We are once again returning to a subject that has been on everyone's lips for years now: the taxation of Italian ports.
Our readers will remember that, back in 2013, the European Commission opened an investigation on the taxation of European ports and on any other forms of aid for various types of investments relating to ports or for their management. The European Commission indeed considered it important to have stable and fair conditions for “inter-port” competition in the European Union.
As a result of such evaluations, in 2018, the Commission sent its preliminary assessment to Italy regarding the regime of taxation of Italian ports, inviting Italy to submit its comments. Following a lengthy process, in 2019 the Commission invited Italy to adopt measures to ensure that its Port System Authorities (“PSAs”) carrying out economic activities would pay corporate income tax in the same way as other companies. Italy rejected that proposal and, therefore, the Commission deemed it appropriate to initiate the procedure under Article 108(2) TFEU.
As a result of the procedure, on 4 December 2020, the European Commission issued its decision (“Decision”)1regarding the taxation of Italian ports, concluding that:
(i) the exemption from corporate income tax in favour of Italian PSAs constitutes an existing State aid scheme pursuant to the TFEU that is incompatible with the internal market.
(ii) Italian authorities should therefore put an end to the aid scheme by abolishing the exemption from corporate income tax enjoyed by the PSAs. Such measure should be adopted within two months from the date of serving this decision and should apply at the latest to income generated by economic activities as from the beginning of the tax year following that in which the measure is adopted and in any event in 2022.
The Commission carried out an in-depth examination of the Italian legislation and carefully assessed the observations received from Italy and the other interested parties, but unfortunately did not deem them sufficient to consider the Italian port taxation regime compatible with the EU State aid rules.
We would like to briefly recall – without claiming to be exhaustive for the sake of brevity – that the defence of Italy (and of the other interested parties that submitted their observations) was based on the following main arguments:
- PSAs are non-economic public entities of national importance endowed with administrative, organisational, regulatory, budgetary and financial autonomy. Therefore, PSAs are not enterprises and do not carry out economic activities;
- the granting of concessions by PSAs is non-profit-making. The granting of port concessions by PSAs is indeed a regulatory activity aimed at a more productive allocation of port infrastructures in the interest of the port community and port users;
- concession fees do not amount to a consideration for the supply of services or goods. This is because there is a substantial difference between the assignment of State property to concessionaires and the lease of State property. The rights conferred by PSAs upon concessionaires are more limited than those vested in a tenant in a typical lease entered into by landlord port authority, as is demonstrated by the specific features of the Italian system described below.
i) the exclusive use of public property by the concessionaire must not be contrary to the public interest;
ii) PSAs may at any time revoke concessions for specific reasons related to the use of the sea or for other reasons of public interest, in which case the concessionaire is not entitled to any compensation;
iii) the collection of fees is carried out through enforcement procedures similar to those applicable in case of tax debts;
iv) when a concession expires, the State property reverts to the PSA and any works and improvements remain the property of the State, without the concessionaire receiving any payment or compensation for such works and improvements.
- Moreover, concession fees are established by law and have the characteristics of taxes paid by the concessionaire to the State via the PSAs in exchange for access to the market for port economic activities, in particular for the execution of operations and services involving the use of State property. Consequently, PSAs do not carry out any economic activity, as they cannot take action with respect to the main element of any economic operation carried out under market conditions, i.e., the service price.
- Lastly, EU case law2clarifies that, insofar as a public entity carries out an economic activity that can be dissociated from the exercise of its public powers, that entity acts as an undertaking with regard to such an activity, whereas, where that economic activity is inseparable from the exercise of its public powers, all the activities carried out by that entity remain activities connected with the exercise of those powers3.
The European Commission, after careful consideration, reaffirmed the principles already established and stated the following:
- According to case law, the concept of an undertaking encompasses any entity engaged in an economic activity, regardless of the legal status of the entity and the way in which it is financed. The fact that an entity is non-profit-making is not a decisive criterion for determining whether or not it is an undertaking, nor is decisive the fact that an entity is publicly-owned.
- In previous cases concerning exemption from corporation tax for ports in Belgium and France, the Commission has already clarified that the renting out of public property in return for payment constitutes an economic activity4. The General Court of the European Union has confirmed the approach of the European Commission5.
- With regard to concession fees, the European Commission notes that the law only sets minimum concession fees, leaving a certain margin of manoeuvre for PSAs to affect concession fees according to their commercial strategies. Such aspect is however irrelevant, as the provision of infrastructure or land in return for payment is in any event considered an economic activity.
- The concession fees charged by PSAs constitute remuneration paid by users in return for the provision of specific services. In the case of Spanish ports, the General Court of the European Union had already deemed comparable port dues with fees for the use of the port infrastructure, rejecting the defensive argument put forward by the Spanish ports that port dues are taxes6.
- The Commission notes that Italy and the other interested parties have not proved that the economic activities carried out by the ports are inseparable from PSAs' public powers. Therefore, PSAs must be considered as undertakings if – and insofar as – they actually carry out one or more economic activities.
In the Decision under examination, the European Commission observes that, since ports are largely involved in the international transport of goods and passengers, any advantage granted to Italian PSAs is also by its nature likely to affect competition and trade within the Union.
Competition is, however, not only Union-wide but also internal. PSAs compete to attract concessionaires to provide port services. Indeed, the level of concession fees charged by PSAs in exchange for the land and infrastructure made available to concessionaires affects their choice of operating in a given port. The existence of competition and cross-border effects in such market is recognised by case law7.
The European Commission is therefore concerned that PSAs' taxation regime may lead to distortions of competition.
As mentioned, the European Commission in its Decision gave Italy a period of two months to abolish the corporate income tax exemption granted to PSAs.
The PSAs, disagreeing with the Decision for the reasons briefly illustrated above, have expressed their intention to refer the matter to the EU General Court in order to try – once again – to have the position claimed by Italy in the proceedings before the European Commission affirmed.
According to press reports, Italy has not challenged the Decision and, therefore, “lost” the opportunity to have its say before the European Court.
We will continue to monitor the matter, also because – as already pointed out on previous occasions – the decision on the taxation of PSAs might have important implications for port users too. The possibility of considering PSAs as companies carrying out economic activities would indeed also allow the application of antitrust law to concession contracts, with a greater protection for users.
1 See European Commission Decision C(2020) 8498 (final) of 4 December 2020 on the aid scheme SA:38399 2019/C implemented by Italy – Taxation of ports in Italy
2 See Judgment of the Court of Justice of 12 July 2012, Compass-Datenbank, C-138/11, ECLI:EU:C:2012:449, paragraph 38. Judgment of the General Court of 12 September 2013, Germany v Commission, T-347/09, ECLI:EU:T:2013:418, paragraph 29. Judgment of the Court of Justice of 26 March 2009, Selex Sistemi Integrati v Commission, C-113/07 P, ECLI:EU:C:2009:191, paragraphs 71 to 80.
3 In the case of PSAs, Italy states, that the activities which may have economic significance in the management of port assets and which may be relevant for the determination of the concession fee are, in any event, inseparable from the public activities entrusted by law to the PSAs, such as the control and management of port assets and the planning of all activities through the use of port areas. The concession fees collected by the PSAs should therefore not be considered as business income
4 Commission Decision of 27 July 2017 on aid scheme SA.38393, Taxation of harbours in Belgium, OJ L 332, 14.12.2017, point 62; Commission Decision of 27 July 2017 on aid scheme SA.38398, Taxation of harbours in France, OJ L 332, 14.12.2017, point 55.
5 Judgment of the General Court of 30 April 2019, UPF v Commission, T-747/17, ECLI:EU:T:2019:271, paragraphs 65 and 66. Judgment of the General Court of 20 September 2019, Havenbedrijf Antwerpen and Maatschappij van de Brugse Zeehaven v Commission, T-696/17, ECLI:EU:T:2019:652, paragraph 47. The judgments were not appealed against.
6 Judgment of the General Court of 15 March 2018, Naviera Armas v Commission, T-108/16, ECLI:EU:T:2018:145, para 124.
7 Judgment of the General Court of 20 September 2019, Havenbedrijf Antwerpen and Maatschappij van de Brugse Zeehaven v Commission, T-696/17, ECLI:EU:T:2019:652, paragraph 99. Judgment of the General Court of 30 April 2019, UPF v Commission, T-747/17, ECLI:EU:T:2019:271, paragraph 103.
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