VATupdate

Flashback on ECJ Cases – C-546/14 (Degano Trasporti) – Partial payment of VAT debts is not contrary to the obligation on Members States to ensure collection of all of the VAT

On April 7, 2016, the ECJ issued its decision in the case C-546/14 (Degano Trasporti).

Context: Reference for a preliminary ruling — Taxation — VAT — Article 4(3) TEU — Directive 2006/112/EC — Insolvency — Procedure for an arrangement with creditors — Partial payment of VAT debts


Article in the EU VAT Directive

Articles 2, 250(1) and 273 of the EU VAT Directive 2006/112/EC

Article 2 (Subject matter and scope of VAT

1. The following transactions shall be subject to VAT:
(a) the supply of goods for consideration within the territory of a Member State by a taxable person acting as such;
(b) the intra-Community acquisition of goods for consideration within the territory of a Member State by:
(i) a taxable person acting as such, or a non-taxable legal person, where the vendor is a taxable person acting as such who is not eligible for the exemption for small enterprises  provided for in Articles 282 to 292 and who is not covered by Articles 33 or 36;
(ii) in the case of new means of transport, a taxable person, or a non-taxable legal person, whose other acquisitions are not subject to VAT pursuant to Article 3(1), or any other non-taxable person;
(iii) in the case of products subject to excise duty, where the excise duty on the intra-Community acquisition is chargeable, pursuant to Directive 92/12/EEC, within the territory of the Member State, a taxable person, or a non-taxable legal person, whose other acquisitions are not subject to VAT pursuant to Article 3(1);
(c) the supply of services for consideration within the territory of a Member State by a taxable person acting as such;
(d) the importation of goods.

Article 250 (Returns)
1. Every taxable person shall submit a VAT return setting out all the information needed to calculate the tax that has become chargeable and the deductions to be made including, in so far as is necessary for the establishment of the basis of assessment, the total value of the transactions relating to such tax and deductions and the value of any exempt transactions.
2. Member States shall allow, and may require, the VAT return referred to in paragraph 1 to be submitted by electronic means, in accordance with conditions which they lay down.

Article 273 (Misc. provisions)
Member States may impose other obligations which they deem necessary to ensure the correct collection of VAT and to prevent evasion, subject to the requirement of equal treatment as between domestic transactions and transactions carried out between Member States by taxable persons and provided that such obligations do not, in trade between Member States, give rise to formalities connected with the crossing of frontiers. The option under the first paragraph may not be relied upon in order to impose additional invoicing obligations over  and above those laid down in Chapter 3.


Facts

  • 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.

Questions

On a proper construction of the principles and rules contained in Article 4(3) TEU and Council Directive 2006/112/EC, 1 as already interpreted in the judgments of the Court of Justice of 17 July 2008 in C-132/06, of 11 December 2008 in C-174/07, and of 29 March 2012 in C-500/10, must those principles and rules also be interpreted in such a way that a national rule (and, therefore, in respect of the case in the main proceedings, an interpretation of Articles 162 and 182b of the Bankruptcy Law) is incompatible [with EU law] where, under that rule, a proposal for an arrangement with creditors with the liquidation of the debtor’s assets, permits only partial payment of the State’s claim in respect of VAT, 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?


AG Opinion

Neither Article 4(3) TEU nor Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax preclude national rules such as those in issue in the main proceedings, if those rules are to be interpreted as allowing an undertaking in financial difficulties to enter into an arrangement with creditors involving liquidation of its assets without offering full payment of the State’s claim in respect of VAT, on condition that an independent expert concludes that no greater payment of that claim would be obtained in the event of bankruptcy and that the arrangement is validated by a court.


Decision

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.


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