Brussels, 12 March 2008
Competition Commissioner Neelie Kroes said: "When Member States set favourable tax rules for a select number of undertakings, they must be careful not to alter the level playing field between competitors. Illegal aid given to privatised banks must be recovered and returned to taxpayers."
Under Law 218/1990 on the privatization of the Italian banking system, a major reorganization of formerly state-owned banks took place in Italy in the 1990s. Article 2(26) of Law 350/2003 (Italy’s Finance Law for 2004) provided that hidden gains resulting from these privatizations, that had remained frozen as capital reserves, could be released by paying a 9% substitute tax on such gains, in lieu of the ordinary company tax of 37.25%. This provided the banks concerned with an economic advantage, in particular by increasing their attractiveness and their economic value both for investors and corporate acquirers. Law 350/2003 also authorized the payment of the substitute tax in three instalments (50% in 2004, 25% in 2005 and 25% in 2006), without interest.
The Commission found that nine banking groups realigned the value of their assets to the underlying gains realized following the banking reorganisations, pursuant to the scheme. The global capital gains recognised amounted to more than €2 billion. The corresponding difference between the tax ordinarily payable and the tax actually paid, amounts to over €586 million.
The Commission concluded that the said difference provided an advantage in favour of these banks, which constitutes incompatible state aid. The Commission found that the tax scheme is not justified by the principles on tax neutrality relating to company reorganizations. Moreover, none of the exceptions invoked by Italy to gain state aid approval were applicable, as the tax scheme in review was evidently not aimed at promoting new business reorganizations but solely at favouring a select number of banks resulting from prior reorganizations.
Italy did not notify the scheme to the Commission before its implementation and the aid unlawfully granted must therefore be recovered from its beneficiaries. Based on the comments received from interested parties, the Commission decided, however, that the recovery order should be limited to the difference between the tax effectively paid and the tax the beneficiary banks would have paid had they applied a general tax revaluation scheme provided for by Article 2(25) of the same Finance Law of 2004. The Commission therefore demands to recover an estimated amount of €123 million from the nine beneficiaries.
The non-confidential version of the decision will be made available under the case number C 15/2007 in the State aid Register on the DG Competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State aid Weekly e-News.