Brussels, 16th December 2004
The European Commission has decided that special tax incentives for companies taking part in trade fairs abroad (available under the 2004 Italian budget law) are illegal under EU state aid rules. The decision follows an in-depth investigation opened in March 2004. The scheme distorts competition because it is limited to exporting undertakings and has the effect of improving the trading conditions of Italian companies in foreign markets, including in other Member States. The aid has been enacted without prior Commission approval and must be reimbursed by its beneficiaries. However, the specific part of the aid paid over to SMEs participating for the first time in a fair is compatible with EU rules and so will not have to be repaid.
By means of urgent provisions set forth in the accompanying law to the 2004 Italian Budget, Italy enacted an exceptional scheme aimed at favouring the internationalisation of Italian undertakings, providing a special reduction of the tax base of companies taxable in Italy incurring expenses with respect to their participation in trade fairs abroad. The scheme only applies with respect to the expenses incurred in 2004 and is aimed at improving the trading conditions of Italian undertakings operating in foreign markets, including other Member States’ markets.
Following the launch of a formal probe in March seeking to clarify the possible aid character of the scheme (OJ C 221 of 3.9.2004), the Commission conducted an in-depth examination and concluded that the scheme is incompatible with the internal market.
The scheme allows participants in trade fairs to exclude from their taxable income in Italy an amount corresponding to the costs involved with participation in trade exhibitions on top of the ordinary deduction from their taxable income. Such costs may include advertising and promotion costs but must be related to displaying products at trade fairs abroad. As the objective of this tax advantage was to improve the trading conditions of Italian companies operating overseas, it appeared that only a limited group of beneficiaries being engaged in export related activities could benefit from it, and therefore it constituted an aid directly affecting cross-border competition and trade including trade with other Member States. As the aid has been enacted without prior Commission’s approval, Italy is requested to recover the aid illegally paid to the beneficiaries.
The only part of the scheme that was found to be compatible with existing state aid rules, concerned aid for SMEs not exceeding 50 percent of the costs arising from their first participation in a fair exhibition with respect to a new market. The Commission accordingly allowed Italy not to recover this part of the aid.