In Degano Transporti, the District Court of Udine (Italy) was presented with an application by Degano Transporti (“the Taxpayer”) for approval of a debt compromise arrangement similar in nature to a scheme of arrangement pursuant to the UK Companies Act 2006, Part 26. The proposed scheme of arrangement would result in the Italian tax authorities receiving only a partial payment of the Taxpayer’s VAT liability. The Court, of its own motion, requested a preliminary reference from the CJEU on the question of whether the acceptance by the Italian tax authority of a partial payment of the Taxpayer’s VAT liability would be in breach of the provisions of TFEU and the VAT Directive (Directive 2006/112/EC) concerning the principle of the fiscal neutrality and the obligation on Member States to take the necessary administrative and legislative measures to ensure the proper collection of VAT due.
The Court, largely following the Opinion of AG Sharpston, reasoned that the acceptance of the partial VAT liability would not constitute a breach of EU law. In particular, it noted three safeguards about the Italian insolvency legislation which militated in the Member State’s favour. Firstly, the legislation in question permitted the arrangement to be valid only if an independent expert attests that the tax authority, as a creditor, would not enjoy better treatment in the event of the Taxpayer being declared insolvent and subsequently liquidated. Secondly, the arrangement must be voted on by the creditors. This offered the tax authority the opportunity to oppose the partial payment of the tax liability. Thirdly, even if the arrangement is agreed between the majority of the creditors and the company, the arrangement requires court approval. During this final stage, the tax authority has a second opportunity to oppose the arrangement and demand full payment of the outstanding VAT liability. For EU jurisdictions where there is an insolvency regime similar to the Italian system, this judgment will allay the concerns of insolvency practitioners as to compatibility with EU law.
This article appears in the JHA April 2016 Tax Newsletter, which also includes:
