Luxembourg, 08/11/2001 (Agence Europe) - Italy has to refund its private creditors - individuals or companies - in cash or cheques, but certainly not five or ten year government bonds, as it currently does. The Sixth VAT Directive does not provide for this type of repayment, says the fifth Chamber of the European Court of Justice, presided over by Judge Stig Bahr. Italy is thus condemned for infringing Community law.
In 1994, the European Commission had been referred a complaint by people subject to VAT, creditors of the tax office, who had not been refunded the accumulated VAT excess they had paid in 1992. They had then been paid, but in the form of government bonds issued on 1 January 1994 and distributed from April 1994 and December 1998. These bonds were to mature in five of ten years following their issuance.
The European Commission had taken Italy to Court. It considered that this way of refunding was contrary to the provisions of the sixth VAT Directive. The Court agrees: a Member State must enable a taxable person to recover the entirety of the credit arising from excess VAT "within a reasonable period of time by a payment of liquid funds or equivalent means". "In any case, the method of refund adopted must not entail any financial risk for the taxable person", says the Court.
The latter also rejects Italy's argument by which it would find it difficult, "impossible even", to comply with Community law were the Court to condemn it. A State cannot claim internal difficulties not to comply with a Community directive, the Court concludes.
The Italian Government fought to maintain its system which, it claims, was a "form" of repayment that the VAT directive left up to the appreciation of Member States. The repayment in government bonds was a "genuine refund carried out in accordance with the conditions that the Italian Republic deemed appropriate, an Italian government representative explained.
Advocate General Jean Mischo came down in favour of a condemnation of Italy which it accused of a "conjuring trick", as it would have paid back its creditors by contracting, with them, a debt in the distant future. The Commission treated the Italian system as "a forced debt".
According to legal experts, this ruling will have very great pecuniary consequences for Italy. On the basis of this ruling, creditors will now be able to demand the immediate payment of the nominal value of their bonds, together with interest. The other tax payers - this ruling does not only concern VAT - could, in the name of equal treatment, demand money instead of bonds. Among these creditors, export companies and foreign banks are mentioned, which, according to experts, are "structural and permanent creditors" to which the tax office, when accounts are being settled, gives government bonds.