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Legislative Decree no. 5 of 9th January 2006 amended article 142 of the Italian Bankruptcy Law (Royal Decree no. 267 of 16th March 1942) and introduced the bankruptcy discharge procedure, so as to prevent the creditors of a natural person who was declared bankrupt from recovering that person’s assets, after the Decree of bankruptcy closure.

The discharge procedure operates provided that some objective requirements, listed in article 142, are met. Such procedure grants a natural person who was declared bankrupt the benefit of discharge from the remaining debts owed to creditors who have not been satisfied in the bankruptcy proceedings.

With regard to this, VAT debts are not included in the list of debts to which the benefit of discharge does not apply. Apparently, this is contrary to article 22 of Directive 77/388/EEC, on the harmonization of the laws on turnover taxes, which requires Member States to ensure the correct collection of VAT due.

However, with Judgment of last 16th March, in the case C-493/15, the European Court of Justice, upon request of the Italian Court of Cassation by decision no. 13542 of 1st July 2015, has not found any incompatibility between the European legislation and the Italian bankruptcy discharge procedure.

The European Court has explained that the discharge procedure does not breach Directive 77/388/EEC, in that its application is subject to strict conditions, which offer suitable guarantees for the recovery of VAT claims. Therefore, that procedure does not constitute a general and indiscriminate waiver of collecting VAT.