Analysis: “Joint and Several Liability for unpaid VAT may cover Default Interest” by Darya Budova
On 20 May 2021 the Court of Justice handed down its ruling in the case ALTI (C-4/20), dealing with the scope of joint and several liability under the VAT Directive.
The case refers to the Article 205 of the VAT Directive that allows Member States, in certain situations, to establish that a person other than the person liable for payment of VAT is to be held jointly and severally liable for this tax. In Bulgaria, this provision was implemented by establishing that persons who receive taxable supplies, exercise their right to deduct and are proven to have known or that they should have known that the tax would not be paid, may be held jointly and severally liable.
ALTI was held liable under that provision by the Bulgarian authorities for VAT unpaid by its supplier (FOTOMAG) in relation to the local sale of certain agricultural equipment. A tax inspection determined that ALTI itself organised the acquisition in order for VAT to be charged improperly and that ALTI knew that FOTOMAG would not pay the VAT on the three invoices in question. ALTI was requested to pay the VAT due and the default interest due from the date on which that tax became chargeable.
ALTI challenged these notices before Bulgarian Courts (unsuccessfully as to the merits), and ended up claiming before the Supreme Administrative Court of Bulgaria (Varhoven administrativen sad) that the provisions establishing this joint and several liability did not allow the payment of default interest to be demanded (a possibility that was established in a general tax provision of Bulgarian law).
The question referred by the Supreme Administrative Court of Bulgaria seeks to ascertain whether Article 205 of the VAT Directive and the principle of proportionality allows not only rthe unpaid VAT to be requested, but also default interest from the person who knew that VAT was not being paid.
In this context, the Court of Justice recalls that Article 205 of the VAT Directive seeks to ensure for the public exchequer the efficient collection of VAT from the most appropriate person in the light of the specific situation. It allows Member States to hold a person jointly and severally liable for payment of VAT, where it is proven that the person knew or ought to have known that the tax payable in respect of that supply would go unpaid. Yet, at the time of exercising that power, Member States must observe the principles of legal certainty and of proportionality.
Further, the Court considers that although the VAT Directive does not provide specifically for the possibility to request the payment of default interest, the wording of Article 205 does not preclude Member States from being able to request the joint and several debtor all the elements relating to that tax. The Court points out that the application of this rule presupposes that the joint and several debtor was aware of the fraud and thus is also answerable in part for the late payment of that tax. Therefore, the possibility to request the default interest seems to contribute to achieving the objective of ensuring the efficient collection of VAT and is consistent with the principles of legal certainty and of proportionality.
This judgment comes at the time of an increasing practice in the Member States consisting of seeking the payment of VAT from persons who knew or should have known that the tax would go unpaid.
Darya Budova is a Senior Associate at an international law firm, specialised in VAT and customs law.