C-1/21 Direktor na Direktsia Obzhalvane i danachno-osiguritelna praktika

JUDGMENT OF THE COURT (Seventh Chamber)

13 October 2022 ( *1 )

(Reference for a preliminary ruling – Value added tax (VAT) – Directive 2006/112/EC – Article 273 – Measures to ensure the correct collection of VAT – Article 325(1) TFEU – Obligation to counter illegal activities affecting the financial interests of the European Union – VAT debts of a taxable legal person – National legislation which provides for the joint and several liability of the non-taxable manager of the legal person – Transfers made in bad faith by the manager – Depletion of the legal person’s assets leading to insolvency – Failure to pay the amounts of VAT payable by the legal person within the prescribed time limits – Default interest – Proportionality)

In Case C‑1/21,

REQUEST for a preliminary ruling under Article 267 TFEU from the Administrativen sad Veliko Tarnovo (Administrative Court, Veliko Tarnovo, Bulgaria), made by decision of 18 November 2020, received at the Court on 4 January 2021, in the proceedings

MC

v

Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’ Veliko Tarnovo pri Tsentralno upravlenie na Natsionalnata agentsia za prihodite,

THE COURT (Seventh Chamber),

composed of A. Prechal (Rapporteur), President of the Second Chamber, acting as President of the Seventh Chamber, J. Passer and N. Wahl, Judges,

Advocate General: J. Kokott,

Registrar: A. Calot Escobar,

having regard to the written procedure,

after considering the observations submitted on behalf of:

MC, by himself,

the Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’ Veliko Tarnovo pri Tsentralno upravlenie na Natsionalnata agentsia za prihodite, by B. Nikolov,

the Spanish Government, by M.J. Ruiz Sánchez, acting as Agent,

the European Commission, by N. Nikolova and V. Uher, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 2 June 2022,

gives the following

Judgment

Legal context and the dispute

1This request for a preliminary ruling concerns the interpretation of Article 9 of the Convention drawn up on the basis of Article K.3 of the Treaty on European Union, on the protection of the European Communities’ financial interests, signed in Brussels on 26 July 1995 (OJ 1995 C 316, p. 48; ‘the PFI Convention’), of Article 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; ‘the VAT Directive’), and of the principle of proportionality.

2The request has been made in proceedings between MC and the Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’ Veliko Tarnovo pri Tsentralno upravlenie na Natsionalnata agentsia za prihodite (Director of the Appeals and Tax and Social Security Practice Directorate of Veliko Tarnovo within the National Revenue Agency; ‘the Director’) concerning an adjustment notice by which MC was made jointly and severally liable for certain tax debts, including value added tax (VAT) debts, of a commercial company of which he was the manager.

Legal context

European Union law

The PFI Convention

3As set out in the preamble to the PFI Convention, the contracting parties to that convention, ‘desiring to ensure that their criminal laws contribute effectively to the protection of the financial interests of the European Communities’, are convinced, first, that ‘protection of the European Communities’ financial interests calls for the criminal prosecution of fraudulent conduct injuring those interests’ and, secondly, ‘of the need to make such conduct punishable with effective, proportionate and dissuasive criminal penalties, without prejudice to the possibility of applying other penalties in appropriate cases, and of the need, at least in serious cases, to make such conduct punishable with deprivation of liberty’.

4Article 1(1) of the PFI Convention defines the concept of ‘fraud affecting the European Communities’ financial interests’. Under Article 1(2) of that convention, each Member State is to take the necessary and appropriate measures to transpose Article 1(1) of the convention into their national criminal law in such a way that the conduct referred to therein constitutes criminal offences.

5Article 2(1) of the PFI Convention provides that each Member State is to take the necessary measures to ensure that the conduct referred to in Article 1 of that convention, and participating in, instigating, or attempting the conduct referred to in Article 1(1) thereof, are punishable by effective, proportionate and dissuasive criminal penalties.

The VAT Directive

6Article 205 of the VAT Directive states:

‘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.’

7The first paragraph of Article 273 of that directive is worded as follows:

‘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.’

Bulgarian law

8Article 19(2) of the Danachno – osiguritelen protsetsualen kodeks (Tax and Social Security Code of Procedure; ‘the DOPK’) provides:

‘A manager or member of an executive body who, in bad faith, makes payments in kind or in cash from the assets of a legal entity which is a debtor pursuant to Article 14(1) and (2) constituting a hidden distribution of profits or dividends, or transfers assets of the debtor free of charge or at prices significantly lower than market prices, with the result that the assets of the debtor are reduced and therefore taxes or statutory social security contributions are not paid, shall be liable for the debt up to the amount of the payments made or the amount of the reduction in the assets.’

9Article 20 of the DOPK states:

‘In the cases provided for in Article 19, protective measures and enforcement shall be directed first against the assets of the debtor for whose tax or social security debt the liability is incurred.’

10Article 21(3) of the DOPK provides that the liability of third parties is to lapse when the debt for which that liability had been established by a final act is extinguished.

11Article 1 of the Zakon za lihvite varhu danatsi, taksi i drugi podobni darzhavni vzemania (Law on interest on taxes, charges and other similar debts owed to the State) (DV No 91 of 12 November 1957), in the version applicable to the dispute in the main proceedings, provides:

‘Taxes, charges, deductions from profits, contributions to the budget and other similar debts owed to the State which have not been paid within the prescribed period for voluntary payment, have not been withheld or have been withheld but have not been paid on time shall be collected together with interest at the statutory rate.’

The dispute in the main proceedings and the questions referred for a preliminary ruling

12Between 14 April 2011 and 30 April 2015, MC was the manager of a commercial company.

13In 2015, enforcement proceedings for recovery of debts owed to the State were brought against that company, relating in particular to amounts of unpaid VAT and default interest payable on those amounts.

14On 28 August 2018, those proceedings enabled only 287 935.35 Bulgarian leva (BGN) (approximately EUR 148115) to be recovered. The total amount of the debts still owed by that company to the State was BGN 3799 590.92 (approximately EUR 1954522).

15Determining that those debts would be difficult to recover from that company, the enforcement officer referred the matter to the competent regional directorate of the Natsionalnata agentsia za prihodite (National Revenue Agency) (‘the Directorate’) with a view to establishing MC’s joint and several personal liability, pursuant to Article 19(2) of the DOPK.

16In that procedure, MC was the subject of an inspection which established the following facts.

17MC performed executive management functions at the commercial company referred to above between 14 April 2011 and 30 April 2015. According to the explanations provided by MC, the remuneration he received in that capacity was set out in a management agreement concluded with that company. However, neither MC nor the company could produce that agreement.

18MC claimed that his gross monthly remuneration had been increased with effect from 1 March 2014 from BGN 3000 (approximately EUR 1543) to BGN 20000 (approximately EUR 10288). He submitted that that increase was justified by the increase in the company’s net revenue and turnover following the conclusion of new contracts.

19The Directorate took the view that the amount corresponding to the increase in MC’s net remuneration, that is BGN 15300 (approximately EUR 7800) per month, constituted a hidden distribution of profits or dividends within the meaning of Article 19(2) of the DOPK for September, October, November and December 2014 and January 2015, corresponding to a total amount of BGN 76500 (approximately EUR 39352). It also considered that MC had acted in bad faith.

20In particular, the Directorate noted that three payments had been made, on 18 and 23 December 2014, into the bank account of MC’s wife for a cumulative amount of BGN 53 164.08 (approximately EUR 27348). In addition, the judicial investigation, during which banking secrecy was lifted, established that those payments had been made online from the ‘client account’ of the lawyer representing the commercial company of which MC was the manager.

21The Directorate considered that that cumulative amount of BGN 53 164.08, transferred into the account of MC’s wife, exceeded MC’s normal net remuneration, calculated over a period of three months, by BGN 45900 (approximately EUR 23611).

22Pursuant to Article 19(2) of the DOPK, the Directorate issued an adjustment notice by which it declared MC jointly and severally liable for the debts owed by that commercial company to the State amounting to BGN 45 008.25 (approximately EUR 23152). The debts to the State at issue in the main proceedings covered personal tax, social security contributions and VAT, including inter alia the sum of BGN 12 837.50 (approximately EUR 6604) representing interest payable on the VAT relating to December 2014.

23MC brought an administrative appeal against that adjustment notice before the Director, who dismissed his appeal.

24MC therefore brought an action before the referring court, arguing that the conditions for the application of Article 19(2) of the DOPK had not been satisfied.

25Before the referring court, the Director contended, first, that MC had a bank mandate on his wife’s account and, secondly, that he had instructed the chief accountant of the company at issue in the main proceedings to make the transfers.

26The referring court considers that those conditions are satisfied and, therefore, that MC’s conduct is caught by the system of joint and several liability established in that provision. According to that court, it has been proved that MC instructed a third party to transfer a sum belonging to the company of which he was the manager to a natural person associated with him, or at least that he was aware of that transfer and therefore acted in bad faith within the meaning of Article 19(2) of the DOPK. That court also states that it was due to the reduction in that company’s assets by the amount indicated in the adjustment notice that the interest payable on the VAT for December 2014 was not paid.

27As regards the system of joint and several liability provided for in Article 19(2) of the DOPK, the referring court provided the following details.

28In the first place, the joint and several liability provided for in that provision refers exclusively to a person who is a manager or member of an executive body of a taxable person with legal personality.

29In the second place, the referring court clarifies that that person must have made, in bad faith, payments from the assets of the legal person which are capable of being characterised as a hidden distribution of profits or dividends, or must have transferred those assets free of charge or at a price significantly lower than the market price. By contrast, that system is not connected with the existence of fraud or an abusive practice on the part of the legal person itself.

30In the third place, the referring court states that the acts carried out in bad faith must have the effect of rendering the legal person unable to pay taxes (including VAT) or compulsory social security contributions. In other words, recourse to that system requires a causal link between, on the one hand, the acts carried out in bad faith and, on the other, the impossibility of recovering debts to the State from that legal person.

31In the fourth place, the system of liability for a third party’s debts provided for in Article 19(2) of the DOPK does not extend to all of the legal person’s debts to the State, but is limited to the amount by which the legal person’s assets have been depleted as a result of the acts carried out in bad faith.

32In the fifth place, the liability provided for is alternative in that enforcement measures should, as a priority, be directed against the legal person’s assets, in accordance with Article 20 of the DOPK. Moreover, that liability lapses when the relevant debts to the State are extinguished, in accordance with Article 21(3) of the DOPK.

33The referring court questions whether that system of joint and several liability is compatible with EU law.

34First, it asks whether the VAT Directive, and in particular Article 273 thereof, allows a Member State to impose joint and several liability for a VAT debt on a person who is not a taxable person for VAT purposes, on the understanding that such a system contributes to the protection of the financial interests of the European Union.

35Secondly, should the Court answer that question in the affirmative, the referring court asks whether it is possible to include in that system interest for late payment of VAT, in particular in the light of the principle of proportionality. It refers, in that regard, to conflicting national case-law on Article 19(2) of the DOPK.

36Thirdly, should the Court also answer that question in the affirmative, the referring court asks whether the inclusion of interest for late payment of the tax remains justified, in particular in the light of the principle of proportionality, where the failure to pay within the prescribed period is attributable not to the bad faith conduct of the person rendered jointly and severally liable, but to the conduct of a third party or to the occurrence of objective circumstances.

37In those circumstances, the Administrativen sad Veliko Tarnovo (Administrative Court, Veliko Tarnovo, Bulgaria) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

Is Article 9 of the [PFI Convention], read in conjunction with Article 273 of [the VAT Directive], to be interpreted as meaning that it does not preclude, in the harmonised field of [VAT], a national legal instrument such as that provided for in Article 19(2) of the DOPK, the application of which has the effect of triggering post factum the joint and several liability of a non-taxable natural person who is not liable for payment of VAT but whose conduct in bad faith led to non-payment of VAT by the taxable legal person which is liable for that payment?

Do the interpretation of those provisions and the application of the principle of proportionality preclude the national legal instrument provided for in Article 19(2) of the DOPK also in respect of interest on VAT not paid in due time by the taxable person liable for that payment?

Is the national legal instrument provided for in Article 19(2) of the DOPK contrary to the principle of proportionality in a case where the late payment of VAT, which led to interest being charged on the VAT debt, is attributable not to the conduct of the non-taxable natural person, but to the conduct of another person or to the manifestation of objective circumstances?’

Consideration of the questions referred

Preliminary observations

38The Director disputed the admissibility of the request for a preliminary ruling in its entirety calling into question the applicability, in the circumstances of the case in the main proceedings, of the provisions of EU law referred to in the questions submitted.

39The Director argued, in particular, that the VAT Directive is not intended to apply to a system of joint and several liability covering all categories of tax and social security contributions, such as that provided for in Article 19(2) of the DOPK.

40In that regard, it should be pointed out that the fact that the relevant national legislation has not been adopted to transpose the VAT Directive cannot call into question the applicability of that directive, since the application of that legislation is designed to ensure compliance with the provisions of that directive and is intended, inter alia, to implement the obligation incumbent on the Member States under Article 325(1) TFEU to take effective action against conduct prejudicial to the financial interests of the European Union (see, to that effect, judgment of 26 February 2013, Åkerberg Fransson, C‑617/10, EU:C:2013:105, paragraph 28).

41That said, it is necessary to identify the provisions of EU law which are applicable in situations such as that in the main proceedings.

42In the first place, as regards Article 9 of the PFI Convention, it should be borne in mind that that convention was replaced by Directive (EU) 2017/1371 of the European Parliament and of the Council of 5 July 2017 on the fight against fraud to the Union’s financial interests by means of criminal law (OJ 2017 L 198, p. 29). However, since that directive did not enter into force until 17 August 2017 and the facts at issue in the main proceedings occurred during 2014 and 2015, only the PFI Convention is capable of applying to the dispute in the main proceedings.

43It should be pointed out that the PFI Convention imposes obligations on Member States in criminal matters. It is clear from, inter alia, the preamble to, and Articles 1 and 2 of, that convention that it requires the Member States, first, to ensure that conduct consisting in ‘fraud affecting the European Communities’ financial interests’ constitutes a criminal offence and, secondly, to ensure that such conduct is punishable by effective, proportionate and dissuasive criminal penalties.

44In the present case, it is common ground that a system such as that provided for in Article 19(2) of the DOPK, first, does not render conduct that is capable of giving rise to joint and several liability for the VAT debts of the legal person a criminal offence and, secondly, does not provide for any criminal penalties in that regard.

45Accordingly, and as the Director and the European Commission rightly argued, the PFI Convention is not applicable to a system of joint and several liability such as that provided for in Article 19(2) of the DOPK.

46In the second place, the Director argued, in the alternative, that the system of liability established in Article 19(2) of the DOPK comes within the scope of Article 205 of the VAT Directive, under which Member States may, in certain situations, 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.

47In that regard, it should be noted that, as set out in Article 205 of the VAT Directive, in the situations referred to in Articles 193 to 200 and 202 to 204 of that directive, 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.

48Articles 193 to 200 and 202 to 204 of the VAT Directive determine the persons liable for payment of VAT, in accordance with the purpose of Section 1 of Chapter 1 of Title XI of that directive, headed ‘Persons liable for payment of VAT to the tax authorities’. Although Article 193 of that directive provides, as the basic rule, that VAT is payable by any taxable person carrying out a taxable supply of goods or services, the wording of that article states that other persons may or shall be liable for payment of VAT in the situations referred to in Articles 194 to 199b and 202 of that directive (judgment of 20 May 2021, ALTI, C‑4/20, EU:C:2021:397, paragraph 27).

49It is apparent from the context formed by Articles 193 to 205 of the VAT Directive that Article 205 of that directive is part of a set of provisions aimed at identifying the person liable for payment of VAT in various situations. Those provisions thereby seek to ensure for the public exchequer the efficient collection of VAT from the most appropriate person in the light of the specific situation, particularly where the parties to the contract are not in the same Member State or where the transaction subject to VAT relates to supplies the specific nature of which makes it necessary to identify a person other than that referred to in Article 193 of that directive (judgment of 20 May 2021, ALTI, C‑4/20, EU:C:2021:397, paragraph 28).

50In principle, therefore, 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).

51In the present case, as the Spanish Government and the Commission rightly argued, it should nevertheless be pointed out that a system of joint and several liability such as that at issue in the main proceedings is not intended to designate a person liable for payment of the tax on a specific taxable transaction, within the meaning of Article 205 of the VAT Directive.

52First, the person designated under that system does not become liable for the VAT on a specific taxable transaction, but is jointly and severally liable for all or part of a legal person’s VAT debts, irrespective of the taxable transactions concerned.

53Secondly, the scope of that system does not cover all the unpaid VAT on a specific taxable transaction, but is limited to the amount by which the legal person’s assets have been depleted as a result of the acts carried out in bad faith by the person designated as jointly and severally liable.

54Such a system is to be distinguished, in particular, from those referred to in the requests for a preliminary ruling in the cases which gave rise to the judgments of 11 May 2006, Federation of Technological Industries and Others (C‑384/04, EU:C:2006:309); of 21 December 2011, Vlaamse Oliemaatschappij (C‑499/10, EU:C:2011:871); and of 20 May 2021, ALTI (C‑4/20, EU:C:2021:397). Unlike the system at issue in the main proceedings, those systems designated a person as jointly and severally liable for the entirety of the VAT payable on a specific taxable transaction, in accordance with Article 205 of the VAT Directive.

55It follows from the foregoing that Article 205 of the VAT Directive is not applicable in the circumstances of the dispute in the main proceedings.

56In the third place, as regards Article 273 of the VAT Directive, it should be recalled that, under that provision, Member States may impose other obligations which they deem necessary to ensure the correct collection of VAT and to prevent evasion.

57In that regard, Article 325(1) TFEU requires the Member States to counter fraud and any other illegal activities affecting the financial interests of the European Union through effective and deterrent measures (judgments of 5 June 2018, Kolev and Others, C‑612/15, EU:C:2018:392, paragraph 50, and of 8 March 2022, Commission v United Kingdom (Action to counter undervaluation fraud), C‑213/19, EU:C:2022:167, paragraph 209).

58Pursuant to Council Decision 2014/335/EU, Euratom of 26 May 2014 on the system of own resources of the European Union (OJ 2014 L 168, p. 105), the European Union’s own resources include, inter alia, revenue from the application of a uniform rate to the harmonised VAT assessment bases determined in accordance with EU rules. Accordingly, there is a direct link between the collection of VAT revenue in compliance with the EU law applicable and the availability to the EU budget of the corresponding VAT resources, since any lacuna in the collection of the first potentially causes a reduction in the second (judgments of 5 December 2017, M.A.S. and M.B., C‑42/17, EU:C:2017:936, paragraph 31, and of 17 January 2019, Dzivev and Others, C‑310/16, EU:C:2019:30, paragraph 26).

59In order to ensure the protection of the financial interests of the European Union, it is for the Member States, inter alia, to adopt the measures necessary to guarantee the effective and comprehensive collection of own resources, namely the revenue from the application of a uniform rate to the harmonised VAT assessment bases (judgment of 21 December 2021, Euro Box Promotion and Others, C‑357/19, C‑379/19, C‑547/19, C‑811/19 and C‑840/19, EU:C:2021:1034, paragraph 182).

60Thus, it follows, inter alia, from Articles 2 and 273 of the VAT Directive, read in conjunction with Article 4(3) TEU and Article 325(1) TFEU, that the Member States are required to take all legislative and administrative measures appropriate for ensuring collection of all VAT due on their territory and for preventing tax evasion (see, to that effect, judgments of 19 October 2017, Paper Consult, C‑101/16, EU:C:2017:775, paragraph 47; of 20 March 2018, Menci, C‑524/15, EU:C:2018:197, paragraph 18; and of 17 May 2018, Vámos, C‑566/16, EU:C:2018:321, paragraph 37).

61In the present case, a system of joint and several liability such as that established by Article 19(2) of the DOPK contributes to the collection of amounts of VAT which have not been paid by a taxable legal person within the mandatory time limits laid down by the VAT Directive. That system helps to ensure the correct collection of VAT and/or to prevent evasion, within the meaning of Article 273 of the VAT Directive, in accordance with the obligation laid down in Article 325(1) TFEU.

62That finding cannot be called into question by the fact that the persons held jointly and severally liable under the system at issue in the main proceedings, namely the manager or member of an executive body of the legal person, are not, in that capacity, themselves subject to VAT.

63In that regard, and first of all, it is not apparent from the wording of Article 273 of the VAT Directive that the obligations laid down by the Member States pursuant to that provision can apply only to persons subject to VAT.

64Next, as regards the context of that provision, it should be pointed out that it forms part of Title XI of the VAT Directive, the heading of which expressly refers to the ‘obligations of taxable persons and certain non-taxable persons’.

65Lastly, as regards the objectives pursued by Article 273 of the VAT Directive, the obligation on the Member States to take all measures necessary to ensure collection of all VAT and to counter evasion, referred to in paragraph 60 above, may, in certain circumstances, require a Member State to impose penalties on non-taxable persons who take part in decision-making within a taxable legal person, otherwise the effectiveness of such measures would be undermined.

66It follows from the foregoing that a system of joint and several liability, such as that at issue in the main proceedings, comes within the scope of Article 273 of the VAT Directive, interpreted in the light of Article 325(1) TFEU.

67In the light of all the foregoing considerations, the questions submitted by the referring court should be understood as seeking an interpretation of Article 273 of the VAT Directive and of the principle of proportionality.

The first question

68By its first question, the referring court asks, in essence, whether Article 273 of the VAT Directive and the principle of proportionality must be interpreted as precluding national legislation which provides for a system of joint and several liability for a legal person’s VAT debts in the following circumstances:

the person held jointly and severally liable is a manager or member of an executive body of the legal person;

the person held jointly and severally liable made, in bad faith, payments from the legal person’s assets which could be characterised as a hidden distribution of profits or dividends, or transferred those assets free of charge or at a price significantly lower than the market price;

the acts carried out in bad faith had the effect of rendering the legal person unable to pay all or part of the VAT for which it is liable;

the joint and several liability is limited to the amount by which the legal person’s assets were depleted as a result of the acts carried out in bad faith; and

that joint and several liability is incurred only in the alternative, where it proves impossible to recover from the legal person the amounts of VAT payable.

69The Court has previously had occasion to clarify that, outside the limits laid down therein, Article 273 of the VAT Directive does not specify either the conditions or the obligations which the Member States may impose and therefore gives the Member States a margin of discretion with regard to the means of ensuring collection of all the VAT due on their territory and for combating fraud (see, inter alia, judgments of 17 May 2018, Vámos, C‑566/16, EU:C:2018:321, paragraph 38, and of 21 November 2018, Fontana, C‑648/16, EU:C:2018:932, paragraph 35).

70In the present case, it should be noted that a system of joint and several liability such as that at issue in the main proceedings contributes to the recovery of amounts of VAT which have not been paid by a taxable legal person within the mandatory time limits laid down by the VAT Directive, with the result that it helps to ensure the correct collection of VAT and/or to prevent evasion, within the meaning of the first paragraph of Article 273 of the VAT Directive. In principle, therefore, such a system falls within the discretion enjoyed by the Member States in implementing Article 273 of the VAT Directive.

71It should be added that such a system contributes to compliance with the obligation, referred to in paragraph 60 above, incumbent on each Member State to take all legislative and administrative measures appropriate for ensuring collection of all the VAT due on its territory and for preventing evasion, in accordance, inter alia, with Article 325(1) TFEU.

72Nevertheless, the Member States must exercise that power in accordance with EU law and its general principles and, consequently, in accordance with the principle of proportionality (see, inter alia, judgments of 21 November 2018, Fontana, C‑648/16, EU:C:2018:932, paragraph 35, and of 15 April 2021, Grupa Warzywna, C‑935/19, EU:C:2021:287, paragraph 26).

73As regards the principle of proportionality, the Court has held that 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 (judgments of 21 December 2011, Vlaamse Oliemaatschappij, C‑499/10, EU:C:2011:871, paragraphs 21 and 22, and of 20 May 2021, ALTI, C‑4/20, EU:C:2021:397, paragraph 33).

74In that regard, the Court has already held that national measures which bring about, de facto, a system of strict joint and several liability go beyond what is necessary to preserve the public exchequer’s rights. Imposing responsibility for paying VAT on a person other than the person liable to pay that tax, without allowing him or her to escape liability by providing proof that he or she had nothing whatsoever to do with the acts of the person liable to pay the tax must, therefore, be considered contrary to the principle of proportionality. It would clearly be disproportionate to hold that person unconditionally liable for the shortfall in tax caused by acts of a third party over which he or she has no influence whatsoever (judgment of 21 December 2011, Vlaamse Oliemaatschappij, C‑499/10, EU:C:2011:871, paragraph 24).

75Accordingly, exercise of the Member States’ power to designate a joint and several debtor other than the person liable for payment of the tax in order to ensure efficient collection of that tax must be justified by the factual and/or legal relationship between the two persons concerned in the light of the principles of legal certainty and of proportionality. In particular, it is for Member States to specify the particular circumstances in which a person such as the recipient of a taxable supply is to be held jointly and severally liable for payment of the tax owed by the other party to the contract even though that person has paid that tax by paying the transaction price (judgment of 20 May 2021, ALTI, C‑4/20, EU:C:2021:397, paragraph 34).

76The Court has also held that the fact that a person other than the person liable to pay the tax acted in good faith, exhibiting all the due diligence of a circumspect trader, that he or she took every reasonable measure in his or her power and that his or her participation in abuse or fraud is excluded are points to be taken into account in deciding whether that person can be obliged to account for the VAT owed (judgments of 21 December 2011, Vlaamse Oliemaatschappij, C‑499/20, EU:C:2011:871, paragraph 26, and of 20 May 2021, ALTI, C‑4/20, EU:C:2021:397, paragraph 37).

77In the present case, it is clear that a system of joint and several liability, such as that at issue in the main proceedings, does not go beyond what is necessary to ensure the correct collection of VAT and to prevent evasion.

78More specifically, having regard to its characteristics, such a system cannot be equated with a system of strict joint and several liability within the meaning of the case-law referred to in paragraphs 74 to 76 above, which would be incompatible with the principle of proportionality.

79In the first place, the person designated as jointly and severally liable must be a manager or member of an executive body of the legal person liable for unpaid VAT debts, with the result that they can be regarded as participating in decision-making within that legal person.

80In the second place, the person designated as jointly and severally liable must have made, in bad faith, payments from the legal person’s assets that can be characterised as a hidden distribution of profits or dividends, or must have transferred all or part of those assets free of charge or at a price significantly lower than the market price.

81In the third place, there must be a causal link between the acts performed in bad faith by the person designated as jointly and severally liable and the legal person’s inability to pay the VAT for which it is liable.

82In the fourth place, the extent of the joint and several liability is limited to the amount by which the legal person’s assets have been depleted as a result of the acts committed in bad faith.

83In the fifth and final place, that liability is incurred only in the alternative, where it proves impossible to recover from the legal person the amounts of VAT payable.

84In the light of the case-law referred to in paragraphs 72 to 76 above, it must be held that the establishment of such a system does not go beyond what is necessary to ensure the correct collection of tax and to prevent evasion.

85In the light of the foregoing, the answer to the first question is that Article 273 of the VAT Directive and the principle of proportionality must be interpreted as not precluding national legislation which provides for a system of joint and several liability for a legal person’s VAT debts in the following circumstances:

the person held jointly and severally liable is a manager or member of an executive body of the legal person;

the person held jointly and severally liable made, in bad faith, payments from the legal person’s assets which could be characterised as a hidden distribution of profits or dividends, or transferred those assets free of charge or at a price significantly lower than the market price;

the acts carried out in bad faith had the effect of rendering the legal person unable to pay all or part of the VAT for which it is liable;

the joint and several liability is limited to the amount by which the legal person’s assets were depleted as a result of the acts carried out in bad faith; and

that joint and several liability is incurred only in the alternative, where it proves impossible to recover from the legal person the amounts of VAT payable.

The second question

86By its second question, the referring court asks, in essence, whether Article 273 of the VAT Directive and the principle of proportionality must be interpreted as precluding national legislation providing for a system of joint and several liability, such as that described in the first question, which extends to default interest payable by the legal person on account of a failure to pay VAT within the mandatory time limits laid down by that directive.

87In that regard, it is clear from the information in the order for reference that the system of joint and several liability referred to in the first question is, as such, limited to the amount by which the legal person’s assets have been depleted as a result of the acts carried out in bad faith. Nevertheless, the national legislation provides, in addition, that the recovery of taxes which have not been paid within the prescribed time limits ‘shall be collected together with interest’, as stated in paragraph 11 above, and the referring court seeks to ascertain, in essence, whether that scheme may be implemented in addition to the system of joint and several liability at issue.

88It should be pointed out, first of all, that charging default interest, in the event of a failure to pay VAT within the mandatory time limits laid down by the VAT Directive, contributes to ensuring the correct collection of VAT in accordance with Article 273 of that directive.

89The charging of default interest makes it possible to compensate the loss caused to the public exchequer by the unavailability of the amounts of VAT paid late, for the period from the date on which those amounts are due until the date on which they are actually paid (see, by analogy, judgments of 19 July 2012, Littlewoods Retail Ltd and Others, C‑591/10, EU:C:2012:478, paragraphs 25 and 26, and of 28 February 2018, Nidera, C‑387/16, EU:C:2018:121, paragraph 25).

90Next, charging default interest also encourages the persons concerned to pay the VAT within the mandatory time limits laid down by the VAT Directive or as soon as possible after those periods expire.

91The Court has thus held that the payment of default interest may constitute an adequate penalty where there is a failure to pay the VAT within the prescribed time limits, provided that it goes no further than is necessary to achieve the objective of ensuring the correct collection of VAT and of preventing evasion (see, to that effect, judgments of 12 July 2012, EMS-Bulgaria Transport, C‑284/11, EU:C:2012:458, paragraph 75, and of 17 July 2014, Equoland, C‑272/13, EU:C:2014:2091, paragraph 46).

92Therefore, charging default interest helps to combat failures to pay declared amounts of VAT within the prescribed time limits, in accordance with the obligation on the Member States, in particular under Article 273 of the VAT Directive and Article 325(1) TFEU, to take all legislative and administrative measures appropriate for ensuring collection of all the VAT due on their territory and for preventing evasion.

93Lastly, and for the reasons set out in paragraphs 77 to 84 above, including default interest in a system of joint and several liability, such as that at issue in the main proceedings, is compliant with the principle of proportionality, since that interest relates to the failure to pay the VAT within the mandatory time limits laid down by the VAT Directive by the legal person liable for that tax, on account of the acts carried out in bad faith by the person designated as jointly and severally liable (see, by analogy, judgment of 20 May 2021, ALTI, C‑4/20, EU:C:2021:397, paragraphs 43 and 44).

94As pointed out, in essence, in paragraph 74 above, the principle of proportionality must be interpreted as precluding a person other than the person liable for payment of VAT from being held liable for the loss of tax revenue caused by acts of a third party over which he or she has no influence.

95Consequently, the inclusion of default interest in a system of joint and several liability such as that established in Article 19(2) of the DOPK may be regarded as compatible with the principle of proportionality only in so far as that interest relates to the failure to pay VAT, within the mandatory time limits laid down by the VAT Directive, on account of acts carried out in bad faith by the person designated as jointly and severally liable.

96In the light of the foregoing, the answer to the second question is that Article 273 of the VAT Directive and the principle of proportionality must be interpreted as not precluding national legislation providing for a system of joint and several liability, such as that described in the first question, which extends to default interest payable by the legal person for failure to pay VAT within the mandatory time limits laid down by that directive on account of acts committed in bad faith by the person designated as jointly and severally liable.

The third question

97By its third question, the referring court asks whether the principle of proportionality must be interpreted as precluding national legislation providing for a system of joint and several liability, such as that described in the first question, which extends to default interest payable by the legal person for failure to pay VAT within the mandatory time limits laid down by the VAT Directive, where the late payment is attributable not to the conduct of the person held jointly and severally liable, but to the conduct of another person or to the occurrence of objective circumstances.

98It should be borne in mind that, in accordance with the Court’s settled case-law, questions on the interpretation of EU law referred by a national court in the factual and legislative context which that court is responsible for defining, and the accuracy of which is not a matter for the Court to determine, enjoy a presumption of relevance. The Court may refuse to rule on a question referred by a national court only where it is quite obvious that the interpretation of EU law that is sought bears no relation to the actual facts of the main action or its purpose, where the problem is hypothetical, or where the Court does not have before it the factual or legal material necessary to give a useful answer to the questions submitted to it (see, inter alia, judgments of6 November 2008, Trespa International, C‑248/07, EU:C:2008:607, paragraph 33, and of 22 February 2022, Stitching Rookpreventie Jeugd and Others, C‑160/20, EU:C:2022:101, paragraph 82).

99In the present case, the implementation of the system of joint and several liability established in Article 19(2) of the DOPK, as described by the referring court, requires that the legal person’s inability to pay all or part of its debts to the State be caused by acts committed in bad faith by the person held jointly and severally liable. Consequently, recourse to that system precludes, ex hypothesi, the failure to pay VAT within the mandatory time limits laid down by the VAT Directive from being attributable to the conduct of another person or to the occurrence of objective circumstances.

100Furthermore, as regards the dispute in the main proceedings, the referring court has made no reference to the conduct of another person or to the occurrence of objective circumstances which would have led to the failure to pay VAT within the prescribed period.

101Consequently, it must be held that the interpretation of EU law sought bears no relation to the actual facts of the main action or its purpose, within the meaning of the case-law referred to in paragraph 98 above, and, therefore, that the third question referred is inadmissible.

Costs

102Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the cost of those parties, are not recoverable.

Operative part

On those grounds, the Court (Seventh Chamber) hereby rules:

Article 273 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, and the principle of proportionality

must be interpreted as not precluding national legislation providing for a system of joint and several liability for a legal person’s value added tax (VAT) debts in the following circumstances:

the person held jointly and severally liable is a manager or member of an executive body of the legal person;

the person held jointly and severally liable made, in bad faith, payments from the legal person’s assets which could be characterised as a hidden distribution of profits or dividends, or transferred those assets free of charge or at a price significantly lower than the market price;

the acts carried out in bad faith had the effect of rendering the legal person unable to pay all or part of the VAT for which it is liable;

the joint and several liability is limited to the amount by which the legal person’s assets were depleted as a result of the acts carried out in bad faith; and

that joint and several liability is incurred only in the alternative, where it proves impossible to recover from the legal person the amounts of VAT payable.

Article 273 of Directive 2006/112 and the principle of proportionality

must be interpreted as not precluding national legislation providing for a system of joint and several liability, such as that described in point 1 of the operative part of the present judgment, which extends to default interest payable by the legal person for failure to pay VAT within the mandatory time limits laid down by that directive on account of acts committed in bad faith by the person designated as jointly and severally liable.

Signatures

[Signatures]

( *1 ) Language of the case: Bulgarian.

OPINION OF ADVOCATE GENERAL

KOKOTT

delivered on 2 June 2022 ¹

(Request for a preliminary ruling – Tax law – Value added tax (VAT) – Directive 2006/112/EC – National legislation which provides for the joint and several liability of a company’s executive board where the latter, acting in bad faith, deprived the company of assets, with the result that it could not pay its tax debts (including VAT debts) – Liability also for the interest payable by the company – Scope of EU law – Principle of proportionality)

I. Introduction

1This request for a preliminary ruling once again raises a well-known competence issue in a new guise. Does the joint and several liability of a natural person (who is not subject to value added tax (VAT) himself or herself) for tax debts and interest owed by another person, as provided for in general tax law, constitute an implementation of EU law, in respect of which the VAT Directive or other EU law might contain requirements? Or is the joint and several liability of a person who has causally contributed to the fact that another person could not meet his or her tax payment obligation in due time a purely national, procedural regime for safeguarding tax revenue, which is not affected by EU law?

2This is somewhat reminiscent of the situation in the much-discussed ² decision in Åkerberg Fransson, ³ in which the criminal conviction of a taxable person for VAT evasion was assessed as constituting an implementation of EU law. However, the question to be ruled on in the present case goes beyond that.

3That is because it concerns not the liability of a taxable person within the meaning of the VAT Directive, but the liability of a person not taxable for VAT purposes who, moreover, has not evaded VAT, but, rather, as an executive director, has apparently inappropriately increased his salary at the company and thereby deprived that company of assets. As a result, the company has since been unable to pay its debts (including VAT debts and interest thereon) in full or on time.

4Does the general joint and several liability of an executive body for conduct causing harm to the company (a kind of breach of trust) come within the scope of the VAT Directive and therefore within that of EU law for the sole reason that, as a result of that conduct, the company was unable to pay, inter alia, its VAT debts and the interest thereon on time or in full? In other words, where do the boundaries of the scope of EU law lie in cases with a merely indirect link with the collection of VAT?

II. Legal framework

A. European Union law

5The framework of the case in EU law is formed by Directive 2006/112/EC on the common system of value added tax ⁴ (‘the VAT Directive’), the Convention drawn up on the basis of Article K.3 of the Treaty on European Union, on the protection of the European Communities’ financial interests, signed in Brussels on 26 July 1995 (‘the PFI Convention’), ⁵ and Article 325 TFEU.

1. Primary law

6According to Article 325(1) TFEU, ‘the Union and the Member States shall counter fraud and any other illegal activities affecting the financial interests of the Union through measures to be taken in accordance with this Article, which shall act as a deterrent and be such as to afford effective protection in the Member States, and in all the Union’s institutions, bodies, offices and agencies’.

7According to Article 325(2) TFEU, Member States are to take ‘the same measures to counter fraud affecting the financial interests of the Union as they take to counter fraud affecting their own financial interests’.

2. The PFI Convention

8Article 1 of the PFI Convention, entitled ‘General provisions’, states in paragraph 1:

‘For the purposes of this Convention, fraud affecting the [Union’s] financial interests shall consist of:

…

in respect of revenue, any intentional act or omission relating to:

the use or presentation of false, incorrect or incomplete statements or documents, which has as its effect the illegal diminution of the resources of the general budget of the [Union] or budgets managed by, or on behalf of, the [Union],

non-disclosure of information in violation of a specific obligation, with the same effect,

misapplication of a legally obtained benefit, with the same effect.’

9Article 2 of the PFI Convention, entitled ‘Penalties’, provides in paragraph 1:

‘Each Member State shall take the necessary measures to ensure that the conduct referred to in Article 1, and participating in, instigating, or attempting the conduct referred to in Article 1(1), are punishable by effective, proportionate and dissuasive criminal penalties, including, at least in cases of serious fraud, penalties involving deprivation of liberty which can give rise to extradition, it being understood that serious fraud shall be considered to be fraud involving a minimum amount to be set in each Member State. This minimum amount may not be set at a sum exceeding [EUR] 50000.’

10Article 9 of that convention, entitled ‘Internal provisions’, states:

‘No provision in this Convention shall prevent Member States from adopting internal legal provisions which go beyond the obligations deriving from this Convention.’

3. The VAT Directive

11Article 205 of the VAT Directive contains the following provision:

‘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.’

12The abovementioned articles in Title XI (Chapter 1) regulate the payment obligation or tax liability of ‘taxable persons and certain non-taxable persons’. Those articles do not refer to executive directors of companies or the case where an inappropriate salary is paid.

13Article 273 of the VAT Directive provides:

‘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.’

B. Bulgarian law

14The Danachno-osiguritelen protsesualen kodeks (Tax and Social Security Code of Procedure; ‘the DOPK’) provides as follows:

15Article 14 of the DOPK concerns the debtor:

‘Debtors are natural and legal persons who:

1are obliged to pay taxes or statutory social security contributions; …’

16Article 19(2) of the DOPK regulates the liability of an executive body for a reduction in the assets of the company and reads as follows:

‘A manager or member of an executive body who, in bad faith, makes payments in kind or in cash from the assets of a legal entity which is a debtor pursuant to Article 14(1) and (2) constituting a hidden distribution of profits or dividends, or transfers assets of the debtor free of charge or at prices significantly lower than market prices, with the result that the assets of the debtor are reduced and therefore taxes or statutory social security contributions have not been paid, shall be liable for the debt up to the amount of the payments made or, respectively, of the reduction in the assets.’

17Article 20 of the DOPK concerns the order in which enforcement takes place, and provides as follows:

‘In the cases provided for in Article 19, protective measures and enforcement shall be directed first against the assets of the debtor for whose tax or social security debt the liability is incurred.’

18Article 21(3) of the DOPK contains statements regarding the ancillary nature of the secondary liability in relation to the principal debt, and reads as follows:

‘The liability of third parties shall cease when the debt for which that liability was established by a final act is extinguished. In this case, amounts paid shall be reimbursed in accordance with the procedure set out in Chapter 16, Section 1.’

19The Zakon za danaka varhu dobavenata stoynost (Law on value added tax) defines ‘taxable person’ in Article 3(1):

‘“Taxable person” means any person who carries on an independent economic activity, whatever the purposes and results of that activity.’

20Article 89(1) of the Law on value added tax governs the time at which the tax debt must be paid:

‘Where there is a result for the period, in the form of tax to be paid, the registered person shall be obliged to pay the tax to the State budget by paying it into the account of the competent Teritorialna direktsia na Natsionalnata agentsia za prihodite [(Regional Directorate of the National Revenue Agency)] within the time limit for filing the VAT return for that tax period.’

21The Zakon za lihvite varhu danatsi, taksi i drugi podobni darzhavni vzemania (Law on interest charged on taxes, fees and other similar receivables governed by public law) provides for an obligation to apply interest, in Article 1(1):

‘The recovery of taxes, fees, deductions from profits, contributions to the budget and other similar receivables governed by public law which have not been paid within the period prescribed for voluntary payment, have not been withheld or have been withheld but not paid on time shall be subject to interest at the statutory rate.’

22According to the referring court, Article 19(2) of the DOPK, in conjunction with Article 1 of the Law on interest charged on taxes, fees and other similar receivables governed by public law, is not interpreted uniformly in the Bulgarian case-law. In some cases, the liability of the executive body which acted in bad faith should also include interest, while, in other cases, only the principal claim should.

III. The dispute in the main proceedings

23The subject matter of the proceedings before the national court is the action brought by MC (‘the applicant’) challenging the lawfulness of a notice establishing liability. The notice established the applicant’s personal liability for third-party debts for the December 2014 tax period. This secondary liability is apparently based on outstanding VAT debts (plus interest) owed by another taxable entity, namely the company ZZ AD (‘the company’), of which the applicant was an executive director in the relevant period.

24Enforcement proceedings were initiated with a view to recovering the amounts owed by the company. Requests for voluntary payment were sent to the company on several occasions, but such payment was never made. Therefore, the company’s debt to the State, which includes the abovementioned interest on VAT not paid in due time, was classified as difficult to enforce by the enforcement officer.

25The claims brought against the applicant are based on the fact that he increased his remuneration several times without being able to produce valid documentary evidence for that increase. Moreover, the manner in which the increased remuneration was paid did not comply with the statutory requirements. The amounts were transferred to the lawyer acting on behalf of the company, who in turn transferred them to the account of the applicant’s wife, to which the applicant also had access.

26The applicant contests the claim. His main argument is that there is no causal link between the remuneration received by him in his capacity as the executive body of the taxable person and the lack of funds to settle the claims governed by public law. The tax administration argues, in essence, that, as the executive body of the taxable person (within the meaning of the VAT Directive), the applicant has acted in bad faith because he received, during the relevant tax period, remuneration the amount of which has not been shown to have been duly determined.

27For the purposes of the request, the referring court assumes that the applicant ordered – or at least had knowledge of – the transfer by a third party of a sum from the company’s assets to a natural person associated with him and, in so doing, he acted in bad faith under national law. Due to the reduction in the company’s assets by the amount of that sum, the interest due on VAT, accrued as of December 2014, was not paid. In the light of the question referred for a preliminary ruling, I assume that the VAT debts were also not paid for that reason.

28Moreover, the referring court states that liability for unpaid tax under Article 19(2) of the DOPK is joint and several in nature, since, although it arises after the taxable person’s tax debt has arisen, it continues to exist until the tax debt has been extinguished. In that respect, that liability is in no way based on fraudulent or abusive acts in the context of the taxable person’s (that is to say, the company’s) independent economic activity.

IV. The request for a preliminary ruling and the procedure before the Court

29By order of 18 November 2020, the Administrativen sad Veliko Tarnovo (Administrative Court, Veliko Tarnovo, Bulgaria), before which the action against the notice establishing liability was brought, referred the following questions to the Court of Justice for a preliminary ruling:

Is Article 9 of the Convention drawn up on the basis of Article K.3 of the Treaty on European Union, on the protection of the European Communities’ financial interests, read in conjunction with Article 273 of [Directive 2006/112], to be interpreted as meaning that it does not preclude, in the harmonised field of value added tax, a national legal instrument such as that provided for in Article 19(2) of the DOPK, the application of which has the effect of triggering post factum the joint and several liability of a non-taxable natural person who is not liable for payment of VAT but whose conduct in bad faith led to non-payment of VAT by the taxable legal person which is liable for that payment?

Do the interpretation of those provisions and the application of the principle of proportionality preclude the national legal instrument provided for in Article 19(2) of the DOPK also in respect of interest on VAT not paid in due time by the taxable person liable for that payment?

Is the national legal instrument provided for in Article 19(2) of the DOPK contrary to the principle of proportionality in a case where the late payment of VAT, which led to interest being charged on the VAT debt, is attributable not to the conduct of the non-taxable natural person, but to the conduct of another person or to the manifestation of objective circumstances?’

30The applicant, the Republic of Bulgaria, the Kingdom of Spain and the European Commission submitted written observations in the proceedings before the Court. In accordance with Article 76(2) of the Rules of Procedure of the Court of Justice, the Court did not consider it necessary to hold a hearing.

V. Legal assessment

31The referring court’s questions all seek to ascertain whether EU law precludes national legislation which provides for the joint and several liability of a natural person (a non-taxable person) where his or her conduct as an executive body of a legal person has led to that legal person not being able to pay its tax debts, including VAT debts, in due time or in full. Those questions presuppose that such liability of a non-taxable person comes within the scope of EU law.

A. Jurisdiction of the Court

32In its observations, the Republic of Bulgaria expresses doubts in this regard. In the context of a request for a preliminary ruling under Article 267 TFEU, the Court may interpret EU law only within the limits of the powers conferred upon it. ⁶ Where, therefore, a legal situation does not come within the scope of EU law, the Court does not have jurisdiction to rule on it. ⁷

33The Court therefore has jurisdiction to answer the questions referred only if the liability which was established in respect of the applicant in accordance with Article 19(2) of the DOPK, and which is the subject matter of the main proceedings, arises from implementation of EU law.

34The present case does not involve implementation of EU law in the form of transposition of the VAT Directive. National law provides for general accessory liability where an executive body of a company deprives the latter of assets with the result that the company is no longer able to pay its tax debts on time. That is detached from both the type of tax for which liability is incurred and the fact of whether the liable party is a taxable person; it is therefore independent of the VAT Directive.

35However, as the Court has already held, there is also implementation of EU law where the application of national law is designed to penalise an infringement of that directive and is therefore intended to implement the obligation imposed on the Member States by the Treaty to impose effective penalties for conduct prejudicial to the financial interests of the European Union. ⁸

36It must therefore be examined whether the applicant’s liability under Article 19(2) of the DOPK is intended to implement such an obligation under EU law. It may arise from Article 325 TFEU (see Section 1), the PFI Convention (see Section 2), Article 205 (see Section 3) or Article 273 (See section 4) of the VAT Directive.

1. Article 325 TFEU

37In accordance with Article 325 TFEU, Member States are required to counter illegal activities affecting the financial interests of the Union through effective deterrent measures. In particular, they are required to take the same measures to counter fraud affecting the financial interests of the Union as they take to counter fraud affecting their own financial interests. ⁹ Member States are required to ensure effective collection of the Union’s own resources. On that basis, they are obliged to collect sums corresponding to the own resources which, because of fraud, have been withheld from the Union budget. ¹⁰

38In the context of customs law, the Court ¹¹ extended the scope of Article 325 TFEU to the obligation of Member States to ‘adopt the measures necessary to guarantee the effective and comprehensive collection of customs duties’. However, that decision concerned the failure to carry out effective customs controls despite a known customs fraud scheme. There is no VAT fraud scheme in the present case, however. Nor is it apparent that there was a failure to carry out effective VAT controls in the present case. Moreover, Article 19(2) of the DOPK does not constitute a VAT control.

39Nor does the liability under Article 19(2) of the DOPK constitute a measure intended to counter any other illegal activity affecting the financial interests of the Union. Rather, it is liability for an inappropriate reduction in the assets of a company, which, as a result, can no longer pay certain (tax) debts in full. In that context, the company itself does not act unlawfully, but is merely no longer able to pay the taxes.

40The executive body, as a natural person, acts in bad faith (it being somewhat questionable whether that can already be said to constitute unlawful activity), and, moreover, does so ‘only’ in relation to the financial interests of the company, because it has granted itself inappropriate remuneration out of the company’s assets. In any event, it is not acting unlawfully in relation to the financial interests of the Union at this stage. It is only indirectly, in further circumstances – the company is subsequently no longer able to pay its taxes – that such conduct can have an impact on tax revenue (and thus indirectly also on VAT revenue), which then triggers the consequences of liability. It is at most indirectly that such liability can also counteract a threat to VAT revenue.

41This distinguishes the present situation from that underlying the judgment in Åkerberg Fransson. ¹² The legal consequence adopted by the Court in that case – that tax penalties and criminal proceedings for tax evasion due to the provision of false information concerning VAT constitute implementation of Article 325 TFEU ¹³ – related to the direct fight against VAT fraud. In the present case, however, it is not VAT fraud that is being penalised, but rather conduct in bad faith to the detriment of the company (possibly a kind of breach of trust). By contrast, the secondary liability of a company’s executive body which has acted in bad faith under Article 19(2) of the DOPK has nothing to do with the obligation of the Member States under Article 325 TFEU.

2. The PFI Convention

42The PFI Convention does not apply, for similar reasons. This is because it, too, is linked to the effective combating of fraud. Thus, Article 1 of that convention expressly refers to the use or presentation of false, incorrect or incomplete statements or documents, which has as its effect the illegal diminution of the resources of the general budget of the Union or budgets managed by, or on behalf of, the Union. Accordingly, the term ‘fraud affecting the … financial interests’ within the meaning of Article 1(1) of the PFI Convention must necessarily be interpreted as including the intentional use of false or incorrect statements submitted after the implementation of the project for which financing is granted. ¹⁴

43That has not taken place in the present case. As already stated above, the applicant did not submit any such statements and thereby bring about an illegal diminution of the resources of the budget of the Union. The fact that he, as an executive body of a company, gave himself an inappropriate salary and thereby harmed the financial interests or assets of the company is not the subject of the PFI Convention.

3. Article 205 of the VAT Directive

44At first glance, however, the secondary liability provided for in Article 19(2) of the DOPK could be based on Article 205 of the VAT Directive. That article provides that, in certain situations (namely those 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.

45That provision thereby seeks to ensure for the public exchequer the efficient collection of VAT from the most appropriate person in the light of the specific situation, particularly where the parties to the contract are not in the same Member State or where the transaction subject to VAT relates to supplies the specific nature of which makes it necessary to identify a person other than that referred to in Article 193 of that directive. ¹⁵

46There is no such situation in the present case. This is also rightly emphasised by the Commission and the Kingdom of Spain.

47Article 204 of the VAT Directive concerns the appointment of an (external) tax representative where the taxable person is not established in the Member State of the place of supply in which he or she has carried out transactions. However, the applicant is not an appointed tax representative. Article 203 of the VAT Directive covers the tax liability that results from the unfounded mention of VAT in an invoice. Neither the applicant nor the company issued such an invoice in the present case. Article 202 of the VAT Directive covers goods which are in customs warehouses or are being dispatched between them. That is not the case here.

48By contrast, Articles 193 to 200 cover certain transactions (supplies of goods and services) which give rise to tax liability on the part of a taxable person or certain non-taxable persons. In the case of such a transaction, a person other than the tax debtor can then also be identified as the liable party. However, the granting of an inappropriate salary is not a taxable and taxed supply of goods or services giving rise to tax liability on the part of a person. Without such tax liability, there is no tax debtor. Nor can a person other than the tax debtor then be held liable for it.

49The conditions of Article 205 of the VAT Directive, which relates only to the situations described in Articles 193 to 204 of that directive, are therefore not met. The secondary liability provided for in Article 19(2) of the DOPK is not based on Article 205 of the VAT Directive.

4. Article 273 of the VAT Directive

50That leaves Article 273 of the VAT Directive. According to that provision, 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.

51Therefore, the decisive factors are, first, whether the secondary liability of a company’s executive body laid down in Article 19(2) of the DOPK ensures the ‘correct collection of VAT’ within the meaning of Article 273 of the VAT Directive in order to prevent evasion (see Section (b)) and, second, whether the other obligations referred to in Article 273 of the VAT Directive can also apply to a non-taxable person – who has not yet been required to fulfil any obligations under the VAT Directive (see Section (a)).

(a) Other obligations of a non-taxable person?

52As follows from the very wording of Article 273 of the VAT Directive, the possible extension of obligations relates to obligations of taxable persons within the meaning of the VAT Directive. This is because the proviso of ‘equal treatment [of] taxable persons’ only makes sense if the additional obligations relate to a (different) taxable person. Additional obligations of a non-taxable person who is not involved in a transaction could not per se constitute a difference in treatment between domestic and intra-Community transactions.

53Therefore, Article 273 of the VAT Directive does not allow the Member States to lay down additional obligations for just any persons (employees, family members, neighbours, and so forth) who have any indirect connection to the VAT liability of a third party and thereby to extend the scope of the VAT Directive to those persons as well.

54The wording ‘other obligations’ (or also ‘further obligations’ in other language versions) also seems to me to presuppose already existing obligations within the meaning of the VAT Directive, which can be supplemented on certain grounds via Article 273 of the VAT Directive. Therefore, it is my view that that wording does not allow for the creation of new, first-time obligations for persons not previously covered by the VAT Directive.

55That outcome is in line with the scheme and purpose of the VAT Directive. This is because that directive regulates (substantive) VAT law, that is to say the incurrence of the VAT debt by a person taxable for VAT purposes. Therefore, the constituent element (Article 2(1) of the VAT Directive) requires supplies of goods or services by a taxable person. Article 9 of the VAT Directive then defines who is a taxable person. Such persons are only persons who carry out an economic activity independently. In principle, that does not include employed executive bodies of a company. ¹⁶

56Likewise, Article 273 appears in Chapter 7 (Miscellaneous provisions) of Title XI, entitled ‘Obligations of taxable persons and certain non-taxable persons’. Whereas Article 272 allows certain taxable persons to be released from certain obligations under Chapters 2 to 6, Article 273 extends the obligations to include further/other obligations. From a schematic viewpoint, this can only mean the obligations of taxable persons and certain non-taxable persons covered by Title XI.

57If the scope of the VAT Directive does not in principle ¹⁷ cover persons who are not subject to VAT, Article 273 of the VAT Directive can hardly allow the Member States to lay down special (further/other) obligations for persons previously not covered by the VAT Directive, just because doing so also serves to safeguard VAT revenue and prevent tax evasion. Accordingly, the requests for a preliminary ruling answered by the Court in connection with Article 273 of the VAT Directive have always concerned cases in which additional obligations or penalties were imposed on a taxable person. ¹⁸

58An extension of the obligations on the basis of Article 273 of the VAT Directive is at most possible in respect of persons who – although not taxable persons – are nevertheless already covered by the VAT Directive. One example is non-taxable legal persons who are identified for VAT purposes and can therefore also become liable for payment of VAT (see Article 197(1)(b) of the VAT Directive).

59This is also made clear by Article 273(2) of the VAT Directive. This is because the option under the first paragraph may nevertheless ‘not be relied upon in order to impose additional invoicing obligations over and above those laid down in Chapter 3 [(“Invoicing”) of Title XI (“Obligations of taxable persons and certain non-taxable persons”)]’. The obligations referred to therein also relate only to taxable persons and certain non-taxable persons already covered by the directive.

60This is true in particular when Article 205 of the VAT Directive is taken into account. Since that provision expressly covers only certain situations, an extension to other situations can hardly be justified on the basis of Article 273 of the VAT Directive. Accordingly, it is true that parallel secondary liability of a customer for the VAT debt of a supplying undertaking would also be beneficial in safeguarding tax revenue and preventing tax evasion. The same applies to the liability of any thief whose theft results in the victim being unable to pay his or her VAT debts. However, the wording of Article 273 of the VAT Directive does not allow for that liability of such non-taxable persons.

(b) Secondary liability necessary for the correct collection of VAT and to prevent evasion?

61Moreover, the question arises, from the outset, as to whether the secondary liability under Article 19(2) of the DOPK is suitable in the first place for ensuring the correct collection of VAT and preventing evasion.

62This is because it remains a general secondary liability – even of a non-taxable person, as in the present case – for another person’s tax. Therefore, the amount owed by the applicant is not VAT. That is still owed by the taxable person. This is shown by Article 21(3) of the DOPK. Under that provision, the secondary liability ceases as soon as the tax debt is extinguished and amounts already paid are reimbursed to the liable party. Consequently, payment by the liable party does not even extinguish the tax debt.

63However, if the applicant does not owe VAT, the secondary liability under Article 19(2) of the DOPK also cannot ensure the correct collection of VAT. What that secondary liability seeks to penalise or prevent is a reduction of assets in bad faith to the detriment of the company, which, as a result, is unable to pay its debts (in the present case, tax debts). Thus, the liability under Article 19(2) of the DOPK neither hinders nor facilitates the correct collection of VAT. This is because the VAT continues to be collected in exactly the same amount from the person taxable for VAT purposes.

64Moreover, that liability of a non-taxable person does not prevent evasion by the taxable person. The liability is linked solely to the failure to pay tax due to the taxable person’s lack of assets. However, the mere non-payment of duly declared tax does not constitute tax evasion. ¹⁹ The conditions for the application of Article 273 of the VAT Directive are not met in that regard either.

B. Interim conclusion

65Therefore, as the Republic of Bulgaria emphasised, Article 19(2) of the DOPK does not implement EU law. It does not penalise an infringement of the provisions of the VAT Directive, but a breach of fiduciary duties towards the company. Such a breach has, at best, an indirect effect on the payment of VAT by a third party.

66However, as I have previously stated elsewhere, it is not the case that any indirect links with VAT law are sufficient to substantiate the applicability of EU law. ²⁰ That approach is in line with the Court’s case-law as it pertains to the determination of the scope of the Charter of Fundamental Rights of the European Union (‘the Charter’). ²¹ The applicability of the Charter also presupposes a degree of connection between the measure of EU law and the national measure at issue which goes beyond the matters covered being closely related or one of those matters having an indirect impact on the other.

67Consequently, the Court does not have jurisdiction to answer the questions asked in the present case. The general joint and several liability of a company’s executive body (non-taxable person within the meaning of the VAT Directive) for conduct causing harm to the company (in casu: granting a salary at an unreasonable level), which causes the non-payment of tax debts owed by the company, is not the subject of the VAT Directive and does not come within the scope of EU law. The same applies where some of the company’s tax debts which have not been paid or were paid late are VAT debts or interest on VAT debts which were paid late.

C. In the alternative: does EU law preclude joint and several liability for VAT debts, including interest thereon?

68If, by contrast, the Court considers that it does have jurisdiction to answer the questions referred, because it interprets the secondary liability under Article 19(2) of the DOPK as implementing the VAT Directive, the three questions referred by the referring court can be answered as follows: EU law does not require such secondary liability, but does not preclude it either.

69According to the Court, in the context of liability under Article 205 of the VAT Directive, there can be no objection to that liability extending not only to the tax debt, but also to default interest of a third party. ²² Even if, according to the wording of Article 205 of Directive 2006/112, the joint and several liability provided for in that article relates only to the payment of VAT, that wording does not preclude Member States from being able to impose on the joint and several debtor all the elements relating to that tax. They include default interest owed by the person liable for payment on account of his or her failure to pay the tax. ²³

70In my opinion – in line with the view taken by the Commission and the Kingdom of Spain – the same applies to the present case, in so far as the additional secondary liability can be based on Article 273 of the VAT Directive. If the company’s executive body, through its own actions (granting an unreasonable salary), has caused the company to be unable to pay its VAT debt in due time, liability for those unpaid taxes and the ensuing enrichment of a third party (advantage in the form of interest) serves a legitimate objective (safeguarding the company’s assets through liability for the taxes to be paid and for the associated harm caused by the delay in payment).

71Such liability also fulfils the other requirements of the principle of proportionality. ²⁴ It is appropriate and necessary for achieving the abovementioned objective. A less severe but equally appropriate means is not apparent. In so far as it affects the person responsible – who has enriched himself or herself by impoverishing the company, thereby causing the non-payment of the tax debt, including the interest debt – such liability is also a proportionate means.

VI. Conclusion

Conclusion

72I therefore propose that the Court answer the Administrativen sad Veliko Tarnovo (Administrative Court, Veliko Tarnovo, Bulgaria) as follows:

The general joint and several liability of a company’s executive body (non-taxable person within the meaning of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (‘the VAT Directive’) for conduct causing harm to the company (in casu: granting a salary at an unreasonable level), which causes the non-payment of tax debts owed by the company, is not the subject of the VAT Directive and does not come within the scope of EU law. The Court therefore does not have jurisdiction to answer the questions asked.

¹ Original language: German.

² See, for example, the statements of the Bundesverfassungsgericht (Federal Constitutional Court, Germany), judgment of 24 April 2013, Antiterrordatei (1 BVR 1215/07, BVerfGE 133, 277, ECLI:DE:BVerfG:2013:rs20130424.1bvr121507, paragraph 91). Strong criticism can also be found in Widmann, W., ‘Geltung der EU-Grundrechte-Charta bei der Sanktion mehrwertsteuerlicher Verfehlungen’, Umsatzsteuer-Rundschau, 2014, p. 5 (pp. 6 and 7).

³ Judgment of 26 February 2013 (C‑617/10, EU:C:2013:105).

⁴ Council Directive of 28 November 2006 (OJ 2006 L 347, p. 1), in the version applicable in the year at issue (2014).

⁵ OJ 1995 C 316, p. 48 et seq.

⁶ Judgments of 19 November 2019, A. K. and Others (Independence of the Disciplinary Chamber of the Supreme Court) (C‑585/18, C‑624/18 and C‑625/18, EU:C:2019:982, paragraph 77), and of 15 November 2016, Ullens de Schooten (C‑268/15, EU:C:2016:874, paragraph 40).

⁷ Judgments of 26 February 2013, Åkerberg Fransson (C‑617/10, EU:C:2013:105, paragraph 22); see also order of 12 July 2012, Currà and Others (C‑466/11, EU:C:2012:465, paragraph 26).

⁸ Judgment of 26 February 2013, Åkerberg Fransson (C‑617/10, EU:C:2013:105, paragraph 28).

⁹ Judgments of 8 March 2022, Commission v United Kingdom (Action to counter undervaluation fraud) (C‑213/19, EU:C:2022:167, paragraph 208 et seq.); of 14 October 2021, Ministerul Lucrărilor Publice, Dezvoltării şi Administraţiei (C‑360/20, EU:C:2021:856, paragraph 36); and of 26 February 2013, Åkerberg Fransson (C‑617/10, EU:C:2013:105, paragraph 26).

¹⁰ Judgment of 5 December 2017, M.A.S. and M.B. (C‑42/17, EU:C:2017:936, paragraph 32); see, to that effect, judgment of 7 April 2016, Degano Trasporti (C‑546/14, EU:C:2016:206, paragraph 21).

¹¹ Judgment of 8 March 2022, Commission v United Kingdom (Action to counter undervaluation fraud) (C‑213/19, EU:C:2022:167, paragraph 211).

¹² Judgment of 26 February 2013 (C‑617/10, EU:C:2013:105).

¹³ Judgment of 26 February 2013, Åkerberg Fransson (C‑617/10, EU:C:2013:105, paragraph 27), confirmed by judgments of 8 September 2015, Taricco and Others (C‑105/14, EU:C:2015:555, paragraph 39 et seq.), and of 5 December 2017, M.A.S. and M.B. (C‑42/17, EU:C:2017:936, paragraph 32 et seq.).

¹⁴ Judgment of 14 October 2021, Ministerul Lucrărilor Publice, Dezvoltării şi Administraţiei (C‑360/20, EU:C:2021:856, paragraph 29).

¹⁵ See, to that effect, judgment of 20 May 2021, ALTI (C‑4/20, EU:C:2021:397, paragraph 28).

¹⁶ See, even in relation to a non-employee supervisory board: judgment of 13 June 2019, IO (VAT – Activities of a member of a supervisory board) (C‑420/18, EU:C:2019:490).

¹⁷ There are exceptions, for example for non-taxable legal persons, as they can, for example, also make intra-Community acquisitions (see Article 2(1)(b), Article 20(2) of the VAT Directive) or become liable for payment of VAT (see Article 197(1)(b) of the VAT Directive).

¹⁸ See order of 21 October 2021, EuroChem Agro Hungary (C‑583/20, not published, paragraph 25); judgments of 15 April 2021, Grupa Warzywna (C‑935/19, EU:C:2021:287, paragraph 24); of 8 May 2019, EN.SA. (C‑712/17, EU:C:2019:374); of 26 October 2017, BB construct (C‑534/16, EU:C:2017:820, paragraph 22 concerned the provision of a guarantee by new taxable persons); of 19 October 2017, Paper Consult (C‑101/16, EU:C:2017:775, paragraph 55); of 5 October 2016, Maya Marinova (C‑576/15, EU:C:2016:740, paragraph 42); and of 21 June 2012, Mahagében and Dávid (C‑80/11 and C‑142/11, EU:C:2012:373, paragraph 54 refers to traders, paragraph 61 to taxable persons).

¹⁹ Judgment of 2 May 2018, Scialdone (C‑574/15, EU:C:2018:295, paragraphs 39 and 40); see also in detail in that regard my Opinion in HA.EN. (C‑227/21, EU:C:2022:364, point 35 et seq.).

²⁰ See my Opinion in Joined Cases IN and JM (C‑469/18 and C‑470/18, EU:C:2019:597, point 65). See also, in that regard, judgment of 24 October 2019, Belgische Staat (C‑469/18 and C‑470/18, EU:C:2019:895, paragraph 18).

²¹ Judgments of 6 October 2016, Paoletti and Others (C‑218/15, EU:C:2016:748, paragraph 14); of 10 July 2014, Julián Hernández and Others (C‑198/13, EU:C:2014:2055, paragraph 34); and of 6 March 2014, Siragusa (C‑206/13, EU:C:2014:126, paragraph 24).

²² Judgment of 20 May 2021, ALTI (C‑4/20, EU:C:2021:397, paragraph 40 et seq.).

²³ Judgment of 20 May 2021, ALTI (C‑4/20, EU:C:2021:397, paragraph 42); the Court did not adopt the narrower interpretation of Article 205 of the VAT Directive that I had proposed – see my Opinion in ALTI (C‑4/20, EU:C:2021:12, point 31 et seq.).

²⁴ By way of example: judgments of 26 October 2010, Schmelz (C‑97/09, EU:C:2010:632, paragraph 57), and of 27 January 2009, Persche (C‑318/07, EU:C:2009:33, paragraph 52).