental assets).

The measures under Decree Law No 153/99 do not
distort competition in a market where there is trade
between Member States. The sale of shareholdings must
take place in a non-discriminatory fashion and is subject
to control by the supervisory authority, which assesses
the fairness of the selling price with a view to preserving
the assets of the foundation. Accordingly, the tax advan-
tages for the foundations do not alter the conditions of
competition in the market for company shareholdings.

The tax advantages cannot benefit, either directly or
indirectly, any body other than the foundation itself or
the instrumental undertakings. The latter must pursue
the same statutory objective as the foundations and do
not operate according to normal market criteria. They
cannot be considered ‘undertakings’ within the meaning
of Article 87(1). In any event, their activity is local in
nature: 93,8 % of the projects financed by foundations
take place in the foundation's own region. Foundations
respond to needs that are typically of a local nature and
would not be satisfied by operators in other Member
States. Moreover,
in the fields of scientific research,
education, art, cultural and environmental promotion
and conservation, health care and assistance for socially
vulnerable groups, there are few market operators.

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(32)

is contested),

If the measures did constitute State aid (an assumption
that
they would have to be declared
compatible with Article 87(3)(c). The measures do not
adversely affect trading conditions to an extent contrary
to the common interest and are aimed at facilitating a
in the
the reduction of State involvement
process,
economy, which has on many occasions been supported
and encouraged by the EU.

the so-called ‘relevant sectors’. ‘Relevant sectors’ are the
‘admitted sectors’
in which each foundation actually
chooses to operate. Foundations are required to select
up to three relevant sectors every three years. Relevant
sectors are the priority area of activity of banking foun-
dations, who must devote to these sectors at least 50 %
of their annual net income.

V. ASSESSMENT OF THE MEASURES

The rules on banking foundations

Banking foundations are subject
to supervision by a
specific authority that is aimed at ensuring compliance
with the law and statutes, sound and prudent manage-
ment, adequate return on investments and protection of
actual and potential beneficiaries. To this end, the super-
visory authority can enact administrative provisions
laying down in particular rules on asset management,
investments, use of revenue and annual accounts. Where
serious and repeated irregularities are found, the supervi-
sory authority can dissolve the statutory bodies of a
foundation and appoint a special administrator; where a
foundation is no longer able to purse its objectives the
authority may order it to be wound up. In special cases
the supervisory authority may also prescribe the forced
administrative liquidation (liquidazione coatta amminis-
trativa) of a foundation (8). Lastly,
the supervisory
authority can exercise powers with regard to the divest-
ment of controlling shareholdings.

(35)

‘Relevant sectors’ also restrict the areas in which banking
foundations are authorised to carry out business activ-
ities and hold controlling stakes in commercial compa-
nies. Article 3(1) of Decree No 153/99 states that
banking foundations may run commercial undertakings
only where they are directly ‘instrumental’ to their statu-
tory objectives and operate exclusively in the relevant
sectors. Article 3(2) stipulates that banking foundations
may not
finance or subsidise, directly or indirectly,
bodies or undertakings of any other kind.

(36)

Controlling shareholdings in other companies must be
sold or divested. Article 6 of Decree No 153/99 states
that control must be established in accordance with
Article 2359,
first and second subparagraphs, of the
Civil Code. Hence, control exists when a foundation:

(33)

(34)

Banking foundations are allowed to operate only in the
so-called ‘admitted sectors’. The admitted sectors are
listed in Article 1(1)(c-bis) of Legislative Decree No 153
of 17 May 1999 (Decree No 153/99), as amended by
Law No 448 of 28 December 2001 (Law No 448/01) (9).
The list is divided into four broad areas: 1. protection
and development of individuals; 2. social security; 3.
scientific
environmental
protection; 4. art, preservation of cultural heritage and
promotion of cultural activities (10). However, banking
foundations are required to concentrate their activity in

and technological

research,

(8) ‘Forced administrative liquidation’ (liquidazione coatta amministra-
tiva) is a special winding-up procedure that replaces application of
the ordinary rules on bankruptcy.

(9) Law No 448/01 introduced the distinction between ‘admitted’ and
‘relevant’ sectors. Originally, Decree No 153/99 covered only ‘rele-
vant sectors’, more generally defined as scientific research, educa-
tion, art, health, cultural and environmental promotion and conser-
vation, and assistance for vulnerable social groups. The difference
between the past and the present rules is that the new provisions
tend to force banking foundations to define more accurately their
scope of activity. Some new areas of activity can now be chosen as
‘relevant sectors’.

(10) Within the area of protection and development of individuals, the
Law lists: family and related values, growth and development of
young people, education and training, including the acquisition of
publications for schools, voluntary and charity work, religion and
spiritual development, assistance to the elderly and civil rights. The
area of social security includes: crime prevention, public safety,
food security and high-quality agriculture, local development and
public housing, consumer protection, civil protection, public
health, preventive and rehabilitative medicine, sport, prevention of
drug addiction and rehabilitation of addicts, and psychological and
mental conditions.

(a) by way of agreements of any kind with other share-
holders, has the right to appoint the majority of the
executives or holds the majority of the voting rights
at the ordinary general meeting;

(b) by way of agreements of any kind with other share-
holders, may make the appointment or dismissal of
the majority of members of the executive conditional
on its approval;

(c) by way of financial or organisational links, is able to

exercise the rights described in (a) and (b).

In addition, Law No 448/01 stipulates that a bank is
deemed to be controlled by a foundation even where
control can be traced back, directly or indirectly,
to
more than one foundation, in whatever way this is deter-
mined.

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(37)

Banking foundations are allowed to retain shareholdings
in banks for a period of four years from the entry into
force of Decree No 153/99. Law No 448/01 has now
stipulated that banking foundations may retain control-
ling shareholdings in banks for a further period of three
years provided that management of shareholdings in
transferee banks is entrusted to an independent asset
management company (società di gestione del risparmio
— SGR). The asset management company would exer-
cise in its own name all the shareholding rights, except
for voting at extraordinary general meetings (i.e. meet-
ings called to approve structural changes). The supervi-
sory authority should adopt special provisions aimed at
ensuring transparency and fairness in the choice of asset
and avoiding conflicts of
management
interest.

companies

non-profit bodies operating in accordance with princi-
ples of transparency and morality.
In managing their
assets, foundations must observe prudential risk criteria
in order to preserve their value and obtain an adequate
return. In addition, they are required to diversify their
investments with a view to avoiding risk arising from
investment concentration and to invest their assets in a
manner consistent with their institutional aims and, in
particular, with the promotion of local development.

(41) Article 4(1)(c) of Decree No 153/99, as amended by Law
No 448/01, states that the local authorities must appoint
a majority of the members of the governing body of
foundations.

(38) Other, non-authorised controlling shareholdings must be
divested by the deadline set by the supervisory authority
and, in any case, within four years from the entry into
force of Decree No 153/99. If foundations do not meet
these deadlines, the supervisory authority will take direct
measures to ensure divestment of controlling sharehold-
ings, possibly by appointing a special officer.

(39) Members of

the internal bodies and executives of
banking foundations must satisfy the requirements of
professional
integrity and experience. These require-
ments are established by the supervisory authority and
are taken to mean the experience and ethical standards
required to perform planning, administrative, managerial
and supervisory duties in not-for-profit bodies. Banking
foundations cannot distribute profits to members of
internal bodies, executives or employees. Law No 448/
01 provides that members of internal bodies and execu-
tives cannot perform administrative, managerial or
supervisory duties in the ‘transferee’ bank or any other
undertaking operating in the banking, financial or insur-
ance sector. Decree No 153/99, in its original wording,
simply prohibited members of the management body of
a foundation from being on the board of directors of the
transferee bank.

Economic activity

(42)

To sum up, the activity of banking foundations consists
in directing the revenue they obtain from their assets to
the promotion of actions in the social field. There are
four main aspects to this activity: (i) the management
and investment of their assets; (ii) the giving of grants to
not-for-profit bodies operating in the social field; (iii) the
carrying out of activities in the social field, and (iv) the
control of ‘instrumental undertakings’.

Management and investment of own assets

(43) As to the first activity, Decree No 153/99 specifies that
the assets of the foundations are tied entirely to the
pursuit of their statutory objectives. Foundations have to
seek an adequate return on their investments but must
also respect prudential risk criteria in order to preserve
their value (11). They cannot use their capital to acquire
control of commercial undertakings: Decree No 153/99
introduced specific safeguards in this respect (see recitals
36 and 39). Law No 448/01 has further strengthened
these safeguards with regard to banks by explicitly ruling
out the possibility of joint control and widening the
scope of the ban on the cumulation of responsibilities.
Law No 448/01 has, therefore, reinforced the separation
between foundations and financial
In so
doing, it has helped to allay the corresponding concerns
expressed in the decision to initiate the procedure.

institutions.

(40)

The assets of banking foundations are devoted entirely
their statutory objectives and are
to the pursuit of
managed in a manner consistent with their status as

(11) Law No 448 of 28 December 2001 has added that the capital has
to be managed in a way that is consistent with the nature of the
foundations as non-profit bodies that operate according to princi-
ples of transparency and morality.

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(44)

The management of capital, when performed by the
foundation itself (12), does not result in the provision of a
service on the market. In the field of VAT, the Court has
consistently held that a holding company whose sole
purpose is to acquire holdings in other undertakings,
involving itself directly or indirectly in the
without
management of those undertakings, without prejudice to
its
rights as a shareholder, does not perform an
economic activity. This is not the case where the holding
is accompanied by direct or indirect involvement in the
management of the companies in which a holding has
been acquired, without prejudice to the rights held by
the holding company as shareholder.
Involvement of
that kind in the management of controlled undertakings
must be regarded as an economic activity in so far as it
results
the provision of
services (13). The Commission considers that these princi-
ples are relevant in assessing whether foundations exer-
cise an economic activity and can therefore be consid-
ered as undertakings within the meaning of Article
87(1).

in the sale of goods or

(45)

In addition, the management of capital cannot be seen
as an activity independent of, and separate from, that of
using its proceeds to promote measures in the social
field. The profits derived from the management of assets
cannot be distributed to the foundations' members or
associates and can be used only for making grants.
Accordingly, the in-house management of a foundation's
assets cannot be described as an ‘economic activity’ in
itself but has to be seen in the context of its overall
activity.

The making of grants to not-for-profit bodies operating in the
social field

(46)

The revenue that foundations derive from their assets is
used to make grants to non-profit bodies operating in
the fields laid down by law (see recital 34). Decree No
153/99 expressly prohibits banking activity and founda-
tions cannot receive any form of compensation for their
grants. Quoting some of the wording used by the Court
of Justice in its judgment in Poucet and Pistre (see recital
19) this type of activity ‘fulfils an exclusively social func-

(12) Law No 448 of 28 December 2001 allows foundations to entrust
their holdings in the ‘transferee’ bank to an outside company
specialised in investment management
gestione
risparmio — SGR). They can thus delay the sale of their controlling
stake in the bank by three years. A foundation cannot interfere in
the management of its assets and, regarding its shareholding rights,
can only give indications regarding the decisions of the extraor-
dinary general meeting where provided for under Article 2365 of
the Italian Civil Code.

(società di

(13) See Cases C-60/90 Polysar Investments Netherlands v Inspecteur der
Invoerrechten [1991] ECR I-3111, C-333/91 Sofitam [1993] ECR I-
3513 and C-142/99 Floridienne and Berginvest [2000] ECR I-
9567.

tion’, ‘is based on the solidarity principle’ and ‘is entirely
non-profit-making’.
In addition, benefits granted by
foundations have nothing to do with any possible return
for the foundations themselves: the foundations do not
operate according to normal market criteria, and a
market does not exist for this particular type of activity.

(47) Accordingly, the Commission considers that the manage-
ment of own assets and use of the proceeds for making
grants to not-for-profit entities operating in the social
field is not an economic activity and therefore does not
make foundations undertakings within the meaning of
Article 87(1) of the Treaty.

(48)

(49)

Activities in the social field and control of ‘instrumental under-
takings’

Banking foundations are not authorised to have control-
ling stakes in undertakings or to fund commercial activ-
ities in any way, except in the circumstances stipulated
by law. These are cases where foundations directly carry
out an activity in the ‘relevant’ sectors or control bodies
operating in those fields (instrumental undertakings).
In
any event, neither the foundations nor the instrumental
undertakings can operate for profit.

In assessing whether the activities in the fields indicated
it should be
by law are to be considered ‘economic’,
reminded that, according to established case law,
‘the
concept of an undertaking covers any entity engaged in
an economic activity, regardless of its legal status and
the way in which it is financed, and that any activity
consisting in offering goods and services on a given
market is an economic activity’ (14). The Court of Justice
has also held, in the case of a sectoral pension fund, that
the fact that it is non-profit-making, the pursuit of a
social objective, manifestations of solidarity and restric-
tions or controls on investments do not prevent the
activity engaged in by the fund from being regarded as
an economic
an activity
consisting in offering goods or services to be considered
as not economic, it must be possible to rule out the exis-
tence of a market for comparable goods or services. In
most of the fields indicated by law (education, culture,

activity (15).

Indeed,

for

(14) Case C-35/96 Commission of

the European Communities v Italian

Republic [1998] ECR I-3851, paragraph 36.

(15) Joined cases C-115/97 to C-117/97 Brentjens' Handelsonderneming
BV v Stichting Bedrijfspensioenfonds voor de Handel in Bouwmaterialen
[1999] ECR I-6025, paragraphs 85 and 86.

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Official Journal of the European Union

L 55/63

a

similar

activity

exercising

health care, conservation, scientific research and assis-
tance for vulnerable social groups) it is possible to find
operators
for profit
purposes. Unlike the activity of making outright grants,
for which a ‘market’ does not exist,
the activity of
providing the services of a clinic, an art gallery or a care
agency involves economic transactions. In those markets
the direct presence of foundations or their ability to
control undertakings is liable to distort competition and
their activities cannot be entirely immune to competition
control.

(50)

(51)

This is not to say that all the activities performed in the
‘relevant sectors’ are of an ‘economic nature’. Similarly,
some of the activities, although ‘economic’, might not be
such as to affect trade between Member States. The exact
identification of the activities for the purpose of State
aid control can take place only on a case-by-case basis.

The Italian authorities have stated that,
for the time
being, none of the foundations is taking advantage of
the possibility, provided for by law, of directly carrying
out an activity in the ‘relevant’ sectors (16).
It would
therefore appear that none of the foundations can be
described as an ‘undertaking’ for the purposes of Article
87(1) by virtue of activities carried out directly in the
‘relevant’ sectors. If they did carry out such activities,
Article 9(3) of Decree No 153/99 requires foundations
to keep separate accounts.

(52) As to the possibility of acquiring control of instrumental
undertakings, this would not make foundations under-
takings in so far as it does not imply direct involvement
in the activity of
the controlled undertaking. Legal
separation, as well as accounting separation, exists
between the foundations and the ‘instrumental undertak-
ings’ they are authorised to control.

(53) Accordingly,

the Commission considers that banking
foundations which are not directly involved in activities
in the ‘relevant’ sectors are not undertakings for the
purposes of Article 87(1). On the other hand, founda-
tions are to be considered undertakings when directly
involved in activities of an economic nature, even within
the ‘relevant’ sectors.

(54)

The information provided by the Italian authorities to
the effect that foundations carry out no direct activities
in the ‘relevant’ sectors has, therefore, led the Commis-
sion to revise its preliminary view, as expressed in its
decision to initiate the procedure, regarding the nature
of foundations as undertakings.

Possible presence of aid elements

(55)

If foundations are directly involved in economic activ-
ities, even in the ‘relevant’ sectors, where there is trade
between Member States, any tax advantage that may
benefit these activities is likely to constitute State aid and
must therefore be notified pursuant to Article 88(3).

(16) Letter of 16 January 2001 in reply to the Commission's letter of 25
October 2000 informing the Italian Government
it had
decided to initiate the procedure laid down in Article 88(2) of the
EC Treaty.

that

(56)

Similarly, because the majority of members of the foun-
dations' governing bodies are appointed by the local
authorities (see recital 41), foundations are to be consid-
ered publicly controlled bodies. The public authorities
control their resources and the way in which they are
used. Accordingly, whenever banking foundations grant
funds or other forms of support to undertakings, even in
the ‘relevant’ sectors, this is likely to constitute State aid
in so far as it distorts or threatens to distort competition
and affects trade between Member States. Such aid must
be notified pursuant to Article 88(3).

Other transferee companies established pursuant to
Law No 218 of 30 July 1990

(57) Decree No 153/99 grants the tax advantages described
in recital 5(2) and (3) to other transferee companies
(established pursuant to Law No 218/90) to which foun-
dations transferred their holdings in banks. Where these
companies carry out banking activities, they are excluded
from the scope of the present decision and are caught
by the Commission Decision of 11 December 2001 in
Case C 54/A/2000/EC. However, Article 16(6) of Decree
No 153/99 explicitly provides for the case of transferee
companies which do not carry out banking activities and
are entirely owned by foundations. In so far as these
companies merely administer the financial holdings of
foundations, do not offer any service to third parties and
are entirely owned by foundations, the tax advantages
described in recital 5(2) and (3) will ultimately accrue to
the foundations. As long as the foundations that own
the conferee companies in question are not undertakings
within the meaning of Article 87(1), the measures in
recital 5(2) and (3) will not confer advantages on any
undertaking.

(58) Accordingly, the Commission considers that tax advan-
tages granted under Articles 13 and 16 of Decree No
153/99 to transferee companies which do not carry out
banking activities and are entirely owned by foundations
do not constitute State aid within the meaning of Article
87(1).

VI. CONCLUSIONS

(59)

The Commission considers that the management of own
assets and the use of the proceeds for making grants to
not-for-profit bodies operating in the social field is not
an economic activity and therefore does not make foun-
dations undertakings within the meaning of Article
87(1) of the Treaty.

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Official Journal of the European Union

1.3.2003

(60)

The Italian authorities have stated that no foundation is
directly engaged in activities of an economic nature in
the fields where this possibility is granted by law.

(61) Accordingly,

intended for

the measures

foundations
under Article 12(2), Article 13, Article 16(4) and (5) and
Article 27(2) of Decree No 153/99 do not constitute
State aid since they are not intended for undertakings
within the meaning of Article 87(1) of the Treaty.

(62)

(63)

The measures introduced under Article 13, Article 16(6)
and Article 17 of Decree No 153/99 for transferee
companies that do not carry out banking activities, do
not offer any service to third parties and are entirely
owned by foundations, do not constitute State aid since
intended for undertakings within the
they are not
meaning of Article 87(1).

If
foundations are directly involved in an economic
activity, even in the ‘relevant’ sectors, where there is
trade between Member States, any tax advantage that
may benefit this activity is likely to constitute State aid
and must therefore be notified pursuant to Article 88(3).
Similarly, because the majority of members of founda-
tions' governing bodies are appointed by the local autho-
rities, the public authorities control their resources and
the way in which they are used. Accordingly, whenever
foundations grant funds or other forms of support to
undertakings, this is likely to constitute State aid in so
far as it distorts or threatens to distort competition and
affects trade between Member States. Such aid has to be
notified pursuant to Article 88(3). Lastly,
if transferee
companies offer services to third parties, any tax advan-
tage granted to them is likely to constitute State aid and
has therefore to be notified pursuant to Article 88(3),

HAS ADOPTED THIS DECISION:

Article 1

The measure which Italy has implemented under Article 12(2),
Article 13, Article 16(4) and (5) and Article 27(2) of Legislative
Decree No 153 of 17 May 1999 for foundations which do not

directly carry out activities in the sectors listed in Article 1(1)(c-
bis) of
that Decree, as amended by Law No 448 of 28
December 2001, does not constitute aid within the meaning of
Article 87(1) of the Treaty.

Article 2

The measure which Italy has implemented under Article 13,
Article 16(6) and Article 17 of Legislative Decree No 153 of 17
May 1999 for transferee companies which do not carry out
banking activities, do not offer any service to third parties and
are entirely owned by the foundations referred to in Article 1
of the present decision does not constitute aid within the
meaning of Article 87(1) of the Treaty.

Article 3

If foundations are directly involved in an economic activity,
even in the ‘relevant’ sectors, where there is trade between
Member States, any tax advantage that may benefit these activ-
ities is likely to constitute State aid and must therefore be noti-
fied pursuant to Article 88(3) of the EC Treaty. Where the
majority of members of
foundations' governing bodies are
appointed by the local authorities, any funds or other forms of
support granted to undertakings is likely to constitute State aid
and must therefore be notified pursuant to Article 88(3) of the
EC Treaty. Where transferee companies offer services to third
parties, any tax advantage granted to them is likely to consti-
tute State aid and must therefore be notified pursuant to Article
88(3) of the EC Treaty.

This Decision is addressed to the Italian Republic.

Article 4

Done at Brussels, 22 August 2002.

For the Commission

Mario MONTI

Member of the Commission