Brussels, 03/09/2015 (Agence Europe) - Italy may, by reference to an EU regulation not in force at the time, apply compound interest to the recovery, demanded by the European Commission in 2002, of state aid granted in the 1990s to the companies ASM Brescia and AEM (which have since merged to become A2A) in the form of company tax exemptions.
In a ruling delivered on Thursday 3 September (case C-89/14), the Court of Justice of the EU, to which questions had been referred by the Italian Court of Cassation, concluded that the Italian legislation which refers to the 2004 regulation (Regulation 794/2004) had no retroactive effect and that application of compound interest must, in the circumstances, be considered “a particularly appropriate means” of neutralising the competitive advantage granted unlawfully to undertakings benefitting from the state aid at issue.
The facts. In June 2002, the European Commission ordered Italy to recover illegal state aid (see EUROPE 8226) granted at the start of the 1990s to a number of water distribution companies, including ASM Brescia and AEM, in the form of tax exemptions and subsidised loans. Italy complied only in 2008 after the Court of Justice ruled in 2006 that it had failed to fulfil its obligations (ruling C-207/05). Its new legislation, by reference to an EU regulation which entered into force in 2004 (that is to say after the Commission decision of 2002), made the amounts to be recovered subject to compound interest. The company A2A, which came about through the merger of ASM Brescia and AEM, was required to repay €170 million by way of the corporation tax and €120 million by way of compound interest. It contested the basis of calculation of the interest. The Italian court asked the Court of Justice about the legality of application of compound interest by reference to a regulation which was not yet applicable on the date recovery of the aid was ordered by the Commission.
The ruling. The Court ruled, firstly, that it was solely for Italian law to determine whether the interest rate should be determined on a simple or on a compound basis. The Commission had ordered recovery of the aid at a time when EU law gave no guidance in this area, the relevant EU regulation only coming into force at a later date. As for any possible retroactive effect of the Italian legislation by reference to the regulation which came into effect after the Commission decision, the Court stated that since, on the date of entry into force of the legislation, Italy had not yet recovered the state aid at issue, the legislation had no retroactive effect and applied also to the future effects of situations which arose during the period of validity of the old law. Lastly, the judges concluded that the application of compound interest is “a particularly appropriate means” of neutralising the competitive advantage granted unlawfully to undertakings benefitting from the state aid, given the length of time that had elapsed between the Commission's decision to recover the money in 2002 and the recovery order issued to A2A by the Italian authorities in 2009. (Francesco Gariazzo)