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EU Investigates Italian Natural Disaster Tax Measures

by Ulrika Lomas,, Brussels

18 October 2012

The European Commission (EC) has opened an in-depth investigation to examine whether the measures taken by the Italian government to reduce taxes and social security contributions due from companies in areas affected by natural disasters are in line with European Union (EU) state aid rules.

The EU rules allow its member states to make good damages caused by natural disasters, but the EC is concerned that the Italian measures may have gone beyond compensating for the actual damage suffered. In that case, the opening of a formal investigation now allows the EC to examine these measures more closely and gives interested parties the possibility to submit comments.

After the earthquake of 1990 in Sicily and the floods in Northern Italy in 1994, Italy adopted laws allowing the suspension and deferral of taxes and social contributions due by companies located in the affected areas. In 2002-2003, Italy adopted amnesty measures which reduced by 90% the outstanding tax and contribution debts of these companies.

Then, in 2007, 2010 and 2012 the Italian Supreme Court of Cassation ruled that everybody, not just companies, affected by the natural disasters in Sicily and Northern Italy had a right to the 90% rebate. This has led to hundreds of companies to claim back amounts they had duly paid.

Between 2007 and 2011, Italy adopted further similar legal provisions reducing by 60% amounts due by companies located in areas affected by other earthquakes: Umbria and Marche (1997), Molise and Puglia (2002) and Abruzzi (2009). A similar measure allowed a 50% reduction of amounts due by companies located in the area affected by the volcanic eruption and earthquake in Sicily in 2002.

Last year, after receiving a request from an Italian Court, the EC then became officially aware of the existence of the measures introduced by Italy since 2002. Italy had not notified these measures to the EC, breaching its obligations under the EU Treaty.

Above all, the EC doubts that the measures are compatible with state aid rules requiring that public support make good damage caused by natural disasters without going beyond the actual damage suffered. Italy does not appear to have established a direct link with a specific natural disaster or a correlation to the amount of effective damage suffered by a company as a consequence of that disaster.

The EC is concerned that all aid beneficiaries may not be companies that effectively suffered damage as a consequence of natural disasters, that in some cases the damage may not have been caused exclusively by natural disasters, and that the aid may not always be limited to compensating such damage.

If the EC, following the investigation, finds that the measures are incompatible with EU state aid rules, Italy may need to recover the aid paid out to beneficiaries. Therefore, in order to avoid more public spending that would have to be recovered afterwards, the EC has also ordered Italy to stop implementing these measures until the EC has taken a final decision on their compatibility.

TAGS: tax | European Commission | law | corporation tax | legislation | social security | Italy | tax breaks | individual income tax | European Union (EU) | Europe

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