C-173/73
ECLI:EU:C:1974:71
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JUDGMENT OF 2. 7. 1974 — CASE 173/73
such a measure is intended partially normal application of the general to exempt those undertakings from system of compulsory contributions the financial charges arising from the imposed by law.
In Case 173/73,
Government of the Italian REPUBLIC , represented by A. Maresca, Am bassador, acting as agent, assisted by 'Vice Avvocato dello Stato' I. M. Bra guglia, with an address for service in Luxembourg at the Italian Embassy
applicant, v
The Commission of the European COMMUNITIES , represented by its Legal Advisers A. Marchini-Camia and M. van Ackere, acting as agents, with an address for service in Luxembourg at the office of its Legal Adviser P. Lamou reux, 4, boulevard Royal defendant,
Application for the annulment of the Commission Decision of 25 July 1973, taken on the basis of Article 93 (2), first subparagraph, and (3) of the EEC Treaty, on Article 20 of Italian Law No 1101 of 1 December 1971 on the restructuring, reorganization and conversion of the textile industry.
THE COURT
composed of: R. Lecourt, President, A. M. Donner (Rapporteur) and M. Sørensen, Presidents of Chambers, R. Monaco, J. Mertens de Wilmars, P. Pescatore, H. Kutscher, C. Ó Dálaigh and A. J. Mackenzie Stuart, Judges,
Advocate-General: J. P. Warner Registrar: A. Van Houtte
gives the following
JUDGMENT
Facts
The facts and the arguments of the I — Facts and procedure parties submitted during the course of the written procedure may be 1. In a letter of 24 April 1969 the summarized as follows: Italian Government notified the
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Commission of a draft law on the August 1971 because, as measures of restructuring, reorganization and conver short-term economic policy, they applied sion of the textile industry. generally, the Commission initiated, by As the Commission could not obtain telex of 31 July 1972, the procedure from the Italian Government all the under Article 93 (2) of the EEC Treaty information necessary to submit its with regard to the decision to extend the comments under Article 93 (3) of the validity of these measures in relation to EEC Treaty, it adopted, on the basis of the textile sector, taken on 1 July 1972. This is the reason for the letter of 9 the first subparagraph of Article 93 (2), an interim Decision of 27 May 1970 (OJ August 1972 of the Italian Government 1970 L 128, p. 33). This Decision requesting the Council to apply the imposed on the Italian Republic the provisions of the third subparagraph of obligation to modify Articles 5 and 12 of Article 93 (2). As the Council did not the draft law which the Commission give its decision within the period of considered then and henceforth three months prescribed by this incompatible with the common market. provision, the Commission resumed the Italy complied with this Decision. procedure under the first subparagraph However, Law No 1101 of 1 December of Article 93 (2). The Accession of the 1971 included, in Article 20, a provision new Member States prolonged this which had not appeared in the draft law procedure since they had to be given the sent to the Commission and which had opportunity to submit their comments. been added without the Commission As the measure in question was not being informed. This provision subsequently extended beyond 30 June established for the benefit of the textile 1973 the Commission adopted the Decision which is contested in this and garment-making industry and small crafts, for a period of three years, a dispute against the measure reducing the charges, contained in Law No 1101 reduction in the social charges which actually came into force as from appertaining to family allowances, 30 June 1973. consisting in a reduction in their rate of contribution from 15 % to 10 %. 3. By application of 9 October, entered in the Registry of the Court on 11 2. In a letter of 9 August 1972, the Italian Government informed the October 1973, the Italian Government brought this action. Council of the European-Communities that, because of the length of time The written procedure followed the required for the administrative proce normal course.
dures, the undertakings concerned could Upon hearing the report of the not take advantage before 1 July 1973 of Judge-Rapporteur and the opinion of the the benefits provided by Law No 1101 Advocate-General the Court decided to of 1 December 1971. Consequently, one open the oral procedure without any of the measures which had been adopted preliminary inquiry. in July 1971 to meet the short-term crisis in the Italian economy — namely the exemption in respect of 5 % of the II — Conclusions of the amount of salaries liable for contribution parties by employers to the compulsory unemployment insurance fund — was The applicant claims that the Court extended by one year in the case of the should: declare null and void the textile sector (Decree No 286 of 1 July Commission Decision of 25 July 1973 1972). and all legal effects thereof. Although it had not ooposed the urgent The defendant contends that the Court temporary measures adopted in July and should:
JUDGMENT OP 2. 7. 1974 — CASE 173/73
1. dismiss the action as unfounded; corresponds moreover to a 'common legislative practice' which is never 2. order the applicant to bear the costs. challenged. In the Commission's opinion, the submission is so clearly devoid of any foundation that it does not consider it III — Submissions and argu necessary to go on to examine the ments of the parties question of the direct applicability of decisions taken pursuant to the first In support of its case, the applicant subparagraph of Article 93 (2).
makes three principal submissions, on a preliminary basis, and three subsidiary 2. According to the applicant the submissions on the substances of the Decision must be regarded as void on case. the ground of failure to fix a period of 1. From the words of Article 1 of the time for compliance, as prescribed by Article 93 (2). The grant of a period of Decision in question: 'The Italian time for compliance is an essential Republic shall abolish the temporary condition for the legality of the Decision. and partial reduction of social The aid referred to in the contested charges ….’ it emerges that the Decision must be regarded in law as an act Decision is an 'existing' aid within the intended to produce direct effects in the meaning of Article 93 (1), as the Law of 23 December 1971 came into force on 8 internal legal order, and not to create an obligation which the State to which it is January 1972. The failure to give the addressed is called upon to discharge. Commission prior notice has no effect Even if the words 'shall abolish' in on the classification of the aid in Article 1 of the Decision must be question in the category of 'existing' understood only to impose on Italy the aids. Even where aid is granted without obligation to act under the first the Commission being informed in due subparagraph of Article 93 (2), the time, the finding by the Commission of purpose of this provision is the direct its incompatibility with Article 92 is repeal of Article 20 of Law No 1101. constitutive of the obligation to abolish This appears to be confirmed by the fact them. It is therefore necessary in all cases that the Decision provides no period of to fix a time limit so that the moment time for compliance. This Decision must when the aid must come to an end can be determined.
accordingly be considered as having no existence at law since the Commission Moreover, the Italian Government was does not have the power, on the basis of unable to put an immediate end to this Article 93 (2), of the EEC Treaty, to alleged aid. As this measure was adopt legislative acts having direct instituted by means of a law, it could application within the domestic legal have been abolished only in accordance orders. with the formal procedure of repeal The Commission maintains that the prescribed by law. words 'shall abolish' as used in Article 1 The Commission points out that the of the contested Decision have solely an provision for aid which is the subject of imperative character, as has the the contested Decision belongs to the expression 'must abolish', and are category of irregular aids, since it was intended to impose on the Member State granted without prior notification to the only the obligation to act under the first Commission, thereby infringing the first subparagraph of Article 93 (2) of the sentence of Article 93 (3).
Consequently, EEC Treaty. The use for this purpose of it is illegal under Community law as the present indicative in the Italian from the date of its entry into force. The version is grammatically correct and period of time mentioned in the first
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subparagraph of Article 93 (2) only the charge imposed by law on textile applies to aids granted in a regular undertakings for the purpose of manner and a Member State cannot take financing social security benefits for advantage of this safeguard when it has, employees. Provisions of this nature do through its own fault, prevented the not fall within the ambit of Article 92. proper functioning of the mechanism Even if one were forced to accept the prescribed. The Commission has not argument that certain measures which, therefore infringed the procedural as exceptions to the general system of requirement imposed by Article 93 by internal taxation, aim 'at the reduction failing to stipulate a period of time for of charges normally payable out of the the abolition of the aid in question; in profits of an undertaking' constitute aids this case it has done nothing but bring to within the meaning of Article 92, Article an end a situation which is illegal under 20 of Law No 1101 is not subject to the Community law and which ought never application of Articles 92 to 94.
This to have existed. provision, by laying down measures for If the argument of the applicant was the partial and temporary financing of accepted it would open a breach in the contributions for family allowances by system provided by Article 93 and there means of tax revenue has no purpose or would be a danger that Member States effect other than that of restructuring, might unilaterally establish new within the Italian State, the general system of social security contributions. It provisions for aid which even though subsequently recognized as incompatible has been established that the general system of family allowance contribu with the proper functioning of the common market would, in the tions, as regards the textile industry, was meantime, have become established as clearly distorted.
The Italian State part of the category of existing aids. wished to remedy this by enacting Article 20 of Law No 1101. If the The Italian State could not ignore the national legislature had been aware of legal effects of the contested Decision. this situation it would, from the There was nothing to prevent the Italian adoption of the first law on family Government from ending the illegal aid allowances, have allowed for a reduction immediately. in the charge devolving upon the employers concerned. If matters had
3. The Italian Government asserts that proceeded in this manner, there would the preliminary procedure prescribed by have been no objections. It is difficult to Article 93 (2) of the EEC Treaty is understand why such objections can be vitiated by being in violation of essential made now in respect of a provision procedural requirements. whose sole purpose is to compensate for The Commission replies that this the present handicap suffered by the submission is incorrect and totally textile sector. unfounded. In fact, the applicant has not The Commission explains that the specified the formalities which, in its financial rules on family allowances opinion, were lacking from or were involve a disadvantage for sectors irregular in the procedure prior to the employing a preponderance of women. adoption of the Decision. Although a fundamental change in the
4. As a subsidiary plea the Italian general system could be made by Government maintains that the Decision reducing the rate of contributions for all encroaches upon the field of domestic sectors of industry employing a high taxation, an area reserved for the proportion of female labour, such a sovereignty of Member States. The 'rectification', when restricted to a single contested provision of Law No 1101 is a sector and for a period of three years, measure relating to taxation, reducing would have, by reason of its specific
JUDGMENT OF 2. 7. 1974 — CASE 173/73
nature, the effect of a sectoral aid. The sphere of intra-Community competition. contested measure therefore constitutes First of all, a comparison must be made an 'intervention reducing charges between the social charges imposed on normally payable out of the profits of an the Italian textile industry and those undertaking', which is the definition of incurred by other sectors of industry in the concept of aid employed on a that Member State. Only secondly is it number of occasions by the Court. useful to make a comparison with the charges relating to the textile industry in
5. The applicant asserts that the the other Member States. In this provision of Article 20 of Law No 1101 connexion it is wrong to compare the is not concerned with an 'aid' within the proportion represented by the 'em meaning of Article 92 (1). The Italian ployer's charge' in costs per hour in the textile industry is handicapped by the various Member States; instead, a imposition of social charges which do comparison must be made of total not take into account the peculiarities of labour costs per hour.
Applying this the industry, in particular the high criterion, the comparison shows clearly proportion of female employees. During that the competitive position of Italian the course of 1971, 65.7 thousand industry is reasonably strong in relation million lire in social security to the textile industries of the other contributions were paid by undertakings Member States. in the textile sector whereas the social To state that the fall in revenue is security benefits received in this sector compensated by means of levies on the only amounted to 42.4 thousand million funds of another social security system
lire. The contested measure only does not constitute a valid argument partially made up for this deficit. because it cannot affect the classifica Furthermore, according to Article 92 (1), tion of the reduction as an aid. In fact, for an aid to be considered as such it public revenue does not necessarily must be granted by the State or 'through derive from 'the community as a whole' State resources', in other words in the but more often from a particular form of an item of expenditure or of a category of tax payers. With regard to reduction in revenue incurred by the this point the Commission refers to the whole community.
The loss of revenue judgment of the Court of 25 June 1970 resulting from the reduction in (Case 47/69), French Republic v contributions relating to family Commission, Rec. 1970, p. 487). allowances is offset by revenue accruing from contributions made by employers 6. Finally, the Italian Government to the unemployment insurance fund, in contends that the measure in question other words through charges which do cannot be regarded as an aid within the not fall on the community as a whole. meaning of Article 92 (1) because it is not capable of producing adverse effects The Commission maintains that the within the Community.
Article 92 (1) temporary reduction in contributions requires that the aid in question must payable by the textile industry in respect have a material effect on trade between of family allowances should be Member States. With regard to this considered as an aid to employers in the point the contested Decision, which textile industry and not to their merely considers, in the abstract, the employees. potential influence of the alleged aid on The exemption in favour of intra-Community trade, is wholly devoid undertakings in a particular sector from of precision. From this point of view, the payment of fiscal or 'social' charges Decision fails to particularize the which apply generally to industry can grounds on which it is based and have the aim and in any case the effect thereby infringes Article 93 (2) since the of favouring these undertakings in the Commission has failed to 'establish' the
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incompatibility of the aid with the Even assuming that some branches of common market. the Italian textile industry may have The Commission explains that in the difficulties of a structural nature, the economic sectors where there exist measure granting aid is unwarranted. It important patterns of intra-Community is not capable of providing a lasting trade, Community undertakings are, by solution to these problems in the the very nature of things, in competition Community context and, further, it may with each other. Consequently, any State increase the difficulties of textile aid which has an effect on competitive undertakings in other Member States conditions, for example by the reduction which are confronted with a similar of production costs, is likely to distort structural crisis. this competition. The Commission In the course of the oral procedure on supplied figures showing, on the one 26 March 1974 the parties developed the hand, the volume and growth of arguments submitted in the written intra-Community trade in textile procedure. products and, on the other hand, the strong competitive position of Italy in The Advocate-General delivered his this sector. opinion on 15 May 1974.
Grounds of judgment
1 By application of 9 October 1973 the Government of the Italian Republic asked, on the basis of Article 173 of the EEC Treaty, that the Court should annul the Commission Decision of 25 July 1973 on Article 20 of the Italian Law No 1101 of 1 December 1971 on the restructuring, reorganization and conversion of the textile industry (OJ of 11 September 1973, No L 254, p. 14).
2 The action is based on three submissions described as 'preliminary', relating to the form and preliminary procedure of the Decision, and three submissions described as 'subsidiary', relating to its substance.
Because of the connexion between the first three submissions and that between the three subsidiary submissions they should be examined under two separate headings.
As to the preliminary submissions
3 The applicant Government objects first of all to the fact that it is declared in Article 1 of the contested Decision that: 'The Italian Republic shall abolish the
JUDGMENT OF 2. 7. 1974 — CASE 173/73
temporary and partial reduction of social charges pertaining to family allow ances provided for in Article 20 of Law No 1101 …; it feels that the terms of this Article imply that the Decision is intended to have a direct effect in Italy's domestic legal order.
Such an effect is alleged to be incompatible with Article 93 (2) of the Treaty which provides that if the Commission finds that a Member State has infringed the rules under Article 92 it shall decide that the State concerned shall abolish or alter the aid in question within a period of time to be determined by the Commission.
4 By its second submission the applicant complains that the Decision did not fix a period of time for compliance and submits that in the absence of this element, which is essential to the legality of the Decision, the latter be con sidered void.
5 The third submission contends that the preliminary procedure under Article 93 (1) was not properly conducted.
6 It is accepted that though Article 20 of Italian Law No 1101 created an innovation with regard to the previous legal position of the Italian textile industry and small crafts, there was no prior notification to the Commission of the adoption of this provision as prescribed by Article 93 (3).
After having sought the comments of the Italian authorities and of experts in the other Member States, the Commission, considering that the provision in issue constituted an aid within the meaning of Articles 92 and 93, adopted the contested Decision.
7 In order to ensure the progressive developement and functioning of the com mon market in accordance with the provisions of Article 92, Article 93 provides for constant review of aids granted or planned by the Member States, an operation which assumes constant cooperation between these States and the Commission.
Article 93 (2) envisages the case where during the course of such a review the Commission finds that aid granted by a Member State is not compatible with the provisions of Article 92, and provides for the situation to be
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resolved by decision of the Commission subject to appeal to the Court of Justice.
Because the Article is based on the idea of cooperation, the Commission must, in such a case, allow the State concerned a period of time within which to comply with the decision taken.
However, in the situation envisaged by Article 93 (3) where a proposed aid is considered incompatible with Article 92, the fixing of a time limit is unnecessary, as the aid in question cannot be put into effect.
8 The submissions amount to the assertion that a new aid granted by a Member State in contravention of paragraph (3) must be treated in the same way as aids granted legally and, consequently, should be subject only to the proce dure prescribed by Article 93 (2), including the compulsory fixing of a time limit.
This interpretation of Article 93 is however unacceptable because it would have the effect of depriving the provisions of Article 93 (3) of their binding force and even that of encouraging their non-observance.
9 Moreover, the spirit and general scheme of Article 93 imply that the Com mission, when it establishes that an aid has been granted or altered in disregard of paragraph (3), must be able, in particular when it considers that this aid is not compatible with the common market having regard to Article 92, to decide that the State concerned must abolish or alter it, without being bound to fix a period of time for this purpose and with the possibility of referring the matter to the Court if the State in question does not comply with the required speed.
In such a case, the means of recourse open to the Commission are not restric ted to the more complicated procedure under Article 169.
Consequently, the submission that the Decision is intended to take direct effect in the internal legal order of the Italian Republic is unfounded, since Article 2 of the Decision stipulates that: 'This Decision is addressed to the Italian Republic'. From this wording it emerges clearly that the Decision is intended to impose the obligation laid down in Article 1 on the State concerned.
JUDGMENT OF 2. 7. 1974 — CASE 173/73
10 Finally, the third submission relating to procedural irregularities has not been adequately developed and is thus inadmissible
11 The above submissions must therefore be dismissed.
As to the subsidiary submissions
12 The applicant Government maintains first that, by encroaching upon a field reserved by the Treaty to the sovereignty of Member States — that of the levying of internal taxation — the Decision is vitiated by reason of abuse of powers.
Secondly, the applicant asserts that the reduction of social charges in issue must be regarded as a measure of a social nature and that accordingly it falls outside the scope of Articles 92 and 93.
Because the system for financing family allowances which was previously in force placed sectors employing a high proportion of female labour in a disad vantageous position, the measure in issue is said simply to make up for a handicap suffered by the Italian textile industry.
Furthermore, this industry is alleged to be at a disadvantage as compared with the textile industries of the other Member States by reason of the fact that the social charges devolving upon employers are appreciably higher in Italy than in the other Member States.
Finally, the partial reduction in social charges is stated not to be such as to affect intra-Community trade or distort competition within the common market.
13 The aim of Article 92 is to prevent trade between Member States from being affected by benefits granted by the public authorities which, in various forms, distort or threaten to distort competition by favouring certain undertakings or the production of certain goods.
Accordingly, Article 92 does not distinguish between the measures of State intervention concerned by reference to their causes or aims but defines them in relation to their effects.
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Consequently, the alleged fiscal nature or social aim of the measure in issue cannot suffice to shield it from the application of Article 92.
14 As to the argument that the contested measure has no purpose other than to rectify the amount of charges payable by the textile industry to the state insurance scheme, in this case relating to family allowances, it is clear that the Italian family allowance scheme is intended, as is the case with all similar schemes, to ensure that the worker obtains a salary which meets the needs of his family..
Since in a system of this kind employers' contributions are assessed in accordance with the wage costs of each undertaking, the fact that a relatively small number of the employees of an undertaking can, on the basis of their position as heads of household, claim actual payment of these allowances, cannot constitute either an advantage or a specific disadvantage for the under taking in question as compared with other undertakings where a higher proportion of employees receive these allowances; the burden of payment of these allowances is rendered exactly the same for all undertakings.
15 The above observations in respect of charges under the family allowance scheme payable out of the profits of an undertaking applies, on the same basis, to-the relationship between the different branches of industry.
Consequently, the figures submitted by the applicant Government showing that during 1971 the sum of 65.7 thousand million lire was paid in contri butions by the textile sector, whereas the social security benefits pertaining to family allowances in this sector only amounted to 42.4 thousand million lire, cannot prove that, in respect of its production costs, the textile sector was placed in a disadvantageous position in relation to other sectors of industry.
It must be concluded that the partial reduction of social charges pertaining to family allowances devolving upon employers in the textile sector is a measure intended partially to exempt undertakings of a particular industrial sector from the financial charges arising from the normal application of the general social security system, without there being any justification for this exemption on the basis of the nature or general scheme of this system.
16 The argument that the contested reduction is not a 'State aid', because the loss of revenue resulting from it is made good through funds accruing from contributions paid to the unemployment insurance fund, cannot be accepted.
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As the funds in question are financed through compulsory contributions imposed by State legislation and as, as this case shows, they are managed and apportioned in accordance with the provisions of that legislation, they must be regarded as State resources within the meaning of Article 92, even if they are administered by institutions distinct from the public authorities.
17 As to the argument that the social charges devolving upon employers in the textile sector are higher in Italy than in the other Member States, it should be observed that, in the application of Article 92 (1), the point of departure must necessarily be the competitive position existing within the common market before the adoption of the measure in issue.
This position is the result of numerous factors having varying effects on production costs in the different Member States.
Moreover, Articles 92 to 102 of the Treaty provide for detailed rules for the abolition of generic distortions resulting from differences between the tax and social security systems of the different Member States whilst taking account of structural difficulties in certain sectors of industry.
On the other hand, the unilateral modification of a particular factor of the cost of production in a given sector of the economy of a Member State may have the effect of disturbing the existing equilibrium.
Consequently, there is no point in comparing the relative proportions of total production costs which a particular category of costs represents, since the decisive factor is the reduction itself and not the category of costs to which it relates.
18 In addition, the social charges payable by employers are part of the more general category of labour costs.
It emerges from the file that labour costs in the Italian textile sector are, in relation to those in the textile sector in the other Member States, relatively low.
It is clear that the reduction in social charges provided for by Article 20 of Law No 1101 has the effect of reducing labour costs in the Italian textile sector.
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19 The Italian textile industry is in competition with textile undertakings in the other Member States, as is shown by the substantial and growing volume of Italian textile exports to other Member States of the Common Market.
The modification of production costs in the Italian textile industry by the reduction of the social charges in question necessarily affects trade between the Member States.
20 Accordingly, the subsidiary submissions must also be dismissed.
Costs
21 In pursuance of Article 69 (2) of the Rules of Procedure of the Court of Justice the unsuccessful party shall be ordered to pay the costs.
The applicant has failed in its submissions.
On those grounds,
THE COURT
hereby:
1. Dismisses the action;
2. Orders the applicant to bear the costs.
Lecourt Donner Sørensen Monaco Mertens de Wilmars
Pescatore Kutscher Ó Dálaigh Mackenzie Stuart
Delivered in open court in Luxembourg on 2 July 1974.
A. Van Houtte R. Lecourt
Registrar President