ECJ C-331/23 (Dranken Van Eetvelde) – Judgment – Joint VAT Liability and Penalties Clarified

On December 12, 2024, the ECJ issued its decision in the case C-331/23 (Dranken Van Eetvelde).

Context: Reference for a preliminary ruling – Tax law – Value added tax (VAT) – Directive 2006/112/EC – Articles 205 and 273 – Joint and several liability for the tax debts owed by a third party – Conditions and scope of liability – Strict liability without consideration of the actual contribution to the offence – Extension of liability to include tax debt without consideration of input tax deduction – Extended liability with a view to the effective combating of VAT fraud – Proportionality of such liability – Principle of neutrality – Principle ne bis in idem

Summary

Joint and Several Liability for VAT: Article 205 of Directive 2006/112/EC, read with the principle of proportionality, allows for national laws to impose joint and several liability for VAT on a taxable person other than the one normally liable, without court discretion on contributions to tax evasion, provided the person can prove they took all reasonable measures to avoid fraud.
Fiscal Neutrality and VAT Payment Obligation: Article 205, considering fiscal neutrality, permits national laws to impose joint and several VAT payment obligations on a taxable person other than the one normally liable, without considering the latter’s right to deduct input VAT.
Duplication of Penalties: Article 50 of the Charter of Fundamental Rights of the EU allows for national legislation that permits both criminal and administrative penalties of a criminal nature for similar acts occurring in different tax years, with administrative proceedings for one year and criminal proceedings for another.
Context of the Case: The case involved Dranken Van Eetvelde NV being held jointly and severally liable for VAT due to tax fraud, with fines imposed for incorrect invoice information and non-payment of VAT. The court examined whether national laws violated EU principles of proportionality and fiscal neutrality.
Court’s Ruling: The Court ruled that the national laws in question do not violate the principles of proportionality, fiscal neutrality, or ne bis in idem, as long as the taxable person can demonstrate efforts to avoid involvement in fraud and the facts pertain to different tax years

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

The tax authorities carried out a tax investigation at the company Dranken Xx, applicant, regarding the application of value added tax in 2011. This company is identified as a VAT taxable person with declared activity ‘47252 Retail sale of beverages in specialized stores, general assortment’ and ‘46349 Wholesale of drinks general assortment’. Mr. XxPeter and XxJoris are the directors of the taxpayer. This investigation led to the suspicion of tax evasion. On the basis of this investigation, it was established that it drew up sales invoices for deliveries of kegs of beer and various other beverages to private individuals who either are unknown at the address indicated or have not ordered nor received the invoiced goods. However, these were supplied to a customer who is a taxable person, operator of a cafe/catering business, whose identity can no longer be traced. Due to the false invoices, these taxpayers made purchases from the plaintiff that they could sell in their café/catering business. This method offered the possibility of making sales with those purchased drinks that were not recorded under revenue and as such were not subject to VAT and income tax. A writ of execution was issued by the collection tax adviser-receiver of the legal entities collection team, which the plaintiff objected to. Several questions were put to the Constitutional Court of Belgium by interlocutory judgment. The Constitutional Court ruled that the Belgian VAT law does not violate either the Constitution or EU law.

Consideration:

Plaintiff claims, among other things, that the writ of execution and the imposition of fines be annulled; declare that no VAT can be due; to say that the applicant is not jointly and severally liable for the VAT and to say that the non bis in idem principle has been violated and that the fines must therefore be set aside for this reason. The defendant claims that the claim should be declared admissible and unfounded in all its parts. The referring court notes that the defendant does not put forward any reasons that could lead to the inadmissibility of the claim. Since the court has also not established any pleas of inadmissibility that it should raise ex officio, the claim is admissible.

Plaintiff argues that no one can be held unconditionally liable for someone else’s fraud. Such unconditional accountability goes beyond what is necessary to safeguard the rights of the Treasury and to combat tax fraud. The referring court notes that the law on VAT implies the same unconditional liability and could therefore be contrary to the principle of proportionality and/or the principle of neutrality with regard to VAT. In addition to these problems, the ‘ne bis in idem principle’ was also discussed. The application of this principle would be applied differently depending on whether it relates to income tax or VAT. The problem of the cumulation of an administrative sanction and a criminal sanction related to unity of intent is also an important legal question that requires an assessment against the general principles of EU law. The ne bis in idem principle is a general principle of law, according to which a second criminal trial of the same person for the same offenses is excluded after a first final trial of a criminal nature. This general legal principle is guaranteed by Article 50 of the European Charter. after a first final trial of a criminal nature. This general legal principle is guaranteed by Article 50 of the European Charter. after a first final trial of a criminal nature. This general legal principle is guaranteed by Article 50 of the European Charter.

Questions

1) Violates art. 51 bis, §4 WBT Article 205 Rl; 2006/112 jo the principle of proportionality now that this provision provides for unconditional full liability and the court cannot assess this in function of everyone’s contribution to the tax fraud?

2) Violates art. 5Ibis § 4 VAT Code art. 205 of Directive 2006/112 on the common system of VAT, in conjunction with the principle of neutrality with regard to VAT, if this provision is to be interpreted as meaning that one is jointly and severally liable to pay the VAT instead of the legal debtor, without having to take into account be held accountable for the deduction of VAT that the legal debtor can exercise?

3. Is Article 50 of the Charter of Fundamental Rights of the European Union to be interpreted as meaning that it does not preclude national legislation allowing for the accumulation of (administrative and criminal) sanctions of a criminal nature resulting from different proceedings , pre-offences which are materially the same, but which have taken place in successive years (but which would be regarded in criminal terms as a continued crime with unity of intent), and where the offenses are prosecuted for one year and the offenses for another year be prosecuted criminally? Are these facts not regarded as inextricably linked because they occurred in successive years?

4. Is Article 50 of the Charter of Fundamental Rights of the European Union to be interpreted as meaning that it does not preclude national legislation under which a person may be subject to proceedings for the imposition of an administrative fine of a criminal nature? be instituted for offenses for which he has already been convicted of a criminal offense, the two proceedings being carried out completely independently of each other, and the only guarantee that the severity of all the sanctions imposed corresponds to the seriousness of the offense in question consists in the fact that that the tax court can carry out a proportionality test on the merits,while the national legislation does not provide for rules in this regard, nor does it provide for rules that allow the administrative authorities to take into account the criminal sanction already imposed?

Sources

AG Opinion

(1) The principle ne bis in idem (Article 50 of the Charter of Fundamental Rights) is not applicable in the present case because the offences at issue are not one and the same.

(2) Article 205 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax

must be interpreted as permitting liability for third-party tax debts only where the person liable for payment and his or her tax debt are known. The liability for an unknown third party whose tax debt is merely estimated cannot be based on Article 205 of Directive 2006/112; at most, it may be based on Article 273 of that directive.

(3) Article 203 of Directive 2006/112, read in conjunction with Article 273 thereof and in conjunction with the principles of proportionality and VAT neutrality,

must be interpreted as precluding national legislation under which VAT which has been improperly entered on invoices in the context of participation in VAT evasion committed by a third party, without the possibility of adjustment, is established in the form of secondary liability and supplemented – alongside the options offered by criminal law – by a fine of an additional 200% of the amount entered.

Decision

1. 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 preclude a provision of national law which, in order to ensure the collection of value added tax, provides for the joint and several liability without fault of a taxable person other than the person who would normally be liable for that tax, without, however, the competent court being able to exercise a discretion on the basis of the contribution of the various persons involved in tax evasion, provided that the taxable person has the opportunity to establish that he took all measures that could reasonably be required of him to ensure that the transactions he carried out did not form part of that fraud.

(2) Article 205 of Directive 2006/112, read in the light of the principle of fiscal neutrality,

must be interpreted as meaning that:

it does not preclude a provision of national law which imposes a joint and several obligation to pay value added tax (VAT) on a taxable person other than the person who would normally be liable for that tax, without account being taken of the latter’s right to deduct input VAT due or paid.

(3) Article 50 of the Charter of Fundamental Rights of the European Union must be interpreted as not precluding national legislation which permits the duplication of criminal penalties and administrative penalties of a criminal nature, resulting from different procedures, in respect of acts of the same nature which nevertheless took place in the course of successive tax years, who are the subject of administrative proceedings of a criminal nature for one fiscal year and criminal proceedings for another fiscal year.

Summary decision:

Joint and Several Liability for VAT: Article 205 of Directive 2006/112/EC, in light of the principle of proportionality, allows national law to impose joint and several liability for VAT on a taxable person other than the one normally liable, even if the court cannot consider the contributions of those involved in tax evasion. This is valid as long as the taxable person can prove they took all reasonable measures to avoid participating in fraud.
Fiscal Neutrality and VAT Payment Obligation: Article 205, considering the principle of fiscal neutrality, permits national law to impose a joint and several VAT payment obligation on a taxable person other than the one normally liable, without considering that person’s right to deduct input VAT.
Duplication of Penalties: Article 50 of the Charter of Fundamental Rights of the EU allows national legislation to impose both criminal and administrative penalties of a criminal nature for similar acts occurring in different tax years, with administrative proceedings for one year and criminal proceedings for another.

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