On April 11, 2024, the ECJ issued the judgement in the case C-122/23 (Legafact EOOD).
Context: Reference for a preliminary ruling – Common value added tax (VAT) system – Directive 2006/112/EC – Turnover taxes – Special regime for small businesses – Annual turnover – Difference in treatment between taxable persons – Regulations national subjecting a person to VAT in the event of late submission of a registration application – Punitive nature
Article in the EU VAT Directive
Articles 213, 214, 282, 287(17), 288, 289, 290 and 291 of the EU VAT Directive 2006/112/EC.
Article 213 (Identification of Taxable persons)
1. Every taxable person shall state when his activity as a taxable person commences, changes or ceases.
Member States shall allow, and may require, the statement to be made by electronic means, in accordance with conditions which they lay down.
2. Without prejudice to the first subparagraph of paragraph 1, every taxable person or non-taxable legal person who makes intra-Community acquisitions of goods which are not subject to VAT pursuant to Article 3(1) must state that he makes such acquisitions if the conditions, laid down in that provision, for not making such transactions subject to VAT cease to be fulfilled.
Article 214
1. Member States shall take the measures necessary to ensure that the following persons are identified by means of an individual number:
(a) every taxable person, with the exception of those referred to in Article 9(2), who within their respective territory carries out supplies of goods or services in respect of which VAT is deductible, other than supplies of goods or services in respect of which VAT is payable solely by the customer or the person for whom the goods or services are intended, in accordance with Articles 194 to 197 and Article 199;
(b) every taxable person, or non-taxable legal person, who makes intra-Community acquisitions of goods subject to VAT pursuant to Article 2(1)(b) and every taxable person, or non-taxable legal person, who exercises the option under Article 3(3) of making their intra-Community acquisitions subject to VAT;
(c) every taxable person who, within their respective territory, makes intra-Community acquisitions of goods for the purposes of transactions which relate to the activities referred to in the second subparagraph of Article 9(1) and which are carried out outside that territory;
(d) every taxable person who within their respective territory receives services for which he is liable to pay VAT pursuant to Article 196;
(e) every taxable person, established within their respective territory, who supplies services within the territory of another Member State for which VAT is payable solely by the recipient pursuant to Article 196.
2. Member States need not identify certain taxable persons who carry out transactions on an occasional basis, as referred to in Article 12.
Article 282 (Special scheme for small enterprises)
The exemptions and graduated tax relief provided for in this Section shall apply to the supply of goods and services by small enterprises.
Article 287
Member States which acceded after 1 January 1978 may exempt taxable persons whose annual turnover is no higher than the equivalent in national currency of the following amounts at the conversion rate on the day of their accession:
(17) Bulgaria: EUR 25 600;
Article 288
The turnover serving as a reference for the purposes of applying the arrangements provided for in this Section shall consist of the following amounts, exclusive of VAT:
- (1) the value of supplies of goods and services, in so far as they are taxed;
- (2) the value of transactions which are exempt, with deductibility of the VAT paid at the preceding stage, pursuant to Article 98(2) or Article 105a;
- (3) the value of transactions which are exempt pursuant to Articles 146 to 149 and Articles 151, 152 or 153;
- (4) the value of real estate transactions, financial transactions as referred to in points (b) to (g) of Article 135(1), and insurance services, unless those transactions are ancillary transactions.
However, disposals of the tangible or intangible capital assets of an enterprise shall not be taken into account for the purposes of calculating turnover.
Article 289
Taxable persons exempt from VAT shall not be entitled to deduct VAT in accordance with Articles 167 to 171 and Articles 173 to 177, and may not show the VAT on their invoices.
Article 290
Taxable persons who are entitled to exemption from VAT may opt either for the normal VAT arrangements or for the simplified procedures provided for in Article 281. In this case, they shall be entitled to any graduated tax relief provided for under national legislation.
Article 291
Subject to the application of Article 281, taxable persons enjoying graduated relief shall be regarded as taxable persons subject to the normal VAT arrangements.
Facts
- 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.
- 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.
- 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.
- 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 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.
- 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.
- 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.
- 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 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.
Questions
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?
AG Opinion
None
Decision
1. Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2009/162/EU of 22 December 2009,
must be interpreted as not precluding national legislation, adopted by a Member State pursuant to Article 287 of that directive, as amended, which makes entitlement to the value added tax (VAT) exemption provided for in that directive, as amended, for small enterprises subject to the condition that the taxable person whose annual turnover or turnover measured during a period of two consecutive months exceeds the amount specified for that Member State in that provision must lodge an application for VAT registration within a prescribed period.
2. Directive 2006/112, as amended by Directive 2009/162,
must be interpreted as not precluding national legislation which provides that a failure by a taxable person to fulfil the obligation to lodge an application for value added tax (VAT) registration within the time limits, in the cases referred to in paragraph 1 of this operative part, results in the incurrence of a tax debt, provided that that legislation, if and in so far as it is not limited to recovering VAT on transactions carried out during the period in which that tax would have been charged if the taxable person had fulfilled his or her obligation to register for VAT within the time limits, complies with the principle of effectiveness in countering infringements of harmonised VAT rules and satisfies the proportionality requirements, in accordance with the case-law of the Court.
Summary
A company providing business consultancy services was not initially registered under the Law on value added tax (VAT). It issued invoices for remuneration in August 2018 and applied for compulsory registration under the VAT on 3 September 2018. The tax authorities assumed that the turnover threshold of BGN 50,000 was exceeded when the second invoice was issued and imposed VAT debts and interest by a tax adjustment notice. The company contested the notice, and the Administrative Court cancelled it, stating that it was issued contrary to EU law in the area of indirect VAT and that the penalty imposed was disproportionate.
Decision
The Court Directive 2006/112/EC, as amended by Directive 2009/162/EU, allows Member States to adopt national regulations that require small businesses to submit an application for VAT registration within a prescribed period, even if they exceed the turnover threshold for VAT exemption. The directive does not oppose such regulations.
Furthermore, the same directive does not prohibit a national regulation that creates a tax debt when a taxable person fails to submit a VAT registration application within the deadline mentioned in the previous point. However, this regulation must meet the requirements of proportionality and respect the principle of effectiveness in combating violations of harmonized VAT rules.
In summary, the interpretation of the directives allows for national regulations regarding VAT registration requirements and the creation of tax debts for non-compliance, as long as they adhere to proportionality and the effectiveness principle in enforcing VAT rules.
Source
Similar ECJ cases
ECJ Cases referred to by the ECJ in this case
- C-284/11 (EMS-Bulgaria Transport) – Limitation period for the exercise of the right to deduct is permitted, unless it makes the exercise of this right impossible
- C-263/11 (Rēdlihs) – Owner of private forest can be taxable person for VAT purposes
- Paragraph 44: That directive does not expressly provide for a system of penalties in the event of infringement of the obligations in Article 213(1) thereof. It is settled case-law that, in the absence of harmonisation of European Union 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. They must, however, exercise that power in accordance with European Union law and its general principles, and consequently with the principle of proportionality (see Case 68/88 Commission v Greece [1989] ECR 2965, paragraph 23; Case C‑210/91 Commission v Greece [1992] ECR I‑6735, paragraph 19; and Case C‑36/94 Siesse [1995] ECR I‑3573, paragraph 21).
- C-424/12 (Fatorie) – No deduction of VAT in case reverse-charge should have been applied
- Paragraph 50: Concerning the default interest, it must be observed that, in the absence of harmonisation of European Union legislation in the field of the penalties applicable in cases where conditions laid down by arrangements under such legislation are not complied with, Member States retain the power to choose the penalties which seem to them to be appropriate. They must, however, exercise that power in accordance with European Union law and its general principles, and, consequently, in accordance with the principle of proportionality (see, to that effect, inter alia, Case C-210/91 Commission v Greece [1992] ECR I-6735, paragraph 19 and the case-law cited; Case C-213/99 de Andrade [2000] ECR I-11083, paragraph 20; and Rodopi-M 91, paragraph 31).
- C-111/14 (GST) – Fixed Establishment and the liability to pay VAT
- C-183/14 (Salomie and Oltean) – Reclassification by the national tax authority of a transaction as an economic activity subject to VAT
- C-576/15 (Маya Маrinova ET) – Taxable amount for the sale of goods can be based on factual information
- Paragraph 49: Second, as regards the principle of fiscal neutrality which was intended by the EU legislature to reflect, in matters relating to VAT, the general principle of equal treatment (see judgments of 29 October 2009, NCC Construction Danmark, C‑174/08, EU:C:2009:669, paragraph 41, and of 5 March 2015, Commission v Luxembourg, C‑502/13, EU:C:2015:143, paragraph 50), it must be held that taxpayers who have committed tax evasion consisting, inter alia, in the concealment of taxable transactions and the resulting revenue are not in a situation comparable to that of taxpayers who comply with their obligations in relation to accounting, filing VAT returns and the payment of VAT. Accordingly, that principle cannot legitimately be invoked by a taxable person who has intentionally participated in tax evasion and who has jeopardised the operation of the common system of VAT (see, to that effect, judgments of 18 December 2014, Schoenimport ‘Italmoda’ Mariano Previti and Others, C‑131/13, C‑163/13 and C‑164/13, EU:C:2014:2455, paragraph 48, and of 28 July 2016, Astone, C‑332/15, EU:C:2016:614, paragraph 58).
Reference to the case in the other EU MS
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