On September 12, 2024, the ECJ issued the AG Opinion in the case C-709/22 (Syndyk Masy Upadlosci A) .
Context: Reference for a preliminary ruling – Common system of value added tax (VAT) – Directive 2006/112/EC – Combating of VAT fraud – Special measure – Split payment mechanism – VAT account belonging to the insolvent taxable person – Transfer of the funds held in the VAT account at the request of the insolvency administrator – Charter of Fundamental Rights of the European Union – Article 17(1) – Fundamental right to property – Article 51(1) – Implementation of EU law
Summary
A bankruptcy trustee wanted to use money from the VAT account of a company that went bankrupt to pay property taxes. The trustee argued that the company had no outstanding debts to the treasury since the bankruptcy and that the money in the VAT account had accumulated during the bankruptcy proceedings.
The trustee believed that tax authorities should be treated the same as other creditors under the applicable laws. However, the lower tax authority refused to allow the transfer, stating that there were still VAT and income tax debts owed by the bankrupt company.
The case raised questions about whether the national measure was compatible with EU directives and principles such as proportionality, neutrality, the right to property, the rule of law, and good administration.
After considering these questions, the decision was made that the relevant EU provisions and directives did not prevent the national legislation that limits the use of VAT funds in a separate account for specific purposes.
In simpler terms, the bankruptcy trustee wanted to use VAT money to pay property taxes, but the tax authority refused. The court decided that the national law restricting the use of VAT funds was allowed under EU rules.
Article in the EU VAT Directive
Articles 206, 226, 273, 395 in the EU VAT Directive 2006/112/EC.
Article 206 (Payment arrangements)
Any taxable person liable for payment of VAT must pay the net amount of the VAT when submitting the VAT return provided for in Article 250. Member States may, however, set a different date for payment of that amount or may require interim payments to be made.
Article 226 (Content of invoices)
Article 273 (Misc. provisions)
Member States may impose other obligations which they deem necessary to ensure the correct collection of VAT and to prevent evasion, subject to the requirement of equal treatment as between domestic transactions and transactions carried out between Member States by taxable persons and provided that such obligations do not, in trade between Member States, give rise to formalities connected with the crossing of frontiers.
The option under the first paragraph may not be relied upon in order to impose additional invoicing obligations over and above those laid down in Chapter 3.
Article 395 (Simplification measures and measures to prevent tax evasion or avoidance)
1. The Council, acting unanimously on a proposal from the Commission, may authorise any Member State to introduce special measures for derogation from the provisions of this Directive, in order to simplify the procedure for collecting VAT or to prevent certain forms of tax evasion or avoidance.
Measures intended to simplify the procedure for collecting VAT may not, except to a negligible extent, affect the overall amount of the tax revenue of the Member State collected at the stage of final consumption.
2. A Member State wishing to introduce the measure referred to in paragraph 1 shall send an application to the Commission and provide it with all the necessary information. If the Commission considers that it does not have all the necessary information, it shall contact the Member State concerned within two months of receipt of the application and specify what additional information is required.
Once the Commission has all the information it considers necessary for appraisal of the request it shall within one month notify the requesting Member State accordingly and it shall transmit the request, in its original language, to the other Member States.
3. Within three months of giving the notification referred to in the second subparagraph of paragraph 2, the Commission shall present to the Council either an appropriate proposal or, should it object to the derogation requested, a communication setting out its objections.
4. The procedure laid down in paragraphs 2 and 3 shall, in any event, be completed within eight months of receipt of the application by the Commission.
Facts – Summary
- Request and Refusal: The bankruptcy trustee requested the lower tax authority to transfer funds from the VAT account of an insolvent taxpayer to pay property taxes, arguing that the company had no outstanding debts since the insolvency date. The lower tax authority denied the request, citing existing VAT and income tax debts exceeding the requested amount.
- Legal Framework: The trustee emphasized that all debts to public law authorities are treated equally with other creditors under the second class of performance, and the Insolvency Act takes precedence over the VAT Act and Banking Act in bankruptcy cases.
- Ownership of Funds: The funds in the VAT account belong to the taxable person, even during insolvency, and cannot be automatically used to settle tax debts without meeting specific conditions outlined in the Banking Law.
- Court’s Doubts: The referring court questioned the national measure on the split payment mechanism, particularly its compliance with the VAT Directive and the potential violation of property rights under Article 17(1) of the Charter, as blocking funds limits their use.
- Incoherence and Proportionality: The court highlighted incoherence in the Polish legal system, suggesting that restricting VAT account funds through national provisions that ignore Union law limitations is disproportionate to the goal of combating VAT fraud, thus questioning the legality and proportionality of such measures.
Facts – Detailed
The bankruptcy trustee has requested permission from the lower tax authority to transfer money from the VAT account of the insolvent taxpayer to the account of the bankrupt estate. He has indicated that the money should be transferred to the municipal bank account to pay the property taxes due. The trustee has pointed out that the company has no outstanding debts to the treasury since the date of insolvency. The money in the VAT account has accumulated during the insolvency proceedings. It is certain that the claims reported by another tax authority relate to the state of affairs prior to the declaration of insolvency and that they are included in the list of claims. In accordance with the applicable provisions, all debts to public law authorities, in addition to other non-public debts, are satisfied under the second class of performance. The public law authorities are therefore treated on an equal footing with the other creditors of the insolvent taxpayer. With regard to the satisfaction of the bankrupt’s creditors, the provisions of the Insolvency Act constitute a lex specialis vis-à-vis those of the VAT Act and the Banking Act. Consequently, it is not possible, in the context of a bankruptcy, to settle debts towards the tax authorities ‘automatically’, so to speak, from the separate VAT account in the event of late payment by the taxable person. The money on the VAT account therefore belongs to the taxable person. Since the negative conditions, i.e. back taxes and amounts due as referred to in Article 62b(2)(2)(a) of the Banking Law, have not been met, it has been pointed out that the submitted request is justified. The lower tax authority has refused to agree to this. It referred to the wording of Article 108b(1) and (5) of the VAT Law and Article 62b(2)(2)(a) of the Banking Law and stressed that on the date of the decision the insolvent company was still had VAT debts and debts in the field of income tax and these debts exceeded the amount in respect of which the trustee requested a transfer to the said bank account,
Consideration:
The doubts of the referring court relate to the correctness of the introduction and the limits of application of the national measure on the split payment mechanism, which was adopted to combat VAT fraud. The mechanism is temporarily authorized by Decision 2019/310. It follows from the wording of Article 1 of the Decree that it refers to Article 226 of the VAT Directive. A specific statement should therefore be included on the invoice, namely ‘split payment mechanism’. This is reflected in the wording of Article 106e(1)(18a) of the VAT Act. The first issue which has raised doubts in the referring court boils down to whether the national measure adopted should not be regarded as a derogation from Article 206 of the VAT Directive and as such an appropriate notification within the meaning of Article 395 of the VAT directive required. The referring court has also expressed doubts about the violation of the right to property under Article 17(1) of the Charter. It is common ground that money in a VAT account belongs to the taxable person, even if the latter is in a state of insolvency. Blocking such amounts limits the use that can be made of them. Thirdly, the fight against VAT fraud is one of the recognized objectives of the Union and cannot be judged solely in terms of effectiveness. The means and methods used in the fight against VAT fraud must comply with the requirements of the rule of law. The aspects of the main proceedings make it clear that the Polish legal system is incoherent. A restriction on the enjoyment of funds in a VAT account whose transfer has been requested by the bankruptcy trustee following the declaration of insolvency of a VAT payer, by means of an interpretation of the provisions that does not take into account the legal limitations resulting from Union law , can hardly be regarded as a measure that is proportionate to the objective pursued, namely the fight against VAT fraud. The aspects of the main proceedings make it clear that the Polish legal system is incoherent. A restriction on the enjoyment of funds in a VAT account whose transfer has been requested by the bankruptcy trustee following the declaration of insolvency of a VAT payer, by means of an interpretation of the provisions that does not take into account the legal limitations resulting from Union law , can hardly be regarded as a measure that is proportionate to the objective pursued, namely the fight against VAT fraud. The aspects of the main proceedings make it clear that the Polish legal system is incoherent. A restriction on the enjoyment of funds in a VAT account whose transfer has been requested by the bankruptcy trustee following the declaration of insolvency of a VAT payer, by means of an interpretation of the provisions that does not take into account the legal limitations resulting from Union law , can hardly be regarded as a measure that is proportionate to the objective pursued, namely the fight against VAT fraud.
Questions
1. Should the provisions of Council Implementing Decision (EU) 2019/310 of 18 February 2019 authorizing Poland apply a special measure derogating from Article 226 of Directive 2006/112/EC on the common system of tax on the added value (OJ 2019 L 51 , p. 19), the provisions of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1 ), in particular Articles 395 and 273 thereof,and the principles of proportionality and neutrality are interpreted as precluding a national provision and practice whereby, in the circumstances of the present case, a bankruptcy trustee is refused permission to transfer money held in a taxable person’s VAT account (split payment mechanism) to a bank account designated by this taxpayer?
2. Should Article 17(1) of the Charter of Fundamental Rights of the European Union (OJ 2007 C 303, p. 1), entitled ‘Right to property’, read in conjunction with Article 51(1) and Article 52(1) thereof, be interpreted as precluding a national provision and practice whereby, in the circumstances of the present case, a bankruptcy trustee is refused permission to transfer money to the VAT account of a taxpayer state (split payment mechanism) so that this money, which belongs to an insolvent taxpayer, is frozen in that VAT account and the bankruptcy trustee is prevented from fulfilling his duties in the context of pending insolvency proceedings?
3. Should the principle of the rule of law enshrined in Article 2 of the Treaty on European Union (OJ 2007 C 326, p. 391) and the principle of legal certainty which it is intended to achieve, the principle of sincere cooperation (Article 4(3) , of that Treaty) and the principle of good administration (Article 41(1) of the Charter of Fundamental Rights), taking into account the context and purposes of Council Decision 2019/310 and of the provisions of Directive 2006/ 112/EC, be interpreted as precluding a national practice whereby a bankruptcy trustee is refused permission to transfer money held in a taxable person’s VAT account (split payment mechanism),which determines the purposes of insolvency proceedings opened by a Polish bankruptcy court, which is empowered to do so under Article 3(1) of Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast) ( OJ 2015 L 141, p. 19) cannot be achieved, thus creating a situation in which the Treasury, as a result of the application of an inadequate national measure, is favored as a creditor to the detriment of other creditors?as a result of the application of an inadequate national measure, as a creditor is favored at the expense of other creditors?as a result of the application of an inadequate national measure, as a creditor is favored at the expense of other creditors?
AG Opinion
Article 17(1) of the Charter of Fundamental Rights of the European Union, the principles of proportionality, neutrality, the rule of law, legal certainty, sincere cooperation and good administration, as well as the provisions of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, in particular Articles 395 and 206 thereof, and of Council Implementing Decision (EU) 2019/310 of 18 February 2019 authorising Poland to introduce a special measure derogating from Article 226 of Directive 2006/112, do not preclude national legislation and practice whereby the insolvency administrator is denied permission to transfer the funds held in the VAT account belonging to the taxable person to the bank account designated by the insolvency administrator, in so far as the taxable person still has tax arrears.
Decision
Articles 273 and 395 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, and Council Implementing Decision (EU) 2019/310 of 18 February 2019 authorising Poland to introduce a special measure derogating from Article 226 of Directive 2006/112/EC on the common system of value added tax,
must be interpreted as not precluding national legislation which provides that the amount of value added tax (VAT) deposited on a separate VAT account, which a supplier has with a banking institution, may be used only for limited purposes, namely, in particular, the payment of the VAT due to the tax authority or the payment of VAT on invoices received from suppliers of goods or services.
Source
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Reference to the case in the other EU MS
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