On April 7, 2016 the Court of Justice of the European Union (CJEU) judged in Case C‑546/14 Degano Trasporti Sas di Ferruccio Degano & C., in liquidation (intervening party: Pubblico Ministero presso il Tribunale di Udine), (ECLI:EU:C:2016:206).

On a proper construction, do the principles and rules contained in Article 4(3) TEU and the VAT Directive, as already interpreted in the judgments of the Court of Justice in Commission v Italy (C‑132/06, EU:C:2008:412), Commission v Italy (C‑174/07, EU:C:2008:704) and Belvedere Costruzioni (C‑500/10, EU:C:2012:186), also preclude a national rule (and, therefore, in respect of the case in the main proceedings, an interpretation of Articles 162 and 182ter of the Law on bankruptcy) under which a proposal for an arrangement with creditors with the liquidation of the debtor’s assets, which provides for only partial payment of the State’s claim in respect of VAT, is permissible where there is no tax settlement and where, in respect of that claim, a larger payment in the event of bankruptcy is not foreseeable on the basis of an assessment by an independent expert and following the formal review of the court?

 

The dispute in the main proceedings and the question referred

·        On 22 May 2014, Degano Transport applied to the referring court in order to be admitted to a procedure for an arrangement with creditors. Indicating that it was in financial crisis, it seeks to liquidate its assets in order to pay certain preferential creditors in full and to pay a percentage of its debts to unsecured creditors and some lower-ranking preferential creditors which, in its view, could not, in any event, recover the entirety of their claims if a bankruptcy procedure were initiated. Included in those latter claims is a VAT debt which Degano Trasporti proposes to pay in part, without linking that proposal to the conclusion of a tax settlement.

 

·        The referring court, having to rule on the admissibility of Degano Transporti’s application, states, in particular, that Article 182ter of the Law on bankruptcy prohibits agreeing, in the context of a tax settlement, on partial payment of State claims to VAT, considered to be privileged claims of the 19th rank, and only allows for staggered payment of such claims.

 

·        It states that, according to the case-law of the Corte Suprema di Cassazione (Supreme Court of Cassation, Italy), that prohibition, although set out in Article 182ter of the Law on bankruptcy which governs tax settlements, applies in all cases and cannot be derogated from, even in the context of a proposal for an arrangement with creditors. That interpretation of national law is required, according to the Corte Suprema di Cassazione, in the light of EU law, in particular Article 4(3) TEU and the VAT Directive, as interpreted in the judgments in Commission v Italy (C‑132/06, EU:C:2008:412), Commission v Italy (C‑174/07, EU:C:2008:704) and Belvedere Costruzioni (C‑500/10, EU:C:2012:186).

 

·        The referring court questions, however, whether the obligation on Member States to take all legislative and administrative measures appropriate for the full recovery of VAT, laid down by EU law, in fact prevents the use of collective proceedings other than bankruptcy, under which the insolvent trader liquidates all of its assets to satisfy its creditors and envisages settling its VAT debt in an amount which is no less than what that trader would pay in the event of bankruptcy.

 

·        In those circumstances, the Tribunale di Udine (District Court, Udine) decided to stay the proceedings and to refer the following question to the Court of Justice for a preliminary ruling:

‘On a proper construction, do the principles and rules contained in Article 4(3) TEU and the VAT Directive, as already interpreted in the judgments of the Court of Justice in Commission v Italy (C‑132/06, EU:C:2008:412), Commission v Italy (C‑174/07, EU:C:2008:704) and Belvedere Costruzioni (C‑500/10, EU:C:2012:186), also preclude a national rule (and, therefore, in respect of the case in the main proceedings, an interpretation of Articles 162 and 182ter of the Law on bankruptcy) under which a proposal for an arrangement with creditors with the liquidation of the debtor’s assets, which provides for only partial payment of the State’s claim in respect of VAT, is permissible where there is no tax settlement and where, in respect of that claim, a larger payment in the event of bankruptcy is not foreseeable on the basis of an assessment by an independent expert and following the formal review of the court?’

 

The CJEU judged as follows:

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.

 

For further information click here to be forwarded to the text of the ruling as published on the website of the CJEU, which will open in a new window.

 

Did you know that in our section CJEU Rulings we have made a selection of rulings of the CJEU? We have organized these rulings based on the subject they relate to (e.g. Freedom of establishment, Free movement of capital, Indirect taxes on the raising of capital, etc).

 

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