The European Commission has opened a formal investigation under EC State aid rules into Italy’s 2004 Finance Law. This Law provides that the capital reserves from Italian banks resulting from privatisation would, once released, be subject to a substitute tax of 9 per cent, in lieu of the standard corporate tax of 37.25 per cent. The global amount of all capital reserves of Italian banks using this system amounted to more than EUR 2 billion. Further, the banks were allowed to pay the substitute tax in three annual instalments without interest. Pursuant to the Commission’s calculations, the difference between the standard tax and the tax actually paid amounts to over EUR 586 million. As such, this could have a detrimental effect on competition in the ongoing bank consolidation process in Europe.