2007/493/EC: Commission Decision of 7 February 2007 on aid scheme C 34/2005 (ex N 113/2005) under Law No 17/2004 (Article 60) of the Region of Sicily which Italy is planning to implement (notified under document number C(2007) 284) (Text with EEA relevance)
Date: 2007-02-07
Institutions: European Commission
Subjects: Italy, Sicily, State aid, aid to undertakings, control of State aid, cooperative, regional aid, security services, tax relief

13.7.2007

EN

Official Journal of the European Union

L 183/41

COMMISSION DECISION

of 7 February 2007

on aid scheme C 34/2005 (ex N 113/2005) under Law No 17/2004 (Article 60) of the Region of
Sicily which Italy is planning to implement

(notified under document number C(2007) 284)

(Only the Italian text is authentic)

(Text with EEA relevance)

(2007/493/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

The Commission invited interested parties to submit their
comments on the aid.

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

Having regard to the Agreement on the European Economic
Area, and in particular Article 62(1)(a) thereof,

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

Whereas:

(1)

(2)

(3)

(4)

I. PROCEDURE

By letter of 9 March 2005, the Italian authorities, acting
pursuant to Article 88(3) of the EC Treaty, notified the
Commission of an aid measure under Article 60 of
Regional Law No 17/2004 laying down planning and
financial provisions for 2005.

By letters of 29 March and 10 June 2005,
Commission requested further
measure notified.

the
information on the

The Italian authorities replied by letter of 18 May 2005
following a reminder from the Commission dated 27
April 2005 and by letters of 12 July and 14 July 2005.

By letter of 21 September 2005,
the Commission
informed Italy of its decision to initiate the procedure
laid down in Article 88(2) of the EC Treaty in respect
of the measure.

(5)

The Commission Decision to initiate the procedure was
published in the Official Journal of the European Union (2).

(1) OJ C 82, 5.4.2006, p. 71.
(2) See footnote 1.

(6)

(7)

(8)

(9)

The Commission received no comments from interested
parties.

By letter of 10 November 2005, registered as received by
it on 15 November 2005, the Italian authorities asked
the Commission to suspend the procedure pending the
ruling by the Court of
Justice in Case C-475/2003
concerning the compatibility of the Italian regional tax
on productive activity (IRAP) with Article 33(1) of the
Sixth Council Directive 77/388/EEC of 17 May 1977 on
harmonisation of the laws of the Member States relating
to turnover taxes — Common system of value added tax:
assessment (3). The Commission
uniform basis of
accepted the request by letter of 2 August 2006. On 3
October 2006 the Court of Justice declared the IRAP to
be
of Directive
77/388/EEC (4).

compatible with Article

33(1)

stating that

By letter of 8 May 2006, registered as received by it on
11 May, the Italian authorities informed the Commission
about an amendment to Article 60 of Regional Law No
to
17/2004,
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 (the de minimis Regu-
lation) (5)
the
until
Commission but also ‘in the case of a negative decision
being adopted by the Commission’.

the measure was

authorisation

subject

only

not

by

II. DESCRIPTION OF THE MEASURE

II.1. Objective of the measure

According to the Italian authorities,
the measure is
designed to promote the setting up of new companies
and to narrow the gap between companies in Sicily and
companies located in other regions of Italy where the
standard of living is abnormally low or where there is
serious underemployment within the meaning of Article
87(3)(a) of the EC Treaty.

(3) OJ L 145, 13.6.1977, p. 1.
(4) Case C-475/2003 Banca popolare di Cremona Soc.coop.arl v Agenzia

Entrate Ufficio Cremona, not yet published.

(5) OJ L 10, 13.1.2001, p. 30.

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Official Journal of the European Union

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(10) Moreover, the measure in question is aimed at improving
investment prospects in Sicily by raising security levels
and preventing criminal behaviour.

(17)

The scheme runs for three tax years, from 2005 to 2007.

II.2. Legal basis of the measure

(11) Article 60(1) of Regional Law No 17/2004 provides for a
reduction in the rate of IRAP by 1 % in 2005, 0.75 % in
2006 and 0.5 % in 2007 for
(more
‘società cooperative a mutualità prevalente’) as
precisely,
defined in the Italian Civil Code (6).

cooperatives

(12) Article 60(2) of Regional Law No 17/2004 extends the
same benefit to private security firms as defined in Royal
Decree No 773/1931 of 18 June 1931, which defines the
conditions under which entities and private persons may
be authorised by the provincial prefect
to
provide security services for movable and immovable
property and private investigation services (7).

(‘prefetto’)

(13)

Reductions in the IRAP rate are decided by the Region of
Sicily by virtue of the power to modify the rate conferred
on all regions in Italy under the relevant national legis-
lation (8).

II.3. Budget for the measure

(14)

The Italian authorities estimate that the budgetary impact
of Article 60 will be around EUR 2 million for the entire
period 2005-2007.

II.4. Cumulation

(15)

The measure in question may be cumulated with aid
received under other
regional, national or
local,
Community schemes to cover the same eligible costs.

II.5. Duration of the measure

(16)

Regional Law No 17/2004 entered into force on 29
December 2004, but Article 60 states that the measure
is subject to the de minimis Regulation until authorisation
by the Commission. By letter of 16 May 2006, the Italian
authorities stated that the measure was subject to the de
minimis Regulation also in the case of a negative decision
being adopted by the Commission.

(6) See Titolo VI del Libro V of the Civil Code, as amended by Article 8

of Legislative Decree No 6/2003 of 17 January 2003.

(7) See Titolo IV of Royal Decree No 773/1931 of 18 June 1931, as
subsequently amended. The provincial prefect can refuse the licence
also on the basis of the number and importance of existing entities.

(8) Legislative Decree (IRAP) No 446 of 15 December 1997.

III. GROUNDS FOR INITIATING THE PROCEDURE

(18)

In its letter of 21 September 2005, the Commission took
the view that the notified scheme constituted State aid
within the meaning of Article 87(1) of the EC Treaty
since state resources are involved, since it is selective
through being targeted at particular
sectors and/or
particular categories of undertaking, since it confers an
advantage on such undertakings relative to other under-
takings that provide the same services and since it might
distort competition and affect trade at Community level.

(19) One of the reasons for initiating the procedure was that
the Commission was not able to rule out the possibility
that the effects of the measure on intra-Community trade
would be contrary to the common interest, considering
also that, under the scheme, the beneficiaries are not
required to offset such distortions.

(20)

(21)

(22)

The Commission also had doubts whether the measure
in the Guidelines on
fulfilled the conditions set out
national
In fact,
according to the notification, the measure would grant
operating aid to Sicilian cooperatives and to security
firms.

(‘the Guidelines’).

regional

aid (9)

In point 4.15 of the Guidelines, operating aid may be
granted if the measure is justified in terms of its contri-
bution to regional development and its nature and if its
level is proportional to the handicaps it seeks to alleviate.
the Commission doubted whether the
In this regard,
Italian authorities had succeeded in justifying the
granting of operating
the
aid
existence of any handicaps and gauging their importance.

demonstrating

by

The Commission doubted whether the operating aid
in Article 60(1) of Regional Law No
provided for
17/2004 was compatible with the common market on
the grounds that it would contribute to the creation of
new firms and reduce the gap between Sicilian firms and
firms operating elsewhere in Italy. In this respect, it noted
that the link between the lowering of IRAP for all coop-
eratives and the creation of new firms in Sicily is unclear
and left unexplained by the Italian authorities.

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

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(23)

(24)

the Italian authorities argued that
In the notification,
Sicilian firms are structurally disadvantaged because
Sicily is an outermost island remote from the ‘continental
economic centres’. The Commission observes here that
in
are
the outermost
Declaration 26 on the outermost
the
Community, annexed to the Treaty on the European
Union (10). Moreover,
the aid does not seem to be
tailored to tackling the problems associated with the
is unrelated to the
island status of Sicily because it
extra costs due to insularity, like transport costs.

listed
regions of

exhaustively

regions

the Italian authorities claimed that

the
Furthermore,
resulted in higher
prevalence of micro enterprises
financing costs and greater labour intensity; labour and
debt costs constitute a large part of the IRAP's tax base,
thereby placing Sicilian firms at a disadvantage. The
Commission noted that, even if the problem facing the
Sicilian economy was the high ratio of micro enterprises
and its consequences, a general IRAP reduction for coop-
eratives of all sizes would not address the issue because it
was not targeted at micro enterprises. Nor should the aid
be granted only to micro cooperatives.

(25)

The Commission also stressed that differences in effective
tax rates such as those referred to by the Italian autho-
rities are present for every tax and are implicit in their
nature. This does not, however, seem to be a sufficient
reason to grant
state aid differentiated by type of
enterprise and, in the present case, the Italian authorities
did not provide concrete evidence that cooperatives are
excessively penalised by high effective rates of IRAP.

(26) Moreover, the Commission doubts the robustness of the
data used by the Italian authorities to demonstrate that
the ‘normal’ Sicilian firm with a turnover of less than
EUR 10 million and fewer than 10 workers operating
in industry, except for the chemical and petrochemical
sectors, and in the ITC and tourist sectors pays a higher
IRAP than a comparable ‘normal’ company
rate of
operating in Lombardy. In actual fact, as Article 60(1)
of Regional Law No 17/2004 provides aid to coop-
eratives of all sizes and in all sectors, the use of data
that concern only firms with a turnover of less than EUR
10 million and fewer than 10 workers operating in
the chemical and petrochemical
industry, except
sectors, and in the ITC and tourist sectors does not
seem to demonstrate
the
measure in question.

the proportionality of

for

(10) See footnote 27 to the Guidelines (see footnote 9).

(27) Other doubts related to the information submitted by the
the operating aid
in Article 60(2) of Regional Law No

Italian authorities
provided for
17/2004 is compatible with the common market.

to show that

(28)

(29)

(30)

(31)

In the notification the Italian authorities argued that
Article 60(2) of Regional Law No 17/2004 would help
to improve investment prospects in Sicily by raising
security levels and preventing criminal behaviour. They
stressed that the average Sicilian security firm pays a
higher rate of
IRAP than the average firm operating
elsewhere in Italy because the labour costs/net output
value ratio for Sicilian security firms is on average
the
higher
rigidity of Sicilian labour market, which is characterised
by low manpower turnover.

than elsewhere in Italy and because of

the Commission claims that

In this connection,
the
existence of a link between Article 60(2) of Regional
Law No 17/2004 and the improvement in investment
prospects in Sicily by raising security levels as well as
the reasons for the higher costs of Sicilian security firms
relative to firms operating in other regions of Italy are
not
seem that,
compared with the labour market in other regions of
Italy, the Sicilian labour market has characteristics such
as to justify higher wages in this sector.

sufficiently explained.

It does not

Furthermore, the Commission doubts that the arguments
presented by the Italian authorities asserting that
the
provincial prefect may impose price restrictions on
legalità’) as
services provided in the sector (‘tariffe di
well as the necessity of rewarding the professionalism
of workers in the sector have to be taken into account.
The Commission is of the opinion that these reasons do
not explain the impact of differences in ‘tariffe di legalità’
on the increase in labour costs in Sicily.

that

therefore

explained

The Commission has
it
considered a more thorough analysis of the issue to be
necessary. Such an analysis would need to include any
comments made by interested third parties. Only after
considering such comments
could the Commission
decide whether the measure proposed by the Italian
authorities
to an extent
contrary to the common interest.

trading conditions

affects

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IV. COMMENTS FROM ITALY

(38)

(32)

The Commission received no comments from the Italian
authorities or from interested third parties to allay the
doubts raised when the formal
investigation procedure
was initiated.

powers

The Commission has previously decided (11) that these
limited powers to adjust the tax rate are symmetrical in
nature provided that the individual regions do not use
to apply, within their margin of
their
tax rates that differ between
autonomous discretion,
sectors
and do not
constitute State aid. This finding is not invalidated by
the ruling in Case C-88/2003 Azzorre (12).

and between taxable persons

V. ASSESSMENT OF THE MEASURE

V.1. Legality

(33)

By notifying the aid scheme with a standstill clause and
implementing it under the de minimis Regulation pending
authorisation from the Commission, the Italian autho-
rities have complied with the procedural requirements
of Article 88(3) of the EC Treaty.

(39) However, in the case notified, the Region of Sicily has
not limited its intervention to the margin of autonomous
discretion established by national
law but has used its
power to introduce for certain sectors and taxpayers
tax rates that are different from, and lower than, the
standard regional tax rates. In fact:

V.2. State aid character of the scheme

(34)

The Commission considers that the measure constitutes
State aid within the meaning of Article 87(1) of the EC
Treaty for the following reasons:

V.2.1. Presence of state resources

(35)

The measure involves the use of state resources in terms
of tax revenues forgone by the Region of Sicily and
corresponding to the reduced tax liability of the bene-
ficiary.

(a) Article 60(1) of Regional Law No 17/2004 confers
an advantage only on Sicilian cooperatives, thereby
excluding from the possible beneficiaries under the
scheme Sicilian firms operating in all sectors and not
in the form of cooperatives.

the measure favours

(b) Article 60(2) of Regional Law No 17/2004 confers
an advantage in that
the
economic activity consisting in providing security
services. Firms providing such services also offer the
following services: (i) transport, escort and temporary
deposit of valuable goods or persons; (ii) guarding of
(iii) management of specialized archives;
property;
and (iv) production of
security equipment and
systems. The Commission considers that some of
these services can be provided by firms which are
not private security firms within the meaning of
Royal Decree No 773/1931.

V.2.2. Economic advantage

V.2.4. Distortion of competition

(36)

The measure confers on the beneficiary an economic
advantage resulting from the reduction in the effective
tax burden, which translates into a financial advantage
in terms of a reduced payment of tax from which the
firms benefit
immediately in the years when the
reduction is applied.

V.2.3. Presence of

the measure favours
‘certain undertakings or the production of certain goods’

selectivity in that

(40)

(41)

In accordance with settled case law (13), for a measure to
distort competition it is sufficient that the recipient of the
aid competes with other undertakings on markets open
to competition.

The Commission observes that the measures contained in
Article 60(1) and (2) of Regional Law No 17/2004 seem
to distort competition and affect trade between Member
States because they have the effect of relieving benefi-
ciaries of a burden that they would otherwise have to
bear.

(37)

The national legislation on the IRAP establishes that all
regions have the power to increase or reduce the basic
tax rate of 4.25 % by up to one percentage point in
either direction; this reflects a symmetrically applied tax
system in which all regions are equally entitled, both
legally and in practice,
to increase or reduce the tax
and which does not in itself entail State aid.

(11) Commission Decision C(2005)4675 of 7 December 2005 — State
aid case N 198/05 — ‘Tax aid for job creation in assisted areas,
IRAP reductions — Law No 80/2005, Art. 11b’, against which the
Commission raised no objections (OJ C 42, 18.2.2006, p. 3).
(12) Judgment of the Court of 6 September 2006, Portuguese Republic v

Commission of the European Communities, not yet published.

(13) Case T-214/95 Het Vlaamse Gewest v Commission [1998] ECR II-717.

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(42)

In the present case, according to the information
provided by the Italian authorities, the beneficiaries are
cooperatives (Article 60(1)) of all sizes operating in all
sectors. Therefore, the cooperatives compete with other
undertakings on markets open to competition so that
Article 60(1) potentially distorts competition and affects
trade under settled case law. Similarly, the Commission
considers that the measure contained in Article 60(2)
distorts competition and affects trade between Member
States.

(43) Accordingly,

the Commission concludes

that

the

proposed scheme constitutes State aid.

(44)

V.3. Compatibility

In so far as the measure constitutes State aid within the
meaning of Article 87(1) of the EC Treaty, its compat-
ibility must be assessed in the light of the exemptions
provided for in Article 87(2) and (3). The exemptions in
Article 87(2), which concern aid having a social character
granted to individual consumers, aid to make good the
damage caused by natural disasters or exceptional occur-
rences and aid granted to certain areas of the Federal
Republic of Germany, do not apply in this case. The
measure cannot be considered to be an important
project of common European interest or to remedy a
serious disturbance in the Italian economy, as provided
for in Article 87(3)(b). Nor can the measure qualify for
the exemption under Article 87(3)(c), which provides for
authorisation to be granted for aid to facilitate the devel-
opment of certain economic activities or of certain
economic areas, where such aid does not adversely
affect trading conditions to an extent that is contrary
to the common interest. Lastly, the measure does not
have as its objective the promotion of culture and
heritage conservation as provided for in Article 87(3)(d).

(45) Article 87(3)(a) provides for the authorisation of aid to
promote the economic development of areas where the
standard of living is abnormally low or where there is
serious underemployment. Sicily is a region eligible for
that exemption.

(46)

In its decision to initiate
procedure,

the Commission explained the

the formal

investigation
reasons,

summarised in paragraphs 18 to 31, why it doubted
that
the measure could qualify for the exemption in
Article 87(3)(a). In the absence of any comments from
Italy or interested third parties,
the Commission can
simply note that these doubts are confirmed.

VI. CONCLUSION

(47)

The Commission concludes that the measure notified by
Italy and described in paragraphs 11 to 17 is not
compatible with the
and is not
covered by any of the exemptions laid down in the EC
therefore be prohibited.
Treaty. The measure must
the aid has not
According to the Italian authorities,
been granted and so there is no need to recover it,

common market

HAS ADOPTED THIS DECISION:

Article 1

The aid scheme which Italy is planning to implement under
Article 60 of Regional Law No 17/2004 constitutes State aid.

The aid referred to in the preceding paragraph is incompatible
with the common market and may not therefore be imple-
mented.

Article 2

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

Article 3

This Decision is addressed to the Italian Republic.

Done at Brussels, 7 February 2007.

For the Commission

Neelie KROES
Member of the Commission