2008/711/EC: Commission Decision of 11 March 2008 on State aid C 15/07 (ex NN 20/07) implemented by Italy on the tax incentives in favour of certain restructured banks (notified under document number C(2008) 869) (Text with EEA relevance)
Date: 2008-03-11
Institutions: European Commission
Subjects: Italy, State aid, banking, control of State aid, corporation tax, credit institution, tax incentive, tax system

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(Acts adopted under the EC Treaty/Euratom Treaty whose publication is not obligatory)

II

DECISIONS

COMMISSION

COMMISSION DECISION

of 11 March 2008

on State aid C 15/07 (ex NN 20/07) implemented by Italy on the tax incentives in favour of certain
restructured banks

(notified under document number C(2008) 869)

(Only the Italian version is authentic)

(Text with EEA relevance)

(2008/711/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Article 88(3) of
however,

the EC Treaty. The Commission,
initiated a preliminary review of the scheme.

Having regard to the Treaty
Community,
and in particular
Article 88(2) thereof,

establishing the European
subparagraph of
the

first

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

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

Whereas:

1. PROCEDURE

On 24 December 2003, the Italian Parliament enacted
Law No 350 of 24 December 2003 (Law 350/2003) (2),
which at Article 2(26) provides a special tax realignment
scheme for the assets of certain banks resulting from or
concerned with banking reorganisations pursuant to Law
No 218 of 30 July 1990 (Law 218/1990) on the priva­
tisation of the State-owned banking sector in Italy.

The Italian authorities did not notify the scheme to the
to
Commission

review pursuant

State

aid

for

(1)

(2)

(1) OJ C 154, 7.7.2007, p. 15.
(2) Italy’s Budget Law for 2004, Official Journal of the Italian Republic

No 299 of 27.12.2003.

(3)

(4)

(5)

(6)

(7)

By letter dated 26 September 2005 (D/57424),
the
Commission requested the Italian authorities to provide
all the relevant information to examine the compatibility
of the scheme with State aid rules and its lawfulness
pursuant to the obligation to notify any plan to grant
State aid under Article 88(3) of the EC Treaty.

By letter of 29 November 2005 (A/39913),
provided the information requested.

Italy

the Commission
By letter dated 31 March 2006,
requested additional clarifications
to the
possible State aid nature of the scheme in review and
its compatibility with the common market.

to Italy as

By letter of 5 May 2006 (A/33466), Italy provided the
requested information.

scheme

in review. During

On 3 July 2006, the Commission met the Italian auth­
orities to discuss the functioning and justification of the
tax
the
Commission took note of the explanations provided by
the Italian authorities while it maintained some doubts
about the possible State aid nature of the scheme and its
compatibility with the common market.

the meeting

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(8)

(9)

By letter of 28 July 2006 (A/36106), the Italian authori­
ties provided a summary of the information presented by
Italy including the clarifications made during the meeting
of 3 July 2006.

the
letter dated 30 May 2007 (D/203295),
By
Commission notified Italy of its decision to initiate the
procedure laid down in Article 88(2) of the EC Treaty
concerning the abovementioned measure. In its decision,
published in the Official Journal of the European Union (3),
the Commission invited interested parties to submit their
comments on its opening of the formal
investigation
procedure.

(10)

By letter dated 5 July 2007 (A/35808), the Italian auth­
orities submitted their comments.

(11)

(12)

(13)

In particular,

The Commission received comments from interested
parties.
group
the
including Banca Nazionale del Lavoro, and the Unicredit
banking group including Capitalia, Banca di Roma and
Banco di Sicilia have provided comments.

banking

Paribas

By letters dated respectively 3 October 2007 (D/53926)
the Commission
and 22 November 2007 (D/54681),
informed the
comments
Italian authorities of
received from interested parties and asked Italy to
formulate its observations. By letters dated 5 November
2007 (A/39031) and 21 December 2007 (A/40631), the
Italian authorities informed the Commission that they
had no further comments to make.

the

2. DETAILED DESCRIPTION OF THE SCHEME

2.1. Capital gains taxation

Italy shares with most modern taxing jurisdictions certain
fundamental principles of taxation of business entities.
There is an entity-level
income taxation that is applied
to most business entities having legal personality (mainly
companies)
for
mandatory or optional fiscal transparency as for part­
nerships and certain entities or associations without
legal personality. Shareholders of the taxable entity are
separate taxpayers from the company of which they own

although with

possibility

some

(3) See footnote 1.

exist

reliefs

participations and are in principle subject to tax on all
gains and dividends earned in respect of stock held,
although various
to mitigate double
taxation. Company capital gains are therefore separately
taxable from the shareholders gains when the gains
resulting from the sale or
the company
assets are realised and fiscally recognised. Company
interest expense is in principle deductible, while the
cost of equity capital is not, resulting in tax only at the
debt holder level (and at the debt holder rate of tax) on
earnings paid as
the
company level and, at least in principle, again at the
shareholder
accruing to equity
investors.

level on dividends

tax is applied at

interest but

transfer of

(14) An acquisition by a shareholder of an interest

in a
company does not occasion a change in the company’s
asset basis. On the other hand, the general rule is that a
disposal of company assets generates a company-level
is
taxable gain or
generally paid up front but
the
stepped-up basis in the assets being sold arise over
time (periodic depreciation),
the effects of having a
taxable sale of assets at the company level is generally
an increase in the net aggregate tax of the seller company
and the acquiring company.

loss. Since the tax on disposal

the tax benefits of

(15)

to its shareholders
The disposal of a company asset
should also give rise to taxation of the inherent gain in
the asset if there is a corresponding stepped-up basis in
the relevant asset in the hands of shareholders, including
if the latter are companies, because there should be no
step-up in the basis of company assets without company-
level tax recognition.

2.2. Assets revaluations and realignments in general

(16) An assets

company’s

revaluation in a

commercial
statements is an accounting operation by which the
book value of fixed assets is stepped-up to the current
value (fixed assets are normally depreciable so that their
book value devaluates over time, while their current
than their depreciated value
value may be higher
because the assets maintained their value or appreciated
over time). As there should be no step-up in the basis of
company assets without company-level tax recognition,
the revaluation surplus is a capital gain. The surplus is
depreciable over time together with the relevant assets.
Finally, upon future sale of the assets (with stepped-up
value), there will be a lower capital gain resulting from
the lower difference between the consideration received
for the sale and the book value of the assets.

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(17)

Revaluations are extraordinary accounting operations
because the accounting rules tend to give a prudential
value for the companies’ assets and a revaluation is based
on the assumption that a given asset is worth more than
it was paid for and, as with any assumption, it can be
proven incorrect in the light of future market events.
However, the recently introduced IFRS accounting prin­
ciples, which became binding rules for certain companies
and for banks in Italy, provide for fair values of assets to
financial
be
instruments (as a result, gains and losses will emerge).
in company restructurings,
Furthermore,
are
their current value (which is normally
exchanged at
higher
than the book value) and re-valuations are
accordingly booked.

especially with

booked,

respect

assets

to

(20)

It should be noted that capital gains are particular items
of
income, which, unlike ordinary income, reflect an
economic surplus matured over time, while its tax recog­
nition is necessarily a one-time operation. For
this
reason, capital gains realised by companies are not only
deferred until the time of the tax realignment of the
value of the relative assets, but are also subject to a
the ordinary company tax.
preferential
The preferential
tax is an advantage as the company
concerned not only pays a lower tax on the gains but
can distribute such gains as dividends to its shareholders,
which give right to a tax credit or exemption for the
corporate taxes paid. The tax advantage deriving from
the substitute tax is however
justified by the fiscal
technique (4) in view of the specificity of capital gains
as income vis-à-vis ordinary earnings.

tax in lieu of

(18) Assets revaluations would normally be taxable events as
far as capital gains are realised and increased tax values
recognised. Capital gains would increase the taxable
income and accordingly raise the current tax liability of
the beneficiaries concerned even in case there is no cash
realisation. To avoid paying tax on gains not yet realised
in cash, the tax system generally freezes the tax gain by
maintaining a lower tax value for the assets than the
book value. In such case, the accounting gain (which is
a profit realised but not recognised as taxable income) is
deferred until the assets are eventually sold for cash.

2.3. Taxation of capital gains in Italy

(21)

In order to describe the nature of the scheme in review,
it is necessary to summarise the Italian rules governing
the taxation of capital gains resulting from the contri­
butions of assets following certain company restruc­
turings of the type foreseen by Law 218/1990 for the
Italian banking system.

(19)

accounting gain deriving from the

The
realisation
exchange is normally booked for tax purposes in a
special
reserve representing the non-recognised gain.
Until the moment the realised gain is fiscally recognised,
there is a misalignment between the book value and the
tax value of the assets. A realignment is therefore a tax
operation by which the tax value is adjusted to the book
value of the assets concerned and as a result a capital
gain is
to tax. The
accounting gain is now released from the reserve and
included in the ordinary earnings of the year, while the
stepped-up value of assets accordingly becomes fiscally
depreciable.

fiscally recognised and subject

Asset
relative
contributions
pursuant to Law 218/1990

to

banking

reorganisations

(22)

Law 218/1990 had enacted a special scheme to facilitate
the transfer of banking assets or branches of banking
businesses held by the local public entities to newly
created or existing private banks, with a view to ratio­
the banking activity in Italy
nalize the exercise of
(Article 1 of Law 218/1990). In 1990, the transfer of
a branch of business was a sale of assets which would

(4) Cf.

Judgement of 10 January 2006, Case C-222/04, Fondazione

Cassa di Risparmio di San Miniato, points 136 and 137.

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have triggered company tax at the ordinary rate on the
difference between the current value of the assets trans­
ferred and the cost of such assets pursuant to Articles
54(5) and 9 of DPR No 917 of 22 December 1986 (DPR
917/1986) in force at that time.

either the single assets as new tax basis recognised by the
transferee bank or goodwill. The statute also provided
that the cost basis of the assets contributed to the bene­
ficiary bank was carried over
to the recipient bank
(carried-over assets basis) and substituted to the shares
contributing
of
entity
the
the bank received by
(substituted shares basis), except
for the taxed 15 %
gain which was recognised (basis step-up).

(23)

the

transfer of

the banking

To facilitate
assets,
Article 7(2) of Law 218/1990 provided, among other
tax facilities, a derogatory tax scheme by which the
gain realised from the transfer of assets contributed to
private banks in the framework of a reorganisation
foreseen by the said Article 1 in exchange for
the
stock of such banks is not recognised for taxation until
such time when the gain is further realised either from
the sale of the assets or is distributed to the shareholders
(suspended recognition of gains).

(24)

The objectives of Law 218/1990 can be summarised as
follows:

(i) permit

the public entities exercising a banking
activity (essentially retail banking)
to transform
their legal form into that of a joint-stock company,
considered
a
commercial activity;

appropriate

form for

a more

(ii) permit such public banking entities to recapitalise by
raising new capital, attract investors and consolidate;

(iii) establish a level playing field between public and
latter
privilege

by
private
companies
same
previously granted to the sole public banks.

recognising
tax

to
neutrality

banks
the

the

(25) Article 7(2) of Law 218/1990 provided that 15 % of the
gain realised at the time of the transfers was taxed upon
the contributing entity (the local public entity) at the
ordinary
time 52,2 %,
including 36 % of company tax IRPEG and 16,2 % of
local
the 15 %
amount of the gain being taxed could be imputed to

tax ILOR). The statute provided that

company

tax rate

the

(at

(26)

(27)

The scheme in essence provided for a regime of partial
tax neutrality by which the contribution of a branch of
business benefited from a roll-over relief provided that
the tax basis of the business contributed was substituted
to the shares received by the transferor and the business
acquired is attributed by the transferee a tax basis equal
to that which the assets had in the hands of
the
transferor prior
to the contribution. Such a regime
provided for a misalignment between the current values
of the assets at the moment of the contribution and their
tax basis. Pursuant to Article 7(2) of Law 218/1990 both
the transferee and the transferor had to annex to their tax
returns a prospectus to record the misalignment of
values.

contributions

Asset
to
pursuant to the Merger Directive

relative

company

reorganisations

By the D.Lgs. No 544 of 30 December 1992 (D.Lgs.
544/1992), Italy transposed in its national legal system
the Merger Directive 90/434/EEC (5). The Merger
since
Directive
its original version covers mergers,
divisions,
transfers of assets and exchanges of shares
concerning companies of different Member States when
the
requirements are met:
the following three
companies must be
listed in the Annex to the
Directive; (2) the companies must be fiscally resident in
a Member State and (3) the company must be subject to
one of the national company taxes listed in Article 3(c)
of the Directive.

(1)

(28) Under the Merger Directive, a transfer of assets is defined
as a transaction whereby a company transfers without
its
being dissolved all or one or more branches of
the
activity to another
transfer of securities
the
company receiving the transfer (either a newly estab­
lished subsidiary whose initial capitalisation consists of
the transferred shares or an existing company).

company in exchange
for
representing the capital of

(5) Council Directive 90/433/EEC of 23 July 1990 on the common
system of
transfers of
taxation applicable to mergers, divisions,
assets and exchanges of shares concerning companies of different
Member States (OJ L 225, 20.8.1990, p. 1).

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(29)

The Merger Directive requires the assets transferred to
represent a branch of activity, which means all
the
assets and liabilities of a division of a company that
from an organisational point of view constitute an inde­
pendent business or entity capable of functioning by its
own means (Article 2(i) of the Directive).
In a recent
judgement (6), the Court of Justice has clarified that in
order to be covered by the Merger Directive a transfer of
assets must encompass all
the assets and liabilities
relating to a branch of activity in their entirety. The
Merger Directive requires
the
transfer of assets to consist exclusively of shares, since
in contrast to the other transactions such as the mergers,
divisions and exchanges of shares covered by the Merger
Directive, no cash payment is permitted in the case of the
transfer of assets.

the consideration for

(30) Article 4 of the Merger Directive as cross-referenced by
Article 9 provides that no taxes on capital gains may be
levied at the transferee company level as a result of a
transfer of assets. Capital gains are defined as the full
difference between the real values
(the fair market
value) of the assets and liabilities transferred and their
irrespective of any
values for tax purposes (tax basis),
specific definition of values under domestic laws. The
favourable treatment of realised gains pursuant to the
Merger Directive
between
dealing with
companies of different Member States is based on a
permanent establishment condition, meaning that only
the assets that remain in a resident company or are
effectively connected with a permanent establishment of
the receiving company in the Member State of the trans­
ferring company may benefit
from the tax deferral
provided in Article 4 of the Directive.

transfers

their value immediately prior to the transfer. Therefore
the receiving company has to take over the tax basis of
the transferring company without benefiting from an
option to step up the tax basis to fair market value.
the transfers of assets that qualify for the
Therefore,
preferential treatment under the Merger Directive are in
essence similar to those foreseen by Article 1 of Law
218/1990, except that the Merger Directive does not
provide any rules
the shares
received by the transferee company in exchange of
assets, while
is
expressly foreseen by Article 7(2) of Law 218/1990,
thus resulting in a system of double misalignment.

the valuation of

substituted basis

the use of

the

for

contributions

Asset
pursuant to D.Lgs. 358/1997

relative

to

company

reorganisations

(32) As the Merger Directive — transposed in Italy’s law by
D.Lgs. 544/1992 — only dealt with reorganisations of
companies of different Member States, Italy has volun­
tarily extended the tax neutrality system to domestic
reorganisations. By the D.Lgs. No 358 of 8 October
tax
1997 (D.Lgs. 358/1997),
provisions
Italy
company
for
including the transfer of assets relating to contribution
of a branch of a business in exchange of shares.

Italy provided general

reorganisations

in

(33)

The general system of taxation of gains deriving from
company reorganisations in Italy and more particularly
for contributions of assets pursuant to D.Lgs. 358/1997
was indeed based on two alternative optional systems.

(31)

tax
The Merger Directive thus provides a system of
neutrality or deferral,
than an exemption,
rather
because the Member State of the transferee company
retains the right to tax the capital gains realised upon
transfer of the assets at the time of their future disposal.
In order to remain taxable, the realised gains inherent in
the transferred property have to be reflected in the tax
the receiving company. To satisfy this
accounts of
condition, all assets and liabilities
transferred must
the receiving company at
enter the tax accounts of

(6) Judgement of 15 January 2002, Case C-43/00, Andersen of Jensen

ApS, [2002] ECR I-00379, point 34 et seq.

(34) On the one hand, Article 3 of D.Lgs. 358/1997 provided
for an optional substitute capital gain tax regime for the
contributions of a branch of business or a qualified parti­
cipation to a recipient company in exchange of its shares.
Article 3 first set a discipline to determine the relative
gains as the difference between the tax basis of the assets
transferred in the hands of the transferor prior to the
transfer and either the accounting value attributed by
the transferor to the shares received as a result of the
contribution or if higher the accounting value attributed
by the transferee to the branch of business transferred.
Article 3 further provided that
the gains could be
recognised if a substitute tax of 19 % was paid. Under
the new system, the tax bases inclusive of the realised

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gains were recognised as the new values of the assets
both for the transferor and the transferee so that no
misalignment between tax and accounting values was
produced (contributions in accounting neutrality).

(35) On the other hand, Article 4 of D.Lgs. 358/1997
provided that the parties of the transfer could opt for a
roll-over relief system comparable to the one available
under the Merger Directive. Under this system the contri­
bution of the assets of a branch of business between
companies in Italy was fiscally neutral, meaning that
assets
the gains
in
exchange of
recognised
provided that the tax basis of the business contributed
to the shares received by the
was substituted over
transferor and the assets acquired received the carried-
over basis that
the
transferor (contribution in tax neutrality).

the assets had in the hands of

transfer of
fiscally

realised from the

shares were not

(36)

reform in 2003, at

The Italian company tax system eventually underwent a
major
the
realignment
scheme of Law 350/2003 entered into
force (1 January 2004). The reform was enacted by the
D.Lgs. No 344 of 12 December 2003, which for what is
of interest of this review provided for:

the same time that

(i) the abolition of IRPEG (the old company tax) and
the introduction of a new company tax (IRES) at the
rate of 33 %, with the abolition of the Dual Income
Tax consisting of the application of a reduced IRPEG
rate of 19 % to the amount of the taxable income
reinvested in the company;

(ii) the repeal of the credit imputation system, by which
dividends were taxed again when received by the
shareholders, but
tax paid was
deducted by imputation of a tax credit, and its repla­
cement with an exemption system applicable to both
domestic and foreign dividends;

company

the

company mergers

(iv) the repeal of the 19 % substitute tax on capital gains
arising from company restructuring pursuant
to
Article 3 of D.Lgs. 358/1997. With the repeal of
D.Lgs. 358/1997 by D.Lgs. 344/2003,
the tax-
neutrality regime for all company reorganisations
and divisions was
such as
transposed in the
code
Articles 170 to 174 of DPR 917/1986. The contri­
butions of branches of activity and of qualifying
shareholdings were not however transposed in the
amended tax code, giving rise to a disparity of
treatment between contributions of branches which
contribution in
are
accounting neutrality pursuant
to Article 175 of
DPR 917/1986 and other company reorganisations
subject to the tax neutrality scheme.

amended general

scheme of

to the

subject

tax

(37) With the tax reform of D.Lgs. 344/2003, all reorgani­
sations between companies of different Member States
keep on being governed by the tax-neutrality regime of
the Merger Directive based on the option that allowed a
contribution in tax neutrality. The option to apply the
substitute tax of 19 % pursuant to Article 3 of D.Lgs.
358/1997 was repealed as of 1 January 2004, while
the system of determination of capital gains deriving
from the contribution of business branches in accounting
system of
neutrality was maintained. The optional
taxation provided by Article 4 of D.Lgs. 358/1997 was
also repealed. As a result of the reform, the tax regime of
capital gains realised through the sale or contribution of
a branch of business is the same as that provided for the
sale of the single assets.

(38)

the time of Law
In conclusion, as the law stood at
350/2003 it was still more convenient
from a tax
viewpoint to transfer assets by way of an exchange of
shares rather then the sale of assets because the sale of
qualified
(participation
exempt
participations was
the underlying
exemption), while the disposition of
assets was taxable.

(iii) the introduction of a participation exemption regime
for capital gains deriving from the sale of qualified
shareholdings along with the repeal of the possibility
to deduct the write-downs of participations held;

(39)

The Commission considered it necessary to describe the
framework set by the above described Merger Directive
and D.Lgs. 358/1997 with a view to examining the
various schemes for companies to revaluate or realign
the value of their capital assets.

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(40)

2.4. The realignments under Laws 342/2000,

448/2001 and 350/2003

Banking reorganisations under Law 218/1990

in the banking sector

Law 218/1990 concerned the privatisation by transfor­
mation and asset-reorganisations of certain registered
public banks (under Article 29 of the Royal Decree No
375 of 12 March 1936, converted into Law No 141 of
into private joint stock companies to
7 March 1938)
operate
(Article 1 of Law
218/1990). Pursuant to Article 7(2) of Law 218/1990,
realised from the contribution of
the capital gains
fiscally recognised to ensure
banking assets were not
such gains, however, was
tax neutrality. 15 % of
recognised and subject to the general company tax rate
of the time. As a result, the tax base of the assets trans­
ferred under Article 7(2) of Law 218/1990 was adjusted
upward (realigned) by only 15 %, leaving the remainder
85 % of the gain unrecognised.

(41)

The balance resulting from the difference between, on the
one hand, the value of the stocks received and the assets
contributed and, on the other hand, the book value of
such assets (only realigned by 15 %) was a suspended
capital gain. Its tax recognition was deferred until the
moment the assets concerned would be sold for cash
or the accounting reserve corresponding to the unrec­
ognised balance would be distributed to the company’s
shareholders as dividends.

(42) As a result, under the tax accounting of Law 218/1990,
the capital gains relative to the assets exchanged in the
course of the reorganisations covered by the Law were
fiscally unrecognised for 85 % of their economic value.
The banking reorganisations in question took place,
according to the Italian authorities, between 1990 and
1998. The gains realised at that time were frozen since
then and for the following years, with the obligation for
the companies concerned to keep track of the misaligned
values by specific documents to attach to the annual tax
returns.

Realignments under Law 342/2000

(43)

Pursuant to Article 17 of Law No 342 of 21 November
2000 (7) (Law 342/2000), the companies resulting from
the banking reorganisations under Law 218/1990 were
allowed to realign the tax bases with the accounting
gains realised from the exchange of the assets in such
reorganisations and still resulting from the companies’

(7) Official Journal of the Italian Republic No 276 of 21.11.2000.

the date of 31 December 1999, provided
books at
such companies paid a substitute company tax of 19 %
on the amount of the gains in lieu of the 42,4 % global
tax rate of the time (including 37 % company tax and
5,4 % local business tax). The realignment was limited to
the initial 85 % unrecognised or suspended gain.

the

and

assets,

the 19 % capital gain tax, both the
By payment of
the
companies
banking
holding
companies holding the stock of
in
question could realign their tax bases, respectively, of
the assets and of
In case the
stocks had been contributed or exchanged with other
companies without
latter
companies could also realign the value of the stocks
exchanged.

the stocks concerned.

the companies

realisation,

such

cash

The capital gain tax was however reduced to 15 % (in
lieu of the 19 % substitute tax), if the banking company
elected to only realign the tax value of its assets, rather
than both the value of the assets and of the stock. In this
case, the sole beneficiaries of the realignment scheme
were
assets
banking
exchanged ab origine.

companies holding

the

the

(44)

(45)

(46) As a result of the capital gain tax payment, the benefi­
ciaries eventually release the gains realised at the time of
the original transactions (and held as non-distributable
profit reserves) and may distribute them to shareholders
as dividends.

(47)

(48)

In parallel to the realignment of the assets and shares
exchanged in the described banking reorganisations,
Article 19 of Law 342/2000 provided that the same
substitute
capital gain tax could be paid by the
companies willing to realign the tax bases of the assets
and shares held following any other company reorgani­
sations which benefited from the tax neutrality regime
pursuant to the said D.Lgs. 358/1997.

The latter parallel
scheme of Article 19 (providing
substitute capital gain taxes of 19 % and 15 % on
assets and shares realignments) effectively equalised the
recognition of gains resulting from tax realignments
relative to the company reorganisations carried out
under D.Lgs. 358/1997 with those made by banks
under the Law 218/1990.

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(49) Moreover, Article 20 of Law 342/2000 provided detailed
rules for the substitute capital gain tax to be paid and for
the tax credit relative to such tax in favour of the share­
holders receiving dividends resulting from the capital
gains recognised.

assets held by the banking company are realigned).
Article 26 of Law 350/2003, however, did not foresee
any other asset realignments relative to general company
reorganisations under D.Lgs. 358/1997.

Realignments pursuant to Law 448/2001

(50)

Law No 448 of 28 December 2001 (Law 448/2001)
the realignment schemes
extended the time scope of
provided by Law 342/2000 with respect
to assets
resulting from the balance sheet of a company and
whose value had not yet been realigned.

(53)

In particular, pursuant to Article 2(26) of Law 350/2003,
the historic gains realised under Law 218/1990 with
respect to the contributions of banking assets to newly
created or existing private banks in exchange for the
stocks of such banks could be fiscally recognised by
payment of a substitute capital gain tax under the prefer­
ential tax rates of 12 % or 9 % in lieu of the company tax
of 37,25 % of the time (33 % company tax plus 4,25 %
local business tax). Law 350/2003 also provided that the
substitute tax was payable in three instalments (50 % in
2004, 25 % in 2005 and 25 % in 2006), without
interest.

(51) Article 3(11) of Law 448/2001 provided that

the
realignment scheme under Articles from 17 to 20 of
Law 342/2000 would apply to unrecognised gains
relative both to the assets and shares deriving from the
banking reorganisations pursuant to Law 218/1990 and
to the assets deriving from other reorganisations under
Legislative Decree No 358/1997, still held at the date of
31 December 2001. Law 448/2001 provided that the
substitute taxes due on the gains recognised were set at
12 % and 9 % respectively
realignments
(realignment of both the assets held by the operating
company and the stocks received by the participating
company) and single realignment (only the assets held
by the operating company are realigned) in lieu of the
the
company tax of 41 % applicable at
realignment (36 % company tax plus 5 % local business
tax).

the time of

for dual

(54) According to the information provided by the Italian
authorities, nine banking groups realigned their assets
to Article 26(26) of Law 350/2003, by
pursuant
payment of
the substitute capital gain tax of 9 %
(single realignment). The global capital gains thereto
recognised totalled over EUR 2 059 millions. The nine
beneficiaries borne a substitute tax of EUR 180 615 534.
To compute the effective equivalent of the tax for State
aid purposes, the instalments payable in 2005 and 2006
shall be compounded by the applicable 3,7 % reference
rate for the recovery of unlawful aid provided under the
Commission Regulation (EC) No 794/2004 (8). The tax
EUR
effectively
accordingly
185 505 996 (9), which is
reference to
the term of
compute the eventual aid grant equivalent.

amounts

incurred

to

(52)

Realignments under Law 350/2003

Finally, Article 2(26) of Law 350/2003 provided that the
realignment
scheme foreseen by Article 17 of Law
342/2000 could also apply to the realised but unrec­
ognised gains relative to the assets concerned with the
banking reorganisations pursuant to Law 218/1990, still
resulting from the company’s accounting at the date of
31 December 2003. Law 350/2003 provided that the
substitute capital gain taxes on the realignments of
such gains were 12 % and 9 %, respectively for dual
realignments (realignment of both the assets held by
the banking company and the stocks received by the
(only the
banking holding) and single

realignment

Revaluations under Law 350/2003

(55) Article 2(25) of Law 350/2003 provided that all taxable
their assets
companies may revalue the tax bases of
existing at
the date of 31 December 2002 to mark
them to their market value of the time, by payment of
a substitute tax of 19 % in case of revaluation of depre­
ciable assets and 15 % in case of non-depreciable assets,
payable in three instalments (50 % in 2004, 25 % in
2005 and 25 % in 2006).

(8) Commission Regulation (EC) No 794/2004 of 21 April 2004 im­
plementing Council Regulation (EC) No 659/1999 laying down
detailed rules for the application of Article 93 of the EC Treaty
(Chapter V — Interest rate for the recovery of unlawful aid) (OJ
L 140, 30.4.2004, p. 1).
(9) The amounts paid are:

(b) EUR
46 380 253 payable in 2005, corresponding to a net present
value of EUR 44 725 412 in 2004; and (c) EUR 46 380 253
payable in 2006, corresponding to a net present value of EUR
43 129 616,9 in 2004.

(a) EUR 92 760 506 in 2004;

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(56) As

are

revaluations

indicated above,

extraordinary
operations which are occasionally allowed by special
tax regulations to reconcile the historic value of assets
with their current value. A tax revaluation is distinct
from a realignment, because in the revaluation the tax
base of the assets held by a company may be stepped up
to the current market value at the time of the reva­
luation, while in a realignment the fiscal gain recognised
is capped at the value realised at the time of a prior
realisation event as for example a reorganisation.

(59)

The Commission also considered that while the beneficial
tax realignments obtained under the abovementioned
Laws 342/2000 and 448/2001 constituted general
measures
the gains
to ensure equitable taxation of
realised, the realignment provided for by Article 2(26)
of Law 350/2003 was only limited to the banks
concerned with the reorganisations governed by Law
218/1990, and therefore could not be considered a
general measure, nor did it
ensure neutrality of
treatment between the capital gains concerned and
those realised from comparable company reorganisations.
The Commission also held that
that certain
Italian banks had cleared their suspended tax liabilities
relative to unrecognised capital gains in their balance-
sheets at a nominal tax cost was susceptible to increase
their attractiveness as potential company targets and
could have distorted the market of banking acquisitions.

the fact

3. GROUNDS FOR INITIATING THE PROCEDURE

By its decision of 30 May 2007 (10), the Commission
initiated the formal
investigation procedure laid down
in Article 88(2) of the EC Treaty on the tax realignment
scheme provided for by Article 2(26) of Law 350/2003
because it appeared to fulfil all the conditions to be
considered
of
aid within
Article 87(1) EC and there were doubts about its com­
the
patibility with the common market as none of
exceptions provided for
in Articles 87(2) and (3)
seemed applicable.

the meaning

State

(60)

(57)

(58)

the

particular,

considered

Commission

In
that
Article 2(26) of Law 350/2003 provided a financial
advantage represented by the difference between the tax
effectively paid in 2004 to realign the value of the assets
and the tax which would have been normally borne if
the same realignment would have been made in the
absence of the same Article 2(26) of Law 350/2003.
The effective tax rate applicable in 2004 on such gains
would have been 37,25 % (including 33 % company tax
and 4,25 % local business tax), while the substitute tax
effectively paid was 9 %. The Commission further
the substitute
considered that, under Law 350/2003,
tax was payable in three instalments (50 % in 2004,
25 % in 2005 and 25 % in 2006) without
interests,
while the tax which would have ordinarily be applied
in the absence of Article 2(26) of Law 350/2003
would have been payable in 2004. The Commission
has computed that the grant equivalent value of the tax
effectively paid by the nine beneficiaries of the scheme in
review was EUR 185 505 996, while the tax ordinarily
due would have been EUR 771 991 022 (37,25 % of the
realised gain totalling over EUR 2 059 millions). The
difference between the tax ordinarily payable and the
tax paid thus amounted to EUR 586 485 026.

(10) Cf. footnote 1.

at

for

closing of

to take place

recovery would have

The Commission concluded that the scheme in review
could represent incompatible State aid and accordingly
opened the procedure laid down in Article 88(2) of the
EC Treaty. The Commission warned that
should it
the
conclude
abovementioned
the
the scheme in review is incompatible
procedure that
State
in
aid,
accordance with Article 14 of Council Regulation (EC)
No 659/1999 of 22 March 1999 laying down detailed
rules
the EC
the application of Article 93 of
Treaty (11). The Commission considered, however, that
in the light of its past practice regarding certain fiscal
aid schemes (12), recovery should only concern the taxes
paid in defect of what a beneficiary of the scheme would
have paid had the beneficiary applied other tax schemes
available at
lead to
reconstruct merely hypothetical choices which could
have been made by the beneficiary concerned (13). The
Commission invited the Italian authorities and interested
parties to comment on the question whether recovery
should take place with sole respect
to the difference
between the tax which would have been paid under
the revaluation scheme foresee by Article 2(25) of Law
350/2003 and the substitute tax effectively paid by the
beneficiary banks pursuant to the realignment scheme of
Article 2(26) of the said Law 350/2003.

time, provided this did not

that

(11) OJ L 83, 27.3.1999, p. 1.
(12) See Section VI of the Commission Decision 2006/748/EC of 4 July
2006 on State aid No C 30/04 (ex NN 34/04) implemented by
Portugal exempting from corporation tax on capital gains certain
operations/transactions by public undertakings
L 307,
7.11.2006, p. 219).

(OJ

(13) See points 113 to 119 of

the Judgement of

the Court of

15 December 2005, Case C-148/04, Unicredito Italiano.

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4. COMMENTS BY ITALY

(61)

By their submissions, the Italian authorities have essen­
tially (a) rejected the State aid qualification of the scheme
in review, and (b) observed in suborder that the possible
advantage effectively granted was much less than the one
provisionally calculated by the Commission and was de
minimis.

that

other companies eligible to realign their asset values. This
difference would have to be further discounted by the
the beneficiary banks had paid a relatively
fact
higher tax on 15 % of
their initial gains realised as
opposed to all other companies which could have
opted for the full tax neutrality under D.Lgs. 358/1997.

(62)

(63)

In particular,
Italy argues that Article 2(25) of Law
350/2003 would have implicitly allowed all companies
having taken part to company reorganisations to benefit
from the possibility to realign the value of their assets.
This general realignment scheme was made available by
an implicit reference of Article 2(25) to Article 14 of
Law 342/2000, providing the recognition of gains
reorganisations and
suspended following tax neutral
resulting from
therefore
the
under
D.Lgs. 358/1977.

covered all misalignments
reorganisations

company

carried

out

(64)

Italy further considers that the realignments provided for
the gains resulting from the banking reorganisations
made under Law 218/1990 are not comparable to all
first because
other measures for recognition of gains:
the banking reorganisations in question were ontolo­
gically unique and not comparable to other reorgani­
sations; second, because the tax measure devised to
defer the recognition of the realised gains was specific
to such reorganisations in that it provided a partial tax
neutrality regime
transferor and the
for both the
transferee entities.

tax

For Italy, this general realignment could be effectuated by
payment of a substitute tax of 19 % in case of reva­
luation of depreciable assets and 15 % in case of non-
depreciable assets in three instalments (50 % in 2004,
25 % in 2005 and 25 % in 2006) pursuant
to
Article 12 of Law 342/2000. Thus, for Italy the regime
provided by Article 2(26) would have to be appraised
against
forth by
this implicit realignment scheme set
Article 14 of Law 342/2000 rather than the general
company
by
Article 2(25) of Law 359/2003 as alleged by the
realignment and the
Commission. Both the implicit
explicit revaluation schemes would have provided for
the
taxes of 19 % and 15 % as
described. Unlike what the Commission alleged in its
opening of the formal investigation procedure however,
the possible advantage resulting from by Article 2(26) of
Law 350/2003 would, according to Italy, only amount to
the difference between the substitute tax of 9 % paid by
the beneficiary banks on their unrecognised gains and the
tax of 15 % payable on the same possible gains of all the

system offered

revaluation

substitute

same

that

(65) As to the uniqueness of the banking reorganisations, Italy
the measure only concerned certain
maintains
banking reorganisations carried out between 22 August
1990 and 31 December 1995, mainly aimed at priva­
tising the public banking sector in Italy. The joint stock
company form was considered the most optimal business
form for Italian public banks to ensure the formation of
private banking groups in Italy and promoting a level
playing field with other banks in the common market.
Under Law 218/1990, the stocks of the former-public
banks
either
attributed directly to State holding companies where
the public ownership was predominant or to newly
created banking or pre-existing private (banking) foun­
dations where public ownership was
spread among
different local governments. Both the State and the foun­
dation holdings were entrusted to temporarily manage
and progressively sell the stocks of the newly created
companies on the market to allow the consolidation of
the banking sector and formation of banking groups in
Italy.

reorganisations were

following

their

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their

restructuring and change of

(66) As to the special nature of the tax neutral regime for
such banking reorganisations, this was justified by the
fact that at that time there was no general scheme to
ensure neutrality of company reorganisations and contri­
butions of business branches. The legislator intended to
facilitate the privatisation of certain publicly-held banks
by way of
their
business
form into stock companies privately held,
while avoiding to provide unnecessary advantages to
such banks. To prevent competition distortions vis-à-vis
other private banks, the Italian legislator provided for (a)
partial
tax neutrality for both the transferor and the
transferee entities (15 % of the realised gain was fiscally
recognised and taxed at the ordinary rate of 52,2 % at
tax-suspended
the provision of special
the time),
reserves for unrecognised gains, and (c) the opening of
the same partial tax-neutrality regime to the reorgani­
sations of non-public banks to ensure an equal
tax
treatment of company reorganisations to which both
the public and private banks were permitted to parti­
cipate.

(b)

(69)

(70)

(67)

(68)

formal

investigation

The Italian authorities consider that the Commission’s
conclusions that the tax neutrality regimes, provided by
both Law 218/1990 and D.Lgs. 358/1999 were not State
aid because they are justified by the logic of the tax
system are correct (point (30) of the Decision opening
the
further
considers that if such conclusions are correct, the tax
realignment regime of Article 2(26) of Law 350/2003
should also be considered as not being State aid as this
was the necessary completion of the partial tax-neutrality
regime provided by Article 7(2) of Law 218/1990 and in
view of the special nature of such banking reorgani­
sations.

procedure).

Italy

original

Italy stresses that the sole gains that could be realigned
were the remainder of the historical gains resulting from
between
the
out
reorganisations
22 August 1990 and 31 December 1995,
following
the taxable recognition of 15 % of the gains. For such
gains, which are not new but have been realised in such
prior years, the application of a reduced substitute tax

carried

would be fully justified by the specific nature of the
in question, and more particularly by the
revenues
special nature of
the banking reorganisations under
Law 218/2000 for which a tax of 52,2 % on 15 % of
the realised gains was paid. If one averages the 52,2 %
tax rate applied with the 9 % and 12 % substitute taxes
foreseen by Article 2(26) of Law 350/2003 on the
the gain the comprehensive rate
remaining 85 % of
ranged between 15,48 % and
applied would have
such rates would be effectively
17,85 %. For
comparable to the rates of 15 % and 19 % applicable
under the implicit realignment scheme provided by Law
350/2003, respectively for depreciable and non-depre­
ciable assets of all companies.

Italy,

Furthermore, Italy considers that the realignment scheme
of Article 2(26) of Law 350/2003 was less flexible as it
provided to opt for the realignment of all the remaining
gains resulting from the historic reorganisation, while the
implicit realignment scheme of Article 2(25) provided for
the possibility to realign the single assets registering an
inherent gain. For Italy, this flexibility would be highly
valuable for the beneficiary companies as these could
have opted to realign the sole assets being depreciable
and not those whose sale gave rise to non-exempt gains.
For example, the sale of qualified shareholdings under the
participation exemption scheme is 95 % exempt as of
1 January 2004 and therefore it would not be convenient
for a company to pay the tax to recognise gains relative
to assets which would in any event be almost fully tax
exempt. This is not an anodyne difference, for Italy, as
many of the assets historically contributed to the newly
formed banking companies in the '90s consisted of
company participations being exempt
following the
above-described 2003 tax reform.

tax

Italy considers that even if
that
conclude

the Commission
Finally,
under
the
should
Article 2(26) of Law 350/2003 was more favourable
than the one which would have been paid under the
‘general’ realignment scheme under Article 2(25) of the
same Law, the concrete difference would be minimal and
should be considered as de minimis aid.

paid

rate

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L 237/81

(71)

(72)

5. COMMENTS BY INTERESTED PARTIES

In their submissions, the interested parties have presented
several arguments to reject the State aid qualification of
the tax realignment scheme in review. They argued that it
would be a technical tax measure aimed at addressing a
the realignment of
specific situation, namely that of
certain unrecognised tax
to assets
relative
values
exchanged upon certain company reorganisations in the
banking sector, and that it would not even provide an
advantage to the banking groups concerned because it
would in fact result in the payment of extra charges,
which are not normally due by other
companies
having taken part to comparable reorganisations under
the applicable general tax-neutrality scheme provided for
by D.Lgs. 358/1997 and the Merger Directive.

(74)

The interested parties in essence claim that the scheme in
review is not selective because it is justified by the speci­
ficities of the banking sector and more particularly by the
specificities of the banking restructurings in Italy. The
Commission would have already considered the partial
tax-neutrality scheme foreseen by Law 218/1990 as
in its prior
compatible with the common market
its Decision
practice,
for
as,
2002/581/EC of 11 December 2001 on the
tax
measures for banks and banking foundations implemen­
ted by Italy (14), which further
to its Notice
refers
opening the formal
investigation procedure on the aid
granted by Italy to Banco di Napoli (15).

example,

such

restructurings were ‘freely distributable gains’ in that such
gains could be distributed to shareholders without further
company
Law
218/1990 were ‘suspended’ for both the transferee and
the transferor companies until such gains would have
been distributed to respective shareholders.

realised under

taxation,

gains

the

The different tax regimes of the realised gains resulting
from the two situations would have been interpretatively
confirmed by the Risoluzione No 82/2000 of the Italian
Ministry of Finance (16), whereby the tax administration
would have recognised that the difference between the
fair market value of a contributed branch and its tax
basis did not give rise to a taxable gain, under the contri­
bution in tax neutrality regime, provided that the tax
bases of both the transferor and the transferee were
not stepped up to the fair value. The Risoluzione would
have further stated in fine that the difference realised from
the transfer of
the branch had a mere accounting
relevance until
the assets included in the branch are
effectively sold and thus the ‘suspended gain’ was distri­
butable to shareholders without any company tax. On
the other hand,
the accounting difference resulting
tax-neutral contribution following the
from a partial
bank
to
Article 7(2) of Law 218/1990, expressly taxed not only
if the assets are sold but also if the gain is distributed.

restructurings

pursuant

question

is,

in

(73)

The interested parties also claim that there would be no
specific advantage in favour of the restructured banks,
should one compare the substitute tax paid to realign
their gains and the tax payable by other companies
tax-neutral
having undergone similar
reorganisations.
The different
applied in 2003 to the
tax rates
restructured banks as opposed to other companies can
be explained by the different tax regimes for the two sets
of restructurings. The parties observed that while the
unrecognised gains resulting from the D.Lgs. 358/1997

(14) Cf. point 32 of the Decision (OJ L 184, 13.7.2002, p. 27)
(15) Cf. point 3.2.1 of the Decision (OJ C 328, 1.11.1996, p. 23).

that

the fact

the tax rates

(75) According to the comments received from interested
set under Laws
parties,
342/2000 and 448/2001 for gain realignments
in
2000 and 2001 were the same for banks and other
company restructurings while in 2003 the tax rates
were apparently more advantageous for the banks can
be explained by the change introduced by the Italian
company tax reform enacted in 2003 with the repla­
cement of the tax imputation system with the 95 %-
exemption system to avoid double economic taxation
of dividends.

(16) Risoluzione No 82/E-67004 of 6 June 2000, in the tax database of
the Italian Ministry of Finance: http://dt.finanze.it/doctrib/PDF/
Documento.pdf?Request=0&DocumentID=
14000008220000606FIN110000006700400&Info=1,0,0

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the

(unlike

companies

restructured

the level of

the beneficiary-shareholder.

(76) According to the comments received from interested
parties,
the
restructured banks) could have distributed their historical
gains without payment of any company tax. Under the
imputation system applicable until 31 December 2003,
however, the relative dividends would have been taxable
at
In case a
substitute company tax was imposed to recognise such
gains (like in the case of the tax realignment schemes of
2000 and 2001), the tax paid would have been credited
against the tax payable by the shareholder upon receipt
of the dividend. Thus, under the old imputation system,
the shareholder-level
tax would have in any event
absorbed the company tax possibly paid and therefore
any
would have
realignment
schemes. This would have justified the
same substitute tax rate applicable to both restructured
banks and other reorganised companies at that time.

equalised the

treatment of

tax

(79)

(77)

The situation would have substantively changed after
31 December 2003 with the 95 %-dividend exemption
system applicable to gains being further distributed as
dividends. As of 2004, the tax on the gains realised
from company reorganisations and further distributed
as dividends would have been only applicable on 5 %
of
the gain distributed as dividend, with the latter
being the only tax applicable (in the absence of any
substitute tax), while the ordinary company tax rate
would have applied to the gains of
the reorganised
banks in case distributed (also in the absence of any
substitute tax). To correct this difference of treatment,
the legislator would have provided the nominal substitute
tax rate set forth by Article 2(26) of Law 350/2003 to
recognise the gains suspended with sole respect of the
reorganised banks in question, while excluding the gains
suspended under D.Lgs. 358/1997 because they were less
severely taxed upon distribution (95 % excluded from
taxation at the level of the recipient).

distributed by reorganised companies under the general
regime of D.Lgs. 358/1997.

tax

the

the

have

realignment

interested
even if
the

parties
the Commission were
scheme

subordinately
Finally,
to
suggested that
conclude
of
that
Article 2(26) of Law 350/2003 provided a specific
advantage only of the banks having taken part to the
advantage
restructurings under Law 218/1990,
would not amount
to that preliminarily identified by
the Commission. The advantage would in fact only
consist in the difference between the realignment tax
tax payable to revaluate single
paid and the distinct
depreciable or non-depreciable
to
Article 2(25) of Law 350/2003. Such difference would
total a fraction of the tax on the revaluation made and
should even be reduced by the tax in excess paid to
realign assets that do not give rise to taxable gains if
sold (assets the transfer of which gives rise to exempt
capital gains).

assets pursuant

6. ASSESSMENT

6.1. State aid within the meaning of Article 87(1) of
the EC Treaty

(80) Under

fulfil all

the Court (17),

to be
the settled case law of
considered State aid, a measure must
the
criteria set by Article 87(1) of the EC Treaty; that is
the measure must be granted by the State or through
selectively
State
favouring certain undertakings or productions without
there being a justification deriving from the logic of
the tax scheme, distort or threaten to distort competition
and affect trade.

advantage

resources,

provide

an

(78)

In sum, according to interested parties, the 2003 tax
realignment scheme did not provide an advantage to
the restructured banks but it was a measure to readjust
the disparity between the considerably harsher
tax
realignment regime of restructured banks under Law
regime of gains
218/1990 and the more generous

State resources

(81)

The Commission considers that the scheme in review is
clearly financed through State resources as the payment
of a nominal substitute tax in lieu of
the ordinary
company tax on the gains
recognised by effect of
Article 2(26) of Law 350/2003 amounts to a relief
from the company tax that should have been paid, at
the expense of the State treasury.

(17) Cf.,

inter alia, the judgement of the Court of 10 January 2006,
Case C-222/04, Fondazione Cassa di Risparmio di San Miniato,
point 129.

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(82)

Presence of a selective advantage

The Italian authorities and the interested parties have
in its prior Decisions 2000/600/EC (18)
observed that,
on the conditional approval of the aid granted by Italy
to the public banks Banco di Sicilia and Sicilcassa, and
1999/288/EC (19) on the conditional approval of
the
aid granted by Italy to Banco di Napoli, the Commission
tax-
would have examined and approved the partial
it
neutrality
concluded that
the measure did not constitute State
aid. For this reason, the scheme in review would also
not constitute State aid as it would be the natural
outcome of
forth by
Law 218/1990.

the tax suspension scheme set

Law 218/1990 because

scheme

of

(86)

(87)

(83)

The Commission considers that Article 7(2) of Law
218/1990 provided that
the transfers of assets and
stocks effected in the context of the banking reorgani­
sations in question were treated as partially tax neutral.
This implied the partial non-recognition of gains realised
from the transfer of the banking branches both for the
transferor and the transferee entities, provided that the
assets composing the transferred branch take the same
tax basis they had in the hands of the transferor (carried-
over basis) and the stock received by the transferor takes
the same basis of the assets transferred (substituted basis).

(84) Under that regime, since there was no step-up in the tax
bases of the assets and stocks exchanged, there was no
tax advantage granted to the reorganising parties and the
taxation of the gain realised from the transfer was only
temporarily deferred for future recognition (such as the
sale of the assets by the transferee or the stocks by the
transferor). As there was no basis step-up both for the
transferor and of
there was no aid
the transferee,
resulting from deferring the company-level gain recog­
nition.

(85)

This tax deferral under the regime of Law 218/1990 was
indeed consistent with the
founding principles of
company taxation according to which income taxation

is applied to all revenues and gains realised by any
company, and the realised gains were not recognised
because there was no corresponding stepped-up tax
basis for the assets concerned, so that taxation could
still take place at a later stage.

In the light of the foregoing, the Commission confirms
the initial assessment made in its Decision opening the
formal
investigation procedure that both (a) the non-
recognition of 85 % of the capital gains realised in the
transactions governed by Law 218/1990, and (b) the
non-recognition of the gains realised in the transactions
governed by D.Lgs. 358/1997 are not State aid because
the fiscal values of
the assets exchanged remained
unaltered (20), so that the fiscal gains did not materialise
and no tax advantage was in conclusion granted. As the
realised gains were frozen, the relative earnings could not
be distributed, nor could the correspondingly increased
value of the assets be depreciated, amortised or otherwise
the companies
deducted from the taxable income of
resulting from such transactions. The Commission
therefore concludes that the tax neutrality was justified
by the inherent logic of the tax system and does not
constitute State aid.

the national

the tax realignment scheme foreseen by
By contrast,
to basis
Article 2(26) of Law 350/2003 gave right
step-up,
for which the ordinary company tax would
have been paid, should a special substitute tax payable
like the one in review not have been available. The
Commission understands that to facilitate the taxation
legislator may apply a
of capital gains,
substitute tax at a more convenient
rate than the
ordinary tax. Since the tax on disposition is generally
paid up front but the tax benefits of the stepped-up
basis in the assets being transferred arise over time
through their periodic depreciation or at the time of
such
disposition of
gains would generally lead to an increase in the net
aggregate
and the
transferee-company. Thus, a lower substitute tax on the
gains realised from company reorganisations could be
justified in principle as a technical measure to facilitate
capital gain recognition.

the assets, ordinary taxation of

transferor-company

tax of

the

(18) OJ L 256, 10.10.2000, p. 21.
(19) OJ L 116, 4.5.1999, p. 36.

(20) Or if the realised value was recognised, it was subject to tax as in
the case of the 15 % gain recognised in the transactions governed
by Law 218/1990.

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(88)

Such a favourable tax realignment may however only be
justified if it is objectively open to all similar recognitions
of capital gains, such as those resulting from other reor­
ganisations not covered by Law 218/1990 including
those relating to other banks.

(92)

that, under Law
The Commission further considers
350/2003,
the substitute tax was payable in three
instalments (50 % in 2004, 25 % in 2005 and 25 % in
2006) without interests, while the tax which would ordi­
narily have been applied in the absence of Article 2(26)
of Law 350/2003 would have been payable in 2004. The
Commission therefore notes that
the grant equivalent
value of the tax effectively paid by the nine beneficiaries
of the scheme in review was EUR 185 505 996, while
tax ordinarily payable would have been EUR
the
771 991 022 (37,25 % of
the realised gain totalling
over EUR 2 059 millions). As a result, the difference
between the tax ordinarily payable and the tax paid
amounts to EUR 586 485 026.

(89)

the

that

realignments
The Commission considers
provided for by Laws 342/2000 and 448/2001 allowed
the undertakings concerned with the reorganisations
governed by both Law 218/1990 and Legislative
Decree 358/1997 to recognise
the historical gains
realised by payment of a substitute tax set at the same
level for all the undertakings concerned. The Commission
therefore concludes that the possibility to realign was a
general tax measure and the reduced substitute tax as
opposed to the ordinary company tax applicable at the
time did not provide any competitive advantage to the
companies in question because it was applied under
to all undertakings choosing to
identical conditions
recognise the historical gains realised but
temporarily
non-recognised under the relevant provisions of Law
218/1990
The
Legislative Decree
Commission therefore concludes that such realignments
are general measures justified by the logic of the tax
system and do not constitute State aid.

358/1997.

or

(93)

The Commission considers that the above advantage was
effectively limited to the sole banks concerned with the
transactions governed by Law 218/1990, while other
banks and other companies concerned with equivalent
transactions governed by D.Lgs. 358/1997 could not
benefit from the same tax realignment scheme and its
favourable conditions.

(94)

(90)

the tax
the Commission considers
By contrast
realignment foreseen by Article 2(26) of Law 350/2003
was not a general measure because it was only applicable
to the capital gains derived by certain banks from the
reorganisations effected under Law 218/1990.

that

the nine beneficiaries of

The Italian authorities and the interested parties have
observed that none of
the
scheme would have ever accepted to realign the value
of their assets had they known that they would have
been subject to the ordinary company tax on the gains
so recognised. Furthermore, as explained by the Italian
authorities, the other companies not concerned by the
reorganisations effected under Law 218/1990 would
have benefited from the
tax realignment
scheme of Article 2(25) of Law 350/2003 at the substan­
tively equivalent conditions generally set by Article 17 of
Law 342/2000.

implicit

(91)

The Commission considers in particular that
the tax
scheme in review provided an advantage represented by
the difference between the tax effectively paid to realign
the value of the assets and the tax which would have
been normally paid if the same realignment would have
been made in the absence of the same Article 2(26) of
Law 350/2003. The effective tax rate applicable in 2004
on such gains would have been 37,25 % (including 33 %
company tax and 4,25 % local business tax), while the
substitute tax effectively paid was 9 % (excluding the
allowance for deferred payments).

(95)

For the Italian authorities and the interested parties, to
rightly compute the advantage in question, account
should be taken of the taxes paid at the time of the
initial contributions at a global tax rate of over 40 %.
The combined effective taxation on the capital gains in
question in 1990 and 2004 would have largely exceeded
the general rate for realignments applied in 2000 and
therefore there would be no advantage.

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(96)

the scheme
The Commission maintains however that
provided for by Article 2(25) of Law 350/2003 was
not a tax realignment of values misaligned following
tax neutral reorganisations but rather a tax revaluation
scheme which permitted to realise the hidden gains
deriving from the adjustment of the tax value of the
assets held by the beneficiary companies
to their
current value. The Commission considers that the two
schemes a not comparable, nor was the tax revaluation
scheme of Article 2(25) of Law 350/2003 equivalent to
the tax realignment provided for by Article 2(26) of Law
the difference between the
350/2003,
statutory substitute tax rates
two
foreseen by the
schemes.

considering

(97)

The Commission therefore concludes that the companies
having realigned the tax bases of their assets pursuant to
Article 2(26) of Law 350/2003 benefited from a specific
tax advantage consisting in the difference between the
ordinary tax rate on the gains
recognised and the
special substitute tax on the same gains.

2003 provided for
suspended gains.

the

fiscal

recognition of

the

the distribution of

(100) The Commission further considers that the lower tax rate
applied did not merely offset the harsher tax treatment of
distributions to shareholders of the gains deriving from
the banking restructurings of Law 218/1990 vis-à-vis the
distributions of the gains relating to other tax-neutral
reorganisations in the case of
the
capital gains to shareholders, as indicated by the said
Risoluzione. This view cannot be followed because the
application of different substitute taxes to capital gains
cannot always be imputed to a distribution of the capital
gains
that
suspended. The Commission considers
accepting this justification would effectively result into
allowing the application of different effective company
tax rates to some companies solely because these took
part to certain types of reorganisations preferred by the
State.

(98)

(99)

the lower
The interested parties have objected that
substitute
tax rate used by Article 2(26) of Law
350/2003 was not selective because it was justified by
the legal and factual specificities of the taxation of the
capital gains resulting from the reorganisations effected
under Law 218/1990. Furthermore, they argued that Italy
would not have been entitled to recognise these gains as
taxable after so many years under the same conditions
applicable to the capital gains resulting from other
company reorganisations.

(101) The Commission considers

the
tax advantage
that
resulting from the application of
the tax realignment
scheme foreseen by Article 2(26) of Law 350/2003
was not de-minimis. In determining the presence of an
aid, the Commission shall indeed compare the nominal
taxation applied under the scheme in review and the tax
which would have been applied had the scheme in
review not been available, and had the beneficiary
their assets and
banks stepped-up the tax bases of
distributed the capital gains resulting from such fiscal
realignments to their shareholders.

The Commission takes note of the fact that the reorga­
nisations effected under Law 218/1990 provided specific
conditions and provision to defer the fiscal recognition of
the gains realised following such reorganisations, as also
indicated by the said Risoluzione. It nonetheless considers
that the partial tax neutrality regime provided by Law
218/1990 was in essence equivalent
tax
neutrality regime provided by D.Lgs. 358/1997, as to
the capital gains realised but not
fiscally recognised.
Since the two situations were indeed comparable they
should have been treated alike when the legislator in

to the full

(102) Furthermore the Commission considers that the alleged
reduced amount of an advantage may not per se be
sufficient to exclude its aid character. The Commission
also notes that the de minimis exclusion provided by the
Commission Regulation
of
15 December 2006 on the application of Articles 87
and 88 of the Treaty to de minimis aid (21) cannot be
invoked because the measure gives rise to non-trans­
parent aid as postulated by the Regulation and because
the Italian authorities have not complied with the
conditions of this Regulation.

1998/2006

(EC) No

(21) OJ L 379, 28.12.2006, p. 5.

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Justification by the Nature of the Scheme

(103) The Italian authorities and the interested parties have
observed that
scheme provided by
the realignment
Article 2(26) of Law 350/2003 would be justified by
this
the peculiarities of
reason it would not be State aid.

the banking sector and for

recipient of the aid competes with other undertakings on
markets open to competition. Furthermore, a measure
affects intra-Community trade when the financial aid
received from the State strengthens the position of an
undertakings
other
undertaking
competing in intra-Community trade (25).

compared with

(104) Under the case law of the Court, a tax measure is specific
only if it unreasonably discriminates between situations
being legally and factually comparable in the light of the
objectives set by the tax system (22) and ‘the fact that
undertakings are treated differently does not automa­
tically imply the existence of an advantage for
the
purposes of Article 92(1) of the Treaty’ (23).

(105) The Commission considers, however, that the scheme
under examination does not seem to represent an adap­
tation of the general system to the distinctive features of
banking, but, rather, a specific advantage having the
effect of improving the competitiveness of certain under­
takings, i.e. the banks concerned with certain reorgani­
sations.

scheme under

(106) The Italian authorities also argue that the scheme would
be a mere repetition of the scheme enacted under Law
342/2000 which did not involve State aid as it applied to
realised gains deriving from all company restructurings.
The
the Law 350/2003 should be
compared to the one foreseen by the Law 342/2000
additional
and would not
advantage. As
the Commission
disagrees with this opinion, because the realignment
under Law 350/2003 has a more limited scope than
the general realignment under Law 342/2000.

provide
illustrated

any
above,

possible

(109) The Commission considers that the considerable amount
of the aid has strengthened the financial position of its
and
beneficiaries belonging to the banking sector
competing on the
financial
services being open to competition with other under­
takings being active
in providing intra-Community
services.

liberalised market of

(110) The Commission further considers that

competition in the

the advantage
the banks in question is also
granted in favour of
susceptible
current
to distort
context characterised by consolidation opportunities in
the Italian banking sector. The fact that certain Italian
banks have eliminated their tax liabilities inherent
to
hidden gains in their assets at a nominal tax cost is
susceptible to increase the attractiveness of such banks
and
and their
company acquirers. The Commission considers that the
advantage provided by the tax scheme in review is
susceptible of unduly altering the market for company
acquisitions in the banking sector in Italy.

economic value both for

investors

(107)

In the light of the foregoing, the Commission concludes
that the advantage granted to certain banks, consisting in
the special substitute tax for the gains realised from
certain contributions of assets in lieu of the ordinary
tax rate, under the Law 218/1990 is specific and not
justified by the nature of the tax system.

Distortion of competition and effect on trade between Member
States

(108) Under the settled case law of the Court (24), for a State
measure to distort competition it is sufficient that the

(22) Judgement of 8 November 2001, Case C-143/99, Adria-Wien
Pipeline GmbH and Wietersdorfer & Peggauer Zementwerke GmbH v
Finanzlandesdirektion für Kärnten, [2001] ECR I-8365.

(23) Judgement of 22 November 2001, Case C-53/00, Ferring v ACOSS,

[2001] ECR I-9067.

6.2. Compatibility

(111)

Insofar as the scheme in review constitutes State aid
within the meaning of Article 87(1) EC, its compatibility
must be evaluated in the light of the exceptions provided
for in Articles 87(2) and 87(3) EC. The Italian authorities
or the interested parties have advanced no arguments to
show that any of the above exceptions are applicable in
this case.

(112) The exceptions provided for by Article 87(2) EC,
concerning aid of a social character granted to individual
consumers, aid to make good the damage caused by
natural disasters or exceptional occurrences and aid
granted to certain areas of
the Federal Republic of
Germany, do not apply in this case.

(24) Judgement of the Court of First Instance in Case T-214/95 Het

(25) Judgement of the Court of Justice in Case 730/79, Philip Morris v

Vlaamse Gewest v Commission, [1998] ECR II-717.

Commission, [1980] ECR 2671, paragraph 11.

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(113) The exception provided for

in Article 87(3)(a) EC
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 under­
employment, but does not apply in this case as the aid
does not favour economic development in such regions
in Italy.

(114) The scheme cannot be considered either as a project of
common European interest or
to remedy a serious
disturbance in the economy of a Member State, as
provided for by Article 87(3)(b) EC, nor does it have
as its object
the promotion of culture and heritage
conservation as provided for by Article 87(3)(d) EC.

(117) The Commission concludes that the scheme in review is

incompatible with the common market.

6.3. Recovery

(118) As the scheme was enacted without prior Commission
approval, recovery should take place in accordance with
Article 14 of Council Regulation (EC) No 659/1999 of
22 March 1999 laying down detailed rules for the appli­
cation of Article 93 of the EC Treaty (27). Nevertheless,
the Commission considers that in the light of the past
practice regarding certain fiscal aid schemes (28), recovery
shall only concern the taxes paid in defect of what a
beneficiary of the scheme would have paid had the bene­
ficiary applied other tax schemes available at that time.
The Commission considers that in the case at hand the
application of
the alternative tax revaluation scheme
provided by Article 2(25) of Law 350/2003 was not a
mere hypothetical choice but a sensible option which
could have been used by the beneficiaries concerned
their
wishing to recognise the effective tax value of
assets (29).

(115) Finally, the scheme must be examined in the light of
Article 87(3)(c), which provides for the authorisation of
aid to facilitate the development 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. In this respect, it
should first be noted that the aid in question does not
fall under any of the frameworks or guidelines which
define the conditions to consider certain types of aid
compatible with the common market. In particular,
it
is not in line with the Community guidelines on State
aid for rescuing and restructuring firms in difficulties in
force at the time (26). Second, since the tax advantage was
granted retrospectively in respect of transactions which
have already taken place,
it cannot be considered to
contain the necessary incentive effects to deem such an
exception applicable.

(119)

(120)

(116) The Commission rather considers that the tax scheme in
question results in a mitigation of the charges which
should have been borne by the beneficiary banks in
similar reorganisations and must therefore be considered
to be operating aid. Such aid cannot be held compatible
with the common market as it does not facilitate the
development of any activities or economic areas and it
is not limited in time, degressive or proportionate to
what is necessary to remedy specific economic handicaps.

(26) OJ C 288, 9.1.1999, p. 2.

It should be stressed that Article 2(25) of Law 350/2003
provided a general provision to recognise the gains
realised by any undertakings deciding to revalue the
assets booked in their accounts on 31 December 2002
to mark them to their market value of the time, by
payment of a substitute tax of 19 % in case of reva­
luation of depreciable assets and 15 % in case of non-
depreciable assets, payable in three instalments (50 % in
2004, 25 % in 2005 and 25 % in 2006). This general
scheme was also open to the reorganised banks in
question. Although realignments and revaluations are
not the same, the Commission considers that had the
the banks
scheme not been available,
realignment
concerned would have opted for the general revaluation
scheme under Article 2(25) of Law 350/2003 to any
probable extent.

In the light of the foregoing, the Commission concludes
that recovery shall take place with sole respect to the
difference between the tax payable to revaluate the
assets held pursuant to Article 2(25) of Law 350/2003
(19 % for depreciable assets, 15 % for non depreciable
in
assets
under
question)
Article 2(26) of Law 350/2003.

typically held by the
the

reorganised banks

effectively

paid

and

tax

(27) OJ L 83, 27.3.1999, p. 1.
(28) See Section VI of the Commission Decision 2006/748/EC of 4 July
2006 on State aid C 30/04 (ex NN 34/04)
implemented by
Portugal exempting from corporation tax on capital gains certain
operations/transactions by public undertakings
L 307,
7.11.2006, p. 219).

(OJ

(29) See points 113 to 119 of

the Judgement of

the Court of

15 December 2005, Case C-148/04, Unicredito Italiano.

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7. CONCLUSIONS

(121) The Commission finds that

Italy has unlawfully im­
plemented Article 2(26) of Law 350/2003 in breach of
Article 88(3) of the Treaty. The aid scheme is incom­
patible with the common market.

(122) Only the aid granted by payment of taxes in defect of
what a beneficiary of the scheme would have paid had
the beneficiary applied other tax schemes available at that
time has to be recovered.

(123) The amount to recover shall therefore be limited to the
difference between the tax which would have been paid
according to Article 2(25) of Law 350/2003 and the one
paid according to Article 2(26) of the same Law,

HAS ADOPTED THIS DECISION:

Article 1

implemented by Italy under
The derogatory tax scheme
Article 2(26) of Law 350/2003 constitutes State aid and is
incompatible with the common market.

Article 2

Italy shall repeal the scheme referred to in Article 1.

Article 3

1.
Italy shall take all necessary measures to recover from the
beneficiaries the aid granted by payment of the substitute tax
foreseen by Article 2(26) of Law 350/2003 in relation to the
fiscal recognition of the capital gains resulting from the reorga­
nisations carried out under Law 218/1990 and unlawfully made
available to the beneficiaries.

2.
The amount to recover shall be limited to the difference
between the tax which would have been paid had the aid bene­

ficiaries applied the tax revaluation scheme according to
Article 2(25) of Law 350/2003 and the one paid according
to Article 2(26) of the same Law.

Recovery shall be carried out without delay and in
3.
accordance with the procedures under national
law, provided
these allow the immediate and effective implementation of this
Decision.

4.
The sums to be recovered shall bear interest throughout
the period running from the date on which they were put at the
disposal of the beneficiary until their actual recovery.

Interest

shall be

5.
calculated in conformity with the
provisions laid down in Chapter V of Commission Regulation
(EC) No 794/2004 of 21 April 2004 implementing Council
Regulation (EC) No 659/1999 laying down detailed rules for
the application of Article 93 of the EC Treaty.

Article 4

Italy shall inform the Commission, within two months of noti­
fication of this Decision, of the measures planned or taken to
comply with it. It will provide this information using the ques­
tionnaire attached in Annex I of this Decision. Italy shall inform
the
within four months of notification of
measures taken to execute it.

this Decision of

Article 5

This Decision is addressed to Italy.

Done at Brussels, 11 March 2008.

For the Commission

Neelie KROES
Member of the Commission

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ANNEX I

Information regarding the implementation of the Commission Decision C 15/07 (ex NN 20/07), implemented by
Italy, providing tax incentives in favour of certain reorganised banks

1.

Total number of beneficiaries and total amount of aid to be recovered

1.1. Please explain in detail how the amount of aid to be recovered from individual beneficiaries will be calculated?

— The principal

— The interests

1.2. What is the total amount of unlawful aid granted under this scheme that is to be recovered (gross aid equivalents;

prices of …):

1.3. What is the total number of beneficiaries from which unlawful aid granted under this scheme is to be recovered:

2. Measures planned and already taken to recover the aid

2.1. Please describe in detail what measures are planned and what measures have already been taken to effect an
immediate and effective recovery of the aid. Please also indicate where relevant the legal basis for the measures
taken/planned.

2.2. By what date will the recovery of the aid be completed?

3.

Information by individual beneficiary

Please provide details for each beneficiary from whom unlawful aid granted under the scheme is to be recovered in
the table overleaf.

Identity of the beneficiary

Amount of unlawful aid granted (*)
Currency: …

Amounts reimbursed (°)
Currency: …

(*) Amount of aid put at the disposal of the beneficiary (in gross aid equivalents; in prices of …).
(°) Gross amounts reimbursed (including interests).