Opinion of the Advocate General — ECLI:EU:C:2022:435
Date: 2022-06-02
Language of the case: Bulgarian
Subject matter: Taxation;Justice and home affairs;Value added tax
Procedure: Reference for a preliminary ruling;Reference for a preliminary ruling - inadmissible
Origin: Bulgaria

Summary  C-1/21 – 1 
Case C-1/21 
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:  
4 January 2021  
Referring court:  
Administrativen sad Veliko Tarnovo (Bulgaria)  
Date of the decision to refer:  
18 November 2020 
Applicant:  
MC 
Defendant:  
Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna 
praktika’ – Veliko Tarnovo pri Tsentralno upravlenie na 
Natsionalnata agentsia za prihodite 
 
Subject matter of the main proceedings 
The subject matter of the proceedings is an action brought by MC, from Veliko 
Tarnovo, challenging the legality of a tax assessment notice issued by the 
Teritorialna direktsia na Natsionalna agentsia za prihodite (Regional Directorate 
of the National Revenue Agency; ‘the NAP’) in Veliko Tarnovo, corrected by 
way of a notice of correction of a tax assessment notice. In the part contested by 
the action before the referring court, the corrected tax assessment notice was 
confirmed by decision of the Direktor na Direktsia ‘Obzhalvane i danachno-
osiguritelna praktika’ – Veliko Tarnovo (Director of the ‘Appeals and Tax and 
Social Security Practice’ Directorate of Veliko Tarnovo). The corrected tax 
assessment notice established that the applicant owed the State a debt in the total 
amount of 45 008.25 leva (BGN) for the December 2014 tax period, of which 
12 837.50 leva (BGN) is accrued interest. That amount is part of the unpaid tax 
debts of another taxable entity, namely the company ZZ AD, of which the 
applicant was an executive director during the period for which the 
aforementioned amount is owed. After opening the main proceedings, the 
EN 
SUMMARY OF THE REQUEST FOR A PRELIMINARY RULING – CASE C-1/21 
 
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referring court finds that an interpretation of provisions of EU law is required for 
the correct resolution of the dispute. It therefore submits a request for a 
preliminary ruling to the Court of Justice of the European Union under the third 
paragraph of Article 267 TFEU.  
Subject matter and legal basis of the request for a preliminary ruling 
Interpretation of EU law, Article 267 TFEU 
Article 9 of the Convention drawn up on the basis of Article K.3 of the Treaty on 
European Union, on the protection of the European Communities’ financial 
interests 
Article 273 of Directive 2006/112/EC 
Compatibility of Article 19(2) of the Danachno-osiguritelen protsesualen kodeks 
(Code of Tax and Social Security Procedure; ‘the DOPK’) with EU law. That 
provision makes it possible to hold liable for pecuniary loss a manager or member 
of the management body of an undertaking whose acts carried out in bad faith 
have led to a reduction in the assets of that undertaking, as a result of which the 
latter owes outstanding taxes and/or statutory social security contributions. That 
liability is personal liability, but for the debt of a third party. Thus, the debtor is 
liable up to the amount of the reduction which he or she caused in the assets of the 
undertaking that he or she manages. Protective measures and enforcement are 
directed first against the assets of the debtor for whose tax or social security debt 
the liability is incurred. The liability of the manager [or member of the 
management body] who acted in bad faith ceases when the debt in respect of 
which that liability was established has been extinguished. 
The compatibility of that national provision with, in particular, the principle of 
proportionality. 
The compatibility [with EU law] of the liability of the manager [or member of the 
management body] who acted in bad faith for the interest on the outstanding 
receivables governed by public law, including in cases where the late payment 
which led to the charging of interest on the debt is attributable not to the conduct 
of the manager [or member of the management body] who acted in bad faith but 
to the conduct of another person or to the manifestation of objective 
circumstances. 
Questions referred for a preliminary ruling 
1. Is Article 9 of the Convention drawn up on the basis of Article K.3 of the 
Treaty on European Union, on the protection of the European Communities’ 
financial interests, read in conjunction with Article 273 of Council Directive 
2006/112/EC of 28 November 2006 on the common system of value added 
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tax, to be interpreted as meaning that it does not preclude, in the harmonised 
field of value added tax, a national legal instrument such as that provided for 
in Article 19(2) of the DOPK, the application of which has the effect of 
triggering post factum the joint and several liability of a non-taxable natural 
person who is not liable for payment of VAT but whose conduct in bad faith 
led to non-payment of VAT by the taxable legal person which is liable for 
that payment? 
2. Do the interpretation of those provisions and the application of the principle 
of proportionality preclude the national legal instrument provided for in 
Article 19(2) of the DOPK also in respect of interest on VAT not paid in due 
time by the taxable person liable for that payment? 
3. Is the national legal instrument provided for in Article 19(2) of the DOPK 
contrary to the principle of proportionality in a case where the late payment 
of VAT, which led to interest being charged on the VAT debt, is attributable 
not to the conduct of the non-taxable natural person, but to the conduct of 
another person or to the manifestation of objective circumstances? 
EU legislation and case-law relied on 
Article 9 of the Convention drawn up on the basis of Article K.3 of the Treaty on 
European Union, on the protection of the European Communities’ financial 
interests (‘the Convention’). 
Recital 44, Article 9(1) and Articles 206 and 273 of Council Directive 
2006/112/EC of 28 November 2006 on the common system of value added tax 
(‘the VAT Directive’). 
The referring court states that it has not been able to identify any case-law of the 
Court of Justice providing the answer to the questions referred, which is required 
for the correct resolution of the dispute. In the field of the harmonised system of 
value added tax, the Court of Justice has repeatedly clarified the application of the 
principle of proportionality, without, however, ruling on its application in the 
context of circumstances identical or similar to those in the main proceedings. The 
referring court considers that the interpretation of Article 205 of the directive in 
the case-law of the Court of Justice is not relevant, since, on the one hand, the 
joint and several liability provided for by the national legal mechanism lies 
outside the scope of that provision and, on the other hand, the joint and several 
liability provided for therein relates to a person who has the status of taxable 
person within the meaning of the directive. 
Provisions of national law relied on 
Danachno-osiguritelen protsesualen kodeks (Code of Tax and Social Security 
Procedure, ‘the DOPK’): 
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Article 14. Debtors are natural and legal persons who: 
1. are obliged to pay taxes or statutory social security contributions; 
Article 19(2). A manager or member of a management body who, in bad faith, 
makes payments in kind or in cash from the assets of a legal entity which is a 
debtor pursuant to Article 14(1) and (2) constituting a hidden distribution of 
profits or dividends, or transfers assets of the debtor free of charge or at prices 
significantly lower than market prices, with the result that the assets of the debtor 
are reduced and therefore taxes or statutory social security contributions have not 
been paid, shall be liable for the debt up to the amount of the payments made or, 
respectively, of the reduction in the assets. 
Article 20. In the cases provided for in Article 19, protective measures and 
enforcement shall be directed first against the assets of the debtor for whose tax or 
social security debt the liability is incurred. 
Article 21(3). The liability of third parties shall cease when the debt for which that 
liability was established by a final act is extinguished. In this case, amounts paid 
shall be reimbursed in accordance with the procedure set out in Chapter 16, 
Section 1. 
Zakon za danak varhu dobavenata stoynost (Law on value added tax) 
Article 3(1). ‘Taxable person’ shall mean any person who, independently, carries 
out an economic activity, whatever the purpose or results of that activity. 
Article 89(1). Where there is a result for the period, in the form of tax to be paid, 
the registered person shall be obliged to pay the tax to the State budget by paying 
it into the account of the competent Teritorialna direktsia na Natsionalnata 
agentsia za prihodite (Regional Directorate of the National Revenue Agency) 
within the time limit for filing the VAT return for that tax period. 
Zakon za lihvite varhu danatsi, taksi i drugi podobni darzhavni vzemania (Law on 
interest charged on taxes, fees and other similar receivables governed by public 
law) 
Article 1(1). Taxes, fees, profit deductions, contributions to the budget and other 
similar receivables governed by public law that have not been paid within the time 
limits for voluntary payment, have not been withheld or have been withheld but 
have not been paid on time shall be collected together with statutory interest. 
The referring court observes that the case-law from the cassation instance on the 
existence of an obligation to pay interest under Article 19(2) of the DOPK is 
contradictory. There are judgments finding that the interest must be included in 
the scope of the liability of a manager who acted in bad. However, there are also 
judgments finding that only the principal amount of the receivable is covered by 
the liability under Article 19(2). 
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Succinct presentation of the facts and procedure in the main proceedings 
1 The applicant was the executive director of the company ZZ AD, in respect of 
which a tax assessment notice was issued for an amount of 3 799 590.92 leva 
(BGN). That amount also includes interest on the unpaid VAT in the amount of 
691 911.94 leva (BGN). There is no doubt that the company is the taxable person 
under both national tax law and EU law and must pay the VAT and the interest 
thereon if it has funds available when the debt becomes due. 
2 With regard to the recovery of the amounts owed, enforcement proceedings for 
the recovery of receivables governed by public law were initiated. Requests for 
voluntary payment were sent to the debtor on several occasions, but such payment 
was never made. 
3 It was established that the company also has other debts, which are secured by 
pledges on movable property, attachment of immovable property and two special 
pledges on the whole company as a set of rights and obligations. The company’s 
accounts were also attached, but the amounts received are not enough to cover the 
debts. Therefore, the company’s debt to the State, which includes the 
abovementioned interest on VAT not paid in due time, was classified as difficult 
to enforce by the enforcement officer. 
4 In view of the applicant’s possible personal liability for those third-party debts, 
that revenue authority referred the matter to the competent Regional Directorate of 
the NRA. The claims against the applicant are based on the fact that he increased 
his remuneration several times (from 3 000 to 20 000 leva [BGN]) without being 
able to produce valid documentary evidence for that increase. The manner in 
which the increased remuneration was paid does not comply with statutory 
requirements and established practice. The amounts were transferred to the lawyer 
acting on behalf of the company, who in turn transferred them to the applicant’s 
wife’s account, to which the applicant also has access. In order to determine the 
amount owed by the applicant, the court has appointed an accountant to provide 
an expert opinion. 
Principal arguments of the parties to the main proceedings 
5 The applicant disputes the claim and submits that the existence of all the 
conditions for engaging his liability under Article 19(2) of the DOPK has not been 
properly established. His main argument is that there is no causal link between the 
remuneration received by him in his capacity as the executive body of the taxable 
person and the lack of funds to settle the claims governed by public law, including 
the interest of VAT for December 2014. 
6 The defendant argues, in essence, that, as the executive body of the taxable person 
(a person that is also liable for payment of VAT), the applicant has acted in bad 
faith because he received, during the relevant tax period, remuneration the amount 
of which has not been shown to have been duly determined. It submits that the 
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amounts were transferred to an account of the lawyer with whom the company 
had concluded a contract for legal advice, and the lawyer had transferred them to 
the applicant’s wife’s account, to which the applicant also has access. According 
to the defendant, the applicant’s actions to be regarded as a manifestation of 
conduct in bad faith are his instructions to the taxable person’s chief accountant. 
The latter carried out the accounting transactions for paying the increased 
remuneration to the applicant, for which there was no basis. 
Brief summary of the grounds for the request 
7 The referring court takes the view that, in order to resolve the dispute correctly, it 
is necessary for the Court of Justice to provide it with an answer regarding the 
subjective and objective limits of liability for the effective payment of VAT which 
are permissible pursuant to the relevant provisions of EU law and the principle of 
proportionality in cases where the financial interests of the Union have been 
harmed, in particular where that harm consists in the fact that interest on VAT not 
paid in due time by a taxable person could not be collected because of the conduct 
of a non-taxable natural person. 
8 For the purposes of the reference and in view of the need to obtain interpretative 
guidance, the referring court provisionally assumes that the applicant’s conduct 
gives rise to the applicability of the legal instrument provided for by national law, 
namely Article 19(2) of the DOPK. For the purposes of the reference, it further 
assumes that the applicant in the case ordered – or at least had knowledge of – the 
transfer by a third party of a sum from the company’s assets to a natural person 
associated with him and, in so doing, he acted in bad faith under national law. Due 
to the reduction in the company’s assets by the amount of that sum, the interest 
due on VAT, accrued as of December 2014, was not paid. 
9 However, the question that arises for the referring court is whether EU law allows 
a third non-taxable natural person to be held liable for unpaid VAT and/or unpaid 
interest on that tax on the basis of the legal instrument created by the national 
provision of Article 19(2) of the DOPK. 
10 In the first place, the referring court considers it appropriate to point out that – 
even if this does not expressly follow from the national case-law – liability for 
unpaid tax under Article 19(2) of the DOPK is joint and several in nature, since, 
although it arises after the taxable person’s liability has arisen, it continues to exist 
until the tax debt has been extinguished. Its compulsory enforcement is subsidiary, 
as follows from Article 20 of the DOPK. Nevertheless, the incurrence of liability 
under Article 19(2) of the DOPK does not exempt the original debtor, which, 
under the national legal instrument, is a taxable legal person. On the contrary, 
based on arguments arising from the national provision of Article 21(3) of the 
DOPK, the extinction of the tax debt also leads to the cessation of the liability of 
the jointly and severally liable debtor. 
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11 On the other hand, that liability is in no way connected with or attributable to 
fraudulent or abusive acts by the taxable legal person itself in the context of its 
independent economic activity. 
12 The national legal instrument is in fact directed against the conduct in bad faith of 
a natural person who does not have the status of taxable person under either 
national law or the VAT Directive. His or her legal relationship with the taxable 
person consists in the fact that the natural person constitutes a management body 
or part of a management body of the taxable person and performs operational and 
managerial functions. 
13 Indeed, Article 9 of the Convention empowers Member States, in order to protect 
the financial interests of the European Union, to adopt internal legal provisions 
which go beyond the minimum obligations and standards deriving from the 
provisions of the Convention. 
14 On the one hand, when Member States adopt, in the field of the protection of the 
European Union’s financial interests, national legal instruments creating 
obligations and liabilities for legal entities, those instruments must comply with 
the principle of proportionality. 
15 On the other hand, the referring court states that, when creating legal instruments 
to protect the European Union’s financial interests in the field of value added tax, 
the national legislature must take into account, in addition to that principle of EU 
law, the harmonised legal subject matter in the field of value added tax. 
16 It could be argued that a natural person who is not a taxable person within the 
meaning of the directive cannot be held jointly and severally liable for VAT not 
paid by a taxable person, as Member States do not have the power to adopt such 
national legal instruments. However, the contrary view can also be argued, namely 
that the conduct in bad faith of a natural person who is not a taxable person but is 
associated with a taxable legal person empowers Member States to hold the first-
mentioned person jointly and severally liable for the payment of VAT not paid by 
the second-mentioned person. 
17 However, the referring court takes the view that, even if it were assumed that 
Member States are entitled to engage the liability of a natural person who is not 
liable for VAT, this does not lead to the categorical and unequivocal conclusion 
that that person is also liable for the interest on the VAT not paid in due time. At 
first glance, it follows from Article 273 of the VAT Directive, read in conjunction 
with recital 44 thereof, that the measures and the legal instruments which the 
Member States may introduce to protect their financial interests and, accordingly, 
the financial interests of the European Union in the field of VAT are confined to 
the possibility of holding a person who has acted in bad faith liable only for the 
unpaid VAT itself, but not also for the interest accrued on account of the late 
payment thereof. That conclusion would be in line with a purely grammatical and 
strict interpretation of the wording of Article 273 of the VAT Directive, read in 
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conjunction with recital 44 thereof. It could also be argued that the bad faith of the 
non-taxable third party constitutes a sufficient reason for him to be liable also (or 
only) for the interest related to the VAT not paid in due time. In both cases, it is 
necessary for the referring court to assess whether, in such circumstances, the 
principle of proportionality and its impact should be taken into account. 
18 Finally, it is necessary for the referring court to assess whether the application of 
the national legal instrument triggering the joint and several liability of a non-
taxable third party for interest on VAT not paid in due time would infringe the 
principle of proportionality under EU law where the failure to settle the VAT debt 
in due time and, therefore, the reason for the charging of interest on that debt is 
attributable not to the conduct in bad faith of the third-party non-taxable natural 
person, but to the conduct of another person or the manifestation of objective 
circumstances. 
19 Consequently, it would be useful for the referring court if it could obtain an 
answer – together with interpretative guidance – to the question of whether the 
legal instrument provided for in the national provision of Article 19(2) of the 
DOPK is permissible in the harmonised field of value added tax where the 
application of that instrument entails the engagement post factum of the joint and 
several liability of a natural person who is not a taxable person within the meaning 
of the VAT Directive and is not the original person liable to pay VAT, but who is 
connected to that taxable person, and the late payment or non-payment of VAT 
results from his conduct in bad faith. 
20 Furthermore, it would be useful for the referring court if it could obtain an 
answer – together with interpretative guidance – to the question of whether, based 
on an interpretation of Article 9 of the Convention and Article 273 of the VAT 
Directive, taking into account the principle of proportionality, the legal instrument 
provided for by the national provision of Article 19(2) of the DOPK is applicable 
and permissible as regards interest on VAT not paid in due time. 
21 Finally, it would be useful for the referring court if it could obtain an answer – 
together with interpretative guidance – to the question of whether the national 
provision of Article 19(2) of the DOPK, when applied only in respect of interest 
on VAT, is contrary to the principle of proportionality under EU law where the 
late payment of VAT, which led to the charging of the interest in question, is 
attributable not to the conduct of the non-taxable natural person, but to the 
conduct of another person or the manifestation of objective circumstances.