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Brussels, 17th June 2008

State aid: Commission requests information about preferential tax regimes for retail distribution and banking cooperatives in Italy

The European Commission has asked Italy under EC Treaty state aid rules for information regarding preferential tax regimes for cooperatives operating in the retail, distribution and banking sectors in Italy. The Commission started reviewing the measures after receiving several complaints. The current investigation is designed to ensure that the measures are in line with the state aid rules in the future, as it appears that the measures existed before the EC Treaty entered into force and could therefore qualify as existing aid. In its analysis, the Commission is carefully balancing the equity and efficiency objectives pursued by the cooperative model against any possible distortions of competition that might derive from such measures. The Commission finds at this preliminary stage that the tax measures may not constitute state aid under some conditions and that if they do, that they are mostly compatible. For the measures concerning large cooperatives that might not be in line with EU state aid rules, Italy has the opportunity to comment on the Commission's analysis before any conclusions are reached. The initiation of the review process does not prejudge its outcome.

Competition Commissioner Neelie Kroes said “Our approach strikes the right balance between safeguarding cooperatives, and the consumer interest in undistorted competition on the retail market. In particular, we aim to safeguard tax reductions for mutual cooperatives and tax reductions justified by serving social objectives in the common interest, while ruling out unjustified tax breaks for large cooperatives in direct competition with traditional commercial companies. I am confident that if we can continue our good cooperation with the Italian authorities, we will settle this case rapidly".

From the submissions of the Italian authorities it appears that the measures in question were granted to cooperatives of all sizes and sectors. From 2003 the special tax measures apply to all cooperatives conducting a majority of their business with their members ("prevalently mutual" cooperatives).

The main measures concerned by the analysis are:

  • the deduction from the taxable income of the profits allocated to indivisible reserves

  • the deduction from the taxable income of the cooperative bonuses ( ristorni) distributed to members

  • the tax reduction on interest paid to members for short-term deposits.

The preliminary assessment took into account the significance of the findings for other companies operating in different Member States and sectors not concerned by the complaints, and has reached the following conclusions.

In general, the Commission recognises the importance and valuable contribution of cooperatives to the economy and to society at large. Cooperatives have certain specific features as they operate in the interests of their members and have a specific corporate model. Therefore cooperatives can be distinguished from profit-making companies, especially when they are purely mutual and generate revenues exclusively with members.

At this preliminary stage of the procedure it appears also that cooperatives, despite their specificity, may also make profits from dealings with non-members and behave in the market in the same way as profit-making companies. The Commission considers that under these circumstances, a preferential treatment for cooperatives may entail state aid. A fair level playing field should be maintained for all kinds of companies in the same situation. Aid may nevertheless be considered compatible if its positive effects linked with the contribution of cooperatives to social objectives outweigh its negative effects on competition and trade. This is considered to be the case for Small and Medium Enterprises (SMEs), which form the vast majority of cooperatives.

For that reason, the Commission considers at this preliminary stage that the following may qualify as aid:

i) the deduction from the taxable income of prevalently mutual cooperatives of the profits allocated to indivisible or divisible reserves corresponding to revenues generated from non-members of the cooperative. For large cooperatives and non-mutual cooperatives, the totality of the deduction is considered to be aid, because where the members are not really involved in the cooperative the company seems more similar to a profit-making company. These deductions are however considered compatible aid for obligatory indivisible reserves and in the case of SMEs for all indivisible reserves.

ii) the tax reduction on interest paid to members for short-term deposits because it does not relate to activities with members participating in the cooperative as such. Indeed, in providing interest-bearing loans to the cooperative the members act as third party lenders and are not sharing economic risks with the cooperative. This measure is not considered compatible with the common market at this preliminary stage.

On the other hand, the deduction from the taxable income of the cooperative bonuses distributed to members would appear not to be aid, in that they are generated only from exchanges between members.

These findings are preliminary, and the letter addressed to Italy aims to start a discussion with the Italian authorities to review the incompatible aid elements that may result from the tax regimes in question. Comments by third parties, and notably by cooperative associations, may also usefully contribute to these discussions.

The non-confidential version of the letter will be made available under the case number E1/2008 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 .

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