On February 27, 2025, the ECJ has issued its judgment in the case C-277/24 (Adjak).
Context: Reference for a preliminary ruling — Common system of value added tax (VAT) — Directive 2006/112/EC — Article 273 — Measures to ensure the correct collection of VAT — VAT debt of a taxable person — National legislation providing for the joint and several liability of the former chairman of the board of directors of the taxable person — Participation of the former chairman of the board of directors in the procedure establishing the existence of a VAT debt — Procedure for the incurring of liability Joint and several liability – Calling into question the VAT debt – Rights of the defence – Proportionality
Summary
- Issue at Stake: The case revolves around the Polish legislation allowing for joint and several liability of former board members for a company’s VAT debts, raising concerns about the procedural rights of these individuals, particularly their ability to contest the existence and amount of the VAT debt established against the company.
- Argumentation of the ECJ: The European Court of Justice (ECJ) emphasized that while member states can impose joint and several liability to ensure effective VAT collection, this must be balanced with the rights of the defense and the principle of proportionality. The court underscored the necessity for individuals potentially liable to have the opportunity to challenge the VAT debt during the initial assessment procedure.
- Decision: The ECJ ruled that national laws allowing a third party (like a former board member) not to participate in the VAT debt assessment procedure are permissible, provided these individuals retain adequate rights to contest the findings in subsequent liability proceedings. This ensures that their defense rights are not violated.
- Consequences of the Decision: This ruling reinforces the principle that while states can enforce VAT compliance through joint liability, they must also safeguard individuals’ rights to due process. It mandates that individuals involved must have access to the relevant documents and the opportunity to challenge the debt’s validity during liability proceedings, thus enhancing legal protections against potential abuses.
- Broader Implications: The decision sets a precedent for similar cases across the EU, clarifying the balance between tax collection efficiency and the protection of individual rights, thereby influencing national legislative frameworks on tax liability and procedural safeguards.
Articles in the EU VAT Directive
Articles 205 and 273 of Council Directive 2006/112/EC
Article 205
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.
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 & background
- The applicant M.B., by application dated 22 August 2022, requested the head of the tax office (‘the first-instance authority’) to be admitted as a party to the tax proceedings pending against B. sp. z o.o. (‘the company’) to verify the company’s value added tax (VAT) return for the period from June to October 2016 and to request access to the file of the proceedings in question, on the grounds that she was the Chairperson of the company’s Management Board between 2014 and 2018 and has the greatest knowledge of the company’s operation during the period covered by the proceedings.
- The first-instance authority refused to grant the applicant’s request, indicating thatit follows from the provisions of the Law establishing the Tax Code that only a liquidator may replace a party in the ‘conduct of its affairs’ in cases where it is incapable of performing legal actions because it lacks any organ to do so (which was the situation in the present case), and that only a party has the right to inspect the file.
- The applicant lodged a complaint against that decision, as a result of which the Director of the Tax Administration Chamber (the second-instance authority), annulled it in its entirety and discontinued the proceedings in the case. The second-instance authority pointed out that the attribution to a person or entity of the status of a party to tax proceedings is determined by the tax authority, which is entitled to make its own objective assessment of whether the person making the request does in fact have locus standi. In the opinion of the second-instance authority, the applicant does not fall into any of the categories of persons or entities listed in Article 133 of the Law establishing the Tax Code. Thus, the second-instance authority considered that there was no legal basis on which the first-instance authority could have made the decision challenged.
- The applicant brought an action before the Wojewódzki Sąd Administracyjny (Regional Administrative Court; the referring court) on the ground that she was the sole member of the Management Board of the company during the period for which the proceedings were pending. For that very reason, she has the greatest knowledge of the object of its activity, which is crucial in the proceedings conducted. The first-instance authority stated that it was sufficient that it heard the applicant as a witness. However, that hearing took place on a single occasion two to three years earlier, and the proceedings are still ongoing and evidence is being gathered, so that a single hearing is insufficient. Furthermore, under the Law establishing the Tax Code, any unsatisfied claims will impinge on the applicant as an individual, which indeed justifies her application.
Summary
- The applicant, who served as the Chairperson of the company’s Management Board, requested to be admitted as a party to tax proceedings against the company to verify its VAT return and access the proceedings’ file.
- The first-instance authority refused the applicant’s request, citing that only a liquidator can replace a party in cases where it lacks any organ to perform legal actions, and only a party has the right to inspect the file.
- The second-instance authority annulled the first-instance decision, stating that the tax authority can objectively assess the applicant’s locus standi, and since the applicant does not fall into any category listed in the Tax Code, the first-instance decision was not legally justified. The applicant argues that her knowledge as the sole member of the Management Board is crucial for the ongoing proceedings.
Questions
Are Articles 205 and 273 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1, as amended) in conjunction with Article 2 of the Treaty on European Union (OJ 2016 C 202, p. 13; the rule of law, respect for human rights), as well as Article 17 of the Charter of Fundamental Rights of the European Union (OJ 2016 C 202, p. 389) (the right to property), Article 41 thereof (the right to good administration) and Article 47 thereof (the right to an effective remedy and the right to a fair trial), and (as guaranteed under EU law) the principle of proportionality, the right to a fair hearing and the rights of the defence, to be interpreted as precluding national legislation and the national practice based thereon which deny a natural person (a member of the Management Board of a legal person) – who may be jointly and severally liable for the VAT debt of the legal person with all his or her private assets – the right to participate actively in the procedure for determining that legal person’s tax debt in the form of a final decision of the tax authority, while at the same time that natural person, in separate proceedings seeking to determine his or her joint and several liability for the legal person’s VAT debt, is deprived of an adequate means of effectively challenging the findings and assessments which have been made previously concerning the existence or the amount of that legal person’s tax debt and which are set out in the final decision of the tax authority issued previously without the participation of that natural person, which decision therefore constitutes a precedent in those proceedings under a national provision confirmed by national practice?
AG Opinion
None
Decision
Article 273 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, read in conjunction with Article 325(1) TFEU, the rights of the defence and the principle of proportionality,
must be interpreted as meaning that:
It does not preclude national legislation and practice under which a third party who may be held jointly and severally liable for the tax debt of a legal person may not be a party to the proceedings brought against that person in order to establish that person’s tax liability, without prejudice to the need for that third party, in the course of any proceedings for joint and several liability which may be brought against him, may effectively call into question the findings of fact and the legal classifications made by the tax authorities in the context of the first set of proceedings, and have access to the tax authority’s file, while respecting the rights of that person or other third parties.
Source
Other ECJ Cases referred to
The ECJ ruling refers to several previous cases that help frame its decision regarding procedural rights and VAT liability. The notable cases mentioned include:
- C-712/17, EN.SA. (Judgment of 8 May 2019) – This case discusses the margin of appreciation that Member States have in implementing VAT regulations while ensuring compliance with EU law principles.
- C-1/21, Direktor na Direktsia «Obzhalvane i danachno-osiguritelna praktika (Judgment of 13 October 2022) – This case examines the obligations of tax authorities and the rights of individuals in procedures regarding VAT debts, emphasizing the importance of the principle of proportionality and the rights of defense.
- C-189/18, Glencore Agriculture Hungary (Judgment of 16 October 2019) – This case highlights the necessity for individuals involved in tax procedures to have access to the relevant documentation and the opportunity to contest the findings made against them.
These references underscore the ECJ’s ongoing commitment to balancing effective tax collection with the protection of individual rights within the framework of EU law.
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