ECJ resolution regarding the admission of a partial payment of a VAT claim by an insolvent trader in the context of an arrangement with creditors
This decision, dated April 7, 2016, attends the request for a preliminary ruling from the Court of Udine (Italy) in the context of an application for an arrangement with creditors brought by an Italian company in liquidation.
The preliminary ruling requested before the ECJ tries to understand if the Italian law is contrary to the obligation of the Member States to take all legislative and administrative measures appropriate for ensuring collection of all the VAT due on their territory. In this regard, it seems that the Italian law allows 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 VAT 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.
Firstly, the procedure for an arrangement with creditors entails that the insolvent trader liquidates the entirety of its assets to settle its debts. If those assets are insufficient to settle all of the debts, the partial payment of a privileged claim (VAT) can be allowed only if an independent expert states that that claim would not be paid in a higher proportion in the event of the debtor being declared bankrupt. The procedure for an arrangement with creditors therefore appears to enable it to be established that, because of the trader’s insolvency, the Member State concerned is unable to recover a higher proportion of its VAT claim.
Secondly, the procedure for an arrangement with creditors gives the Member State concerned the opportunity to vote against a proposal for partial payment of a VAT claim if it disagrees with the independent expert’s conclusions.
Taking into account these circumstances, the ECJ decided that the admission of a partial payment of a VAT claim by an insolvent trader in the context of an arrangement with creditors, does not constitute a general and indiscriminate waiver of collecting VAT, is not contrary to the obligation on Member States to ensure collection of all of the VAT due on their territory as well as the effective collection of the European Union’s own resources.