On April 3, 2025, the ECJ issued its judgment in the case C-164/24 (Cityland).
Context: Reference for a preliminary ruling – Common system of value added tax – Directive 2006/112/EC – Systematic failure to comply with tax obligations – Removal of the taxable person from the identification register for the purposes of value added tax (VAT) – Principle of proportionality
Summary
- Context of the Case: The case involves a request for a preliminary ruling from the Bulgarian Administrative Court regarding the removal of “Cityland” EOOD from the VAT register due to alleged systematic failures to comply with VAT obligations, raising questions about the compatibility of Bulgarian law with EU VAT regulations.
- Legal Provisions: The Court examined Articles 213 and 273 of the VAT Directive, which outline obligations for taxable persons to declare changes in their status and allow member states to impose necessary measures for VAT collection, respectively.
- Key Findings: The Court ruled that national legislation allowing for the removal of a taxable person from the VAT register without analyzing the nature of the infringements and the taxpayer’s conduct is incompatible with the principles of legal certainty and proportionality as outlined in EU VAT law.
- Principle of Proportionality: The Court emphasized that sanctions, such as removal from the VAT register, must consider the severity and nature of the infractions. A blanket removal without context could lead to unfair penalties and destabilize the taxable person’s business operations.
- Implications: The ruling establishes that tax authorities must conduct a thorough examination of a taxpayer’s conduct and the specifics of any infringements before imposing severe penalties, ensuring fairness and adherence to EU legal standards in VAT enforcement.
Articles in the EU VAT Directive
Articles 206, 213(1 ) and 273 of the EU VAT Directive 2006/112/EC.
Article 206 (Payment arrangements)
Any taxable person liable for payment of VAT must pay the net amount of the VAT when submitting the VAT return provided for in Article 250. Member States may, however, set a different date for payment of that amount or may require interim payments to be made.
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.
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
Applicant ‘Cityland’ is a trading company that was active in the construction sector until 2019. An inspection was carried out by the tax authorities in 2022. Based on this inspection, it was concluded that there had been a systematic breach of the obligation to comply with the declared VAT. Cityland was subsequently removed from the value added tax register.
Consideration:
According to the referring court, the possibility of excluding taxable persons from the VAT system does not appear in Directive 2006/112. He therefore asks the Court questions about the automatic removal of taxpayers from the register and the conditions imposed for this.
Questions
1. Do Article 106(2)(2)(b) and Article 176(3) of the VAT Act infringe Article 213(1) of Council Directive 2006/122/EC of 28 November 2006 on the common system of value added tax?
2. If the first question is answered in the affirmative: Does Article 213(1) of Council Directive 2006/122/EC of 28 November 2006 on the common system of value added tax have direct effect?
3. If the first question is answered in the negative: Do Article 213(1) and Article 273 of Council Directive 2006/122/EC of 28 November 2006 on the common system of value added tax and the principles of legal certainty and proportionality allows the exclusion of a person from the VAT system for formal infringements, without taking into account the time and nature of the infringement, the other conduct of that person and the existence of other subjective circumstances such as a commercial dispute regarding late payment of the VAT due?
4. If the first question is answered in the negative: Do Article 213(1) and Article 273 of Council Directive 2006/122/EC of 28 November 2006 on the common system of value added tax and the principles of legal certainty and proportionality allows that the exclusion from the VAT system is simultaneously accompanied by the collection of default interest for failure to pay the declared VAT on time, without the tax authorities being obliged to determine the nature of the company’s activities, its behavior as a taxable person and the severity of each of the proposed measures?
AG Opinion
None
Decision (unofficial translation)
The first subparagraph of Article 213(1) and Article 273 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive (EU) 2017/2455 of 5 December 2017, and the principles of legal certainty and proportionality
must be interpreted as meaning that:
they preclude national legislation which, as interpreted by the tax authorities and the national courts, provides for the possibility for the competent tax authority to remove a taxable person from the register of value added tax (VAT) on the ground that he has failed to fulfil his VAT obligations without analysing the nature of the infringements committed and the conduct of the taxable person in question.
Source
Reference to other ECJ Cases
- Ablessio (C-527/11) – Cited to illustrate the importance of the VAT identification number as proof of a taxable person’s status and its role in ensuring the proper functioning of the VAT system.
- Promexor Trade (C-358/20) – Referenced to highlight the discretion that Member States have in adopting measures for the identification of taxable persons, emphasizing that such discretion must not be unlimited.
- Scialdone (C-574/15) – Mentioned concerning the obligation of Member States to take measures to ensure the collection of VAT and combat tax evasion.
- Cezam (C-418/22) – Cited in relation to the need for Member States to choose appropriate penalties for non-compliance, ensuring they align with EU principles, particularly proportionality.
- Legafact (C-122/23) – Referenced in the context of the principle of proportionality, indicating that penalties must be appropriate to the nature and severity of the infringement.
- Slovenské Energetické Strojárne (C-746/22) – Cited regarding the requirement for tax authorities to conduct thorough examinations to ensure fair administrative processes.
- Modexel (C-680/23) – Mentioned in relation to the principle of legal certainty, stressing that a taxable person’s tax situation should not be indefinitely questioned.
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