VATupdate Newsletter Week 18 2025

MERCY

There’s an old joke in the tax world: “A taxpayer walks into a tax office and says, ‘I’m innocent!’ The officer replies, ‘Great, we’ll take that under consideration… after the penalty.’” Funny? Maybe. Comforting? Not so much.

VAT, as we know, is not designed to make people laugh. But perhaps—just perhaps—it could be administered with something even rarer in tax systems than humour: humanity.

Let’s look at the principle of proportionality. It’s been referred to in many ECJ cases, whispered gently in academic papers, and occasionally bellowed in tax litigation. A recent example is ECJ case C-278/24, in which the Court reminded us that rules—yes, even tax rules—must leave space for reason, fairness, and, dare we say, mercy.

In the case, Mr P.K. had the misfortune of being a director of a company that racked up some impressive VAT debts. The Polish tax authorities came knocking—not on the company’s door (they’d already tried that)—but on his. Personally. Joint and several liability, they said. Like an unexpected party guest who also wants to eat your furniture.

But here’s where things get interesting. The ECJ didn’t just rubber-stamp the enforcement. Instead, it put its judicial finger on the scale of justice and asked a simple question: is it fair to hold a director liable without asking whether they actually did anything wrong?

The Court’s answer? No. Not if the person acted in good faith, showed due diligence, or had no real control over the problem. Because, let’s face it, being a director doesn’t automatically mean you’re complicit in chaos. Sometimes you’re just the person who said “yes” to the job before reading the small print.

According to the ECJ, making someone pay for VAT debts simply because they wore the title of ‘director’—without a chance to prove they weren’t negligent—is disproportionate. A violation of the principles enshrined in EU law, including the Charter of Fundamental Rights.

Why does this matter? Because too often, tax compliance becomes a numbers game: revenue in, leakage out, plug the hole. But behind every liability is a person. An employee. A director. A decision. A bit of bad luck. The ECJ reminded us that rules can—and should—be firm and fair. It’s not about letting people off the hook; it’s about giving them a chance to show they were never on the hook in the first place.

It reminded me of the story of Super Mario—named after Mario Segale, who once rented a warehouse to Nintendo. When they couldn’t pay the rent, he didn’t evict them. He gave them time. They paid. They thrived. And they named their hero after him.

I wouldn’t expect anyone naming their hero after the Tax Authorities. But maybe the real punchline isn’t the taxpayer joke. Maybe it’s that the best tax authorities won’t be the strictest—they’ll be the fairest. The ones who enforce with a calculator in one hand… and common sense in the other. That’s how you save the Princess.

If you have any comments, questions, or ideas that you want to share with us, please send us an email at [email protected] or leave a comment under the posts of this newsletter on LinkedIn.

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