1 This request for a preliminary ruling concerns the interpretation of Article 205 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1; ‘the VAT Directive’), and the principles of proportionality and legal certainty.
2 The request has been made in proceedings between ‘Vaniz’ EOOD, a limited liability company governed by Bulgarian law, and the Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’ - Veliko Tarnovo (Director of the ‘Appeals and Tax/Social Insurance Practice’ Directorate, responsible for the city of Veliko Tarnovo, Bulgaria) (‘the tax authority’) concerning the joint and several liability of Vaniz for the payment of value added tax (VAT).
3 Recital 44 of the VAT Directive states: ‘Member States should be able to provide that someone other than the person liable for payment of VAT is to be held jointly and severally liable for its payment.’
4 Article 193 of that directive provides: ‘VAT shall be payable by any taxable person carrying out a taxable supply of goods or services, except where it is payable by another person in the cases referred to in Articles 194 to 199b and Article 202.’
5 Under Article 205 of that directive: ‘In the situations referred to in Articles 193 to 200 and Articles 202, 203 and 204, Member States may provide that a person other than the person liable for payment of VAT is to be held jointly and severally liable for payment of VAT.’
6 Article 207 of that directive provides: ‘Member States shall take the measures necessary to ensure that persons who are regarded as liable for payment of VAT in the stead of a taxable person not established in their respective territory, in accordance with Articles 194 to 197 and Articles 199 and 204, comply with the payment obligations set out in this Section. Member States shall also take the measures necessary to ensure that those persons who, in accordance with Article 205, are held to be jointly and severally liable for payment of the VAT comply with these payment obligations.’
7 Under Article 21(1) of the Danachno-osiguritelen protsesualen kodeks (Tax and Social Insurance Code of Procedure) (DV No 105 of 29 December 2005), in the version applicable from 1 January 2006 (‘the DOPK’): ‘In the cases referred to in Articles 16, 18 and 19, the liability of third parties shall be established by an amended tax assessment notice.’
8 Article 112 of that code provides in paragraph 1 thereof: ‘The tax adjustment procedure shall be initiated by the issuing of a decision ordering a tax inspection.’
9 Article 168 of that code provides: ‘The claim governed by public law shall be extinguished: … 6. following the distribution of the proceeds from the realisation of the assets of a legal person which has been declared insolvent, unless other persons are liable for the claim governed by public law; 7. in the event of the removal of the legal person after the dissolution of that legal person by winding-up proceedings, unless other persons are liable for the claim governed by public law; …’
10 Article 177 of the Zakon za danak varhu dobavenata stoynost (Law on value added tax) (DV No 63 of 4 August 2006), in the version applicable to the dispute in the main proceedings (‘the ZDDS’), is worded as follows: ‘(1) A registered person who is the recipient of a taxable supply shall be liable for unpaid tax due from another registered person where he or she has exercised the right to deduct input tax directly or indirectly connected with the tax due but not paid. (2) Liability under paragraph 1 shall be incurred where the registered person knew or should have known that the tax would not be paid, and this is proved by the investigating authority in accordance with Articles 117 to 120 of the [DOPK]. (3) Knowledge shall be imputed to a person for the purposes of paragraph 2 where both of the following conditions are satisfied: 1. the tax due, within the meaning of paragraph 1, for a particular tax period has in fact not been paid by any upstream supplier in respect of a taxable supply of the same goods or services, whether or not in the same, a changed or a processed form; 2. the taxable supply is fictitious, it circumvents legislation or is made at a price that differs significantly from the market price. (4) Liability under paragraph 1 shall not be dependent on obtaining a specific advantage on account of the non-payment of the tax due. (5) In the circumstances envisaged in paragraphs 2 and 3, the upstream supplier of the taxable person who owes the unpaid tax shall also be liable. (6) In the cases referred to in paragraphs 1 and 2, liability shall be enforced against the taxable person who is the direct recipient of the supply in respect of which the tax due has not been paid, and, where recovery fails, liability may be enforced against any downstream recipient in the chain of supply. (7) Paragraph 6 shall also apply mutatis mutandis to upstream suppliers.’
11 In July, August and September 2017, Vaniz, whose business is the carriage of goods by road, purchased lorries and hired transport vehicles from the supplier ‘Stars International’ EOOD, which issued 35 invoices in respect of those various transactions. Stars International entered those transactions in its VAT returns, while Vaniz, as the recipient of the supplies at issue in the main proceedings, exercised its right to deduct VAT. However, the VAT declared by Stars International was not paid to the public exchequer, as the tax authority found during a tax inspection.
12 Furthermore, on 19 July 2019, insolvency proceedings were initiated in respect of Stars International. By judgment of 4 August 2020, those proceedings were closed and the removal of Stars International from the commercial register ordered.
13 On 17 January 2022, the tax authority initiated a tax inspection procedure relating to Vaniz seeking to hold Vaniz jointly and severally liable for the payment of the VAT declared by Stars International in respect of the 35 invoices referred to above, but not paid to the public exchequer by Stars International. During that procedure, that tax authority took the view that Vaniz was aware or should have been aware of the fact that that VAT would not be paid.
14 In finding that Vaniz was jointly and severally liable for the payment of that VAT, the tax authority issued in that regard a tax adjustment notice against Vaniz in the amount of 217 277.82 leva (BGN) (approximately EUR 111092), together with default interest amounting to BGN 114 365.21 (approximately EUR 58474).
15 Vaniz challenged that tax notice before the Administrativen sad Veliko Tarnovo (Administrative Court, Veliko Tarnovo, Bulgaria), which is the referring court. Vaniz submits that Stars International, the principal debtor of the VAT debt at issue in the main proceedings, was removed from the commercial register and ceased to exist as a legal person since 4 August 2020, that is to say, before the opening, on 17 January 2022, of the proceedings seeking to establish the joint and several liability in respect of the payment of that debt, and that, after the dissolution of a legal person, the obligations of that legal person are extinguished, with the result that proceedings seeking to establish the joint and several liability of a third party in the light of those obligations can no longer be brought.
16 By contrast, the tax authority contends that, under national legislation, the VAT debt is not extinguished upon the death or the dissolution of the debtor where there are third parties jointly and severally liable for that debt.
17 The referring court states that, in its judgment of 20 May 2021, ALTI (C‑4/20, EU:C:2021:397), the Court held that, by virtue of the joint and several liability provided for in Article 205 of the VAT Directive, the Member States may impose on the person jointly and severally liable for the payment of the tax all the elements relating to that tax not paid by the person liable for payment of the tax, where it is established that, while exercising his or her right of deduction, the person jointly and severally liable knew or should have known that the person liable for payment of the tax would not pay that tax.
18 However, the referring court takes the view that it is necessary to determine the temporal limits of joint and several liability and, in particular, to specify the moment until which it is possible to incur such liability. According to that court, it is necessary to take into account, in the present case, the fact that what is at issue is not a tax debt of the taxable person, but a liability in respect of the debts of another person and that the person from whom the payment of those debts is claimed discovers that he or she must assume such liability at a time when the person liable for payment of the VAT no longer exists in law. That is why that court questions whether the application of joint and several liability to Vaniz by the tax authority complies with the provisions of Article 205 of the VAT Directive, read in the light of the principles of EU law.
19 In those circumstances, the Administrativen sad Veliko Tarnovo (Administrative Court, Veliko Tarnovo) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling: ‘(1) Do recital 44 and Article 205 of [the VAT Directive] and, accordingly, the principles of transparency and proportionality of liability permit the initiation, after the principal debtor has ceased to exist as a legal person, of a procedure intended to establish a person’s joint and several liability to pay VAT and the extent of such joint and several liability? (2) Do they, following the deletion of the debtor [from the commercial register] without a legal successor assuming that debtor’s rights and obligations, allow the existence of a registered claim against that debtor, for which a third party is liable a posteriori? (3) Is the administrative practice of the national tax authorities as described above consistent with the principle of legal certainty?’
20 According to the tax authority, the questions referred for a preliminary ruling are inadmissible.
21 First, it submits that, contrary to what the referring court states in the first question, the tax inspection procedure with a view to establishing the joint and several liability of Vaniz under Article 177 of the ZDDS in respect of the VAT debts of Stars International had already been initiated on the date of the dissolution of Stars International. Consequently, the first question does not correspond to the factual situation of the dispute in the main proceedings and is therefore purely hypothetical.
22 Secondly, there are no relevant rules of EU law that provide a reply to the second question.
23 In that regard, it should be borne in mind that, according to settled case-law, Article 267 TFEU establishes a procedure for direct cooperation between the Court and the courts of the Member States. In that procedure, which is based on a clear separation of functions between the national courts and the Court, any assessment of the facts of the case is a matter for the national court, which must determine, in the light of the particular circumstances of the case, both the need for a preliminary ruling in order to enable it to deliver judgment and the relevance of the questions which it submits to the Court, whilst the Court is empowered to give rulings on the interpretation or the validity of an EU provision only on the basis of the facts which the national court puts before it (see, to that effect, judgments of 16 March 1978, Oehlschläger, 104/77, EU:C:1978:69, paragraph 4, and of 4 October 2024, Schrems (Communication of data to the general public), C‑446/21, EU:C:2024:834, paragraph 42 and the case-law cited).
24 Consequently, the first question referred must be answered taking into account the facts on which it is based, as set out by the referring court, the accuracy of which it is for the referring court to ascertain.
25 In addition, the assessment referred to in paragraph 22 above concerns the substantive examination of the questions referred and does not constitute a ground of inadmissibility.
26 It follows that the pleas of inadmissibility raised by the tax authority must be rejected.
27 By its questions, which it is appropriate to examine together, the referring court asks, in essence, whether Article 205 of the VAT Directive, read in the light of the principles of proportionality and legal certainty, must be interpreted as precluding national legislation under which the person held jointly and severally liable for payment of VAT, within the meaning of that article, may incur liability after the person liable for payment of that tax has ceased to exist as a legal person, where it is established that that person, while exercising his or her right of deduction himself or herself, knew or should have known that that person liable for payment would not pay the tax.
28 As a preliminary point, it should be stated that Article 205 of the VAT Directive allows Member States to adopt, for the efficient collection of VAT, measures pursuant to which a person other than the person normally liable for that tax under Articles 193 to 200 and 202 to 204 of that directive is jointly and severally liable for payment of that tax (judgment of 20 May 2021, ALTI, C‑4/20, EU:C:2021:397, paragraph 29).
29 However, since Article 205 of the VAT Directive specifies neither the persons that Member States may designate as joint and several debtors nor the situations in which such designation may be made, it is for the Member States to determine the conditions and arrangements under which the joint and several liability provided for in that article will be incurred (judgment of 20 May 2021, ALTI, C‑4/20, EU:C:2021:397, paragraph 31).
30 In the exercise of that power, Member States must observe the general principles of law that form part of the EU legal order, which include, in particular, the principles of legal certainty and of proportionality (judgment of 20 May 2021, ALTI, C‑4/20, EU:C:2021:397, paragraph 32 and the case-law cited).
31 In that judgment, the Court held that Article 205 of the VAT Directive, read in the light of the principle of proportionality, does not preclude national legislation pursuant to which the person held jointly and severally liable, for the purpose of that article, must pay, in addition to the VAT not paid by the person liable for payment of that tax, the default interest on that amount, due from the person liable for payment, where it is proved that, in exercising its right of deduction, it knew or should have known that the person liable for payment would not pay that VAT (judgment of 20 May 2021, ALTI, C‑4/20, EU:C:2021:397, paragraph 45 and the operative part). The Court held that such legislation also appeared to be consistent with the principle of legal certainty (judgment of 20 May 2021, ALTI, C‑4/20, EU:C:2021:397, paragraph 43).
32 In order to determine, in the first place, whether Article 205 of the VAT Directive precludes national legislation such as that at issue in the main proceedings, it is necessary to consider its wording, its context and the objectives pursued by the legislation of which it forms part (see, by analogy, judgment of 25 April 2024, Finanzamt X (Application and disposal of goods free of charge), C‑207/23, EU:C:2024:352, paragraph 31 and the case-law cited).
33 It is apparent from the wording of Article 205 of the VAT Directive that it imposes a joint and several obligation on a person other than the person liable for payment of the tax. It follows from the very nature of joint and several liability that each debtor is liable for the full amount of the debt and the creditor is, in principle, free to claim payment of that debt from one or more of the debtors as he or she chooses (judgment of 22 November 2017, Aebtri, C‑224/16, EU:C:2017:880, paragraph 80 and the case-law cited). It follows that one of the jointly and severally liable debtors ceasing to exist does not remove the obligation on his or her jointly and severally liable co-debtor or co-debtors.
34 Consequently, the person liable for payment of the VAT ceasing to exist as a legal person does not, in itself, affect the opportunity for the tax authority, as the creditor under the joint and several obligation, seeking to impose liability on the jointly and severally liable third party for the payment of the VAT debt.
35 That interpretation is borne out by the context in which Article 205 of the VAT Directive occurs and by the objective which it pursues. It is apparent from Articles 193 to 205 of that directive that that Article 205 is part of a set of provisions aimed at identifying the person liable for payment of VAT in various situations, since those provisions seek to ensure for the public exchequer the efficient collection of VAT from the most appropriate person in the light of the specific situation (see, to that effect, judgment of 20 May 2021, ALTI, C‑4/20, EU:C:2021:397, paragraph 28). Providing for the joint and several liability of a third party for the payment of VAT, inter alia, in a situation where the person liable for payment of the tax is insolvent or has ceased to exist and, therefore, is not or is no longer in a position to pay it, is consistent with that objective.
36 In the second place, as regards the principle of proportionality, it should be recalled that, in accordance with that principle, Member States must employ means which, whilst enabling them effectively to attain the objectives pursued by their domestic laws, cause the least possible detriment to the objectives and principles laid down by the relevant EU legislation. Therefore, while it is legitimate for the measures adopted by the Member States to seek to preserve the rights of the public exchequer as effectively as possible, they must not go further than is necessary for that purpose (judgment of 20 May 2021, ALTI, C‑4/20, EU:C:2021:397, paragraph 33 and the case-law cited).
37 As regards the need to find a third party liable after the person liable for payment of the VAT has ceased to exist, it should be borne in mind that the Court has held that, in the case of VAT abuse such as that envisaged by the national legislation at issue in the main proceedings, the public exchequer must have the opportunity to recover, in the interests of efficiency, the tax due and all the elements relating thereto from each of the contracting parties which participated in that abuse (judgment of 20 May 2021, ALTI, C‑4/20, EU:C:2021:397, paragraph 44). That opportunity is all the more necessary where the person liable for payment of the tax has become insolvent or has ceased to exist as a legal person.
38 As regards whether that opportunity does not go beyond what is necessary for the joint and several liability of third parties provided for in Article 205 of the VAT Directive, it should be noted that, if the tax authority were allowed to impose liability on third parties who have participated in VAT abuse only where the person liable for payment of the VAT exists, such a limitation would compromise the opportunity of enforcing that liability. In such a case, where the tax authority finds that it can no longer obtain payment of the VAT from the person liable for payment of the tax, because that person has ceased to exist as a legal person, it would no longer be able to bring proceedings against those third parties. In addition, a person liable for payment of the tax in bad faith could organise for his or her liquidation, for the purpose, in particular, of preventing the enforcement of the liability of third parties who have contributed to the abuse giving rise to the VAT debt. Consequently, the possibility of a third party incurring liability for the payment of the VAT after the person liable for payment of the tax has ceased to exist does not go beyond what is necessary in order to ensure the effectiveness of Article 205 of the VAT Directive.
39 In the third place, the principle of legal certainty requires, first, that, in areas covered by EU law, the legal rules of the Member States are worded unequivocally so as to give the persons concerned a clear and precise understanding of their rights and obligations and to enable national courts to ensure that those rights and obligations are observed (judgment of 9 July 2015, Salomie and Oltean, C‑183/14, EU:C:2015:454, paragraph 32 and the case-law cited).
40 In the present case, it is apparent from the order for reference that under Article 177(1) of the ZDDS, a registered person who is the recipient of a taxable supply is to be liable for unpaid tax due from another registered person where he or she has exercised the right to deduct input tax directly or indirectly connected with the tax due but not paid. Article 177(2) of the ZDDS states that liability under that Article 177(1) is to be incurred where the registered person knew or should have known that that VAT would not be paid and that is proved by the investigating authority. It is also apparent from that decision that Article 168(7) of the DOPK expressly provides that, ‘in the event of the removal of the legal person after the dissolution of that legal person by winding-up proceedings’, the tax authority may, where appropriate, seek to impose liability on third parties for the payment of the tax debt.
41 In those circumstances, it appears that the national legislation at issue in the main proceedings enables the recipient of a supply of goods or services to know that, if, when that transaction was carried out, he or she knew or should have known that the tax would not be paid and if he or she exercised his or her right of deduction, he or she may be held jointly and severally liable for payment of that tax and that the person liable for payment of that tax ceasing to exist as a legal person does not exempt him or her from his or her liability.
42 Since, according to the information provided by the referring court, that possibility is clearly provided for by the national legislation at issue in the main proceedings, that legislation appears to comply with the requirements set out in paragraph 39 above.
43 The principle of legal certainty requires, secondly, that the tax position of the taxable person, having regard to his rights and obligations vis-à-vis the tax or customs authorities, not to be open to challenge indefinitely (judgment of 10 December 2015, Veloserviss, C‑427/14, EU:C:2015:803, paragraph 31 and the case-law cited).
44 In accordance with settled case-law, a limitation period, in general, fulfils that function (judgment of 5 March 2019, Eesti Pagar, C‑349/17, EU:C:2019:172, paragraph 112 and the case-law cited). In the absence of applicable provisions of EU law, it is for Member States to establish the rules and limitation periods of a tax liability in respect of VAT (see, to that effect, judgment of 13 July 2023, Napfény-Toll, C‑615/21, EU:C:2023:573, paragraph 34 and the case-law cited).
45 However, while establishing and applying those rules falls within the competence of the Member States, the Member States must exercise that competence in a manner consistent with EU law, which requires reasonable time limits to be laid down which protect both the taxable person and the authority concerned (judgment of 13 July 2023, Napfény-Toll, C‑615/21, EU:C:2023:573, paragraph 35 and the case-law cited).
46 In the present case, since, first, the reasonableness of the limitation period for claims governed by public law laid down by national law is not disputed and, secondly, the tax authority notified within that period the person jointly and severally liable for the payment of the VAT debt of its intention to review the tax situation of the person jointly and severally liable, the requirement of the principle of legal certainty that the situation of that person is not open to challenge indefinitely does not appear to have been infringed, which it is for the referring court to ascertain.
47 In the light of the foregoing, the answer to the questions raised is that Article 205 of the VAT Directive, read in the light of the principles of proportionality and legal certainty, must be interpreted as not precluding national legislation under which the person held jointly and severally liable for payment of VAT, within the meaning of that Article 205, may incur liability after the person liable for payment of that tax has ceased to exist as a legal person, where it is established that that person, while exercising his or her right of deduction himself or herself, knew or should have known that that person liable for payment would not pay that tax.
48 Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the referring court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.