On July 10, 2025, the ECJ issued the judgment in the case C-276/24 (KONREO).
Context: Reference for a preliminary ruling — Taxation — Common system of value added tax (VAT) — Directive 2006/112/EC — Article 205 — Joint and several liability — Conditions and scope of liability — Combating VAT evasion — VAT not paid by the supplier — Refusal to grant the recipient of the supply the right to deduct VAT — Possibility of holding the recipient of the supply jointly and severally liable for payment of the VAT due by the supplier — Principle of proportionality
Summary
- Case Background: The European Court of Justice (ECJ) ruled on July 10, 2025, in Case C-276/24, concerning the interpretation of Article 205 of the VAT Directive. The case involved KONREO, the court-appointed administrator of FAU s.r.o., and the Czech tax authorities regarding VAT liability for unpaid taxes by the supplier, Verami International Company s.r.o.
- Key Legal Questions: The main questions referred to the ECJ were whether national legislation could impose joint liability for VAT on the recipient of a supply when the right to deduct VAT had been denied due to the recipient’s involvement in tax fraud. The court sought to clarify the compatibility of such practices with EU law, particularly the principle of proportionality.
- Court’s Decision: The ECJ ruled that Article 205 of the VAT Directive does not preclude national practices requiring the recipient of a taxable supply to be jointly and severally liable for VAT owed by the supplier, even if the recipient has been denied the right to deduct VAT due to known participation in tax fraud.
- Justification of the Decision: The Court emphasized that allowing such joint liability is essential for effective VAT collection and combating tax evasion. It affirmed that the fundamental principle of VAT neutrality must be maintained, ensuring that the tax burden ultimately falls on the consumer, while also allowing Member States to impose necessary measures to combat fraud.
- Implications for Tax Authorities and Businesses: This ruling clarifies the conditions under which tax authorities can hold recipients of supplies liable for unpaid VAT, reinforcing the need for vigilance among businesses regarding their transactions. It also establishes that businesses cannot evade VAT responsibilities simply by denying deductions, thus promoting accountability within the VAT system.
Article in the EU VAT Directive
Article 205 of the EU VAT Directive 2006/112/EC
Article 205
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.
Facts (Summary)
- The applicant, as the insolvency administrator of FAU, challenges the liability for VAT payments issued by the Financial Administration of the Czech Republic.
- FAU was involved in a chain of trade connected to tax fraud, and the Financial Administration denied its right to a tax deduction. However, the liability imposed on FAU would result in double taxation for the same commercial transaction.
- The defendant argues that denial of the tax deduction and liability are both applicable in cases of tax fraud, as they serve to prevent unjust enrichment. The simultaneous application of both rules is logical and does not breach the principle of tax neutrality or equal treatment of taxpayers. The applicant argues that applying only one of these rules would be sufficient to protect the public treasury without imposing triple taxation on the same transaction. The principle of proportionality should override the literal interpretation of the law.
Questions
Does Article 205 of Council Directive 2006/112/EC on the common system of value added tax, in conjunction with the proportionality principle, preclude a
national practice whereby the liability for the payment of value added tax by a supplier of a taxable transaction may be applied to the recipient of that transaction, even though the recipient of the taxable transaction has already been denied a right to a tax deduction due to its involvement in tax fraud?
AG Opinion
None
Decision
Article 205 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive (EU) 2018/1695 of 6 November 2018, read in the light of the principle of proportionality,
must be interpreted as meaning that:
it does not preclude a national practice which imposes on the taxable person, the recipient of a supply of goods effected for consideration, a joint and several obligation to pay the value added tax (VAT) payable by the supplier of those goods, even though the right to deduct input VAT due or paid has been refused to the recipient of that supply of goods on the ground that he knew or ought to have known that he was participating in the VAT fraud.
Source
Reference to other ECJ Cases
- ALTI (C-4/20): This case was cited to underscore the importance of effective VAT collection and the role of joint liability in combating tax evasion. The ECJ emphasized that Member States are allowed to hold individuals jointly liable for VAT to ensure efficient tax recovery.
- Dranken Van Eetvelde (C-331/23): This case reinforced the need for Member States to establish clear conditions under which joint liability can be imposed, aligning with the principle of proportionality. The ECJ highlighted that the imposition of joint liability must be justified by the factual and legal relationship between the parties involved.
- Finanzamt M (C-596/21): In this ruling, the Court addressed the consequences of tax fraud and clarified that the right to deduct VAT can be denied if the recipient of the supply knew or should have known that they were participating in tax evasion. This principle was essential in determining the validity of VAT deductions in the context of fraudulent activities.
See also
- Roadtrip through ECJ Cases – Focus on “Liability to pay VAT – Jointly and severally liability of the payment of VAT” (Art. 205)
- Briefing document & Podcast C-276/24 (KONREO) – VAT Fraud, Joint Liability, and Deduction Denial
- Join the Linkedin Group on ECJ/CJEU/General Court VAT Cases, click HERE
- VATupdate.com – Your FREE source of information on ECJ VAT Cases
- Podcasts & briefing documents: VAT concepts explained through ECJ/CJEU cases on Spotify
