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ECJ Directs Italian Banks To Refund Tax Break

by Ulrika Lomas,, Brussels

19 December 2005

The European Court of Justice has ruled that a tax break granted to certain Italian banks in the 1990s amounts to illegal state aid and must be refunded.

In the 1990s, the Italian authorities initiated a process of privatisation of the Italian banking system and a law was adopted which granted tax advantages for certain restructuring operations in the banking sector.

In December 2001, the European Commission took the view that the Italian legislation had introduced an aid scheme incompatible with the common market and ordered recovery of the aid granted unlawfully to the beneficiary banks, which had to pay an amount equal to the tax not paid as a result of the scheme.

Italy requested that the ECJ annul the Commission’s decision, claiming that the contested measures did not amount to state aid since they did not give rise to a transfer of State resources, were of a general character and not selective, and did not affect trade between Member States or distort competition.

However, in a ruling issued last week, the ECJ countered that:

"The Italian tax measures apply to undertakings which carry out certain operations in the banking sector and are not advantageous to undertakings in any other economic sectors. They are therefore selective."

The court added that:

"In addition, the advantage in terms of competitiveness brought about by those measures for operators established in Italy is of such a kind as to make it more difficult for operators in other Member States to penetrate the Italian market, or to facilitate the penetration of other markets for operators established in Italy."

"Consequently, the tax measures in question are liable to affect trade between the Member States and to distort competition."

TAGS: Italy

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