Articoli
29/03/2018

Southern Special Economic Zones in Italy and the EU State Aid regime

The Law for the development of southern Italy [1] opened the door for a series of measures aimed at enhancing economic growth in the South. The law is a roadmap for the south that just might have sufficient flexibility to be successful. It establishes that a Regulation will be issued defining the economic aspects of development, in particular the Special Economic Zones.

On 27 February 2018 the Regulation for the establishment of Special Economic Zones (ZES) came into force. The decree of the President of the Council of Ministers 25 January 2018 n. 12[2] defines the modalities for the establishment of SEZ, including interregional SEs; their duration; the criteria for identifying and delimiting the SEZ area; the criteria governing company access; general coordination of development objectives.

 

1.     The Italian legislative Framework 

With this “set” of measures, the creation of Special Economic Zones (SEZ) is ready. These zones will have “zero bureaucracy” and additional tax benefits compared to the ordinary corporate tax system applicable in southern Italy (eligible investments up to 50 million). Two SEZs are allowed for each of the 6 southern regions (Campania, Basilicata, Puglia, Calabria, Sicily and Sardinia).

This new deal for the South represents, therefore, a strong push for investment. It is an important political and economic commitment from the Government and tries to achieve the equality of growth between North and South by encouraging both the businesses already operating in this area, and new ones, to bet on the South.

The new SEZs must follow a common model of economic growth (methods, duration and the related criteria governing the use in economic, financial and administrative terms). They should relate to each other as well as ensuring the full connection of the territory to the Trans-European Transport Network (the TEN-T, core and comprehensive transport network designed at EU level in 2013).

The legislative text must be implemented through action plans which have not yet been completed. By the end of the year, it will be possible to verify whether the unanimous chorus of those who have welcomed the adoption of this law, will still be able to stay united and work for the economic and employment growth of the whole southern Italy, especially when it will no longer favour “territorial parochialism”.

There is no doubt that the establishment of even one SEZ by region, where simplified procedures and special schemes will be applied and where there will be tax benefits for enterprises, will require a high level of agreement between local, regional and national institutions as well as economic stakeholders. This is not always easy to achieve but it will be necessary so as to avoid distortions of competition in full compliance with the applicable European Community State aid law.

The regulatory architecture of the SEZ has now been completed. Detailed plans must now be drawn up to ensure the viability of each SEZ, as well as the interoperability and interconnection between them.

Special Economic Zones (SEZs) are geographical areas in which a governmental authority offers incentives for the benefit of the businesses operating in that area, through instruments and facilities that are less burdensome than immediately outside the zone.  In the EU the fundamental objective of SEZs’ is to increase the competitiveness of the enterprises working within them, to attract direct investment especially from foreign entities, to increase  exports, to create new jobs and, in general, to strengthen the production sector through stimulating industrial growth and innovation. They are the  “growth poles”, foreseen in the political guidelines of maritime transport policy (Valletta Declaration of 29 March 2017).

SEZs can take a number of forms including:

  • Industrial Park (IP), defined as areas developed and divided into lots on the basis of a general plan that includes infrastructure, transport, utilities, with or without productive units, in some cases with services of common use for the benefit of the established enterprises.
  • Eco-Industrial Park (EIP): communities of manufacturing and services enterprises seeking better economic and environmental performances through the collaboration in the management of elements such as energy, water cycle, recycling of raw materials and so on.
  • Technology Park (TP): according to the International Association of Science Parks (IASP), it concerns organizations managed by specialised subjects, whose purpose is to promote the culture of innovation and the competitiveness of the associated businesses and of the other institutions involved.
    Free trade zones (FTZ): demarcated areas free of duties and/or taxes that offer facilities for storage and distribution for trade, trans-shipment and re-export
  • Innovation District (IDs): often developed in urban areas, they can be defined as a top-down innovation ecosystem built on multidimensional models of innovation aimed at strengthening the competitiveness of the areas concerned.

The new law provides that a steering committee, subject to the competences that the national and Community authorities assign to them, will be responsible for managing the SEZs through:

  • elaboration of a business plan (normally with a three-year or five-year duration-        the general strategy of the SEZ);-        the objectives in terms of the volume of investments attracted, added value generated, import-   export flows and employment created;-        the facilitating instruments to activate in order to pursue the pre-established objectives and the financial  resources available to create financial and fiscal incentives;
  • identification of the technical and economic requirements necessary to allow the establishment of an enterprise;
  • definition of simplified administrative and bureaucratic procedures for the realization of investments;-        realisation of infrastructural and service works for the development of the area (transport networks,  –        telecommunications, security, energysupply, etc.);
  • assessment of the procedural steps, conditions and terms for the granting or sale of land or buildings;
  • realisation of promotional and communication activities for potential investors;
  • supervision of all administrative and bureaucratic aspects related to the management of the SEZs.   

 

 2.     The SEZs and the EU Law Policy framework
Once the internal architecture of each SEZ has been defined, they must be notified to the European Commission and examined for the compatibility with the relevant rules on State aids[3].

The EU legal framework on State Aids, which is well described in the “Guidelines in Regional State Aid for 2014-2020[4], has its main principles concerning the Compatibility Assessment of Regional Aid.

The Guidelines indicate that “..to assess whether a notified aid measure can be considered compatible with the internal market, the Commission generally analyses whether the design of the aid measure ensures that the positive impact of the aid towards an objective of common interest exceeds its potential negative effects  on trade and competition”.

It is important to underline that the Communication on State aid modernization of 8 May 2012 called for the identification and definition of common principles applicable to the assessment of compatibility of all the aids carried out by the Commission. For this purpose, the Commission will consider an aid compatible with the Treaty only if it satisfies each of the following criteria:

  1. contribution to a well-defined objective of common interest: a State aid measure must aim at an objective of common interest in accordance with Article 107(3) Treaty;
  2. need for State intervention: a State aid measure must be targeted towards a situation where aid can bring about a material improvement that the market cannot deliver itself, for example by remedying a market failure or addressing an equity or cohesion concern;
  3. appropriateness of aid measure: the proposed aid measure must be an appropriate policy instrument to address the objective of common interest;
  4. incentive effect: the aid must change the behaviour of the undertakings concerned in such a way that it engages in additional activity which it would not carry out without the aid or it would carry out in a restricted or different manner or location;
  5. proportionality of the aid (aid to the minimum): the aid amount must be limited to the minimum needed to induce the additional investment or activity in the area concerned;
  6. avoidance of undue negative effects on competition and trade between Member States: the negative effects of aid must be sufficiently limited, so that the overall balance of the measure is positive;
  7. transparency of aid: Member States, the Commission, economic operators and the pubic, must have easy access to all relevant acts and to pertinent information about the aid awarded thereunder.

From a general point of view, the types of aid that may be granted, are divided into two types:

Investment aid: in Italy, the areas eligible for regional investment aid under EU rules are 6: Basilicata, Calabria, Campania, Puglia, Sicily and Sardinia, which have a total population of 20. 6 million inhabitants. The maximum levels of aid that can be granted in relation to investment projects varies according to the size of the applicant: in the case of large enterprises, the range to be taken into consideration is between 10% and 25% of the total investment cost, depending on the area of ​​reference, with the possibility of obtaining increases related to the aid intensity of 10% for medium-sized companies and 20% for small businesses;

Operating aid: in addition to investment aid, the European law has stipulated the possibility for SMEs to obtain subsidies aimed at reducing a firm’s current expenses not related to an initial investment. These expenses include the costs of personnel, materials, contracted services, communications, energy, maintenance, rent, administration and so on, but not depreciation charges and costs of financing if they were included in the eligible expenses at the time the investment facilities were granted.

Regional aid, designed to reduce an enterprise’s current expenses constitute operating aid, and are presumed to be compatible with the internal market under certain conditions (in order to compensate specific or permanent disadvantages encountered from enterprises in disadvantaged regions, and to prevent or reducing depopulation in areas with very low population density).

In the European Union, there are already around 91 Free Zones (including the Special Economic Zones) already operating, some of which can be identified as best practice:

  • Ireland (Shannon): the Shannon duty-free Processing Zone (SPZ), created in 19592.
  • Portugal (Madeira): established in 1980 of a free trade zone (FTZ), that thanks to specific agreements has maintained thereafter the existing facilitation regime. The enterprises operating within the FTZ, in addition to tax exemptions or tax benefits with regard to income tax, benefit also from significant advantages in relation to customs duties3
  • Poland: Poland is the country with the highest number of SEZs, with 14, the main benefit available is the tax exemption on income tax. In addition to investment aid, European law allows small and medium-sized enterprises to be able to obtain aid designed to reduce a firm’s current expenses not related to the initial investments. These expenses include the costs of personnel, materials, contracted services, communications, energy, maintenance, rent, administration.

  

  1. The SEZ in Italy: state of the art

The Decree for the development of southern Italy aims is to expand the use of SEZs beyond the limited number existing today. Currently, there are 4 areas falling under the “free tax” model:

  • Free Port of Trieste: it is a special case in the Italian and Community legal system (due the historical-political considerations that marked its establishment).
  • Venice Free Zone (VFZ): it is the customs free point of the Port of Venice, the economic advantages of which can be mainly attributed to the fact that goods coming from countries outside the European Union can remain in the Venice Free Zone as though they had not entered the EU internal market.
  • Free Zone of Port of Gioia Tauro: this is the first free zone not landlocked in Italy, established by the Customs Agency on 1st August 2003.
  • Free Zone of Port of Taranto – established in the port area and classified as “not landlocked” with the aim of facilitating the simplified operations of the import/export activities without payment of any duty for the movements carried out in the perimeter. 

 

  1. Conclusion

Italy’s new approach to economic development in the south is to marry the EU’s structural funds with incentives for business within limited economic development zones.  It is not clear that this approach will work but it is a welcome change to what has gone before.

The EU will have to evaluate the legality of the new approach through the lens of EU state aid rules. It is clear that some of the incentives can be seen as subsidies. But at the same time the injection of enterprise is something new and must be encouraged.

 

 

 

This article is for information purposes only and is not intended as a professional opinion.
For further information, please contact Giovanni Moschetta.

 

 

 

[1] Legge 91 del 2017, Disposizioni urgenti per la crescita economica del Mezzogiorno, in Gazzetta Ufficiale della Repubblica Italiana del 20 giugno 2017.

[2] Gazzetta Ufficiale della Repubblica Italiana del 26 febbraio 2018.

[3] Article 107, TFEU.

[4] Guidelines on Regional State Aid for 2014-2020 – 2013/C 209/01