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17th June 2020
Tax

Analysis: “The status and compensation of claims in the context of mutual assistance between Member States” by Darya Budova

The key provision in mutual assistance: treating claims as Member State’s own but with no privilege 

On 11 June 2020 the Court of Justice delivered its judgment in the case Pantochim, C-19/19. This case revolves around mutual assistance between the Member States for the recovery of claims relating to certain levies, duties, taxes and other measures, set out in Directive 76/308/EEC and Directive 2008/55/EC (in force at the time of the facts). In essence, these Directives allow one Member State to request certain information from the other, or to notify instruments and decisions to an addressee and recover claims of the applicant Member State, all in accordance with the rules of law in force in the requested Member State applicable to similar instruments and claims.

The debate here refers to the scope of the provision establishing that the claim ‘shall be treated as a claim of the Member State in which the requested authority is situated’ and at the same time that such claims ‘shall not be given preferential treatment in the Member State in which the requested authority is situated’ or, in its amended wording (Directive 2008/55/EC), ‘shall not necessarily benefit from the privileges accorded to similar claims arising in the Member State in which the requested authority is situated’.

To understand the specific questions referred to the Court it is important to understand the somewhat particular case they arise from.

 

Pantochim’s liquidation and set-off of tax claims

During the liquidation of Pantochim, a Belgian company, it was recognised that the Belgian Authorities owe Pantochim an outstanding tax credit. At the same time, the Belgian State submitted a claim for recognition of an amount owed by Pantochim to the German tax authorities (as a result of assistance requested by Germany). That claim was admitted as an unsecured debt. The Belgian State then intended to set-off these two amounts under the national provision that allows any sum to be paid to a debtor to ‘be assigned without formalities by the competent official to the payment of withholding taxes, income taxes, taxes treated as equivalent thereto, value added tax, the principal amount, surcharges and increases, administrative or tax fines, interest and costs payable by that debtor, where the latter are not or are no longer contested’.

The liquidators of the company brought proceedings against the Belgian State, arguing that such compensation could not be granted and that the tax credit should be paid to Pantochim independently of the fate of the German claim. Both the court of first instance and the Court of Appeal (Cour d’appel de Mons) agreed. An important point in the national proceedings was that the Court of Appeal considered that such compensation could only be granted under Belgian law if there was a mutual claim between the same creditor and debtor. Therefore, the question of whose claim should it be considered is essential to this case.

The Belgian State brought an appeal on a point of law before the Belgian Cour de Cassation.

 

The decision of the Court regarding the status of the claim and concept of privilege 

In this context, the first question referred by the Belgian Cour de Cassation is: does the request for mutual assistance imply that the debt becomes the requested Member State’s own claim?

The response of the Court is clearly no. The fact that the requested Member State should treat the request in the same way as its own claim does not mean that the claim is in any way assigned to the requested Member State. The requested Member State is still required to remit to the requesting Member State the entire amount of the claim, that is recovered on behalf of the requesting Member State. Therefore, the claim of the requesting Member State is not to be treated as being a claim of the requested Member State and does not acquire the status of a claim of the requested Member State.

The second question refers to whether a set-off such as the one intended by the Belgian State would imply a preferential treatment or privilege that the Directives, in principle, exclude for the claims requested for recovery under mutual assistance.

The Court considers that term ‘privilege’ should be given a broad meaning, encompassing all the mechanisms that enable the requested Member State to obtain preferential or priority payment of its claims in the event of concurrent claims, being the pivotal element the equality of creditors.

In case a mechanism at stake constitutes an ordinary way to simplify the collection procedure without conferring a preferential right or a right of priority for the purposes of payment of its claims or any privilege derogating for the principle of equality of creditors, the Belgian State should also use it to recover another Member State’s claims in respect of which a request for assistance has been made. Conversely, in case the set-off mechanism produces the effect of conferring on the Belgian state a preferential right or right of priority not available to the other creditors, that option would constitute, in derogation of the principle of equality of creditors in the event of concurrent claims, a ‘privilege’ and the Belgian State would not be able to use it to recover another Member State’s claim.

Importantly, the Court highlights that such an option, in case it may be used, could only be used for the benefit of the requesting Member State.

 

Darya Budova is a practicing attorney in law specialised in tax disputes and EU tax law, with expertise in taxation in international trade.

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