At the end of April, the Directorate-General for Competition of the European Commission sent a communication to the Italian Permanent Representation notifying the results of a preliminary examination concerning corporate income tax exemption for ports in Italy.
The European Commission indeed found an infringement of Article 107 TFEU in the tax exemption granted to the authorities responsible for managing ports in Italy, deeming such exemption a State aid1.
The European Commission considers that "the differential tax treatment between Ports authorities (which are not subject to corporate taxes) and other undertakings operating in Italy (which are subject to corporate taxes) constitutes a selective advantage for the former that cannot be justified by the nature and logic of the Italian corporate tax system. Furthermore, such a favourable tax treatment threatens to distort competition and to affect intra-Union trade"2.
From a questionnaire sent by the European Commission to all Member States to obtain information on the functioning of ports and the corporate tax regimes applicable to them, it emerged that, in Italy, Port System Authorities ("PSAs") are exempted from payment of corporate tax under Article 74, paragraph 1, of the Italian Income Tax Consolidation Act 3("Testo unico delle imposte sui redditi"("TUIR")). Article 74, paragraph 2, of the TUIR however provides that such institutions be exempted from corporate tax only having regard to the exercise of their "State functions". The revenues deriving from their "commercial activities" are, instead, subject to corporate tax.
In light of the above, the European Commission decided to examine more closely the nature of the activities of the PSAs to assess whether their exemption could be deemed as falling within the scope of Article 74, paragraph 2 of the TUIR or amount to infringement of Article 107 of the TFEU.
Unlike many other European countries, all ports in Italy are considered public, as they are an integral part of the State's maritime property. Moreover, the Italian port law4, which has recently been reviewed, under Article 6, paragraph 5, provides that a PSA "is a non-economic public body of national relevance enjoying a special status and administrative, organisational, regulatory, budgetary and financial autonomy".
Among their various tasks and activities, PSAs are entrusted with the power to grant concessions over State-owned areas of the port or quays to undertakings wishing to use them for carrying out port operations5. Such concessions are granted against the payment of a fee.
Article 13 of the Italian Port Law provides for further revenue sources for PSAs6.
In response to the questions raised by the European Commission, the Italian State - in its defence - stated that "port authorities exercise only regulatory and monitoring functionsover activities carried out by private undertakings which operate in the ports. These private service providers are subject to the standard corporate tax regime" (See EC resolution - DG Competition to the Italian Permanent Representation of 30 April 2018).
Such interpretation is endorsed by the Italian Supreme Court7, which states that "the activities of public bodies, whether commercial or not, are not taxable when they are acting in their capacity as a public authoritybecause they are subject to public law; their activities are taxable when they are acting in a private capacity".
Italian law and the position of the Italian authorities, however, does not seem to take into account the settled case law of the Court of Justice of the European Union ("CJEU"), according to which "the concept of an undertaking encompasses every entity engaged in an economic activity regardless of its legal status and the way in which it is financed"8,9.
According to the CJEU, therefore, the only relevant criterion in this respect is whether the entity carries out an economic activity or not10, regardless of the formal qualification of the same. Indeed, an entity (formally part of the Public Administration) carrying out both economic and non-economic activities is to be regarded as an undertaking with regard to the former.
In its decision of 27 July 2017 relating to cases SA.3839311and SA.3839812, the European Commission, conforming itself to the CJEU's view, stated that the commercial exploitation of a port or airport terminal by making it available to users against the payment of a fee constitutes an economic activity.
Taking into account that PSAs grant state concessions against the payment of a fee, the European Commission decided that PSAs are therefore undertakings within the meaning of Article 107(1) TFEU.
Therefore, by its communication of late April, the Commission initiated a cooperation phase during which the Commission and the Member State concerned are expected to cooperate to identify "the appropriate measures that should be adopted in order to make the measures at stake compatible with the internal market".
It will therefore be interesting to see the developments of this procedure, as whatever decision will have a significant impact on both the industryconcerned and the Italian and European market.
1 The Commission highlights how: (a) PSAs qualify as undertakings to the extent that they perform economic activities; (b) the financing derives from a domestic law; (c) the financing takes place by the State forgoing revenues which it would otherwise collect from an undertaking in normal circumstances; (d) there is an advantage arising from the reduction of the amount of tax due.
2 See page 11 of the EC resolution - DG Competition to the Italian Permanent Representation of 30 April 2018.
3 Article 74, paragraph 2, of Presidential Decree No. 917 of 22 December 1986 provides that "State bodies and administrations, including autonomous administrations, and, where they have legal personality, the municipalities, consortia of local bodies, associations and bodies administering public property, mountain communities, provinces and regions"are not subject to corporate tax.
4 Law No. 84 of 28 January 1994.
5 See Article 18 of Law No. 84/1994.
6 The revenues of PSAs are:
- revenues from granting concessions against the payment of a fee over maritime State-owned areas and dock/wharves under Article 18 of Law No. 84/94 and the revenues from granting concession to carry out port operations under Article 16 of Law No. 84/94;
- any proceeds from disposals;
- revenue from dues on goods unloaded and loaded in ports;
- contributions by the Regions, local authorities and other public bodies and organisations;
- miscellaneous revenues.
7 See judgement of the Italian Supreme Court No. 4926 of 27 February 2013.
8 ECJ Case No. C-41/90 Höfner/Macroton GmbH, paragraph 21.
9 See also: joined Cases No. T-455/08 and T-443/08, Flughhafen Leipzig-Halle GmbH and others/Commission and Mitteldeutsche Flughhafen AG and others/Commission; Case No. T-128/89 Aéroports de Paris/Commission, confirmed by the ECJ, Case No. C-82/01P.
10 The ECJ deems "economic activity"any activity of offering goods or services on a given market.
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