Italy: the joint sections of the Supreme Court stated that the tax debt restructuring agreement is a special procedure, and the provision set by art. 182-ter of the Insolvency Act, which does not allow the reducibility of the tax receivable for VAT, does not apply to the pre-bankruptcy composition agreement, which is a general procedure, not suffering from such a limit. 

Decision: No. 26988/2016 Civil Joint Sections of the Supreme Court – dec. 27th, 2016

Classification: Insolvency, Commercial,Tax

Keywords: #pre-bankruptcycompositionagreement, #italy, #jurisprudence, #taxdebtrestructuring, #fulviograziotto, #legalshield

The case. 

The Court of Appeal rejected homologation of the pre-bankruptcy composition agreement filed by a real estate company in Italy, as the proposal was based on partial payment of VAT receivables to the tax authorities. 

The proposal was not depending on a separate, specific tax debt restructuring agreement as ruled by art. 182-ter of the Insolvency Act. 

The company filed a recourse to the Supreme Court, who passed it onto the joint sections for decision. 

The decision. 

To start with, the joint sections of the Supreme Court mentioned some former decisions, in which it was held that the provision set in art. 182-ter of the Insolvency Act is not limited to the tax debt restructuring only, but is rather applicable to any form of pre-bankruptcy composition agreement, as such provision relates to the general rule of VAT receivables within insolvency procedures. 

Such interpretation was not at all shared by some scholars, and the President of the Supreme Court examining the case diverted it to the joint sections, posing the following question: «Decide if the provision of irreducibility of VAT receivable set by art. 182-ter of the Insolvency Act is only applicable when a proposal for a pre-bankruptcy composition agreement is based on a separated tax debt restructuring agreement, or is also applicable when the proposal does not rely on a tax debt restructuring agreement.». 

The Joint Sections recalled that the business having financial distress has two forms of pre-bankruptcy composition agreements available: the main (general) one, regardless of any previous agreement with the tax authorities; the specific (special) one, which includes the tax debt restructuring agreement: the latter is a special form of pre-bankruptcy composition agreement. 

The Assembly also stated that it is not possible to extend the provisions of the specific procedure (ex art. 182-ter) to the general procedure: the rule of irreducibility of VAT receivables included in the specific provision, cannot be applied to the general procedure (ex art. 160 and following). 

The Joint Sections stated the following law principle: «The provision about irreducibility of VAT receivable, stated by art. 182-ter of the Insolvency Act, is only applicable when the proposal for pre-bankruptcy composition agreement includes a tax debt restructuring agreement». 

Comment. 

In Italy, arguments for the ban of reducibility of VAT receivables in pre-bankruptcy composition agreements had a ground in the nature of VAT as European Union tax, therefore not a State-tax that each Country may rule and cash independently. 

Notwithstanding it was a correct argument or not, this is not anymore a limit after the recent decision of the European Court of Justice in the case C-546/14, who stated that the reducibility of VAT receivable is possible under certain conditions (namely when this leads to better results for tax authorities against debtors involved in insolvency procedures).

In short, in Italy pre-bankruptcy composition agreements including VAT receivables by tax authorities may rely on two different alternatives: a general one (art. 160 Insolvency Act), and a special one (art. 182-ter): the latter being necessarily based on a separate agreement with the tax authorities. 

Relevant Jurisprudence. 

Supreme Court 14447/2014 

Supreme Court 22931/2011 

European Court of Justice, case C-546/14 

Relevant provisions. 

Insolvency Act: REGIO DECRETO 16 marzo 1942, n. 267 

Disciplina del fallimento, del concordato preventivo, dell’amministrazione controllata e della liquidazione coatta amministrativa 

Art. 160 – Requirements for ammission to pre-bankruptcy composition agreement

Art. 182-ter – Treatment of tax and social levies receivables