Published 30 January 2017 by Graziotto Legal - International Law Firm

Contributed by Fulvio Graziotto (Italy)


«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. 183-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 instead.»

Decision: Decision No. 26988/2016 Civil Joint Sections of the Supreme Court

Classification: Insolvency, Commercial,Tax

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 admitted it and 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 the Supreme Court held that the provision set in art. 183-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 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 restrcturing 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, therefore, a special form of pre-bankruptcy 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 such specific provision, cannot be applied tot eh general procedure.

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 agreement includes a tax debt restructuring agreement ».

Arguments for the ban for reducibility of VAT receivables in pre-bankruptcy composition agreements in Italy 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.

Wether this was a right 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 a better result for tax authorities againsta debtors involved in insolvency procedures).

In short, in Italy pre-bankruptcy composition agreements including VAT receivabled 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