ECJ C-97/21(MV-98) – Judgment – Sealing of business premises together with administrative penalty is not proportionate for failing to issue fiscal receipts

On May 4, 2023, the ECJ issued its judgment in the case C-97/21(MV – 98).

Context: Reference for a preliminary ruling — Value added tax (VAT) — Directive 2006/112/EC — Article 273 — Failure to issue a fiscal receipt — Charter of Fundamental Rights of the European Union — Article 50 — Ne bis in idem principle — Cumulation of administrative sanctions with criminal nature of the same act — Article 49(3) — Proportionality of penalties — Article 47 — Right to an effective remedy — Scope of judicial review of the preliminary execution of a sanction

Article in the EU VAT Directive

Article 273 of Council Directive 2006/112/EC

Article 273
Member States may impose other obligations which they deem necessary to ensure the correct collection of VAT and to prevent evasion, subject to the requirement of equal treatment as between domestic transactions and transactions carried out between Member States by taxable persons and provided that such obligations do not, in trade between Member States, give rise to formalities connected with the crossing of frontiers.
The option under the first paragraph may not be relied upon in order to impose additional invoicing obligations over and above those laid down in Chapter 3.

Facts

MV – 98, whose main subject of activity is the purchase and resale of goods, including cigarettes, operates for this purpose a commercial outlet in Gotse Delchev (Bulgaria).
On October 9, 2019, during an inspection carried out in this commercial establishment, the Bulgarian tax authorities found that MV – 98 did not register the sale of a pack of cigarettes worth 5.20 Bulgarian leva (BGN) (about 2.60 euros) and has not issued a fiscal receipt for this sale. That is why an act was drawn up to establish an administrative violation under Article 118, paragraph 1 of the VAT Law.
On the one hand, in accordance with Article 185 of the VAT Law, the tax authorities impose a pecuniary sanction on MV – 98, and on the other hand, on the basis of Article 186 of the same law, they apply to him a compulsory administrative measure of sealing the said object for a period of 14 days. The preliminary implementation of the last measure was allowed by order under Article 60 of the Administrative Procedure Code, because according to these authorities, the preliminary implementation is imperative in order to protect the state interests, and in particular the interests of the state budget.
MV – 98 appealed to the referring court against the sealing measure, arguing that it was disproportionate in view of the insignificant value of the sale for which he was held liable and the fact that this was his first infringement under Article 118, paragraph 1 of The VAT Law.
Having established that the VAT Law transposes the provisions of the VAT Directive and constitutes an application of EU law, the referring court has doubts as to whether the regime established by Articles 185 and 186 of that law is compatible with Article 50 of the Charter.
In this regard, the requesting jurisdiction notes that in the event of a violation under Article 118, paragraph 1 of the VAT Law, the latter provides not only for the imposition of a pecuniary sanction (in Article 185), but also for the obligation to apply a coercive measure of sealing the relevant object for the same act (in Article 186). This jurisdiction adds that both the pecuniary sanction and the sealing have a criminal character within the meaning of Article 50 of the Charter and the case law of the Court, in particular the judgment of 5 June 2012, Bonda (C‑489/10, EU :C:2012:319). Furthermore, she points out that the Supreme Administrative Court (Bulgaria) has also recognized that the sealing has a punitive nature.
The requesting jurisdiction notes that the pecuniary sanction and the sealing measure are imposed in separate and independent proceedings. Moreover, according to her, although subject to appeal, these two measures are within the jurisdiction of different courts, namely the District Court for the property sanction and the Administrative Court for the sealing. In this regard, the requesting jurisdiction points out that the Bulgarian procedural norms do not provide for the possibility of suspending one proceeding until the conclusion of the other, so there is no coordination mechanism to ensure compliance with the requirement of proportionality in relation to the severity of the offense committed. Thus, according to her, the regime established in articles 185 and 186 of the VAT Law does not meet the criteria set out in the practice of the Court, and in particular in a decision of March 20, 2018,
Finally, the referring court seeks to ascertain whether the judicial review which may be exercised over the order for the preliminary execution of a sealing measure meets the requirements of Article 47 of the Charter. In this regard, it explains that the court seised with an appeal against such an order cannot review the facts, since they are considered established as soon as they appear in the protocol drawn up by the tax authority for the inspection carried out at the commercial establishment. Thus, according to the referring jurisdiction, the seised court can only weigh the protection of state interests against the danger of significant or difficult-to-repair damage to the person concerned.

Facts – Summary

Bulgarian company MV-98 was found to have failed to record the sale of a packet of cigarettes worth BGN 5.20 and to issue the fiscal cash register during an inspection by Bulgarian tax authorities.
As a result, the authorities imposed a financial penalty and sealed the company’s premises for 14 days.
MV-98 brought an action against the sealing measure, claiming it was disproportionate given the minimal value of the sale and that it was their first offence.
The referring court is uncertain whether the scheme established by Articles 185 and 186 of the Law on VAT is consistent with Article 50 of the Charter, as both the financial penalty and sealing are considered criminal in nature.
The court also questions whether the judicial review process satisfies the requirements of Article 47 of the Charter.
The court notes that there is no coordination mechanism to ensure proportionality in relation to the seriousness of the offence committed.

Questions

Are Article 273 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax and Article 50 of the Charter of Fundamental Rights of the European Union to be interpreted as not precluding national legislation, such as that at issue in the main proceedings, under which, for an act consisting in not having registered the sale of goods and not having recorded it by issuing a document evidencing the sale, administrative proceedings for the ordering of a coercive administrative measure and administrative penalty proceedings for the imposition of an assets penalty may be brought against the same person in a cumulative manner?

If that question is answered in the affirmative, must Article 273 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax and Article 52(1) of the Charter of Fundamental Rights of the European Union be interpreted as not precluding national legislation, such as that at issue in the main proceedings, under which, for an act consisting in not having registered the sale of goods and not having recorded it by issuing a document evidencing the sale, administrative proceedings for the ordering of a coercive administrative measure and administrative penalty proceedings for the imposition of an assets penalty may be brought against the same person in a cumulative manner, taking account of the fact that that legislation does not at the same time impose on the authorities competent for conducting the two sets of proceedings and on the courts the obligation to ensure the effective application of the principle of proportionality with regard to the overall severity of all the cumulated measures in relation to the seriousness of the specific offence?

If Articles 50 and 52(1) of the Charter are found not to be applicable in the present case, must Article 273 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax and Article 49(3) of the Charter of Fundamental Rights of the European Union then be interpreted as precluding a national provision such as Article 186(1) of the ZDDS [Zakon za danak varhu dobavenata stoynost (Law on value added tax)], which, for an offence consisting in not having registered the sale of goods and not having recorded it by issuing a document evidencing the sale, provides for the imposition on the same person of the coercive administrative measure of ‘sealing of business premises’ for a period of up to 30 days in addition to the imposition of an assets penalty under Article 185(2) of the ZDDS?

Is Article 47(1) of the Charter of Fundamental Rights of the European Union to be interpreted as not precluding measures introduced by the national legislature in order to safeguard the interest under Article 273 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, such as the provisional enforcement of the coercive administrative measure of ‘sealing of business premises’ for a period of up to 30 days in order to protect a presumed public interest, where judicial protection against that measure is limited to an assessment of a comparable private interest opposing that public interest?

AG Opinion

None

Decision

Article 273 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax and Article 50 of the Charter of Fundamental Rights of the European Union must be interpreted as precluding national legislation under which a financial penalty and a measure involving sealing of business premises may be imposed on a taxpayer for one and the same offence relating to a tax obligation at the end of separate and autonomous procedures, where those measures are liable to challenge before different courts and where that legislation does not ensure coordination of the procedures enabling the additional disadvantage associated with the cumulation of those measures to be reduced to what is strictly necessary and does not ensure that the severity of all penalties imposed is commensurate with the seriousness of the offence concerned.

Summary

Summary of ECJ C-97/21 – EU law prohibits national legislation that imposes both financial penalties and sealing of business premises on a taxpayer for the same tax offence

EU law prohibits national legislation that allows for the imposition of both a financial penalty and the sealing of business premises for the same tax offence, if the procedures to challenge these measures are separate and not coordinated, and if the severity of the penalties is not proportional to the seriousness of the offence. This is stated in Article 273 of Directive 2006/112/EC and Article 50 of the Charter of Fundamental Rights of the European Union.

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