The Judgment of the ECJ: Partial Payment of VAT Debt in Case of Arrangement with Creditors is Compliant with European Law
By Bernadette Accili & Martina Torresani
As mentioned in our
On 28 November 2014, the tribunal of Udine referred to the ECJ a case on the compliance to European law of Article 182-ter of the Bankruptcy Law, which expressly states that, in case of arrangement with creditors, taxpayers can propose a partial payment of income taxes, but not of VAT and withholding taxes, for which the payment can be only deferred.
The ECJ, in accordance with the opinion given by the Attorney General Eleanor Sharpston, on 7 April 2016 issued its judgment in the case Degano Trasporti Sas di Ferruccio Degano & C. and ruled that:
"Article 4(3) TEU and Articles 2, 250(1) and 273 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax do not preclude national legislation, such as that at issue in the main proceedings, interpreted as meaning that an insolvent trader may apply to a court to open a procedure for an arrangement with creditors for the purpose of settling its debts by liquidating its assets, in which that trader offers only partial payment of a value added tax debt and establishes by an independent expert’s report that that debt would not be repaid more fully in the event of that trader’s bankruptcy."
As the Advocate General stated in her opinion, the ECJ believed that the procedure for an arrangement with creditors is subject to strict conditions providing guarantees on the recovery of VAT and other privileged claims and thus, it is consistent with the Member States’ obligation to ensure effective collection of EU resources, as it contains at least three safeguards to protect VAT debts.
Firstly, the arrangement proposal must be dismissed, inter alia, where the applicant has deliberately concealed any assets or failed to declare one or more debts. If those assets are insufficient to settle all debts, an independent expert has to attest that the Revenue would not receive better treatment in the event of bankruptcy.
Furthermore, even if the application proposing the arrangement is admissible, the same is subject to a vote by all creditors which will not receive full and immediate payment. Thus, the Member State Revenue may vote against the arrangement which provides a partial payment of VAT, should it believe the expert opinion not to be accurate.
Finally, even if the arrangement is adopted notwithstanding the negative vote, since the arrangement with creditors has to be validated by the court, the Member State Revenue can bring a claim in court and the court may review the arrangement.
Therefore, the ECJ considered that a partial payment of VAT, in the context of an arrangement with creditors, is not contrary to the obligation on Member States to ensure the collection of VAT.
Indeed, an arrangement with creditors which provides a partial payment of VAT, unlike the measures which were censured by the ECJ in Commission v Italy (C‑132/06) and Commission v Italy (C‑174/07), does not constitute a general and indiscriminate waiver of collecting VAT.
Consequently, in the light of those circumstances, the ECJ ruled that European law does not preclude national legislation, to allow a taxpayer to apply for an arrangement with creditors for the purpose of settling its debts by liquidating its assets, in which the taxpayer offers a partial payment of VAT where an independent expert affidavit states that VAT debt would not be repaid in full in the event of bankruptcy.
On the basis of judgment C-546/14 we expect the Italian Revenue no longer to delay its approval of arrangements encompassing a partial payment of VAT.