ECJ VAT C-544/24 (Nekilnojamojo turto valdymas) – Judgment – Fixed default VAT interest acceptable, does not violate proportionality

On April 30, 2026, the ECJ issued its decision in the case C-544/24 (Nekilnojamojo turto valdymas).

Context: Reference for a preliminary ruling – Common system of value added tax (VAT) – Directive 2006/112/EC – Article 273 – Charter of Fundamental Rights of the European Union – Article 49(3) – Obligations deemed necessary to ensure the correct collection of VAT and to prevent evasion – National legislation providing for a procedure for applying late payment interest on VAT arrears which, irrespective of the nature and severity of the infringement, includes a set fixed penalty part with no possibility for the tax authority to reduce the amount of that penalty part – Principle of proportionality

Facts & Background

Facts: A Lithuanian company (“Real Estate Management” BUAB) was assessed additional VAT, significant default interest (€2.4 million, later €3.1 million), and a large fine (€1.8 million) for VAT evasion between 2012 and 2016. These assessments were upheld through multiple court appeals, becoming definitive. The company subsequently sought exemption from the default interest and fine, arguing its “punitive” component was disproportionate, especially as criminal proceedings for the same facts were ongoing.
Issues: The Lithuanian Tax Disputes Committee referred two main questions to the ECJ: 1) Does EU law (Article 325 TFEU, Article 273 VAT Directive, Article 50 Charter) prevent national rules that allow for cumulative administrative default interest (with a punitive element) and criminal proceedings for the same tax offenses without coordination to ensure proportionality? 2) Do these EU provisions (Article 325 TFEU, Article 273 VAT Directive, Article 49(3) Charter) preclude a national default interest regime where a fixed punitive component cannot be reduced or waived, regardless of the infringement’s nature or gravity?
Decision: The Court declared the first question inadmissible because the “ne bis in idem” principle (Article 50 Charter) was not applicable as no definitive criminal conviction had been issued. For the second question, the Court ruled that Article 325 TFEU and Article 273 of the VAT Directive, read in light of the principle of proportionality, do not preclude national legislation that sets a fixed rate for default interest on VAT arrears, regardless of the infringement’s nature and seriousness, and prevents tax authorities from lowering the rate or waiving part of the interest, except in specifically defined cases.
Arguments for Inadmissibility (First Question): The Court noted that Article 50 of the Charter (ne bis in idem) requires a definitive judgment (conviction or acquittal) for the same offense. Since the criminal proceedings against the company were still ongoing and no such definitive decision had been made, the “bis” condition for the principle was not met, making the question hypothetical and irrelevant to the main proceedings.
Arguments for Proportionality (Second Question): The Court determined that default interest, as in this case, does not have a “penal” nature under Article 49(3) of the Charter, but rather serves a preventive and compensatory purpose. While acknowledging the need for proportionality in national measures implementing EU law, the Court found that a fixed, unmodifiable rate for default interest is appropriate and necessary to ensure effective VAT collection, deter late payment, and maintain legal certainty and equal treatment among taxpayers. The existing provisions for waiving interest in specific, limited circumstances were deemed sufficient.

Questions

Are Article 325 TFEU, Article 273 of the VAT Directive ¹ and Article 50 of the Charter to be interpreted as precluding national legislation which makes it possible to impose interest on late payment of tax, a part of which has the effect of a penalty in respect of the same tax infringements which are the subject of a criminal prosecution, without laying down any rules ensuring coordination which limits to what is strictly necessary the additional disadvantage which results, for the persons concerned, from a duplication of proceedings or making it possible to ensure that the severity of all of the penalties imposed is limited to what is strictly necessary in relation to the seriousness of the offence concerned?

Are Article 325 TFEU, Article 273 of the VAT Directive and Article 49(3) of the Charter to be interpreted as precluding a procedure for applying interest on late payment of taxes which, irrespective of the nature and severity of the infringements, sets a fixed penalty part of interest on late payment of taxes, without making it possible to reduce that penalty part, that is to say, to impose a rate of late payment interest which is lower than the rate provided for by the law or to waive the penalty part of late payment interest?

AG Opinion

Article 325 TFEU and Article 273 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, read in the light of Article 49(3) of the Charter of Fundamental Rights of the European Union,

must be interpreted as not precluding national legislation which, irrespective of the nature and severity of the infringement found by the tax authority, sets the amount of late payment interest without that authority being able to reduce one of the parts of that amount and thereby apply a rate of interest which is lower than the rate provided for by that legislation or waive a part of that amount and which provides that the taxpayer may be exempted from paying late payment interest only in the cases expressly defined by that legislation.

Judgment

Article 325 TFEU and Article 273 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:

They do not preclude national legislation which lays down the detailed rules for calculating the rate of default interest relating to arrears in respect of value added tax, irrespective of the nature and seriousness of the infringement found by the tax authorities, and precludes the latter from applying a rate of interest lower than that provided for by that legislation or from waiving the calculation of part of the amount of default interest or exempting a taxpayer from the payment of that interest, except in the cases exhaustively defined by that legislation.

Source

Curia

ECJ Case referred to

C-217/15 and C-350/15, Orsi and Baldetti (5 April 2017): Clarified the scope of the Charter of Fundamental Rights, particularly regarding the “ne bis in idem” principle, in the context of VAT offenses and national procedures to ensure VAT collection.
C-524/15, Menci (20 March 2018): Provided guidance on the interpretation of the “ne bis in idem” principle (Article 50 of the Charter) in cases where both administrative and criminal penalties are imposed for the same VAT infringement, outlining criteria to determine the “penal” nature of sanctions.
C-617/17, Powszechny Zakład Ubezpieczeń na Życie (3 April 2019): Further elaborated on the conditions for applying the “ne bis in idem” principle, specifically confirming that it applies only after a definitive decision (conviction or acquittal) has been rendered.
C-88/20, ENR Grenelle Habitat e.a. (20 May 2021) (Order): Reaffirmed that the “ne bis in idem” principle applies only when there is a repetition of proceedings that have led to a definitive decision concerning the same material facts.
C-439/19, Latvijas Republikas Saeima (Points de pénalité) (22 June 2021): Discussed the criteria for assessing the “penal” nature of sanctions, even if not classified as such by national law, considering the nature of the offense and the severity of the sanction.
C-117/20, bpost (22 March 2022): Concerned the “penal” nature of administrative fines and their interaction with the “ne bis in idem” principle, applying the criteria for determining a sanction’s penal character.
C-205/20, Bezirkshauptmannschaft Hartberg-Fürstenfeld (Effet direct) (8 March 2022): Affirmed that the principle of proportionality, as a general principle of EU law, applies to Member States when they implement EU law, even in areas without full harmonization, including regarding penalties.
C-452/20, Agenzia delle dogane e dei monopoli et Ministero dell’Economia e delle Finanze (24 February 2022): Reiterated that administrative or repressive measures allowed by national legislation must not exceed what is appropriate and necessary to achieve legitimate objectives, consistent with the principle of proportionality.
C-391/20, Cilevičs e.a. (7 September 2022): Provided a general definition of proportionality, stating that a measure must be suitable to achieve a legitimate objective, not go beyond what is necessary, and its disadvantages must not be disproportionate to the aims.
C-1/21, Direktor na Direktsia « Obzhalvane i danachno-osiguritelna praktika » (13 October 2022): Confirmed that the collection of default interest contributes to the fight against non-payment of VAT and is part of the obligation for Member States to ensure the correct collection of VAT and combat fraud, and that such interest has a preventive and compensatory nature.
C-286/22, KBC Verzekeringen (12 October 2023): Reaffirmed the presumption of relevance for preliminary questions from national courts, which can only be rejected if they are manifestly irrelevant, hypothetical, or lack sufficient factual and legal context.
C-506/23, Network One Distribution (5 December 2024): Stated that default interest aims to counteract the consequences of late payment and compensate for undue advantages gained from delayed tax debt, rather than to punish the delay itself.
C-701/23, Swiftair (3 April 2025): Held that if provisions of EU law central to a preliminary question are not applicable to the main proceedings, the question is inadmissible as it’s not necessary for the national court’s judgment.
C-387/16, Nidera (28 February 2018): Discussed the nature of default interest, noting that a fixed compensatory amount might exceed actual damages in some cases, but that this is inherent to a flat-rate compensation system.
C-574/15, Scialdone (2 May 2018): Emphasized that Member States must ensure that violations of EU law, including VAT rules, are penalized under substantive and procedural conditions analogous to similar national law violations, and that sanctions must be effective, proportionate, and dissuasive.
C-603/19, Úrad špeciálnej prokuratúry (1 October 2020): Reiterated the obligation of Member States under Article 325 TFEU to combat fraud affecting the financial interests of the Union with deterrent and effective measures, and to apply the same measures as for fraud against their own interests.

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Article

On April 30, 2026, the European Court of Justice (ECJ) issued its judgment in Case C-544/24, Nekilnojamojo turto valdymas, ruling that EU law does not preclude national legislation which sets a fixed rate for default interest on VAT arrears, even if that rate cannot be reduced or waived by tax authorities except in specifically defined cases. The Court found that such fixed default interest serves a preventive and compensatory purpose, not a penal one under Article 49(3) of the Charter of Fundamental Rights (CFR), and is proportionate to the goals of effective VAT collection and fraud deterrence. The Court also declared inadmissible a question concerning the “ne bis in idem” principle (Article 50 CFR), as criminal proceedings related to the same facts were still ongoing and no definitive judgment had been rendered.

Background and Facts

The case originated from Lithuania, involving a company named “Real Estate Management” BUAB. This company faced assessments for additional VAT, substantial default interest (initially €2.4 million, later €3.1 million), and a significant fine (€1.8 million) due to VAT evasion between 2012 and 2016. These assessments were definitively upheld through various court appeals.

Subsequently, the company sought exemption from the default interest and fine, arguing that the “punitive” element within the default interest was disproportionate, especially given that criminal proceedings for the same underlying facts were still ongoing. This situation prompted the Lithuanian Tax Disputes Committee to refer two main questions to the ECJ for a preliminary ruling.

Key Legal Questions Referred to the ECJ

The Lithuanian Tax Disputes Committee posed two central questions:

Coordination of Sanctions and “Ne Bis In Idem”: Do Article 325 TFEU, Article 273 of the VAT Directive, and Article 50 of the Charter preclude national legislation that allows for cumulative administrative default interest (with a punitive element) and criminal proceedings for the same tax offenses without coordination to limit the disadvantage or severity of penalties?
Proportionality of Fixed Default Interest: Do Article 325 TFEU, Article 273 of the VAT Directive, and Article 49(3) of the Charter preclude a national default interest regime where a fixed punitive component cannot be reduced or waived by the tax authority, regardless of the nature or gravity of the infringement?

ECJ’s Ruling and Reasoning

Regarding the “Ne Bis In Idem” Principle (First Question – Inadmissible)

The Court declared the first question inadmissible. It reasoned that Article 50 of the Charter, which enshrines the “ne bis in idem” (double jeopardy) principle, applies only when there has been a definitive judgment (conviction or acquittal) for the same offense. As the criminal proceedings against “Real Estate Management” BUAB were still ongoing and no such definitive decision had been reached, the “bis” condition for the principle was not met. Therefore, the question was deemed hypothetical and irrelevant to the main proceedings.

Regarding Proportionality of Fixed Default Interest (Second Question – Not Precluded)

The ECJ ruled that Article 325 TFEU and Article 273 of the VAT Directive, when read in light of the principle of proportionality, do not preclude national legislation establishing a fixed rate for default interest on VAT arrears.

The Court’s reasoning highlighted several key points:

Nature of Default Interest: The Court determined that default interest, in this context, “does not have a ‘penal’ nature under Article 49(3) of the Charter.” Instead, it serves a “preventive and compensatory purpose.” This distinguishes it from penalties that fall under the strict proportionality requirements for criminal sanctions.
Justification for Fixed Rates: A fixed, unmodifiable rate for default interest was deemed “appropriate and necessary to ensure effective VAT collection, deter late payment, and maintain legal certainty and equal treatment among taxpayers.”
Proportionality: While acknowledging the need for proportionality in national measures implementing EU law, the Court found that such a fixed rate, which can only be waived in “specifically defined cases,” is consistent with the principle. The Court affirmed that “the collection of default interest contributes to the fight against non-payment of VAT and is part of the obligation for Member States to ensure the correct collection of VAT and combat fraud, and that such interest has a preventive and compensatory nature.”

Main Themes and Important Ideas

Distinction Between Default Interest and Penalties: A core theme is the ECJ’s clear distinction between default interest and penal sanctions. Default interest is primarily seen as a compensatory mechanism for the delay in payment and a preventive measure to encourage timely compliance, rather than a punishment for the infringement itself. This classification is crucial for its assessment under proportionality principles.
Proportionality in National Measures Implementing EU Law: The judgment reinforces that national measures, even those with a “punitive” feel, must be proportionate to the legitimate objectives pursued. In this instance, the objectives are the effective collection of VAT, the fight against fraud (as per Article 325 TFEU), and the deterrence of late payments.
Member States’ Obligations: The ruling underscores Member States’ obligation under Article 325 TFEU and Article 273 of the VAT Directive to ensure the correct collection of VAT and to combat fraud, allowing them considerable latitude in devising mechanisms like fixed default interest to achieve these ends.
Strict Application of “Ne Bis In Idem”: The inadmissibility of the first question highlights the strict conditions for applying Article 50 CFR. The principle of “ne bis in idem” requires a definitive conviction or acquittal, meaning ongoing proceedings do not trigger its application. This clarifies the temporal scope of the principle.
Legal Certainty and Equal Treatment: The Court recognized that fixed, pre-defined rates for default interest contribute to legal certainty for taxpayers and ensure equal treatment, as discretionary powers to reduce or waive interest might lead to inconsistencies.

Implications

This judgment provides important clarity for Member States regarding their ability to implement robust and standardized systems for collecting VAT arrears. It confirms that fixed rates of default interest, without broad discretionary waiver powers, are permissible under EU law, provided they serve compensatory and preventive aims and adhere to the general principle of proportionality. Tax authorities are not obliged to reduce or waive such interest unless specific national legislation explicitly provides for it. For taxpayers, it reinforces the necessity of timely VAT compliance, as significant and fixed default interest can be lawfully applied without the possibility of reduction even if parallel criminal proceedings are underway.