On January 14, 2016 on the website of the Court of Justice of the European Union the Opinion of Advocate General Sharpston in Case C-546/14 Degano Trasporti S.a.s. di Ferrucio Degano & C., in liquidation was published (ECLI:EU:C:2016:13).
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 Bankruptcy Law) 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?
Factual background, procedure and question referred
· Degano Trasporti S.a.s. di Ferruccio Degano & C. (‘Degano’) submitted a proposal for an arrangement to the referring court on 22 May 2014, as a result of financial difficulties which prevented it from pursuing its commercial activities. Under the proposal, certain preferential creditors would be paid in full but there would be partial payment only for some lower-ranking preferential creditors and unsecured creditors, and for the State with regard to Degano’s VAT debt.
· The referring court wonders whether the proposal should be rejected as inadmissible on the ground that it does not provide for full payment of Degano’s VAT debt. It doubts however whether the Member States’ obligation to take all legislative and administrative measures appropriate for ensuring collection of all the VAT due, as set out in the Court’s case-law, in fact precludes an arrangement in which only part of a VAT debt is satisfied, provided that the debt would not be better satisfied in bankruptcy proceedings. It therefore requests a preliminary ruling on the following question:
· ‘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 Bankruptcy Law) 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?’
· Written observations have been submitted by Degano, by the Italian and Spanish Governments and by the European Commission. No hearing was held.
Assessment
Preliminary observations
· It is not disputed that Degano is in financial difficulties for the purposes of Article 160 of the Bankruptcy Law or that the arrangement constitutes an alternative to a declaration of bankruptcy. It is also common ground that the arrangement in question involves liquidation of the totality of Degano’s assets.
· Furthermore, neither the existence nor the amount of Degano’s VAT debt vis-à-vis the Italian State appear to be in dispute in the main proceedings. As the referring court has explained, any such disputes are settled outside the procedure for an arrangement.
Duties of the Member States according to case-law
· The Court has observed on several occasions that it follows from the common system of VAT and from Article 4(3) TEU that every Member State is under an obligation to take all legislative and administrative measures appropriate for ensuring collection of all the VAT due on its territory. In that regard, Member States are required to check taxable persons’ returns, accounts and other relevant documents, and to calculate and collect the tax due.
· While the Member States are required, under the common system of VAT, to ensure compliance with the obligations to which taxable persons are subject, they enjoy in that respect a certain measure of latitude, inter alia, as to how they use the means at their disposal.
· The Court has made clear however that that latitude is limited by the obligation of the Member States to ensure effective collection of the Union’s own resources. Given that those resources include, under Article 2(1) of Decision 2007/436, revenue from the application of a uniform rate to the harmonised VAT assessment bases, the Court has held that there is a direct link between the collection of VAT revenue in compliance with the EU law applicable and the availability to the EU budget of the corresponding VAT resources, since any lacuna in the collection of the first potentially causes a reduction in the second.
· Moreover, no significant differences may be created in the manner in which taxable persons are treated, either within a Member State or throughout the Member States. The VAT Directive must be interpreted in accordance with the principle of fiscal neutrality inherent in the common system of VAT, according to which economic operators carrying out the same transactions must not be treated differently in relation to the levying of VAT. Any action by Member States concerning VAT collection must comply with that principle, which aims to permit fair competition in the internal market.
· It is against that background that the Court held, in the two Commission v Italy cases cited, that a general and indiscriminate waiver of verification of the taxable transactions effected during a series of tax periods violated Articles 2 and 22 of the Sixth Directive and what is now Article 4(3) TEU. As I explained in my Opinion in Belvedere Costruzioni, the provisions of Italian law at issue in those cases essentially granted broad immunity from assessment or investigation by tax authorities in respect of amounts of VAT which had not been declared in good time, in exchange for a payment varying from half the amount subsequently declared to a purely token amount of tax. For the Court, in the Commission v Italycases, the effect of the considerable imbalance between the amounts actually due and the amounts paid by taxable persons wishing to take advantage of the tax amnesty in question was tantamount to a tax exemption and those significant variations in the treatment of taxable persons in Italy distorted fiscal neutrality.
· By contrast, the Court decided in Belvedere Costruzioni that neither Article 4(3) TEU nor Articles 2 and 22 of the Sixth Directive precluded the application in VAT matters of an exceptional provision of national law under which proceedings pending before a higher court were automatically terminated where they originated in an application brought at first instance more than 10 years before the date of the entry into force of that provision and the tax authorities had been unsuccessful at first and second instance. The provision in issue in that case had the automatic effect that the decision of the court of second instance — a decision unfavourable to the tax authorities — became final and that the debt claimed by the tax authorities was thus extinguished. The Court’s reasoning in finding the provision compatible with EU law was based on its exceptional and limited nature, on the lack of any overall discriminatory effect and on the need to give judgment within a reasonable time.
The arrangement procedure in issue in the main proceedings
· The Commission submits that the arrangement proposed in the main proceedings falls foul of the principles set out in the Commission v Italycases. In essence, it argues, both the rules governing the EU’s own resources and the VAT Directive, in conjunction with the principle of sincere cooperation in Article 4(3) TEU, impose an absolute obligation on each Member State to collect all the VAT due on its territory. A Member State may waive a VAT debt only in the specific situation envisaged in Article 212 of the VAT Directive, that is to say where the amount due is insignificant. It may not allow a taxable person in financial difficulties to pay only part of a VAT debt in an arrangement with creditors involving the liquidation of its assets. As a consequence, the Commission maintains — going beyond the scope of the question referred — that it is indispensable that VAT debts not only be granted preferential treatment by law but also, within the category of preferential debts, rank first in insolvency proceedings, in both formal and substantive terms.
· I shall deal first with that latter contention, which is unacceptably rigid in my view.
· First of all, the argument that VAT debts must take precedence over all other debts in order to protect the EU’s financial interests finds no support in the principles that I have set out. It is true that the Member States’ latitude in ensuring compliance with the obligations to which taxable persons are subject is limited by the duty to ensure effective collection of the EU’s own resources, including VAT. The common system of VAT however does not require Member States to grant VAT debts preferential treatment over all other categories of debt.
· In my Opinion in Belvedere Costruzioni, I took the view that the requirement of effective collection cannot be absolute. The Court accepted that proposition on the basis, first, that the obligation to ensure effective collection of EU resources cannot run counter to compliance with the principle that judgment should be given within a reasonable time and, second, that the provision in issue constituted not a general waiver of the collection of VAT for a certain period but an exceptional provision which, because of its specific and limited character as a result of its conditions of application, did not create significant differences in the way in which taxable persons are treated as a whole, and did not therefore infringe the principle of fiscal neutrality.
· In certain circumstances, therefore, a Member State may reasonably consider it legitimate to waive full payment of a VAT debt, provided that such circumstances are exceptional, specific and limited and that the Member State does not thereby create significant differences in the way in which taxable persons are treated as a whole and does not therefore infringe the principle of fiscal neutrality.
· Against that background, Member States should enjoy a degree of flexibility as regards collection of VAT debts when — as in the main proceedings — the taxable person is in financial difficulties. That situation is specific because the taxable person’s assets are insufficient to satisfy all creditors. In those circumstances, as there are no harmonising rules in EU law concerning the ranking of VAT debts, Member States must be free to consider that other categories of debt (such as wages or social security contributions — or, in the case of individual taxable persons, maintenance payments) deserve higher protection.
· Furthermore, a procedure such as that in issue in the main proceedings is consistent with the Member States’ obligation to ensure effective collection of EU resources, as it contains at least three safeguards such as to protect VAT debts.
· First, the arrangement proposal must be dismissed, inter alia, where the applicant has deliberately concealed any assets or failed to declare one or more debts (including thus VAT debts).
· Second, although, according to the referring court, the arrangement may provide that a VAT debt is not satisfied in its entirety, that is possible only where an independent expert attests that the tax authorities would not receive better treatment in the event of bankruptcy. Consequently, whilst there may be situations in which an arrangement with creditors results in payment of a greater portion of the VAT debt than in the event of bankruptcy, the converse cannot be true. That being so, a provision of national law cannot be considered incompatible with the obligation to ensure effective collection of EU resources simply because it opts for one, rather than another, means of achieving the maximum level of collection.
· Third, even if the application proposing the arrangement is admissible, the arrangement itself is subject to a vote by all creditors for whom the application does not envisage full and immediate payment (including the State where the proposal does not provide for full payment of a VAT debt). It must be approved by as many creditors admitted to vote as together represent the majority of the total amount of their claims. Dissenting creditors may then challenge the arrangement before the court. The arrangement procedure thus enables the State to take all steps which it deems necessary to ensure collection of a maximum amount of VAT debt in the circumstances. That may imply, for example, voting against the arrangement (or opposing it before the court) if the State disagrees with the conclusions of the independent expert.
· Finally, because of its specific and limited character as a result of its strict conditions of application, the arrangement procedure clearly does not create significant differences in the way in which taxable persons are treated and is thus consistent with the principle of fiscal neutrality. Unlike the national provisions in issue in the two Commission v Italy cases, the arrangement procedure does not involve a general and indiscriminate renunciation of the tax authorities’ right to obtain payment of VAT debts. The sacrifice of part of a VAT debt which it may involve must be viewed in the light of the objective of giving taxable persons in financial difficulties a second chance through collective restructuring of all their debts.
· Although it appears that, in Degano’s case, the arrangement involves liquidation of all its assets, the Court has not been informed of the precise details. Other arrangements may involve the debtor’s continuing existence as a going concern. In such cases, as the Spanish Government points out, the objective concerned is consistent with the Commission’s recommendation to the Member States to remove the barriers to effective restructuring of viable companies in financial difficulties, thereby promoting entrepreneurship, investment and employment and contributing to reducing the obstacles to the smooth functioning of the internal market.
· However, I would stress that the view I have reached concerns the interpretation of EU law alone. The referring court appears to have doubts as to the interpretation of certain provisions of the Bankruptcy Law by the Corte di Cassazione (Court of Cassation). I express no view as to other possible reasons of national law which may have guided the Corte di Cassazione in its decisions.
Conclusion
I am therefore of the opinion that the Court should answer the question raised by the Tribunale di Udine (District Court, Udine, Italy) to the following effect:
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.
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