On May 20, 2021, the ECJ issued its decision in the case C-4/20 (ALTI). This is a Bulgarian referral asking whether Article 205 of the VAT Directive and the principle of proportionality are to be interpreted as meaning that the joint and several liability of a taxable person for a VAT debt, being the recipient of a taxable supply where the supplier has failed to account for VAT, extends to the obligation to pay default interest.
Context: Reference for a preliminary ruling – Taxation – Common system of value added tax (VAT) – Directive 2006/112 / EC – Article 205 – Persons liable for VAT to the Public Treasury – Joint and several liability of the recipient of a taxable supply having exercised its right to deduct VAT in the knowledge that the person liable for this tax would not pay the latter – Obligation of such a recipient to pay the VAT not paid by this person liable to pay as well as the default interest due due to non-payment of the said tax by the latter ”
Article in the EU VAT Directive
Article 205 of Council Directive 2006/112/EC
In the situations referred to in Articles 193 to 200 and Articles 202, 203 and 204, Member States may provide that a person other than the person liable for payment of VAT is to be held jointly and severally liable for payment of VAT.
- The Bulgarian private company ALTI bought from the Bulgarian one-person company FOTOMAG a combine harvester, a tractor and a wagon, which FOTOMAG had acquired in intra-Community trade from a company established in the United Kingdom. FOTOMAG prepared three invoices for the deliveries of agricultural machinery to ALTI, each of which stated VAT. After paying those invoices, ALTI exercised its right to deduct VAT.
- The Bulgarian tax authorities imposed an additional assessment against FOTOMAG for failing to pay the VAT it declared for the intra-Community acquisitions and charged ALTI on the invoices.
- The tax authorities also established that ALTI and FOTOMAG had entrusted their accounting, the management of their bank accounts and the submission of their VAT returns to one and the same person, that the purchase of the agricultural machinery was financed by FOTOMAG through a third company whose partners were the directors of FOTOMAG and ALTI and that a director and representative of ALTI had organized the transport of the combine from the United Kingdom through another company.
- On the basis of these findings, the tax authorities concluded that ALTI had itself organized the purchase of the agricultural machinery by FOTOMAG in the form of an intra-Community acquisition in order to apply VAT incorrectly and that ALTI knew that FOTOMAG charged the VAT on the three concerned would not remit invoices. Subsequently, it was established that ALTI was jointly and severally liable for the VAT unpaid by FOTOMAG under the VAT Act.
In the main proceedings, the referring court seeks an answer to the question of the applicability of the customer’s joint and several liability under Article 177 of the ZDDS and the extent of that liability. Under that provision, the person registered for VAT purposes who is a customer of the taxable supply or service is liable for the tax payable and unpaid by another registered person, to the extent that the right to deduct input tax directly or indirectly related to tax due and unpaid. The referring court considers that, subject to the case-law of the Court, this provision of the Bulgarian ZDDS is compatible with EU law, in particular with Article 205 of the VAT Directive. It follows from the nature of joint and several liability as referred to in Article 205 of that directive that each debtor is obliged to pay the full amount of the debt and that the creditor in principle retains the freedom to require payment of that debt from a debtor or multiple debtors of your choice. However, the relevant judgments of the Court do not answer the question whether, in view of the nature of joint and several liability and with due regard for the principle of proportionality, a national rule such as Article 16 (3) DOPK, default interest is permissible. For that reason, the referring court considers it necessary to interpret the requirements of the VAT Directive, in particular Article 205 of that directive.
1. Are Article 205 of Council Directive 2006/112/EC and the principle of proportionality to be interpreted as meaning that the joint and several liability of a registered person, which is the recipient of a taxable supply, for the value added tax not paid by its supplier in addition to the supplier’s principal debt (the value added tax debt) also includes the accessory obligation to pay compensation for late payment in the amount of the statutory interest on the principal debt from the beginning of the debtor’s default until the issuance of the tax assessment notice by which the joint and several liability is established or until the discharge of the debt?
2. Are Article 205 of Directive 2006/112 and the principle of proportionality to be interpreted as precluding a national provision such as Article 16(3) of the Danachno-osiguritelen protsesualen kodeks (Tax and Insurance Procedure Code) according to which a third party’s liability for unpaid taxes of a taxable person includes the taxes and the interest?
Article 205 of Directive 2006/112/EC on the common system of value added tax is to be interpreted as precluding the inclusion of default interest which is owed by the person liable for payment of VAT by reason of late payment of VAT in the secondary liability of a third party.
Decision (unofficial translation)
Article 205 of Council Directive 2006/112 / EC of 28 November 2006 on the common system of value added tax, read in the light of the principle of proportionality, must be interpreted as meaning that it does not not oppose a national regulation by virtue of which the person held jointly responsible, within the meaning of this article, must pay, in addition to the amount of value added tax (VAT) not paid by the taxpayer of this tax, the default interest owed by that taxpayer on that amount, when it is established that, while exercising his or her right to deduct, that person knew or should have known that the said taxpayer would not pay the said tax.
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