Judgment;Summary — ECLI:EU:C:2024:293
Date: 2024-04-11
Language of the case: Bulgarian
Court formation: Seventh Chamber
Subject matter: Taxation;Value added tax
Procedure: Reference for a preliminary ruling
Origin: Bulgaria

Summary C-122/23 – 1 
Case C-122/23 
Summary of the request for a preliminary ruling pursuant to Article 98(1) of 
the Rules of Procedure of the Court of Justice 
Date lodged: 
1 March 2023  
Referring court:  
Varhoven administrativen sad (Bulgaria) 
Date of the decision to refer: 
25 January 2023 
Appellant on a point of law: 
Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’ 
Sofia pri Tsentralno upravlenie na Natsionalnata agentsia za 
prihodite 
Respondent on a point of law: 
Legafact EOOD 
  
Subject matter of the main proceedings 
The appeal on a point of law is directed against the judgment of the 
Administrativen sad Sofia-grad (Administrative Court, Sofia, Bulgaria) cancelling 
a tax adjustment notice on the application of Legafact EOOD (‘the respondent’ or 
‘the company’) which was issued by the tax authorities of the Teritorialna 
direktsia grad Sofia na Natsionalnata agentsia po prihodite (Sofia Territorial 
Directorate of the National Revenue Agency) (‘the tax adjustment notice’). 
The tax adjustment notice imposed value added tax (‘VAT’) debts in the amount 
of 24 701.66 Bulgarian leva (BGN) in respect of principal and BGN 3 218.33 in 
respect of interest on the respondent, because it had applied for compulsory VAT 
registration three days late. 
The referring court seeks to ascertain whether the national provision on the basis 
of which the tax adjustment notice was issued and which provides for the 
incurrence of a tax debt in the event of a late application for compulsory VAT 
EN 
SUMMARY OF THE REQUEST FOR A PRELIMINARY RULING – CASE C-122/23 
 
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registration is compatible with the principles of the common system of value 
added tax of the European Union. 
The referring court would also like to know the criteria to be adopted in assessing 
whether the provision relied on constitutes a penalty provision. 
Subject matter and legal basis of the request 
The request for a preliminary ruling is submitted pursuant to Article 267(1)(b) 
TFEU and concerns the common system of VAT, in particular Title XII, Chapter 
1, of Council Directive 2006/112/EC of 28 November 2006 on the common 
system of value added tax (‘the VAT Directive’). 
Questions referred for a preliminary ruling 
1. Is a national provision which treats taxable persons differently in respect of 
the tax exemption provided for under Title XII, Chapter 1, of Council 
Directive 2006/112 on the common system of value added tax depending on 
the rapidity with which they reach the turnover threshold for compulsory 
VAT registration in breach of the principles of the common system of value 
added tax in the European Union? 
2. Does Council Directive 2006/112 preclude a national provision under which 
the tax exemption of a supply under Title XII, Chapter 1, of Council 
Directive 2006/112 depends on the supplier fulfilling the obligation to apply 
for compulsory VAT registration in due time? 
3. What criteria arising from the interpretation of the VAT Directive must be 
used to assess whether the aforementioned national provision, which 
provides for the incurrence of a tax debt in the event of late submission of 
the application for compulsory VAT registration, is a penalty provision? 
Provisions of European Union legislation and case-law relied on 
Charter of Fundamental Rights of the European Union, Article 50 
Council Directive 2006/112/EC of 28 November 2006 on the common system of 
value added tax, Articles 213, 214 and 282, Article 287(17), Articles 288, 289, 
290 and 291 
Judgment of 12 July 2012, EMS-Bulgaria Transport, С-284/11, EU:C:2012:458 
Judgment of 19 July 2012, Rēdlihs, С-263/11, EU:C:2012:497, paragraph 44 
Judgment of 6 February 2014, Fatorie, С-424/12, EU:C:2014:50, paragraph 50 
LEGAFACT 
 
3 
Judgment of 23 April 2015, GST – Sarviz Germania, С-111/14, EU:C:2015:267 
Judgment of 9 July 2015, Salomie and Oltean, С-183/14, EU:C:2015:454 
Judgment of 5 October 2016, Maya Marinova, С-576/15, EU:C:2016:740, 
paragraph 49 
Provisions of national law relied on 
Konstitutsia na Republika Bulgaria (Constitution of the Republic of Bulgaria), 
Article 5(4), Article 17(3), Article 19(2) and Article 60(1) 
Zakon za danak varhu dobavenata stoynost (Law on value added tax), Articles 67 
and 74, Article 96(1) and (2), Articles 102, 178 and 180 
Danachno-osiguritelen protsesualen kodeks (Tax and Social Security Code of 
Procedure), Article 175 
Zakon za lihvite varhu danatsi, taksi i drugi podobni darzhavni vzemania (Law on 
interest on taxes, charges and other similar debts owed to the State), Article 1(1) 
Succinct presentation of the facts and procedure in the main proceedings 
1 The respondent is a company which provides business consultancy services and 
was not initially registered under the Zakon za danak varhu dobavenata stoynost 
(Law on value added tax) (‘the ZDDS’). On 21 August 2018, it issued four 
invoices relating to ‘remuneration from the contract of 30 November 2012’ for the 
amounts of BGN 28 502, BGN 34 202, BGN 28 502 and BGN 28 502 
respectively, and, on 23 and 24 August 2018, it issued two further invoices with 
the same subject matter amounting to a total of BGN 57 004. It is common ground 
that the invoiced supplies form part of the respondent’s independent economic 
activity. 
2 On 3 September 2018, the respondent applied for compulsory registration under 
the ZDDS and, on 14 September, it received a notice on the compulsory 
registration stating that it was registered under the ZDDS with effect from 
19 September 2018. The respondent did not claim a deduction of input VAT for 
the VAT which it paid prior to the registration either when it had applied for 
registration or at a later date. 
3 The tax authorities assumed that the turnover threshold of BGN 50 000 was 
exceeded when the second invoice of 21 August 2018 was issued. Under 
Article 102(4)(2) of the ZDDS (in the version applicable to the case in the main 
proceedings), that supply was taxable. 
4 The tax authorities concluded that, under the second sentence of Article 96(1) of 
the ZDDS (in the version applicable to the case in the main proceedings), the 
SUMMARY OF THE REQUEST FOR A PRELIMINARY RULING – CASE C-122/23 
 
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respondent should have submitted the application for registration within seven 
days from the date on which the respondent had reached the aforementioned 
threshold, that is, by 28 August 2018, which it did not do. On the basis of 
Article 102(4) of the ZDDS, they decided that the respondent was liable to pay tax 
on the taxable supplies which resulted in it exceeding taxable turnover of 
BGN 50 000 from the date when that turnover was exceeded until the date when 
the company was registered with the tax authorities. 
5 The tax adjustment notice imposed on the respondent VAT debts amounting to 
BGN 24 701.66 in respect of principal and BGN 3 218.33 in respect of interest for 
the August 2018 tax period relating to taxable supplies provided from 21 August 
2018, the date on which the turnover threshold for compulsory registration under 
the ZDDS was exceeded, until the date of actual registration under that law, which 
included the supply on 21 August 2018. The basis of assessment of 
BGN 123 508.34 was determined by adding the total value of the two invoices of 
23 and 24 August 2108 to the total value of the second, third and fourth invoices 
of 21 August 2018. 
6 On the basis of that reasoning, the tax adjustment notice was upheld in 
administrative proceedings after the respondent had contested it. The respondent 
subsequently brought an action at first instance before the Administrative Court, 
Sofia, which cancelled the tax adjustment notice. 
7 The Administrative Court, Sofia decided that the tax adjustment notice was issued 
contrary to the substantive law applicable, in particular the EU law in the area of 
indirect VAT, as interpreted in the case-law of the Court of Justice of the 
European Union (‘the Court of Justice’), in particular in the judgment in Case 
C-183/14. It also found that Article 102(4) of the ZDDS constituted a penalty 
provision in cases of late submission of an application for compulsory registration 
under the ZDDS, and that, as follows from the grounds of the judgment in Case С-
183/14, the State may impose such a penalty only if it is proportionate. A mere 
three-day delay in applying for compulsory registration was no basis for regarding 
the offence committed as serious. Since there was no information indicating that 
the respondent intended to evade paying tax, the penalty imposed was 
disproportionate and the imposition of VAT debts and interest by the tax 
adjustment notice was therefore unlawful. 
Essential arguments of the parties in the main proceedings 
8 In the proceedings before the referring court, the appellant claims that 
Article 102(4) of the ZDDS lays down the obligation to collect VAT both on the 
taxable supply by which the turnover tax threshold for compulsory registration 
under the ZDDS was exceeded and on the taxable supplies from the date when the 
turnover tax threshold was exceeded until the date when the person was registered 
with the tax authorities. The judgment of the Administrative Court, Sofia does not 
therefore draw a distinction between the obligation to collect tax on the taxable 
LEGAFACT 
 
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supply and a penalty under administrative criminal law for the infringement of 
administrative law which is apparent in the late submission of the application for 
registration. So far, no penalty has been imposed (the administrative criminal 
proceedings have been discontinued on the ground of insignificance), although the 
adjustment notice imposed an obligation pursuant to a tax provision of substantive 
law. 
9 According to the respondent, Article 102(4) of the ZDDS constitutes a 
discriminatory legal basis for taxation which infringes the principle of tax 
neutrality fundamental to the system of value added tax of the European Union. It 
must be borne in mind that the respondent applied for registration under the 
ZDDS on its own initiative, albeit a few days late. The purpose of that provision is 
to tax as high a proportion as possible of seasonal businesses whose turnover 
exceeding the threshold for compulsory registration is achieved more quickly. If it 
had applied for registration in due time, it would have owed neither tax nor 
interest; that appears to be contrary to the VAT Directive. In the judgments in 
Cases С-111/14 and С-284/11 the Court of Justice ruled that, where there is no 
information indicating tax evasion on the part of a taxable person acting in good 
faith, imposition of VAT debts is impermissible. 
Judgment No 8 of the Konstitutsionen sad (Constitutional Court) of the 
Republic of Bulgaria of 30 June 2020 on the compatibility of Article 102(4) of 
the ZDDS (in the version in force from 1 January 2018) with the Konstitutsia 
na Republika Bulgaria (Constitution of the Republic of Bulgaria; ‘the 
Constitution’) 
10 By judgment of 30 June 2020, the Constitutional Court has decided, upon the 
application of the Vissh advokatski savet (Supreme Bar Council), to declare that 
Article 102(4) of the ZDDS is unconstitutional. 
The Constitutional Court, relying on its earlier case-law, has found that the 
constitutional principle of equality before the law is not infringed where a 
differentiation is provided for in respect of the same right or the same obligation, 
provided that that differentiation is aimed at a criterion which applies to all 
persons of a group. The provision at issue ensures that a tax payable to the State 
budget which was incorrectly not calculated and collected is levied, whilst also 
providing for the liability to VAT of persons who are not registered under the law 
for a reason within their control. The creation of the same legal conditions for the 
economic activity does not mean that the tax system for all who exercise such an 
activity must be the same. By not fulfilling the requirement to register and by 
providing supplies on which no tax was collected and which was diverted away 
from the State budget, persons who do not register in due time, as compared with 
those who, in compliance with the law, applied for registration in due time, are 
placed in a more favourable economic position. 
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11 The Constitutional Court also considers the claim that the taxability of taxable 
supplies exceeding the threshold for registration constitutes a further penalty to be 
unfounded. The obligation to pay tax due on the taxable supply arises from a 
fiscal relationship in which a person who exercises an independent economic 
activity has achieved a certain turnover. That obligation follows from the 
chargeable event and the chargeability of the tax, while the liability under 
administrative law follows from the infringement under administrative criminal 
law of the provisions of Chapter 26 of the ZDDS and of the Zakon za 
administrativnite narushenia i nakazania (Law on administrative offences and 
penalties). The present case does not concern a sanction or penalty, but 
compensation for loss arising from the unlawful conduct of a person liable for 
payment. The chargeable event arises regardless of whether the registration was 
applied for. 
12 The Constitutional Court states that it has no jurisdiction to rule on the submission 
of the Supreme Bar Council regarding the incompatibility of the provision in 
question with EU law. 
13 The judgment of the Constitutional Court of 30 June 2020 was signed by two 
judges who delivered a dissenting opinion. They hold the view that the conversion 
of the supply exceeding the turnover tax threshold into a taxable supply is 
unconstitutional because the infringement of administrative law apparent in the 
failure to apply for compulsory registration under the ZDDS has been converted 
into a chargeable event (which is not compatible with the Constitution). 
Moreover, a further penalty is imposed, since the failure to apply for registration 
triggers a penalty under administrative criminal law pursuant to Article 178 of the 
ZDDS. That is also an infringement of the non bis in idem principle which is 
recognised in the case-law of the Constitutional Court as an element of the rule of 
law. 
Succinct presentation of the reasoning in the request for a preliminary ruling 
14 Article 102 of the ZDDS forms part of Chapter 9 (‘Registration’) of that law. It 
was adopted in order to fulfil Bulgaria’s obligation under Articles 213 and 214 of 
the VAT Directive which concern the obligation of Member States to take the 
measures necessary to ensure that certain categories of persons are identified by 
means of an individual number. By the amendment to Article 102 which came 
into force on 1 January 2018, the period and conditions for tax exemptions for a 
certain category of persons under Title XII (Special Schemes Chapter 1 [‘Special 
scheme for small enterprises’]) of the VAT Directive were changed. 
15 Article 287 of the VAT Directive allows the Member States to grant a tax 
exemption to taxable persons where their annual turnover does not exceed the 
maximum limit laid down in that directive and in national law. Bulgaria made full 
use of that option (first sentence of Article 96(1) of the ZDDS) and, at the time 
relevant to the main proceedings, exempted from VAT supplies of taxable persons 
LEGAFACT 
 
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whose taxable turnover for the period of the last 12 consecutive months before the 
current month amounted to BGN 50 000 or more. At the same time, Bulgaria, by 
adopting Article 102(4) (in the version applicable from 1 January 2018) in 
conjunction with the second sentence of Article 96(1) of the ZDDS, shortened the 
period for a certain category of persons and changed the conditions for that 
exemption. The provision obliges the supplier of the taxable supply to collect and 
deduct the tax on the supplies exceeding the taxable turnover of BGN 50 000, 
including the supply by which the taxable turnover is exceeded, where the taxable 
person does not apply for registration within the period laid down for that purpose. 
16 By the new second sentence of Article 96(1) of the ZDDS (in force since 
1 January 2018) the Bulgarian legislature decided, in essence, to treat taxable 
persons who reach the taxable turnover threshold within a maximum period of two 
consecutive months differently by requiring them to apply for registration within 
seven days from the date on which the turnover was reached. In that case, it is 
provided that the supply by which the aforementioned threshold is exceeded is 
taxable where the seven-day period is not observed. 
17 The referring court takes the view that the VAT Directive does not contain any 
restrictions on such a difference in treatment, since the Member State’s right to 
grant a tax exemption to taxable persons whose annual turnover does not exceed 
the maximum limit laid down in national law is not restricted by further 
conditions. 
The factual circumstances in the first and second sentences of Article 96(1) of the 
ZDDS do not apply to the same cases, and therefore it may be argued that the 
taxable persons are treated differently. That was expressly acknowledged in the 
grounds of the judgment of the Constitutional Court of 30 June 2020. 
The Member State’s decision whether to exempt from tax a supply exceeding the 
taxable turnover threshold where that threshold is exceeded more slowly, that is to 
say, within twelve consecutive months before the current month, is a sovereign 
decision, which is why no restriction is contained in the provisions of Title XII, 
Chapter 1, of the VAT Directive. 
On the other hand, a person who has applied for registration in due time and a 
person who has not done so are also, in the factual circumstances described in 
Article 102(4) of the ZDDS, not in the same situation. The former has duly 
fulfilled his obligation to apply for registration and notified his or her tax liability, 
whereas the latter has not done so. The former is exempt from taxation of the 
supply by which the compulsory registration threshold was exceeded. The latter is 
not. The decision regarding exemption from tax again rests with the Member 
State, which is also why no restriction is contained in the provisions of Title XII, 
Chapter 1, of the VAT Directive in that regard. 
On the basis of those considerations, the Constitutional Court dismissed the 
application for a declaration that Article 102(4) of the ZDDS is unconstitutional 
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on the basis that it is incompatible with Article 6(2), Article 19(2) and 
Article 60(1) of the Constitution. 
18 However, the referring court also considers it to be debatable whether the national 
provision relied on is compatible with EU law, in particular the provisions and 
principles of the VAT Directive, especially as the plea in that regard contained in 
the application seeking a declaration that Article 102(4) of the ZDDS is 
unconstitutional was not considered by the Constitutional Court and its decision 
was signed subject to a dissenting opinion. 
19 The VAT Directive does not expressly provide for a system of penalties for non-
compliance with the obligations laid down in Article 213(1). According to settled 
case-law, in particular the judgments in Cases С-263/11 and С-424/12, in the 
absence of harmonisation of EU legislation in the field of penalties applicable in 
cases where conditions laid down by arrangements under that legislation are not 
complied with, Member States are empowered to choose the penalties which seem 
to them to be appropriate. 
According to the referring court, it is admissible under the VAT Directive for the 
national legislature to decide not to exempt the supply exceeding the turnover 
threshold and to determine a shorter period for the submission of the application 
for compulsory registration where the turnover tax threshold is reached more 
quickly and the application for registration has not been submitted within the 
period laid down. The provisions governing whether such tax exemption is 
approved or refused are substantive provisions which exempt from or justify the 
obligation to collect VAT on taxable supplies, not penalty provisions applied to 
infringements of administrative law. 
The failure to apply for compulsory registration where the conditions for doing so 
exist constitutes, essentially, a concealment of taxability both in respect of the 
turnover which occurs after the time of registration and, as the provision in 
question in the amended version provides, in respect of the turnover exceeding the 
taxable turnover threshold (see, to that effect, the judgment in Case C 576/15). 
For the referring court, there is no reason to assume that the determination of 
liabilities by the tax adjustment notice constitutes the imposition of a penalty for 
non-fulfilment of the taxable person’s obligation to apply for registration in due 
time. This follows from the fact that the principal claim was determined as the 
amount of the VAT owed which the supplier of a taxable supply made in the 
context of an independent economic activity must collect. The supplier obtained 
that amount from the purchaser as part of the supply price. 
Under Article 102(4) of the ZDDS, the relevant supply is exempt from tax where 
the application for registration is submitted in due time and taxable where that 
obligation has not been fulfilled. It is clearly the legislature’s intention to regard 
the one supply as taxable and the other as tax-exempt, which was confirmed by 
the decision of the Constitutional Court of 30 June 2020. 
LEGAFACT 
 
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On the basis of those considerations, the referring court takes the view that 
Article 102(4) of the ZDDS constitutes not a penalty, but a substantive tax 
provision which, owing to the absence of a tax exemption under Title XII, Chapter 
1, of the VAT Directive, justifies a VAT debt. Penalties are imposed by 
Articles 178 and 180 of the ZDDS, which provide for liability under 
administrative law in the case of failure to apply for registration and to collect the 
tax within the periods specified for that purpose. However, in the main case, the 
proceedings in that regard were discontinued on the ground of insignificance. 
20 That reasoning is also predominantly followed in the case-law of the chambers of 
the Varhoven administrativen sad (Supreme Administrative Court, Bulgaria). 
However, there is also opposing case-law from the Supreme Administrative Court 
in cases where the factual circumstances are identical to those in the present case. 
According to the reasoning of that case-law, which was also reflected in the 
judgment at first instance, Article 102(4) of the ZDDS is a penalty provision and 
must therefore be applied in compliance with the principle of proportionality. It is 
assumed in those final judgments that, in cases such as that in the present 
proceedings, the aim is really to impose increased VAT in respect of the taxable 
person’s failure to fulfil the obligation to register for VAT in due time. It is not 
stated in those judgments on what criteria the provision is regarded as a penalty 
provision. Relying on the reasoning of the Court of Justice in Case С-183/14, 
which they regard as the authoritative interpretation because of the similarity of 
the factual circumstances in that case with those in the respective cases in the 
main proceedings, those chambers assume that the, in their view, penalty 
provision was applied disproportionately and cancel the imposed obligations both 
in respect of the interest and in respect of the VAT. It is stated as a further 
argument for those conclusions that, although the recognition of VAT paid by the 
taxable person on the supplies obtained before registration is not in dispute either 
in the cases in question or in the present case, the assumption that the provision 
itself is disproportionate is all the more justified where that person is not entitled 
to deduct input tax. 
21 In the judgment of the Court of Justice in Case С-183/14, the question whether a 
Member State is entitled to collect a higher tax on the supplies provided as a 
penalty for the person not registering for VAT in due time is actually answered. 
The answer is, in fact, that such a penalty may be imposed only if it is 
proportionate, which must be determined taking into account ‘inter alia, the sum 
actually imposed and the possible existence of fraud or circumvention of the 
applicable legislation attributable to the taxable person whose failure to register is 
being penalised’. That answer, however, relates only to increased VAT and not to 
the principal claim in respect of tax debt. It must be emphasised in that regard that 
the legal basis for imposing interest liabilities because of the late submission of 
the application for registration in the present case is not to be found in 
Article 102(4) of the ZDDS but in Article 175(1) of the Danachno-osiguritelen 
protsesualen kodeks (Tax and Social Security Code of Procedure) in conjunction 
with Article 1(1) of the Zakon za lihvite varhu danatsi, taksi i drugi podobni 
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darzhavni vzemania (Law on interest on taxes, charges and other similar debts 
owed to the State). 
Notwithstanding that, the situation in Case С-183/14 was fundamentally different 
from that in the present case. In Case С-183/14, the issue was whether the supplies 
in question were taxable as part of the supplier’s independent economic activity 
and, if so, whether it was permissible to refuse the supplier the right to deduct the 
VAT paid on goods and services used for the purposes of taxable supplies as input 
tax. In the present case, it is common ground that the supplies at issue form part of 
the supplier’s independent economic activity and there is no indication that the 
respondent had intended to withhold the VAT on the supplies. 
The referring court considers it also significant that the present dispute and the 
dispute in the main proceedings in the cited case before the Court of Justice take 
place in very different national legal contexts. The Bulgarian ZDDS contains 
provisions for deduction of input tax on available assets and services received 
prior to registration under the ZDDS (Article 74 of the ZDDS), but deduction of 
input tax was not at issue either in the present case or in the other cases of the 
Supreme Administrative Court. 
22 To conclude, the case-law of the Supreme Administrative Court, which is the 
court ruling at last instance, contains contradictions regarding the application of 
the EU provisions in the area of VAT to identical cases, which makes it necessary 
to submit a request for a preliminary ruling in order to ensure the uniform 
interpretation and application of those provisions. 
23 On those grounds, the referring court takes the view that it is necessary for the 
decision in the case to obtain answers to the questions referred by requesting a 
preliminary ruling from the Court of Justice.