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Brussels, 12 October 2010

State aid: Commission opens probe into preferential real estate tax regime for non commercial entities in Italy

The European Commission has opened an in-depth investigation under EU state aid rules to establish whether the municipal tax exemption granted by Italy to real estate used by non commercial entities for specific purposes constitutes illegal state aid. At this stage, the Commission considers, in particular, that the real estate in question could also be used for commercial activities and that these tax exemptions could therefore distort competition. The Commission will also investigate Article 149 (4) of the Italian Unified Law on Income Tax, which provides a favourable tax treatment for ecclesiastic institutions and amateur sports clubs. The opening of an in-depth investigation allows interested parties to comment on the measures under assessment. It does not prejudge the outcome of the procedure.

The Commission has started an investigation following a number of complaints alleging that Italy had granted illegal state subsidies to non-commercial entities that also perform commercial activities. The subsidies would come in the form of an exemption from the municipal tax on real estate ("Imposta comunale sugli immobili" or ICI) used for activities such as social assistance, welfare, health, cultural, educational, recreational, accommodation, sport, religious and cult activities. Article 149 of the Italian Unified Law on Income Tax ("Testo Unico delle Imposte sui Redditi" or TUIR), lays down the conditions that can trigger the loss of the "non-commercial status", but shields ecclesiastic institutions and amateur sports clubs from that provision.

The Commission's preliminary view is that the relevant "ICI" and "TUIR" provisions could provide a selective advantage to their beneficiaries' commercial activities and therefore constitute state aid under EU rules. The Commission doubts whether at least some of the activities performed by the non-commercial entities concerned could be considered as commercial and may be in competition with commercial service providers. As the latter are subject to normal taxation, the ICI exemption seems to provide an unfair advantage to the non-commercial entities.

During the investigation, the Commission will verify whether the measures could be compatible with the internal market and whether some of the activities benefitting from the measures at issue may be considered as services of general economic interest. Under EU state aid rules, public service providers may receive compensation for their extra costs under certain conditions.

Until now the Italian authorities have not provided sufficient evidence to enable the Commission to consider that the measures at issue could be justified by the principles inherent to the Italian tax system.

The complainants have also alleged that a 50% corporate tax reduction granted to certain entities was in breach of EU state aid rules. According to Article 6 of Presidential Decree n. 601/73, the preferential tax treatment is granted to entities having as their scope social assistance, research on non-lucrative basis, charity and education. The tax advantage also applies to foundations and associations having exclusively a cultural scope and to social housing entities. Given that the special tax treatment for such entities existed before the entry into force of the EU Treaty, the Commission will deal with it separately, in the context of the specific procedure for existing aid measures. Aid considered existing prior to the creation of the EU, or the accession of the country concerned to the EU, cannot give rise to recovery even if ruled illegal. But in this case, the law would need to be changed.

The non-confidential version of the decision will be made available under the case number C26/2010 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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