EC Seeks Information On Preferential Tax Regime For Italian Banks

by Ulrika Lomas, Tax-News.com, London

18 June 2008

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, it explained.

The 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 explained that:

“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 applied 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; and
• The tax reduction on interest paid to members for short-term deposits.

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