ADVANT Nctm’s Senior Partner, Paolo Montironi, and Berlingieri Law Firm’s Senior Partner, Giorgio Berlingieri, are pleased to announce the integration of their respective firms to strengthen and consolidat…
The counter-appeal filed, on 7 July 2021, by the European Commission (hereinafter, the "Counter-Appeal") in response to the Appeal of Italian Port System Authorities (hereinafter, the "Appeal") has certainly not gone unnoticed. In our previous Shipping Bulletin[1], we already analysed the Appeal for the annulment of the European Commission's decision C(2020)8498 final, dated 4 December 2020, regarding State aid scheme SA.38399, named "Corporate Taxation of Ports in Italy".
In order to help understand the issue, it is advisable to summarise here the grounds for the Appeal filed by the Italian Port System Authorities (hereinafter, "PSAs").
The subject-matter of the dispute is indeed a tax exemption (rectius, a “State aid” within the meaning of the EU legislation), whose beneficiary is basically a State entity (the individual PSA) and whose benefited activities are carried out in a competitive market both at national and at least at European level, the legitimacy of which is challenged by the European Commission.
Given the complexity of the matter, and since it is not possible here to deal comprehensively with all the rebuttals made by the European Commission to the individual grounds of appeal taken by the PSAs referred to above, we extracted from the Counter-Appeal the maxims that we consider most relevant to the issue.
Following the interpretative approach of the European Commission, the legal nature of an entity does not appear to be a decisive aspect for the purposes of the matter under discussion, but rather what must be assessed is the nature of the activities carried out by the PSAs.
The non-applicability of Article 107 of the TFEU would apply only to all the activities carried out by the State as an expression of its imperial power. Accordingly, whenever the State "carries out an economic activity that can be dissociated from the exercise of public authority, the public entity will act as an undertaking with reference to such activity".
As likewise stated in EU case law, the concept of an undertaking is regardless of its legal status and the way in which it is financed, thus encompassing any entity engaged in an economic activity[6].
Therefore, when it is established that certain entities carry out economic activities, they will to all intents and purposes be "undertakings" - within the meaning of antitrust law - with respect to the economic activities duly carried out by them.
As stated by the European Commission itself, an entity which enjoys a legal monopoly may very well offer goods and services on a market and therefore be an undertaking within the meaning of Article 107 of the TFEU. The factual element that qualifies the concept of economic activity is in fact the existence of a market for the services concerned (a circumstance that is purely objective) and not, therefore, the individual subjective interpretation adopted by a Member State.
The European Commission firmly supports the existence of a market for the management of State-owned port property and the relevant infrastructure, in which the individual PSA is in fact in competition with other PSAs or with entities governed by private law. In other words, according to the Commission, a port infrastructure is in fact used for commercial purposes and not made accessible (to anyone who actually wants to use it) free of charge.
The Commission, making explicit reference to EU case law, points out that, regardless of the denomination that the individual Member States have adopted or adopt at a national level, in the case of revenues (known to third parties as "fees", "port dues" or "port taxes") which are collected by the PSAs as a counter-performance, for example, of the right of access of ships to port infrastructures, such revenues cannot but constitute remuneration for a service carried out in a synallagmatic relationship.
Indeed - the Commission continues - even in case of "fees" entirely determined by law, there would be no impact on the economic activities actually carried out by PSAs (such as, without limitation, the issue of concessions or authorisations against payment of a State fee to generally private companies for the commercial use of the asset and the provision of services to shipping companies).
In other words: the principle of legality - the basis of the enforceability of the fee – appears not to be relevant for the purposes of the legal qualification of the activities carried out by PSA.
From the time when "the State and public entities carry out economic activities - as mentioned above - they qualify as undertakings, limited to the performance of such activities, and the Union State aid rules will therefore apply to them".
Such provision would not, therefore, allow the application of Article 74 of the Consolidated Income Tax Act (tax exemption for State bodies) to the entire income generated by the PSAs, since such article "does not constitute the reference system" and "exemption from corporate income tax exclusively concerns the exercise of State functions and other activities carried out on an institutional basis".
In other words: whenever PSAs collect State fees - not being in the same legal and factual position as the State and public entities in the exercise of public utility functions -, such activities shall be subject to corporate income tax.
As stated above, the services offered by the PSAs are therefore in competition with those offered by other PSAs and other transport service providers in Italy and even in other Member States (particularly on the North-West Italy/South France axis).
More specifically, as set out in Whereas Clause (143) of the challenged decision, the circumstance that PSAs are in fact the only entities competent to manage port infrastructures would in no way adversely affect the existence of a competitive market "wider than transport services and narrower than port services".
Conclusion: while waiting for both a ruling from the European Court and a hoped-for position of the Italian Government on this issue, there may be a valid and further opportunity to carefully reflect on what could be the best governance model for the Italian ports and, at the same time, for the whole Industry. We will keep you updated on this very important issue.
As we mentioned in our previous articles, the qualification of the PSAs as companies would lead to the application of the antitrust law to them, which would limit - if not exclude - the administrative discretion from which they have always benefited.
This article is for information purposes only and is not, and cannot be intended as, a professional opinion on the topics dealt with. For further information please contact Alberto Torrazza e Ekaterina Aksenova.
[1] See “Never Back Down”: Italian Port System Authorities do not give up and consider challenging the European Commission’s decision on taxation of Italian ports” (January-March 2021).
[2] Article 107 (1) TFEU reads: “Save as otherwise provided in the Treaties, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market”.
[3] Article 296 TFEU reads: “Where the Treaties do not specify the type of act to be adopted, the institutions shall select it on a case-by-case basis, in compliance with the applicable procedures and with the principle of proportionality. Legal acts shall state the reasons on which they are based and shall refer to any proposals, initiatives, recommendations, requests or opinions required by the Treaties. When considering draft legislative acts, the European Parliament and the Council shall refrain from adopting acts not provided for by the relevant legislative procedure in the area in question”.
[4] Whereas Clause (37), page 11, of the Counter-Appeal.
[5] Whereas Clause (49), page 16, of the Counter-Appeal.
[6] In Whereas Clause 39, the Commission itself classifies the following activities carried out by PSA as economic activities: “(i) provide a general service to the users of the ports, by giving access to port infrastructure to ships in return for remuneration (commonly referred to as "port fees"); as well as (ii) make certain port infrastructure and land available to third-party companies in return for remuneration”.
[7] Whereas Clause (53), page 17, of the Counter-Appeal.
[8] Whereas Clause (56), page 18, of the Counter-Appeal.
[9] Whereas Clause (65), page 21, of the Counter-Appeal.
[10] Article 74 TUIR reads: “1. State bodies and administrations, including autonomous administrations, and, where they have legal personality, municipalities, consortia of local bodies, associations and bodies administering public property, mountain communities, provinces and regions are not liable for corporate tax. 2. The following activities shall not constitute commercial activities: a) the exercise of State functions by public bodies; b) the exercise of social security, welfare and health activities by public bodies established exclusively for such purpose, including local health authorities, as well as the exercise of social security and welfare activities by private compulsory social security bodies.”
[11] Whereas Clause (93), page 30, of the Counter-Appeal.
[12] Whereas Clause (115), page 36, of the Counter-Appeal.
