State Aid: Repayment of state aid ordered by the European Commission26/03/06 / cata_european-union-news

Decision by the European Court of Justice in Case C-148/04 – Unicredito Italiano SpA v. Agenzia delle Entrate, Ufficio Genova 1, dated 15 December 2005

This decision was issued by the European Court of Justice (hereinafter “ECJ”) in proceedings for a preliminary ruling concerning the validity of a Commission Decision on a state aid scheme introduced in Italy for the benefit of banks, and also the interpretation of Article 87 et seq. of the EC Treaty and Article 14 of Council Regulation (EC) No 659/1999 of 22 March 1999, which lays down detailed rules for applying Article 93 of the EC Treaty (hereinafter the “Regulation”). These Articles were applied in a dispute between Unicredito Italiano SpA (hereinafter “Unicredito”) and Agenzia delle Entrate in connection with a tax advantage benefiting Unicredito from 1998 to 2000; specifically a reduction in corporate tax to 12.5 % for banks that merged or restructured similarly. Under the scheme, the advantage would be available for five consecutive tax years, provided that the profits were placed in a special reserve that could not be distributed for a period of three years.

The European Commission advised the Italian authorities that the law giving effect to the tax advantage could incorporate prohibited elements of state aid and asked them to refrain from implementing the proposed measures. The Italian authorities nevertheless proceeded to enact the new laws. On this basis, the European Commission held that a breach of Article 88(3) of the EC Treaty had occurred and that the tax reduction amounted to state aid incompatible with the common market. The European Commission ordered Italy to withdraw the state aid program and to take all necessary measures to recover from the beneficiaries thereof the aid unlawfully granted to them under the scheme. A decree was passed by the Italian government ordering the aid recipients to pay a sum equal to the tax unpaid as a result of the aid scheme, together with interest at 5.5% per annum. As a result of the decree, Unicredito paid the government a total sum (including interest) of almost 245 million EUR. Unicredito concurrently filed applications seeking reimbursement, with reference to breach of the Community principles of legal certainty, proportionality and the protection of legitimate expectations.

The first question for the ECJ to consider concerned the validity of the European Commission’s decision on the compatibility of the state aid scheme with common market. The ECJ affirmed the Commission’s conclusions on the definition of state aid – i.e. the selective nature of the measure under consideration, its capacity to affect trade between Member States and to distort economic competition. The ECJ also confirmed the Commission’s decision that Italy had committed a breach of its obligations under Article 88(3) of the EC Treaty by failing to give timely notice of the aid scheme to the European Commission, and also the conclusion of the European Commission that in this case, it was not possible to apply the de minimis rule or the exception under Article 87(3) (b) and (c) of the EC Treaty.

The second question for consideration was a decision on whether part of the contested decision was invalid insofar as it directed Italy to recover the aid, on grounds with inadequate reasons given for such a decision and inasmuch as the decision infringed the principles of legal certainty, proportionality and the protection of legitimate expectations. The ECJ rejected the allegation that the European Commission’s decision was invalid on grounds of inadequate reasons, and referred to past ECJ case law in instances where a Member State had committed a breach of its obligations under Article 88(3) of the EC Treaty. With reference to the alleged breach of legitimate expectation, the ECJ held that an economic operator acting with due care should be able to ascertain that advance notice of the grant of the state aid should have been given to the European Commission. If the operator had not so acted, then the recipient of the aid had no legitimate expectation, since there was a foreseeable risk of having to return aid granted contrary to Article 88(3) of the EC Treaty. The ECJ also rejected the assertion by Unicredito to the effect that it had a legitimate expectation because the procedure in question had been approved by the Banco d´Italia, on grounds that the European Commission is the only body with the power to determine whether state aid is compatible with the common market. Furthermore, neither the affected Member State nor the affected entity could seek to argue that breach of the principle of legal certainty prevented repayment of the state aid, since a real risk of proceedings before the national tribunal existed from the very moment that aid was granted. With reference to the alleged breach of the principle of proportionality, the ECJ held that nullification of the consequences of the unlawfully granted state aid by way of reimbursement is the logical outcome of an allegation of unlawful grant of aid, and that reimbursement in order to put matters into the original state cannot constitute an unreasonable measure in the light of the objectives in the EC Treaty as regards state aid. Only repayment of state aid will divest the recipient of the benefits it obtained on the market vis-à-vis its competitors and re-establish the situation existing before granting such state aid.

Last but not least the ECJ confirmed that Article 87 et seq. of the EC Treaty, Article 14 of Regulation, and the principles of legal certainty, proportionality and the protection of legitimate expectations cannot preclude a national measure ordering repayment of aid in compliance with a Commission decision that found such aid to be incompatible with the common market and examination of which in the light of those provisions and general principles has not disclosed any factor capable of affecting its validity.