Briefing document & Podcast – ECJ C-331/23: Joint and Several VAT Liability and Non Bis in Idem Principle

The Court of Justice of the European Union (CJEU) issued a judgment in Case C-331/23, a preliminary ruling requested by a Belgian court concerning Dranken Van Eetvelde NV (a beverage wholesaler) and the Belgian tax authority. The case revolves around the company’s joint and several liability for VAT debts related to fraud, the proportionality of such liability, and the potential violation of the non bis in idem principle due to parallel administrative and criminal proceedings. The CJEU clarified the interpretation of Article 205 of the VAT Directive, the principles of proportionality and fiscal neutrality, and Article 50 of the Charter of Fundamental Rights of the European Union. The Court ruled that the Belgian legislation regarding joint and several liability for VAT debts is not necessarily in violation of EU law, provided that the taxable person has the possibility to prove they took every reasonable step to prevent being involved in VAT evasion. The Court also stated that the non bis in idem principle is not violated when separate proceedings concern different tax years, even if a “continuing offense” argument is made.

Key Issues and Analysis:

Joint and Several Liability and Proportionality (Article 205 of the VAT Directive):

• Question: Does national law providing for unconditional joint and several liability for VAT, without allowing the court to assess individual contributions to tax fraud, infringe Article 205 of the VAT Directive and the principle of proportionality?
• CJEU Ruling: Article 205 does not preclude such national provisions, provided the taxable person has the opportunity to demonstrate they took all reasonable steps to avoid participation in the fraud. This means that the presumption of knowledge or involvement in fraud must be rebuttable.
• Rationale: Article 205 allows Member States to implement measures for efficient VAT collection, including joint and several liability. However, these measures must be proportionate and not go beyond what is necessary. Preventing tax evasion is a legitimate objective. The Court emphasized that traders who take reasonable precautions to ensure the legality of their transactions should not be unfairly penalized. While joint and several liability means each liable party is responsible for the full amount, this does not preclude actions under national civil law to apportion the debt amongst liable parties according to their involvement.
• Quote: “Traders who take every precaution which could reasonably be required of them to ensure that their transactions do not form part of a chain that is fraudulent or amounts to an abuse must be able to rely on the legality of those transactions without the risk of being made jointly and severally liable to pay the VAT due from another taxable person.”

Fiscal Neutrality and Deduction of Input VAT (Article 205 of the VAT Directive):

• Question: Does national law imposing joint and several VAT liability, without considering the original debtor’s right to deduct input VAT, infringe Article 205 and the principle of fiscal neutrality?
• CJEU Ruling: Article 205 does not preclude such national provisions.
• Rationale: The right to deduct VAT is a fundamental principle. However, this right can be denied in cases of fraud or abuse. Since the question relates to situations under Article 51 bis (4) of the VAT Code, which concerns cases of VAT fraud, the taxable person liable to pay the VAT must be refused the right to deduct VAT. Consequently, they cannot transfer a non-existent right to deduct to the jointly liable party.
• Quote: “In such cases of fraud, in accordance with the case-law referred to in paragraphs 42 and 43 of the present judgment, the taxable person who is liable to pay VAT must be refused the right to deduct VAT. Consequently, in so far as that taxable person cannot claim any right to deduct that tax, such a right to deduct cannot, a fortiori, be transferred to the taxable person who is jointly and severally liable for payment of that tax under the national provision transposing Article 205 of the VAT Directive.”

Non Bis in Idem (Article 50 of the Charter):

• Question: Does national law allowing for combined administrative and criminal penalties for the same type of offense across consecutive years, with administrative proceedings in one year and criminal in another, violate Article 50 of the Charter (the non bis in idem principle)?
• CJEU Ruling: Article 50 does not preclude such national legislation.
• Rationale: The non bis in idem principle prohibits being tried or punished again for an offense for which one has already been finally acquitted or convicted. Application requires (1) a prior final decision (“bis“) and (2) that the prior decision and subsequent proceedings concern the same facts (“idem“). The “idem” condition requires identical material facts, meaning concrete circumstances inextricably linked in time and space. The Court stated that even if the VAT fraud was part of a single scheme committed over several years, separate proceedings for different tax periods do not violate the non bis in idem principle. The Court also stated that how a national criminal law defines “continuing offense” is irrelevant in determining compliance with EU law’s interpretation of idem.
• Quote: “It follows that the facts relating to the administrative proceedings at issue in the main proceedings and those which were the subject of the criminal proceedings are not identical, with the result that the ‘idem’ condition is not satisfied. Consequently, the principle non bis in idem is not intended to apply in the present case.”

Implications:

• Member States have considerable latitude in implementing joint and several VAT liability measures, as long as they are proportionate and allow for a reasonable opportunity to rebut presumptions of knowledge or involvement in fraud.
• The right to deduct input VAT can be denied in cases of VAT fraud and that denial extends to any party potentially jointly liable in that fraud.
• The non bis in idem principle has a strict interpretation regarding the “same facts” requirement, focusing on specific events within defined periods. Separate proceedings for different tax years, even concerning similar offenses, are permissible under Article 50 of the Charter.

See also

• ECJ C-331/23 (Dranken Van Eetvelde) – Judgment – Joint VAT Liability and Penalties Clarified – VATupdate
• Roadtrip through ECJ Cases – Focus on “Liability to pay VAT – Jointly and severally liability of the payment of VAT” (Art. 205) – VATupdate