Robin Hood Tax DecreeLaw no 112 of 25

‘Robin Hood Tax’ Decree-Law no. 112 of 25 June 2008 of Article 81(16), (17) and (18) (UN)CONSTITUTIONAL ? 1

AGENDA 1. ECONOMIC/POLITICAL CONTEXT 2. WHO? 3. WHAT? 4. WHEN? 5. ART 81 6. Referral to the Italian costitutional court 1. COSTITUTIONAL OR UNCOSTITUTIONAL? (ART 77 and 23 OF THE ITALIAN COSTITUTION; ART 53 and 3; ART 41) 7. Excursus: cases of increase taxation in costitutional way 8. Oil sector focus 9. Conclusion: Final decision of Costitutional Court 10. References and Q&A session 2

Economical/political CONTEXT • In 2008 the rise in oil prices brought gasoline to overcome 1. 50 euro / liter threshold level of inflation over 3. 5%, sparking discontent • Therefore then Economy Minister Giulio Tremonti, proposed the Robin Hood Tax, which was passed with the approval of the European Union to balance the heavy cost of inflation on Italian families • Industry members are obliged to bring out, in the accounting management of oil stocks, capital gains, or gains realized from the difference between the price of oil stocks bought with lower prices and the price of oil sold to final consumers. • From the introduction of that tax a series of appeals to the Regional Administrative Court (TAR) were presented by various companies in the sector. 3

WHO? Proceeding pending between Scat Punti Vendita Spa and the Italian Revenue Agency (Scat Punti Vendita Spa is a retail and distribution oil firm settled in the North of Italy with a turnover of € 300 million ) By means of the Provincial Tax Board of Reggio Emilia That issued the referral order on 26 March 2011 Scat Punti Vendita Spa filed an application for reimbursement of the amount paid to the tax collection body in relation to the “surcharge” on corporate income tax (IRES) 4

WHAT ? Article no. 81(16)(17)(18) of Law Decree no. 112 of 25 June 2008 introduced the ‘Robin Hood Tax’, a surtax of 5, 5% on certain companies operating in the energy sector The surtax affected companies involved in one or more of the following sectors: hydrocarbons exploration and production, refining and commercialization of oil and natural gas 6. 5% surcharge was added to the ordinary 27. 5% IRES corporate income tax rate. 5

The surtax was levied only for companies that exceeded certain financial thresholds: • 25€ million (from 2008 to 2013). • Annual turnover higher than 3 million and taxable income of at least EUR 300, 000 (from 2013 to 2015) 5, 5% First rate 2008 6, 5% Second rate 2010 Third rate (for tax years from 2011 to 2013) The rate of the surcharge increased over years 10, 5% - 6

Further increase of 1% on IRES goes back to 6. 5 % Surcharge of 5. 5% on IRES only for some categories of operators involved in the energy sector A new increase of the surchange together with an enhancement of the subjects involved. Renewable energy sector is now included. 7

When? Article 75 of Presidential Decree no. 917 of 22 December 1986 definitive approval of the T. U. I. R. ; ( Legislative decree n. 344, 12 December 2003 concerning IRES ) Decree-Law no. 112 of 25 June 2008 of Article 81(16), (17) and (18) ( “surcharge” of 5. 5 percent on the income tax of the companies provided for under Article 75) Surchange of 5. 5% with effect from the tax period following that ending on 31 December 2007 (as taxable income base) Referral order of 26 March 2011 raised by Provincial Tax Board of Reggio Emilia (and Scat Punti Vendita Spa) Palazzo della Consulta, Constitutional court’s final assessment 9 February 2015 8

Art 81 16. The contested legislation provided – with effect from the tax period following that ending on 31 December 2007 – for an additional levy, which was classified as a “surcharge” of 5. 5 percent on the income tax of the companies provided for under Article 75 of Presidential Decree no. 917 of 22 December 1986 including the sale of gasoline, petroleum, gas and lubricant oils that had achieved revenue in excess of 25 million euros during the period tax period 17. In derogation of the article 3 of the law of July 27, 2000 (n. 212), the previously stated disposition (comma 16) must be applied starting from the date in which the present decree is enforced. 18. It is not allowed for the operators of the sectors pertaining to comma 16 to transfer the burden of the surcharge on the consumers’ prices. The Regulatory Authority for Electricity, Gas and Water has the power to oversee “full compliance” with the legislation. 9

Referral to the Italian Constitutional Court Many stakeholders found serious concern about the legitimacy of the additional levy, assuming it was against fundamental constitutional principles. Scat spa filed a claim with the Italian tax authorities, requesting a refund of the surtax already paid tax authorities refused the claim through implied refusal the distributor appealed the decision before the provincial tax court of Reggio Emilia, which then referred the case to the Italian Constitutional Court. 10

ARTICLE 77 The Government may not, without an enabling act from the Houses, issue a decree having force of law. When the Government, in case of necessity and urgency, adopts under its own responsibility a temporary measure, it shall introduce such measure to Parliament for transposition into law. […] Such a measure shall lose effect from the beginning if it is not transposed into law by Parliament within sixty days of its publication. […] ARTICLE 23 No obligation of a personal or financial nature may be imposed on any person except by law. 11

ARTICLES 77 -23 Unconstitutionality • Unlawful use of the Decree Law mechanism • Prerequisites of urgency and necessity evidently not met • Permanent (rather than temporary) nature of the “surcharge” Constitutionality • It was adopted under circumnstances of urgency and necessity • Aim was of securing new tax revenue in order to deal with the emergency and to redistribute the tax burden among citizens • Provision is consistent with the aims of the measure and with the principles of constitutional law on which it is based. 12

ARTICLE 53 Every person shall contribute to public expenditure in accordance with their capability. The tax system shall be progressive. ARTICLE 3 All citizens have equal social dignity in front of the law without distinctions. Thereby the Republic has the duty to remove obstacles of economic and social nature, which constrain the freedom and equality of citizens. 13

ARTICLES 53 -3 Unconstitutionality • Qualitative discrimination. Tax applied solely to certain companies operating in the energy and hydrocarbons sector. • Discrimination not supported by an adequate justification. • The amount liable to the tax is comprised of the entire income, (rather than only “excess profits”) Constitutionality • the contradictory dynamics of unsustainable prices • the high profitability of the economic operations of petroleum potential justification for a special levy on total income (also of speculative origin in the energy and petroleum sector) 14

ARTICLE 41 Private economic enterprise is free. It may not be carried out against the common good or in such a manner that could damage safety, liberty and human dignity (=prohibition on transfer of burden of taxation on consumer prices) The law shall provide for appropriate programmes and controls so that public and private-sector economic activity may be oriented and co-ordinated for social purposes. (social solidarity) 15

ARTICLE 41 Unconstitutionality Constitutionality • This tax initiative is not suitable for achieving the goals rooted in solidarity • . The Regulatory Authority for Electricity, Gas and Water has the power to oversee “full • Prohibition on the transfer of compliance” with the burden to consumer legislation avoiding the prices This prohibition not transfer of the burden of capable of preventing the taxation “surcharge” from being • (AEEG) transferred from one of the operators in the oil supply chain onto another 16

EXCURSUS Cases of increase of taxation in a costitutional way numerous cases in which taxation is temporarily increased • in relation to particular productive sector or the municipal tax surcharge on buildings (see Judgment no. 159 of 1985) • the extraordinary real estate tax on the value of buildings (see Judgment no. 21 of 1996) • the 0. 6% levy on bank and postal deposits (see Judgment no. 143 of 1995), and the extraordinary contribution for Europe. The redistributive motivations were not unreasonable, consisting principally in the need to balance the taxation according to different levels of welfare 17

OIL SECTOR: is a special tax regime (UN)LEGITIMATE? • Very little competition between undertakings in this sector. • Oligopolistic structure of the sector, low number of operators which often operate along the entire supply chain. • High barriers to entry. • Demand is inelastic in these areas. In summary, it is not entirely implausible to conclude that this market sector is characterised by a level of profitability significantly higher than other sectors, consequently it could be subject to an ad hoc taxation. 18

Palazzo della Consulta 9 th. February, 2015 the Constitutional Court declared that The increase in the rate of corporate income tax due from certain operators in the energy, petroleum and gas sectors, as configured under Article 81(16), (17) and (18) of Decree. Law no. 112 of 2008, as amended, is not consistent with Articles 3 and 53 of the Constitution 19

“Moreover, the tax under examination may be deemed to be unreasonable by virtue of: its configuration as an 1. increase in the rate applied to the company’s entire income, rather than only to “excess profits”; 2. the failure to subject it to a time limit; 3. failure to associate it with mechanisms capable of verifying whether the economic climate used as justification still obtains; 4. impossible to put in place assessment mechanisms capable of ensuring that the obligations resulting from an increase in the tax do not translate into increases in consumer prices. even though this aim is in itself legitimate» 20

Why not in retroactive way? • the removal only with future effect Principle of retroactivity (Article 136 of the Constitution and Article 30 of Law no. 87 of 1953) • the decision must be assessed throught the principle of strict proportionality Which aims to protect the constitutional principles in general and ensure a balance of interest of all the interests involved • the balanced budget requirement (Article 81 of Constitution) The retroactivity is not allowed because it would result in a budgetary imbalance for the state with the consequent need for additional financial corrective legislation 21

“An inseparable link with capacity to pay tax within the context of a system inspired by the principles of progressive taxation, as a further manifestation within the specific field of taxation of the principle of equality, which is related to the task of removing de facto financial and social obstacles to the freedom of and equality between people, within a spirit of political, economic and social solidarity” (Articles 2 and 3 of the Constitution) 22

References • http: //www. wfw. com/wp-content/uploads/2015/02/WFWThe. Robin. Hood. Tax. Is. Unconstitutional. pdf • http: //www. cortecostituzionale. it/documenti/download/doc/recent_judg ments/S 10_2015_en. pdf • http: //kdocs. kpmg. it/marketing/KSA/Tax_Alert_0217_Robin. Hood. Tax%2 0. pdf • http: //www. pmi. it/impresa/normativa/approfondimenti/96838/ires-robin -hood-tax-stop-dal-12 -febbraio-2015. html • http: //www. borsaitaliana. it/notizie/sotto-la-lente/robin-tax-155. htm • http: //www. cortecostituzionale. it/documenti/download/doc/recent_judg ments/S 10_2015_en. pdf 23

THANK YOU FOR YOUR ATTENTION! CHIARA ANDREOLI 0228179 LAVINIA IAMELE 0227140 24