ASM Brescia and AEM, which merged to create the company A2A, benefitted from a three year exemption from corporation tax and subsidised loans granted by Italy. In 2002, the Commission considered that those tax exemptions constituted state aid incompatible with the common market and ordered Italy to recover the aid. In 2008, Italy took the necessary measures to recover the aid in question and provided in its legislation that, by reference to an EU regulation (not yet applicable on the date the recovery of the aid was ordered by the Commission), the amounts to recover would be subject to compound interest.
A2A contested the basis of calculation of interest before the Italian courts. The Italian Court of Cassation asked the CJEU whether the Italian legislation could provide for 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 CJEU held that the Italian legislation did not have retroactive effect as the aid had not even been assessed at the time of its introduction. More interestingly the CJEU endorsed the provision of compound interest observing that “the application of compound interest is a particularly appropriate means of neutralising the competitive advantage granted unlawfully to undertakings benefitting from that State aid.”
While not directly on point for claimants seeking compound interest on the recovery of CT and VAT charged contrary to EU law, it is helpful to see the CJEU endorsing a compounding approach as a “particularly appropriate means” to recompense breaches of EU law.
This article appears in the JHA September 2015 Tax Newsletter, which also features:
HMRC response to George Anson v HMRC: Double Tax Relief by Katy Howard
C-386/14 Groupe Steria: Dividend Tax by Alessia Riposi
C-10/14, C-14/14 and C-17/14 Miljoen: Withholding Tax by Alice McDonald
You can download the complete newsletter as a PDF here: September 2015 – Tax Newsletter
