After an in-depth investigation, the European Commission has found that certain Italian measures reducing company taxes and social security contributions in areas affected by natural disasters also benefitted companies that suffered no damage from natural disasters and overcompensated companies beyond the damage suffered. The Commission and EU state aid rules fully support public measures to aid companies that have suffered damage due to natural disasters. However, if such measures are not properly designed and well-targeted for their purpose, they can give an unfair competitive advantage to companies, distorting competition in the Single Market, and cannot be justified under EU state aid rules.
In 2011, through a request by an Italian court, the Commission was made aware of various measures Italy had introduced between 2002 and 2011 reducing taxes and social security contributions due by companies located in areas affected by natural disasters. In particular, the measures concerned six natural disasters that occurred in Italy between 1990 and 2009. The Commission opened an in-depth investigation in October 2012 to examine whether these measures were in line with EU state aid rules.
The Commission fully supports the need to intervene in areas affected by natural disasters, and understands the importance of supporting the local social and economic environment. EU state aid rules explicitly allow and provide ample scope for Member States to compensate companies for the actual damage they have suffered as a consequence of natural disasters.
However, the Commission's investigation showed that the Italian measures under assessment were not well-targeted for the purpose of compensating companies for damages suffered from natural disasters. In particular:
- The measures (with the exception of the measure concerning the 1994 floods in Northern Italy) did not require companies to show that they had suffered any damage at all: A company located in an eligible area could benefit from the aid irrespectively of whether it actually suffered damage from a specific natural disaster. For example, this means that a company registered in the area but without any physical presence or economic activity in the area would also have been eligible to receive aid.
- The measures also did not require companies to establish how much damage they had suffered, meaning that they did not link the aid amount to the actual value of the damage suffered.
As a result, some companies received compensation without having suffered any damage and some companies received more compensation than the value of the damage. This gives those companies an undue economic advantage over their competitors, who have to operate without such public financing, and amounts to incompatible state aid under EU rules.
As a matter of principle, EU state aid rules require that incompatible state aid is recovered in order to reduce the distortion of competition created by the aid. In the present case, for natural disasters that occurred more than ten years ago (i.e., all disasters except the 2009 earthquake in Abruzzo), the Commission does not require recovery from companies that had an economic activity in the disaster zone. This is because in Italy companies do not have an obligation to keep records for more than ten years, which makes it impossible to establish the amount of overcompensation a company with economic activity in the affected area would have received at the time.
This means that under the Commission's decision incompatible state aid paid out under the investigated measures only needs to be recovered by the Italian authorities if beneficiaries could not have suffered any damage at all because they had no economic activity in the area. For the most recent measure concerning the 2009 earthquake in Abruzzo, Italian authorities also have to recover the amount of overcompensation received by companies. Finally, in both instances recovery is only required if the amount of incompatible state aid received by the company is high enough to be able to distort competition, and if it is not covered by any other approved or exempted state aid measure.
The Commission's investigation concerned a number of laws that Italy adopted in the context of natural disasters, none of which were notified to the Commission before implementation:
- After the 1990 earthquake in Sicily and the 1994 floods in Northern Italy, Italian authorities allowed companies to suspend and defer the payment of taxes and compulsory social security and occupational insurance contributions if they were located in the areas affected by these natural disasters.
Italian legislation adopted between 2002 and 2005 converted these deferments and suspensions into amnesty measures that reduced the outstanding tax and contribution debts of these companies by 90%. The Italian Supreme Court of Cassation then ruled that all companies affected by the natural disasters in Sicily and Northern Italy had a right to the 90% rebate on taxes and social contributions, even if they had already paid these taxes and contributions. This led to hundreds of companies claiming back amounts of tax or social contributions that they had duly paid. To-date, hundreds of these cases are still pending before the Italian courts.
- In 2007-2011, Italy adopted similar measures in the context of earthquakes in Umbria and Marche (1997), Molise and Puglia (2002), and Abruzzi (2009). These reduced the amounts of tax or social contributions due by companies located in areas by 60%.
- Another similar measure allowed a 50% reduction of the amounts due by companies located in the area affected by the volcanic eruption and earthquake in Sicily (2002).
For some of the affected areas the Commission had previously approved separate compensation schemes that Italy had duly notified to the Commission. See, for example, for the 2002 earthquake in Molise (N174a/2004) and for the 2009 earthquake in Abruzzo (N459a/2009). These schemes are in line with EU state aid rules, allowing Member States to grant aid to compensate for damage actually caused by natural disasters and are not affected by today's decision.
Article 107(2)(b) of the Treaty on the Functioning of the European Union explicitly provides that state aid "to make good the damage caused by natural disasters or exceptional occurrences" is compatible with the internal market. Disaster aid must compensate for damage actually suffered, and cannot exceed the total amount of the damage caused by the disaster, after deducting compensation already received - either from the State or in the form of insurance pay-outs.
The Commission's 2014 General Block Exemption Regulation further facilitates Member State providing state aid to make good the damage caused by certain natural disasters by exempting such measures from notification to the Commission subject to simplified conditions.
Finally, EU state aid rules, under the de minimis Regulation exempt small aid amounts from the application of EU state aid rules, because they are deemed to have no effect on competition.
The non-confidential version of the decision will be made available under the case numbers SA.33083 and SA.35083 in the State Aid Register on the DG Competition website once 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.