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Cross-border recovery of tax debts through set-off

If one Member State requests assistance from another Member State in respect of the recovery of a debt under the Mutual Assistance Recovery Directive (MARD), the requesting state’s claim is treated is if it was a claim of the requested state. In Pantochim, the CJEU clarified what this means and discussed how far the requested state is required to go in recovering the debt.


When the Belgian company, Pantochim, went into liquidation, it owed VAT in Germany as an unsecured debt. At the same time, it was owed a tax refund in Belgium. Germany requested Belgium’s assistance in recovering the VAT debt under MARD and Belgium effected the recovery by setting the Germany VAT debt against the Belgian tax refund (presumably with a corresponding payment from Belgium to Germany).

Belgian law permits tax debts to be set off against tax refunds and, under MARD, Belgium was obliged to apply Belgian law on debt recovery as if the claim was for the recovery of a Belgian VAT debt. But this is subject to one exception: MARD does not require that the German claim is accorded the same privileges as would be accorded to a similar Belgian claim (and Belgian law provided that no such privileges should be given). This lead to two questions:

  • What does it mean for the German claim to be treated as if it was a Belgian claim?

    The CJEU confirmed that the claim of the requesting state is to be treated as a claim of the requested state solely for recovery purposes. Belgium does not somehow step into Germany’s shoes in respect of the claim. The claim remains a Germany’s and Belgium’s recovery action would be taken on behalf of Germany.

  • Does the set-off confer a privilege (and is it, therefore, impermissible)?

    The CJEU drew a distinction between an “ordinary set-off mechanism intended to simplify the recovery procedure without conferring… any privilege derogating from the principle of equality of creditors” and a “set-off option [that has] the effect of conferring on the Belgian State such a preferential right or right of priority not available to the other creditors”. Only the latter would constitute a privilege within the meaning of MARD, meaning that a requested state would be able, and indeed be required, to use any ordinary set-off.

    Regarding the set-off at issue in Pantochim, the CJEU commented that it has insufficient information to determine whether it fell in the ordinary or the privileged category; this determination was left to the national court.

Continued relevance of the decision

Pantochim concerned a version of MARD which is no longer in force. So, does the decision have any continued relevance?

MARD was originally adopted in 1976 and has been subject to a number of amendments which were codified into a new directive in 2008. It is at this point where Pantochim came in. The 2008 version was, however, repealed and replaced in 2010, and that replacement was intended to make substantive changes: the third recital of the 2010 directive states that the original MARD “arrangements… have proved insufficient to meet the requirements of the internal market as it has evolved over the last 30 years.”

Reading through Article 13(1) of the current version of MARD which contains the provisions equivalent to those at issue in Pantochim, it is clear that the CJEU’s response to the first question clearly continues to be relevant.

The wording in respect of the second question has, however, changed from “privileges” to “preferences”. So, given that Pantochim addresses the meaning of “privilege”, is it relevant to the interpretation of “preferences” in the current version of MARD? It should be – comparing the German and French language versions, it seems that no substantive change was intended. It seems that the translators have merely reconsidered which English word best describes the concept!


tvelling, slaughterandmay, eu tax, tax administration, debt recovery, mard, cross-border