The Official Journal of the European Union of September 9 2004 contained the European Commission's invitation to submit comments to its letter to the Italian Government of May 7 2004 where it claimed that a certain Italian tax incentive should be treated as an illegitimate State aid pursuant to articles 87 and following of the EU Treaty.
The tax incentive is represented by the reduced 5% (as opposed to the standard 12.5%) substitute tax established by article 12 of Law Decree No 269 of September 30 2003 on the proceeds of certain harmonized undertakings of collective investments that prevailingly invest in the equity of small and medium capitalization companies, whose stock is listed in a regulated European stock exchange market (the relevant UCITS). The Italian Government failed to notify the European Commission in advance about the tax incentive contained in article 12.
In the European Commission's view - as indicated in the letter - article 12 affords to the relevant UCITS a double economic advantage, when compared with other investment vehicles, that is (a) the direct advantage represented by the amount of foregone substitute tax (that is, 7.5% of the relevant UCITS' net operating results) and (b) the indirect advantage consisting of the greater after-tax return for the investors, which would favour the demand of units of the relevant UCITS (the advantages). The advantages would be financed through the use of State's resources by foregoing tax revenues normally accruing to the Italian Treasury.
Moreover, the tax incentive would be selective in that, among other things, it would apply to the relevant UCITS only.
In addition, since the advantages do not seem to be related to specific investments but simply represent a reduction of charges, the letter raises doubts about the compatibility of the tax incentive with the EU single market.
In the light of the foregoing, the European Commission concluded in the letter that the tax incentive would have to be considered as an illegitimate State aid, pursuant to article 87 of the EU Treaty.
The letter concluded that: (i) the tax incentive is to be deemed as frozen pursuant to article 88(3) of the EU Treaty until the procedure is completed, so that the relevant UCITS shall apply the substitutive tax at the standard 12.5%, instead of the reduced 5%, rate; and (b) pursuant to article 14 of Council Regulation (EC) No 659/1999, should the European Commission confirm its findings, the Italian government would have to recover from the relevant UCITS the lower substitute tax paid.
Massimo Agostini (magostini@gop.it), Fiore Tinessa (ftinessa@gop.it), Milan
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