Analysis of the European Court of Justice (ECJ) judgment in Case C-733/23 ‘Beach and bar management’ EOOD v. Nachalnik na otdel ‘Operativni deynosti’ – Burgas, concerning VAT penalties in Bulgaria.
I. Executive Summary
The ECJ’s ruling in ‘Beach and bar management’ EOOD (Case C-733/23) significantly clarifies the application of fundamental EU law principles – specifically ne bis in idem (double jeopardy) and proportionality – to national administrative and financial penalties for Value Added Tax (VAT) infringements. The Court found that Bulgaria’s legal framework for VAT offences, which allowed for the cumulative imposition of a business premises sealing measure and substantial financial penalties through separate, uncoordinated procedures, violated EU law. The judgment reaffirms that even measures with a preventive aim can be deemed “criminal in nature” due to their severity, triggering the ne bis in idem principle. Furthermore, it stresses that national penalty regimes must allow for flexibility to ensure penalties are proportionate to the actual seriousness of the offence, rather than imposing rigid, high minimum fines. This ruling has broad implications for Member States in designing their tax penalty systems, requiring them to balance effective tax collection with the protection of fundamental rights.
II. Main Themes and Key Ideas
1. The Ne Bis In Idem Principle and its Application to Administrative Penalties
- Definition: Article 50 of the Charter of Fundamental Rights of the European Union (the Charter) establishes the ne bis in idem principle, prohibiting an individual from being “tried or punished again in criminal proceedings for an offence for which he or she has already been finally acquitted or convicted within the Union.”
- “Criminal Nature” Assessment: The ECJ applies three criteria to determine if proceedings or penalties are “criminal in nature” for the purpose of ne bis in idem:
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- The legal classification of the offence under national law.
- The intrinsic nature of the offence.
- The severity of the penalty. Crucially, the latter two criteria are paramount, meaning a penalty can be “criminal in nature” even if not classified as such under national law.
- Application in the Case: Both the sealing of ‘Beach and bar management’ EOOD’s business premises and the financial penalties were deemed “criminal in nature” by the ECJ.
- Sealing: “A placing under seal for a period of 30 days could, particularly for an individual trader who has only one set of business premises, be categorised as severe, especially, since it prevents him or her from carrying on his or her business, thus depriving him or her of his or her income.” (CURIA, para 35)
- Financial Penalties: The “particularly high” amount (BGN 42,500 total vs. BGN 268.02 VAT evaded) attested to their severe, punitive nature. (CURIA, para 36)
- Preventive vs. Punitive Aim: The Bulgarian referring court argued the sealing measure was primarily “preventive” for multiple offences, aimed at limiting harm to EU financial interests. The ECJ rejected this, stating that “the mere fact that a penalty with a punitive purpose also pursues a preventive purpose does not mean that it cannot be characterised as a criminal penalty within the meaning of Article 50 of the Charter.” (CURIA, para 41) The “inherent severity” of sealing justifies its criminal classification, regardless of any preventive aim. (CURIA, para 43)
- Violation due to Procedural Fragmentation: The Bulgarian legal system allowed for “separate and independent procedures” for the sealing measure and financial penalties, heard by “different courts” (District Court for financial penalties, Administrative Court for sealing) with “no coordination mechanism.” (Study Guide, I.; CURIA, para 23) This fragmentation resulted in the “cumulation of those penalties,” which “must be regarded as entailing a limitation of the fundamental right guaranteed in Article 50 of the Charter.” (CURIA, para 37) The ECJ concluded that EU law “preclud[es] national legislation which provides for the imposition of a financial penalty on a taxable person…where that offence has already given rise to…sealing the business premises.” (CURIA, para 45) This confirms the precedent set by the MV-98 judgment.
2. The Principle of Proportionality of Penalties
- Definition: Article 49(3) of the Charter mandates that “the severity of penalties must not be disproportionate to the criminal offence.” This means penalties “must not go beyond what is necessary to achieve legitimate objectives,” be “commensurate with the seriousness of infringements,” and “ensure a deterrent effect without being excessive.” (CURIA, para 48)
- Individual Circumstances: Proportionality “requires that the individual circumstances of the particular case are taken into account in determining the penalty and fixing the amount of the fine.” (CURIA, para 49) This implies a need for judicial flexibility.
- Violation in Bulgarian Law: The Bulgarian Law on VAT (Article 185) imposed a “significant lower limit” for financial penalties (BGN 500, approximately EUR 250) for failure to issue fiscal cash register receipts.
- This minimum amount was deemed “almost 200 times higher than the amount of the VAT evaded for each infringement committed in the present case, namely BGN 2.70 (approximately EUR 1.35).” (CURIA, para 52)
- The national legislation offered “no possibility of imposing a penalty below the minimum amount laid down in the law or of replacing that penalty with a more lenient one.” (CURIA, para 53)
- Conclusion: The ECJ ruled that Article 273 of the VAT Directive and Article 49(3) of the Charter “preclud[e] national legislation which provides for, as an administrative penalty, a financial measure of a high amount without the court hearing a challenge to that measure having the procedural possibility of imposing an amount less than that provided for by that legislation or another more lenient type of penalty.” (CURIA, para 53)
3. Balancing Member State Powers with Fundamental Rights
- Member State Obligations: Article 325 TFEU requires the EU and Member States to “counter fraud and any other illegal activities affecting the financial interests of the Union through measures…which shall act as a deterrent and be such as to afford effective protection.” (CURIA, para 3) Article 273 of the VAT Directive allows Member States to “impose other obligations which they deem necessary to ensure the correct collection of VAT and to prevent evasion.” (CURIA, para 7)
- Limits on Power: While these articles grant Member States significant powers to protect financial interests and ensure VAT collection, the ECJ consistently holds that such powers are not absolute. They “must be exercised in compliance with fundamental EU principles” outlined in the Charter, particularly ne bis in idem and proportionality. (Double Jeopardy and Disproportionate Penalties, Point 5)
- The ECJ’s Role: The Court’s judgment underscores that national penalty regimes, even when pursuing legitimate aims like tax collection and fraud prevention, must respect fundamental rights, ensuring penalties are not excessive or cumulatively imposed for the same offence through uncoordinated procedures.
4. Procedural Challenges and Admissibility
- Lack of Coordination: The Bulgarian system’s “separate and independent procedures” (Study Guide, I.) for distinct penalty types, heard by different courts with “no coordination mechanism,” was a central procedural flaw leading to the ne bis in idem violation. This fragmentation meant courts reviewing financial penalties could not consider the prior sealing measure’s impact.
- Inadmissibility of Third Question: The third question referred by the Administrativen sad Burgas, concerning the proportionality and judicial review of the sealing measure itself, was deemed inadmissible by the ECJ. This was because the main proceedings before the national court only concerned “the legality of the 85 financial penalties” (CURIA, para 20), not the sealing measure, making the question “bear no relation to the subject matter of the dispute in the main proceedings.” (CURIA, para 30)
5. Facts of the Case
- Offence: ‘Beach and bar management’ EOOD, operating a bar and restaurant in Bulgaria, failed to register 85 sales by fiscal cash register receipts.
- Penalties Imposed:Coercive Administrative Measure: Sealing of business premises for 14 days, provisionally enforced.
- Financial Penalties: BGN 500 (approx. EUR 250) for each of the 85 offences, totalling BGN 42,500 (approx. EUR 21,250).
- Disparity: The total VAT evaded from these 85 offences was only BGN 268.02 (approx. EUR 134). This contrasts sharply with the BGN 42,500 total financial penalty.
III. Implications for Member States
The ‘Beach and bar management’ judgment provides crucial guidance for Member States:
- Review of Penalty Systems: National legislation imposing administrative or financial penalties for tax infringements must be reviewed to ensure compliance with ne bis in idem and proportionality.
- Coordination of Procedures: Where multiple types of penalties (e.g., sealing and fines) can be imposed for the same offence, Member States must establish “coordination of the procedures enabling the additional disadvantage associated with the cumulation of those measures to be reduced to what is strictly necessary” (CURIA, para 38). This may require judicial or legislative mechanisms to ensure a holistic assessment of cumulative penalties.
- Flexibility in Sentencing: Fixed minimum penalties that are disproportionately high in relation to the seriousness of the offence are impermissible. National courts must have the “procedural possibility of imposing an amount less than that provided for by that legislation or another more lenient type of penalty” (CURIA, para 53) to allow for consideration of individual circumstances.
- Severity as a Criterion: Member States should be mindful that severe administrative measures, regardless of their national classification or stated primary purpose (e.g., “preventive”), can be deemed “criminal in nature” under EU law, triggering fundamental rights protections.
See also
- Join the Linkedin Group on ECJ/CJEU/General Court VAT Cases, click HERE
- VATupdate.com – Your FREE source of information on ECJ VAT Cases
