C-4/20 ALTI

JUDGMENT OF THE COURT (First Chamber)

20 May 2021 ( *1 )

(Reference for a preliminary ruling – Taxation – Common system of value added tax (VAT) – Directive 2006/112/EC – Article 205 – Persons liable for payment of VAT to the public exchequer – Joint and several liability of the recipient of a taxable supply which has exercised its right to deduct VAT knowing that the person liable for payment of that tax would not pay it – Obligation of such a recipient to pay the VAT not paid by the person liable for payment and the default interest due on account of that person’s failure to pay the VAT)

In Case C‑4/20,

REQUEST for a preliminary ruling under Article 267 TFEU from the Varhoven administrativen sad (Supreme Administrative Court, Bulgaria), made by decision of 16 December 2019, received at the Court on 7 January 2020, in the proceedings

‘ALTI’ OOD

v

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

THE COURT (First Chamber),

composed of J.-C. Bonichot, President of the Chamber, L. Bay Larsen, C. Toader, M. Safjan (Rapporteur) and N. Jääskinen, Judges,

Advocate General: J. Kokott,

Registrar: A. Calot Escobar,

having regard to the written procedure,

after considering the observations submitted on behalf of:

the Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’ Plovdiv pri Tsentralno upravlenie na Natsionalnata agentsia za prihodite, by G. Arnaudov,

the Bulgarian Government, by L. Zaharieva and E. Petranova, acting as Agents,

the European Commission, by A. Armenia and Y. Marinova, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 14 January 2021,

gives the following

Judgment

Legal context and the dispute

1This request for a preliminary ruling concerns the interpretation of Article 205 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1, and corrigendum OJ 2018 L 329, p. 53).

2The request has been made in proceedings between ‘ALTI’ OOD and the Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’ Plovdiv pri Tsentralno upravlenie na Natsionalnata agentsia za prihodite (Director of the ‘Appeals and Tax/Social Insurance Practice’ Directorate, responsible for the city of Plovdiv, within the Central Administration of the National Revenue Agency, Bulgaria) (‘the director’), concerning the joint and several liability of ALTI for the payment of value added tax (VAT) together with default interest.

Legal context

EU law

3Article 193 of Directive 2006/112 states:

‘VAT shall be payable by any taxable person carrying out a taxable supply of goods or services, except where it is payable by another person in the cases referred to in Articles 194 to 199b and Article 202.’

4Articles 194 to 200 and 202 to 204 of that directive provide, in essence, that persons other than a taxable person carrying out a taxable supply of goods or services may or shall be regarded as liable for VAT.

5Article 205 of that directive provides:

‘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.’

Bulgarian law

6Headed ‘Liability in the event of abuse’, Article 177 of the Zakon za danaka varhu dobavenata stoynost (Law on value added tax) (DV No 63 of 4 August 2006), in the version applicable at the material time (‘the Law on VAT’), states:

‘(1) A registered person who is the recipient of a taxable supply shall be liable for unpaid tax due from another registered person where he has exercised the right to deduct input tax directly or indirectly connected with the tax due but not paid.

(2) Liability under paragraph 1 shall be incurred where the registered person knew or should have known that the tax would not be paid, and this is proved by the investigating authority in accordance with Articles 117 to 120 of the Danachno – osiguritelen protsesualen kodeks (Tax and Social Security Procedure Code).

(3) Knowledge shall be imputed to a person for the purposes of paragraph 2 where both of the following conditions are satisfied:

1the tax due, within the meaning of paragraph 1, for a particular tax period has in fact not been paid by any upstream supplier in respect of a taxable supply of the same goods or services, whether or not in the same, a changed or a processed form;

2the taxable supply is fictitious, circumvents legislation or is made at a price that differs significantly from the market price.

(4) Liability under paragraph 1 shall not be dependent on obtaining a specific advantage on account of the non-payment of the tax due.

(5) In the circumstances envisaged in paragraphs 2 and 3, the upstream supplier of the taxable person who owes the unpaid tax shall also be liable.

(6) In the cases referred to in paragraphs 1 and 2, liability shall be enforced against the taxable person who is the direct recipient of the supply in respect of which the tax due has not been paid, and, where recovery fails, liability may be enforced against any downstream recipient in the chain of supply.

(7) Paragraph 6 shall also apply mutatis mutandis to upstream suppliers.’

7Article 14 of the Tax and Social Security Procedure Code (DV No 105 of 29 December 2005) provides:

‘Persons liable for payment shall be any natural or legal person who:

1is liable for taxes or compulsory social security contributions;

2is required to levy and pay taxes or compulsory social security contributions;

3is liable for the debt of the persons referred to in paragraphs 1 and 2.’

8Article 16 of that code provides:

‘(1) A person shall be liable under Article 14(3) if, in the circumstances provided for by law, he is obliged to pay the [VAT] or compulsory social security contribution of the person liable for that tax or contribution or of a person required to levy and pay taxes or compulsory social security contributions that have not been paid within the period prescribed.

(2) Persons liable under Article 14(3) shall be subject to the rules determining the rights and obligations of a person in proceedings in accordance with this code.

(3) The liability of persons liable under Article 14(3) shall include taxes and compulsory social security contributions, interest and recovery costs.’

9Article 121 of the Zakon za zadalzheniata i dogovorite (Law on obligations and contracts) (DV No 275 of 22 November 1950) is worded as follows:

‘Except as provided for by law, joint and several liability of two or more debtors shall arise only where it has been agreed.’

10Article 122 of that law states:

‘The creditor may demand enforcement of the entire debt from the joint and several debtor of his choice.

Proceedings brought against one of the joint and several debtors shall not affect the creditor’s right against the other debtors.’

11Article 126 of that law provides:

‘If the failure to perform is attributable to only one of the debtors, the creditor may claim full compensation for damage from that debtor.

The other debtors shall be jointly and severally liable only for the amount originally payable.

Default by one joint and several debtor shall produce no effects in respect of the other debtors.’

12Article 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) provides:

‘The recovery of taxes, charges, deductions from profits, contributions to the budget and other similar debts owed to the State, whether or not subject to a levy, which have not been paid within the period prescribed for voluntary payment shall be subject to interest at the statutory rate.

The recovery of compulsory insurance contributions [which have not been paid] within the period prescribed for voluntary payment shall also be subject to interest at the statutory rate.

Interest on interest and on fines shall not be payable.’

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

13ALTI is a limited liability company governed by Bulgarian law. In 2014, it acquired from ‘FOTOMAG’ EOOD, a single-member private limited company governed by Bulgarian law, a combine harvester, a tractor and a cart (‘the agricultural equipment’), which had been the subject of an intra-Community acquisition by FOTOMAG from a company established in the United Kingdom. The supplies of the agricultural equipment to ALTI led to FOTOMAG issuing three invoices, each showing VAT. After it settled those invoices, ALTI exercised its right to deduct VAT and declared the relevant deductions in its tax returns for the April 2014 and June 2014 tax periods.

14FOTOMAG was the subject of a tax adjustment procedure following which the Bulgarian tax authorities determined, in a tax assessment notice of 27 June 2016, that FOTOMAG had failed to pay almost all of the VAT declared in respect of the intra-Community acquisitions and calculated on the invoices issued to ALTI.

15In a tax adjustment procedure initiated in respect of ALTI, the Bulgarian tax authorities found that ALTI and FOTOMAG had entrusted one and the same person with their accounting, the management of their bank accounts and the submission of their VAT returns, that FOTOMAG’s acquisition of the agricultural equipment had been financed through a third-party company whose members were the managers of FOTOMAG and ALTI and that the transport of the combine harvester from the United Kingdom had been organised by a manager and representative of ALTI through another company. Those findings led the tax authorities to conclude that ALTI had itself organised the acquisition of the agricultural equipment by FOTOMAG through an intra-Community acquisition in order for VAT to be charged improperly and that ALTI knew that FOTOMAG would not pay the VAT on the three invoices in question. The tax authorities also took the view that, since the transaction between FOTOMAG and ALTI was intended to circumvent legislation, within the meaning of Article 177(3)(2) of the Law on VAT, ALTI should have known that the VAT would not be paid by FOTOMAG, for the purpose of that provision.

16In those circumstances, the Bulgarian tax authorities, in a tax assessment notice of 23 February 2018 issued to ALTI and corrected by a tax assessment notice of 6 March 2018, found ALTI to be jointly and severally liable pursuant to Article 177(3)(2) of the Law on VAT for the VAT not paid by FOTOMAG.

17ALTI lodged an administrative appeal with the director, claiming, inter alia, that the subjective element required by Article 177(3)(2) of the Law on VAT, namely that ALTI should have known that the VAT would not be paid by FOTOMAG, was lacking.

18That administrative appeal was dismissed by the director and ALTI brought an action before the Administrativen sad – Plovdiv (Administrative Court, Plovdiv, Bulgaria). By judgment of 22 March 2019, that court dismissed ALTI’s action against the tax assessment notice as unfounded.

19The Administrativen sad – Plovdiv (Administrative Court, Plovdiv) considered that it was apparent from the information gathered during the procedure that ALTI should have known that FOTOMAG would not perform its obligation to pay the VAT. In that regard, that court found, inter alia, that (i) in reality the relationship between ALTI and FOTOMAG went beyond a normal business relationship; (ii) FOTOMAG had never carried on business in connection with the sale of agricultural equipment and had no experience at all in that field; (iii) the managing director and shareholder of the third-party company that lent funds to FOTOMAG for the purchase of the agricultural equipment were the managers of ALTI and FOTOMAG, respectively; and (iv) one and the same person had carried out the bank transfers between ALTI, FOTOMAG and that third-party company, kept the accounts of ALTI, FOTOMAG and the company that negotiated the transport of the agricultural equipment from the United Kingdom, and submitted ALTI’s and FOTOMAG’s tax returns. That court concluded that the purpose of the relationship between ALTI and FOTOMAG was to circumvent legislation and that, pursuant to Article 177(3)(2) of the Law on VAT in conjunction with Article 16(3) of the Tax and Social Security Procedure Code, ALTI was obliged to pay not only the tax itself but also default interest due on account of the failure to pay that tax by the person liable for payment.

20ALTI is contesting the judgment of the Administrativen sad – Plovdiv (Administrative Court, Plovdiv) before the Varhoven administrativen sad (Supreme Administrative Court, Bulgaria).

21In its appeal, ALTI claims, inter alia, that while, in accordance with the case-law of the Bulgarian courts, the recipient of a taxable supply may incur liability, on the basis of Article 177(3)(2) of the Law on VAT, where it has exercised its right of deduction in respect of the tax due but not paid by its supplier, that liability does not include default interest due on account of the failure to pay that tax by the person liable for payment.

22The referring court states that, under Article 177(3)(2) of the Law on VAT, the recipient of a taxable supply is liable for the tax due but not paid by another person where the recipient has exercised the right to deduct the input VAT linked directly or indirectly to the VAT due and not paid and that that joint and several liability is incurred where the recipient knew or should have known that that tax would not be paid. That provision is consistent with Article 205 of Directive 2006/112, as is apparent, inter alia, from the judgment of 11 May 2006, Federation of Technological Industries and Others (C‑384/04, EU:C:2006:309).

23However, in determining the scope of that joint and several liability, the Bulgarian legislature did not expressly state in Article 177 of the Law on VAT that the recipient of the supply is liable not only for the unpaid tax but also for default interest due from the date on which that tax became chargeable. The referring court states that such an obligation might nevertheless be inferred from Article 16(3) of the Tax and Social Security Procedure Code, even though contradictory judgments have been delivered by the Bulgarian Supreme Administrative Court on this point. In that context, the referring court explains that it is unsure whether Article 205 of Directive 2006/112 and the principle of proportionality preclude the inclusion, in the system of joint and several liability in question, of default interest due on account of the non-payment of the tax by the person liable for payment and, consequently, preclude national legislation such as Article 16(3) of that code.

24In those circumstances, the Varhoven administrativen sad (Supreme Administrative Court) decided to stay proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

Are Article 205 of [Directive 2006/112] and the principle of proportionality to be interpreted as meaning that the joint and several liability of a registered person, which is the recipient of a taxable supply, for the value added tax not paid by its supplier also includes, in addition to the supplier’s principal debt (the value added tax debt), the accessory obligation to pay compensation for late payment in the amount of the statutory interest on the principal debt from the beginning of the debtor’s default until the issuance of the tax assessment notice by which the joint and several liability is established or until the discharge of the debt?

Are Article 205 of [Directive 2006/112] and the principle of proportionality to be interpreted as precluding a national provision such as Article 16(3) of the [Tax and Social Security Procedure Code], according to which a third party’s liability for unpaid taxes of a taxable person includes the taxes and the interest?’

Consideration of the questions referred

25By its two questions, which it is appropriate to examine together, the referring court asks, in essence, whether Article 205 of Directive 2006/112, read in the light of the principle of proportionality, must be interpreted as precluding national legislation pursuant to which the person designated as being jointly and severally liable, for the purpose of that article, is required to pay, in addition to the VAT not paid by the person liable for payment of that tax, the default interest on that amount, due from the person liable for payment.

26In that regard, it should be noted that, as set out in Article 205 of Directive 2006/112, 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.

27Articles 193 to 200 and 202 to 204 of Directive 2006/112 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.

28It is apparent from the context formed by Articles 193 to 205 of Directive 2006/112 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.

29In principle, therefore, Article 205 of Directive 2006/112 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.

30That interpretation is also supported by the judgment of 21 December 2011, Vlaamse Oliemaatschappij (C‑499/10, EU:C:2011:871, paragraph 19 and the case-law cited), relating to the interpretation of Article 21(3) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1), as amended by Council Directive 2001/115/EC of 20 December 2001 (OJ 2002 L 15, p. 24), which was equivalent to Article 205 of Directive 2006/112.

31However, since Article 205 of Directive 2006/112 specifies neither the persons that Member States may designate as joint and several debtors nor the situations in which such designation may be made, it is for the Member States to determine the conditions and arrangements under which the joint and several liability provided for in that article will be incurred.

32In that regard, it should be borne in mind that, in the exercise of that power, Member States must observe the general principles of law that form part of the EU legal order, which include, in particular, the principles of legal certainty and of proportionality (judgment of 21 December 2011, Vlaamse Oliemaatschappij, C‑499/10, EU:C:2011:871, paragraph 20 and the case-law cited).

33As regards specifically the principle of proportionality, the Court has held that, in accordance with that principle, 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 (judgment of 21 December 2011, Vlaamse Oliemaatschappij, C‑499/10, EU:C:2011:871, paragraphs 21 and 22 and the case-law cited).

34Accordingly, 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.

35In that context, it should be recalled that preventing possible tax evasion, avoidance and abuse is an objective recognised and encouraged by EU legislation on the common system of VAT and that the effect of the principle that the abuse of rights is prohibited is to bar wholly artificial arrangements which do not reflect economic reality and are set up with the sole aim of obtaining a tax advantage (see, to that effect, judgment of 20 June 2013, Newey, C‑653/11, EU:C:2013:409, paragraph 46).

36The Court has thus ruled that Article 205 of Directive 2006/112 allows a Member State to hold a person jointly and severally liable for payment of VAT where, at the time of the supply to it, that person knew or ought to have known that the tax payable in respect of that supply, or of any previous or subsequent supply, would go unpaid, and to rely on presumptions in that regard, provided that such presumptions are not formulated in such a way as to make it practically impossible or excessively difficult for the taxable person to rebut them with evidence to the contrary, thereby creating a system of strict liability going beyond what is necessary to preserve the public exchequer’s rights. Traders who take every precaution which could reasonably be required of them to ensure that their transactions do not form part of a chain that is fraudulent or amounts to an abuse must be able to rely on the legality of those transactions without the risk of being made jointly and severally liable to pay the VAT due from another taxable person (see, to that effect, judgment of 11 May 2006, Federation of Technological Industries and Others, C‑384/04, EU:C:2006:309, paragraphs 32 and 33 and the case-law cited).

37The 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 took every reasonable measure in his power and that his 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 (see, to that effect, judgment of 21 December 2011, Vlaamse Oliemaatschappij, C‑499/10, EU:C:2011:871, paragraph 26 and the case-law cited).

38In the present case, it is apparent from the order for reference that Article 177 of the Law on VAT, headed ‘Liability in the event of abuse’, provides, in paragraph 2, that a person is to be held jointly and severally liable for payment of the tax due where that person has exercised its right of deduction even though it knew or should have known that the person liable for payment did not intend to pay the tax, and it is for the investigating authority to prove that those conditions have been met. It is also apparent from the order for reference that Article 177(3)(2) of that law provides that, in order to be able to presume that the person concerned should have known that the person liable for payment did not intend to pay the tax due, not only must that tax not actually have been paid by any upstream supplier, but the taxable supply must also be fictitious, circumvent legislation or be made at a price that differs significantly from the market price.

39It is apparent from both the order for reference and the written observations of the Bulgarian Government that such a presumption is rebuttable. Moreover, it is not apparent from the documents before the Court that it would be practically impossible or excessively difficult to rebut such a presumption. Nevertheless, it is for the referring court to ascertain whether the person concerned has the opportunity to prove, for that purpose, that it acted in good faith.

40In those circumstances, it must be held that, as the referring court states, a provision such as Article 177 of the Law on VAT meets the requirements for the application of Article 205 of Directive 2006/112, as set out in paragraphs 36 and 37 above.

41However, the referring court states that, while, under Article 177 of the Law on VAT, the persons referred to in that article can be held jointly and severally liable only for the payment of VAT, those persons may also be required, under Article 16(3) of the Tax and Social Security Procedure Code, to pay the default interest due on account of the failure to pay the VAT by the person liable for payment.

42In that regard, it should be noted that although, 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, such as default interest due on account of the failure to pay the tax by the person liable for payment. Nevertheless, it should be pointed out that Member States may extend the system of joint and several liability so that it encompasses such elements only if such an extension is justified in the light of the objectives pursued by Article 205 of Directive 2006/112 and, as stated in paragraph 32 above, is consistent with the principles of legal certainty and of proportionality.

43In that regard, it should be held that, where a rule of national law requiring a joint and several debtor to pay default interest relating to the principal debt serves to combat VAT abuse, it contributes to achieving the objective of ensuring the efficient collection of VAT for the public exchequer, pursued by Article 205 of Directive 2006/112. Furthermore, since the application of such a rule presupposes that it is proved that, in exercising its right of deduction, the other party to the contract with the person liable for payment of the tax due knew or should have known that the latter would not pay it, the obligation on that other party – which is deemed, as a result of its voluntary participation in VAT abuse, to have subscribed from the outset to the unlawful intention not to pay the tax on the part of the person liable for payment – to remedy the effects of the late payment of that tax, for which it is also answerable in part, appears to be proportionate and consistent with the principle of legal certainty.

44Such an approach is also in accordance with the objective underlying Article 205 of Directive 2006/112, as described in paragraphs 28 and 29 above, which is to enable Member States to ensure for the public exchequer the efficient collection of VAT from the most appropriate persons in the light of the specific situation. In the case of VAT abuse such as that envisaged by the national legislation at issue in the main proceedings, the public exchequer must have the opportunity to recover, in the interests of efficiency, the tax due and all the elements relating thereto from each of the contracting parties which participated in that abuse.

45In the light of all the foregoing, the answer to the questions referred is that Article 205 of Directive 2006/112, read in the light of the principle of proportionality, must be interpreted as not precluding national legislation pursuant to which the person held jointly and severally liable, for the purpose of that article, must pay, in addition to the VAT not paid by the person liable for payment of that tax, the default interest on that amount, due from the person liable for payment, where it is proved that, in exercising its right of deduction, it knew or should have known that the person liable for payment would not pay that VAT.

Costs

46Since 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 costs of those parties, are not recoverable.

Operative part

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

Article 205 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, read in the light of the principle of proportionality, must be interpreted as not precluding national legislation pursuant to which the person held jointly and severally liable, for the purpose of that article, must pay, in addition to the value added tax (VAT) not paid by the person liable for payment of that tax, the default interest on that amount, due from the person liable for payment, where it is proved that, in exercising its right of deduction, it knew or should have known that the person liable for payment would not pay that VAT.

Signatures

[Signatures]

( *1 ) Language of the case: Bulgarian.

OPINION OF ADVOCATE GENERAL

KOKOTT

delivered on 14 January 2021 ¹

(Request for a preliminary ruling – Taxation – Value added tax (VAT) – Directive 2006/112/EC – Article 205 and Article 273 – Joint and several liability of a third party who is not the person liable for payment of VAT – Extent of liability – Extension of secondary liability to default interest owed by the person liable for payment of VAT – Extended liability with a view to the effective combatting of VAT fraud – Existence of VAT fraud in the case of non-payment of the declared VAT liability)

I. Introduction

1The Court is once again being called upon to interpret the VAT Directive – in the case at issue Articles 205 and 273 – by striking a balance between the effective collection of VAT by Member States and the fundamental rights of the persons concerned in conjunction with the principle of proportionality.

2On this occasion it must be clarified whether the VAT Directive permits a Member State to provide that, in addition to the supplier, the recipient of a purely domestic supply is a further ‘person liable for payment of VAT’ (or, more precisely, a ‘person with secondary liability’) and to hold him liable not only for a third-party VAT liability but also for third-party default interest. Article 205 of the VAT Directive provides that, in certain situations, Member States may provide that another person in addition to the person liable for payment of VAT is to be held liable for payment of VAT, but does not contain any further statements regarding the extent of that liability.

3On the other hand, consideration must be given to the Member States’ procedural autonomy, which might also permit liability for third-party default interest to be introduced as a kind of penalty, irrespective of Article 205 of the VAT Directive. Bulgaria considers liability for default interest to be necessary in the light of the objective of the effective combatting of fraud. In the present case it is unclear whether the recipient knew or should have known that the supplier paid by it duly declared its VAT liability, but did not discharge it in good time.

II. Legal framework

A. EU law

4The framework in EU law is provided by Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax ² (‘the VAT Directive’).

5Recital 44 of that directive states:

‘Member States should be able to provide that someone other than the person liable for payment of VAT is to be held jointly and severally liable for its payment.’

6Article 193 of the VAT Directive provides as follows with regard to persons liable for payment of VAT:

‘VAT shall be payable by any taxable person carrying out a taxable supply of goods or services, except where it is payable by another person in the cases referred to in Articles 194 to 199 and Article 202.’

7Article 205 of the VAT Directive includes the possibility of providing for a further person, in addition to the person liable for payment of VAT, to be held jointly and severally liable for payment of VAT:

‘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.’

8The second paragraph of Article 207 of the VAT Directive further provides:

‘Member States shall also take the measures necessary to ensure that those persons who, in accordance with Article 205, are held to be jointly and severally liable for payment of the VAT comply with these payment obligations.’

9The first paragraph of Article 273 of the VAT Directive envisages possibilities available to Member States inter alia for countering evasion:

‘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.’

B. Bulgarian law

10Bulgarian law provides, in Article 177 of the Zakon za danak varhu dobavenata stoynost (Law on value added tax, ZDDS), that a third party may be held liable in the case of VAT fraud. Under that provision, an undertaking which has received a taxable supply and exercised the right of input tax deduction in respect of it is liable for unpaid VAT owed by its supplier if it knew or should have known that the VAT corresponding to the input tax deduction would not be paid by the supplier.

11Under Article 14(3) and Article 16(3) of the Danachno-osiguritelen protsesualen kodeks (Tax and Insurance Procedure Code, DOPK), the secondary liability of a third party in tax law includes interest and collection costs.

12Articles 121, 122 and 126 of the Zakon za zadalzheniata i dogovorite (Law on obligations and contracts, ZZD) contain provisions on the merely relative effect of joint and several liability. Under those provisions, the creditor may demand enforcement of the entire debt from the joint and several debtor of his choice. If the default can be attributed to only one of the debtors, the creditor may claim full compensation for damage from that debtor. The other debtors are jointly and severally liable only up to the value of the amount originally owed. Default on the part of a joint and several debtor produces no effects in respect of the other debtors.

III. Main proceedings

13‘Alti’ OOD (‘the applicant’) is a Bulgarian company with limited liability.

14On 10 April 2014, the applicant acquired from the Bulgarian single-member company with limited liability ‘Fotomag’ EOOD (‘the supplier’) a combine harvester, a tractor and, in May, further agricultural equipment. The supplier issued the applicant invoices in respect of the supplies, showing VAT separately. The applicant transferred the amounts to a bank account of the supplier and exercised the right of input tax deduction.

15According to an invoice of 10 April 2014, the supplier in turn acquired the agricultural technology mentioned from an undertaking in the United Kingdom, which is why intra-Community acquisitions were made by the supplier in Bulgaria. In a tax audit of the supplier, however, it was found in June 2016 that, while the resulting tax debt had been declared, it had largely not been paid. The supplier was held liable, by a tax assessment notice, for the remaining tax debt together with default interest as from April 2014.

16A tax audit was also ordered in respect of the applicant. By a tax assessment notice of 23 February 2018 (‘the liability notice’), it was held to be jointly and severally liable. Under Article 177 of the ZDDS it was liable for VAT that had been shown by the supplier in the invoices, but had not been paid. In addition to the supplier’s tax liability, that liability notice also covered the default interest owed by the supplier as from April 2014.

17The applicant unsuccessfully raised an objection to the liability notice and then brought an action at the Administrativen sad Plovdiv (Administrative Court, Plovdiv, Bulgaria).

18The Administrative Court before which the matter was brought dismissed the action. It found that default interest was also to be paid in the context of joint and several liability. This resulted from the fact that the application of Article 16(3) of the DOPK was not excluded and it was expressly established in that provision that the party liable for the liabilities of a taxable person was liable for taxes and statutory social insurance contributions as well as for interest and costs for the charging thereof. Joint and several liability under Article 177(1) of the ZDDS was not limited to the amount of the ‘owed and unpaid tax’. The supplier’s default also put the applicant in default.

19The applicant lodged an appeal in cassation against the judgment of the Administrativen sad Plovdiv at the Varhoven administrativen sad (Supreme Administrative Court, Bulgaria). The parties to those proceedings evidently still disagree as to whether the subjective element of Article 177 of the ZDDS, namely that the recipient knew or should have known that the supplier would not pay VAT, is actually satisfied.

20Irrespective of this, the applicant also asserts that it cannot owe default interest for the period between the supplier’s VAT liability becoming due and the liability notice being issued. Because it does not owe any original VAT on the basis of the supply, it has not breached any duty to pay that VAT within the period prescribed by the ZDDS. The liability of the recipient of a taxable supply under Article 177 of the ZDDS does not include default interest arising in respect of the supplier from the date of the supply.

IV. Request for a preliminary ruling and procedure before the Court

21Thereupon, by order of 16 December 2019, the Varhoven administrativen sad (Supreme Administrative Court, Bulgaria) made reference to the Court for a preliminary ruling on the following questions:

Are Article 205 of the VAT Directive and the principle of proportionality to be interpreted as meaning that the joint and several liability of a registered person, which is the recipient of a taxable supply, for the value added tax not paid by its supplier in addition to the supplier’s principal debt (the value added tax debt) also includes the accessory obligation to pay compensation for late payment in the amount of the statutory interest on the principal debt from the beginning of the debtor’s default until the issuance of the tax assessment notice by which the joint and several liability is established or until the discharge of the debt?

Are Article 205 of the VAT Directive and the principle of proportionality to be interpreted as precluding a national provision such as Article 16(3) of the Danachno-osiguritelen protsesualen kodeks (Tax and Insurance Procedure Code) according to which a third party’s liability for unpaid taxes of a taxable person includes the taxes and the interest?’

22In the proceedings before the Court, the Bulgarian tax authorities, the Republic of Bulgaria and the European Commission submitted written observations.

V. Legal assessment

23By its two questions, the referring court wishes to know whether the liability of a third party (hereinafter referred to as ‘the person with secondary liability’) allowed by Article 205 of the VAT Directive covers only liability for tax or also includes liability for default interest owed by the person liable for payment of VAT. If the latter is not the case, it would like to know whether Article 205 of the VAT Directive precludes the Bulgarian rule of tax procedure which expands the extent of the liability of a third party in tax law to include default interest owed by the person liable for payment of VAT. As Bulgaria and the Commission have asserted, the two questions can be examined together.

24Since the referring court asks in particular about the extent of that liability, I will begin by examining the scope of the possibility provided for in Article 205 of the VAT Directive. It must therefore be clarified whether, in addition to VAT, Article 205 of the VAT Directive also covers other ancillary supplies such as default interest owed by the person liable for payment of VAT and, if that is not the case, whether it then precludes the Bulgarian rule (see A).

25Bulgaria has prescribed liability in respect of default interest in the case that the person liable for payment of VAT has not paid the tax and the person with secondary liability knew or should have known this. Accordingly, consideration must also be given, with regard to the extent of liability, to Article 273 of the VAT Directive, which permits Member States to impose other obligations to prevent evasion. Liability for default interest can possibly be based on Article 205 in conjunction with Article 273 of the VAT Directive (see B).

A. Extent of the joint and several payment obligation (secondary liability) under Article 205 of the VAT Directive

1. General remarks

26Article 205 of the VAT Directive empowers Member States, in the situations referred to in Articles 193 to 200 and Articles 202, 203 and 204, to 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.

27Thus far the Court has had only a few opportunities ³ to make a statement on the scope of this extension to a third party of the obligation to pay VAT which is possible under Article 205 of the VAT Directive.

28Article 205 of the VAT Directive does not transfer the tax liability to another person, as is the case with Article 196 for example. It provides for a further person who is liable to pay tax, in addition to the taxable person. This payment obligation is joint and several, but is derived from an existing tax liability of another person. It thus effectively establishes the liability of a third party for tax owed by another person. In order to draw a conceptual distinction between this liability and the original tax liability, it will be referred to hereinafter as secondary liability.

29Article 205 of the VAT Directive permits such secondary liability only in certain situations, including those referred to in Article 193. Article 193 of the VAT Directive concerns the tax liability of the supplier in the case of a purely domestic supply, as in the present case. This ‘normal VAT situation’ is thus also covered by Article 205 of the VAT Directive. As the Court has ruled, it follows from the clear and unambiguous terms that that provision is applicable in all of the situations referred to therein, including the normal situation of a domestic supply. ⁴

30However, in the exercise of the powers conferred on them by European Union directives, Member States must respect the general principles of law that form part of the European Union legal order, which include, in particular, the principles of legal certainty and proportionality. ⁵ As regards more particularly the principle of proportionality, the Court has already held that, in accordance with that principle, the 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 European Union legislation. ⁶ Therefore, whilst 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, such measures must not go further than is necessary for that purpose. ⁷

2. Extent of secondary liability under Article 205 of the VAT Directive

31Against this background, it is necessary to clarify the actual extent of the secondary liability which is possible under Article 205 of the VAT Directive. The very wording of Article 205 of the VAT Directive suggests that the liability of the third party is limited to ‘die Steuer’ [literally, ‘the tax’]. ⁸ Recital 44 of the VAT Directive also refers to liability for ‘Entrichtung der Steuer’ [literally, ‘payment of the tax’]. Member States are empowered only to provide that a third party is ‘to be held jointly and severally liable for payment of VAT’. It does not follow, however, that the third party is also jointly and severally liable for further ancillary supplies that may arise (such as interest, charges for late payment, fines and so on).

32Article 205 of the VAT Directive likewise refers to ‘joint and several’ liability for payment. As the Court has already held, albeit in a different context, it follows from the very nature of joint and several liability that each debtor is liable for the full amount of the debt and the creditor is, in principle, free to claim payment of that debt from one or more of the debtors as he chooses. ⁹ The debt referred to in Article 205 of the VAT Directive is the tax debt.

33The schematic position also suggests that liability is limited to the tax debt. From a schematic point of view, Article 205 appears in Chapter 1, ‘Obligation to pay’, in Section 1, ‘Persons liable for payment of VAT to the tax authorities’. Those chapters thus relate solely to the tax debt vis-à-vis the tax creditor and not to other ancillary supplies and penalties which may be owed to the tax creditor for other reasons.

34Similarly, in my view, the spirit and purpose of that provision covers only the actual tax liability. As Bulgaria correctly asserts, the possibility under Article 205 of the VAT Directive for Member States to hold a third party jointly and severally liable for the tax debt is intended to safeguard tax revenue. However, the tax revenue to which the tax creditor is entitled is the tax debt arising from the transaction. Ancillary supplies, on the other hand, are not included in the tax revenue.

35The Court has already ruled, with regard to a specific ‘liability rule’ in the law on excise duties, that the guarantee provided by a warehousekeeper under EU law to cover the risks inherent in intra-Community movement does not include liability for penalties imposed on a third party. ¹⁰

36This applies a fortiori here. Default interest owed by the third party does not constitute tax revenue but, in the final analysis, is merely an individual lever (or penalty) in tax law to prompt the defaulting person liable for payment of VAT to make payment in good time. It does not represent tax revenue due to the State. Rather, such interest usually absorbs the benefit gained by the person liable for payment of VAT from late payment compared with a taxable person who pays in good time. Consequently, joint and several liability for such default interest would not make sense from the point of view of safeguarding tax revenue because neither the impulsion effect nor the absorption effect can be achieved. If, on the other hand, the person with secondary liability discharges his secondary liability too late, the same lever – the imposition of default interest – can be applied to him.

37Thus, the Court has also ruled that Article 205 of the VAT Directive permits joint and several liability for the ‘payment of VAT’. However, other obligations, such as the provision of a security, as a kind of accessory obligation, can be based only on Article 207 of the VAT Directive. ¹¹ If the second paragraph of Article 207 of the directive were to allow further (accessory) measures, the view taken by Bulgaria, according to which those accessory measures are (also) covered by Article 205 of the directive, is unconvincing.

38The possibility of prescribing default interest for late discharge of one’s own secondary liability in the second paragraph of Article 207 of the VAT Directive precludes liability for third-party default interest (owed by the person liable for payment of VAT). Otherwise, default interest would be incurred on default interest, which runs counter to the idea of default interest as an (individual) lever and means of absorbing the liquidity advantage. It would also be difficult to reconcile with the principle of proportionality.

39This interpretation is confirmed by the Court’s case-law on Article 205 of the VAT Directive. Thus, whilst 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, such measures must not go further than is necessary for that purpose. ¹² The protection of the public exchequer through the non-payment by the person liable for payment of VAT of the VAT owed is already fully achieved through the liability of a third party for that VAT. Liability for penalties which may be imposed on a third party in connection with those rights therefore goes further than is necessary for the protection of the public exchequer.

40Accordingly, Article 205 of the VAT Directive allows Member States only to prescribe the liability of a third party for the tax debt owed by the taxable person, but not liability for default interest on the part of the defaulting person liable for payment of VAT. Default interest may, however, be imposed on a defaulting person with secondary liability under the second paragraph of Article 207 of the VAT Directive, although this did not occur in the present case.

3. Does Article 205 of the VAT Directive preclude an extension of secondary liability to third-party default interest?

41Even though Article 205 of the VAT Directive restricts the possibilities for Member States to provide that another person is liable for payment of VAT to VAT, this does not necessarily mean that it precludes further measures by the Member States in their national law of tax procedure.

42It is not clear from the VAT Directive when and how secondary liability for a third-party tax debt is incurred, unlike when and how tax liability is incurred. The incurrence of secondary liability for a third-party tax debt is therefore determined on the basis of national procedural rules. The same holds for the corresponding lever (default interest, for example), going as far as penalising late payment. The second paragraph of Article 207 of the VAT Directive expressly provides, in connection with persons with secondary liability in accordance with Article 205, that Member States must take the measures necessary to ensure that those persons comply with their payment obligations.

43As the Court has held in settled case-law, in the absence of harmonisation of EU legislation in the field of sanctions applicable where conditions laid down by arrangements under that legislation are not complied with, Member States remain empowered to choose the sanctions which seem to them to be appropriate. ¹³

44The extension under Article 205 of the VAT Directive of the secondary liability of a third party provided for in the VAT Directive does not, however, fall within the abovementioned procedural autonomy of the Member States for penalties, as it does not constitute a penalty for misconduct on the part of the person with secondary liability. Rather, it relates directly to the extent of the secondary liability for the misconduct of another person. The extent of secondary liability under EU law is nevertheless governed by EU law in Article 205 of the VAT Directive and limited to the tax debt.

45Nor is this precluded by the Court’s ruling ¹⁴ regarding the coverage of risks of intra-Community movement of products subject to excise duty by the guarantee provided by the warehousekeeper of an excise warehouse under EU law. In that case, the Court concluded that Member States may also extend the coverage of risks by means of the guarantee to third-party penalties, going further than EU law. However, that ruling was determined by the particularities of the law on excise duties.

46Thus, the Court expressly states that the cigarette market particularly lends itself to the development of unlawful trade. ¹⁵ In addition, the provisions to be interpreted in that case (Article 13 et seq. of Directive 92/12/EC) were tailored much more strongly than Article 205 of the VAT Directive to the coverage of specific risks to the movement of goods and the relevant offences and irregularities. ¹⁶ In addition, there is the special responsibility of warehousekeepers under the law on excise duties for goods in their warehouses, which does not exist in the same way for the recipient of a supply in VAT law.

47Because EU law limits the extent of secondary liability in VAT law to the tax debt (see above, point 26 et seq.), Article 205 of the VAT Directive precludes an extension of that secondary liability (in this instance to default interest owed by the supplier) by national procedural law. Under the second paragraph of Article 207 of the VAT Directive, Bulgaria is nevertheless free to penalise late payment by the person with secondary liability by imposing default interest as appropriate on the person with secondary liability.

B. Extended liability under Article 205 in conjunction with the first paragraph of Article 273 of the VAT Directive to prevent evasion?

48In the present case, however, the applicant was held liable with a view to the effective combatting of evasion. Consequently, extended liability that includes default interest owed by the person liable for payment of VAT might be conceivable.

1. The question when third-party liability is actually possible

49In the situation at issue here, which concerns Article 193 of the VAT Directive, it should be noted that the tax liability of the supplier alone is consistent with the notion of VAT as an indirect tax. Any liability of the recipient for the tax debt of the supplier which is prescribed in principle would run counter to this character of VAT. As the Court stresses in settled case-law, suppliers act ‘as tax collectors for the State and in the interest of the public exchequer’. ¹⁷

50If, therefore, the recipient of the supply – like the applicant in this case – has already duly borne the VAT incurred when he paid for the supply, because (see Articles 73 and 78 of the VAT Directive) the VAT was already included in the price, further supplementary liability for that tax on the part of the recipient of the supply requires special justification and substantiation having regard to the principle of proportionality.

51Accordingly, there must be special circumstances for why the recipient of the supply should still be liable for that tax owed by a third party despite having paid the tax through the price. With regard to the fundamental rights of the recipient of the supply (in any event, Article 16 of the Charter would be applicable in this case), Article 205 in conjunction with Article 193 of the VAT Directive does not therefore, in principle, permit any general or strict liability for the VAT on the part of the recipient of the supply if he has duly paid that VAT to the person liable for payment of VAT (supplier).

52The Court has thus rightly 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. ¹⁸ Imposing responsibility for paying VAT on a person other than the person liable to pay that tax without allowing him to escape liability by providing proof that he 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. ¹⁹ 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 has no influence whatsoever. ²⁰

53The Bulgarian rule in Article 177 of the ZDDS seems to follow the lines of such strict liability. Under that provision, liability arises if the recipient of the supply knew or should have known that the supplier would not pay the tax. If, however, as in the present case, the VAT is paid to the supplier by the recipient of the supply through the price and the supplier duly declares the tax debt, liability would depend solely on the conduct of the supplier, specifically whether the declared tax is paid and in what amount. This cannot normally be influenced by the recipient of the supply.

54On the other hand, according to the Court’s case-law, ²¹ it is not contrary to European Union law to require the person other than the person liable to pay the tax to take every step which could reasonably be required of him to satisfy himself that the transaction which he is effecting does not result in his participation in tax evasion. Accordingly, the fact that the 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 took every reasonable measure in his power and that his participation in fraud is excluded are important points in deciding whether that person can be obliged to account for the VAT owed. ²²

55This case-law is consistent with the position adopted in the first paragraph of Article 273 of the VAT Directive, which allows Member States to impose other obligations to ensure the correct collection of VAT and to prevent evasion. Accordingly, extended liability on the part of the recipient of the supply for third-party default interest might be conceivable to prevent evasion under Article 205 in conjunction with the first paragraph of Article 273 of the VAT Directive.

2. Extended liability to prevent evasion under Article 205 in conjunction with the first paragraph of Article 273 of the VAT Directive

56As was stated above (point 54), according to the Court’s case-law, it is not contrary to European Union law to require the person other than the person liable to pay the tax (that is, the person with secondary liability) to take every step which could reasonably be required of him to satisfy himself that the transaction which he is effecting does not result in his participation in tax evasion. ²³

57However, these is a certain tension between these statements concerning the liability of a third party and the Court’s case-law on an undertaking’s right of input tax deduction in the context of VAT fraud. According to that case-law, a taxable person who knew or should have known ²⁴ that he was taking part in a transaction connected with fraudulent evasion of VAT must, for the purposes of the VAT Directive, be regarded as a participant in that fraud. ²⁵ This requires the Member States to refuse the taxable person deduction of VAT (where, as in this case, he is the recipient). ²⁶

58If, in accordance with this case-law, the applicant was refused or is still refused input tax deduction, however, there would be no damage at all to the public exchequer that would have to be protected by means of liability under Article 205 of the VAT Directive. Concurrent liability for a third-party tax in the amount of the input tax deduction and refusal of the same input tax deduction by reason of a single instance of fraud would not seem to be compatible with the principle of proportionality, especially since criminal penalties will also normally be imposed by the Member States’ national law (and not by the VAT Directive).

59It appears rather doubtful, in the light of the wording of the VAT Directive and the objective of harmonisation, whether Member States thus have an option to refuse the input tax deduction for the recipient of the supply or whether to hold it jointly and severally liable for the tax. In any event, such an option is not expressly provided for in the VAT Directive. It is even possible that, for reasons of proportionality, joint and several liability would have to take precedence, as an equally appropriate, less stringent means to safeguard tax revenue, over a (potentially multiple) refusal of input tax deduction.

60However, the Court is not required to resolve this tension here. In the present case, in the absence of VAT fraud, neither refusal of input tax deduction (in accordance with the Court’s case-law) nor liability for third-party default interest under Article 205 in conjunction with the first paragraph of Article 273 of the VAT Directive is at issue.

3. Non-payment of duly declared tax as tax evasion?

61It is clear from the file ²⁷ that the allegation made by the Bulgarian tax authorities against the applicant’s supplier is that it failed to pay the declared VAT arising from the transactions with the applicant in good time. However, late payment or failure to pay declared VAT cannot be regarded as VAT evasion or fraud for the purposes of the abovementioned case-law.

62As the Grand Chamber of the Court has already ruled in Scialdone, a distinction must be drawn between mere non-payment and non-declaration of VAT by the person liable for payment of VAT. ²⁸ Failure to pay declared VAT within the time limit prescribed by law does not give the taxable person a benefit since the tax is still payable. It follows that the Court’s interpretation of Article 325(1) TFEU in relation to cases of VAT fraud is not applicable to the case of failure to pay declared VAT.

63The same also applies to the rest of the Court’s case-law on fraud since, as the Court ²⁹ continues, such failures to pay declared VAT do not present the same degree of seriousness as VAT fraud. As soon as the taxable person has duly fulfilled his declaration obligations, the authorities have the necessary data to establish the amount of VAT chargeable and whether there is a failure to pay it.

64Contrary to the view evidently taken by the Commission, the fact that a third party knows about the non-payment of the tax debt by the person liable for payment of VAT is not sufficient, as the Grand Chamber made clear most recently in Scialdone, ³⁰ to be able to consider that the third party knew or should have known that through its supply it was involved in VAT fraud or evasion. Rather, it is necessary that the third party knew or should have known that the transactions were not duly declared in order to defraud the tax authorities. Non-payment of duly declared tax cannot be regarded as (fraudulent) deception of the tax authorities.

65The situation would possibly be different if the applicant had intentionally used the supplier as an intermediate company without assets, which, as such, would not be able to pay the declared VAT. That is not apparent from the request for a preliminary ruling, however. Rather, the contrary is suggested by the fact that the applicant paid the supplier, with the result that it had been able, in principle, to pay its declared VAT liability. It is ultimately for the referring court to make this factual clarification or finding.

66According to the description of the circumstances by the referring court, there is no VAT fraud in this case. It is therefore immaterial that the applicant knew or should have known that the correctly declared VAT was not paid in good time or in full. Liability for default interest owed by a third party under Article 205 in conjunction with the first paragraph of Article 273 of the VAT Directive is thus also ruled out.

VI. Conclusion

Conclusion

67I therefore propose that the Court answer the question asked by the Varhoven administrativen sad (Supreme Administrative Court, Bulgaria) as follows:

Article 205 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax is to be interpreted as precluding the inclusion of default interest which is owed by the person liable for payment of VAT by reason of late payment of VAT in the secondary liability of a third party.

¹ Original language: German.

² OJ 2006 L 347, p. 1, in the version applicable in the period at issue.

³ Only the following can be mentioned: judgments of 21 December 2011, Vlaamse Oliemaatschappij (C‑499/10, EU:C:2011:871, paragraph 19 et seq.), and of 11 May 2006, Federation of Technological Industries and Others (C‑384/04, EU:C:2006:309, paragraph 25 et seq.), both relating to the predecessor provision, the content of which is identical. Mention can also be made of the judgment of 26 March 2015, Macikowski (C‑499/13, EU:C:2015:201), which, however, resolved the problem of liability at issue there without an interpretation of Article 205 of the VAT Directive (but see my Opinion in that case (C‑499/13, EU:C:2014:2351, point 58 et seq.).

⁴ See also, with regard to the predecessor provision in Article 21(3) of the Sixth Directive, judgment of 11 May 2006, Federation of Technological Industries and Others (C‑384/04, EU:C:2006:309, paragraph 26).

⁵ Judgments of 21 December 2011, Vlaamse Oliemaatschappij (C‑499/10, EU:C:2011:871, paragraph 20); of 21 February 2008, Netto Supermarkt (C‑271/06, EU:C:2008:105, paragraph 18); and of 11 May 2006, Federation of Technological Industries and Others (C‑384/04, EU:C:2006:309, paragraph 29).

⁶ Judgments of 21 December 2011, Vlaamse Oliemaatschappij (C‑499/10, EU:C:2011:871, paragraph 21); of 21 February 2008, Netto Supermarkt (C‑271/06, EU:C:2008:105, paragraph 19); and of 27 September 2007, Teleos and Others (C‑409/04, EU:C:2007:548, paragraph 52).

⁷ Judgments of 21 December 2011, Vlaamse Oliemaatschappij (C‑499/10, EU:C:2011:871, paragraph 22); of 7 December 2010, R (C‑285/09, EU:C:2010:742, paragraph 45); of 21 February 2008, Netto Supermarkt (C‑271/06, EU:C:2008:105, paragraph 20); and of 27 September 2007, Teleos and Others (C‑409/04, EU:C:2007:548, paragraph 53); similarly, judgment of 11 May 2006, Federation of Technological Industries and Others (C‑384/04, EU:C:2006:309, paragraph 30).

⁸ The English version of Article 205 of the VAT Directive refers to ‘payment of VAT’ and the French version to ‘acquitter la TVA’.

⁹ Judgments of 22 November 2017, Aebtri (C‑224/16, EU:C:2017:880, paragraph 80), and of 18 May 2017, Latvijas Dzelzceļš (C‑154/16, EU:C:2017:392, paragraph 85).

¹⁰ Judgment of 2 June 2016, Kapnoviomichania Karelia (C‑81/15, EU:C:2016:398, paragraph 38 et seq.); see also Opinion of Advocate General Bot in Karelia (C‑81/15, EU:C:2016:66, point 37).

¹¹ Judgment of 11 May 2006, Federation of Technological Industries and Others (C‑384/04, EU:C:2006:309, paragraph 43 et seq.), again concerning the predecessor provision.

¹² Judgments of 21 December 2011, Vlaamse Oliemaatschappij (C‑499/10, EU:C:2011:871, paragraph 22), and of 21 February 2008, Netto Supermarkt (C‑271/06, EU:C:2008:105, paragraph 20); similarly, judgment of 11 May 2006, Federation of Technological Industries and Others (C‑384/04, EU:C:2006:309, paragraph 30).

¹³ Judgment of 8 May 2019, EN.SA. (C‑712/17, EU:C:2019:374, paragraph 38); of 26 April 2017, Farkas (C‑564/15, EU:C:2017:302, paragraph 59); see, to that effect and inter alia, judgments of 6 February 2014, Fatorie (C‑424/12, EU:C:2014:50, paragraph 50), and of 7 December 2000, de Andrade (C‑213/99, EU:C:2000:678, paragraph 20).

¹⁴ Judgment of 2 June 2016, Kapnoviomichania Karelia (C‑81/15, EU:C:2016:398).

¹⁵ Judgment of 2 June 2016, Kapnoviomichania Karelia (C‑81/15, EU:C:2016:398, paragraph 37).

¹⁶ See judgment of 2 June 2016, Kapnoviomichania Karelia (C‑81/15, EU:C:2016:398, paragraph 9).

¹⁷ Judgments of 15 October 2020, E. (VAT – Reduction of the taxable amount (C‑335/19, EU:C:2020:829, paragraph 31); of 8 May 2019, A-PACK CZ (C‑127/18, EU:C:2019:377, paragraph 22); judgment of 23 November 2017, Di Maura (C‑246/16, EU:C:2017:887, paragraph 23); of 21 February 2008, Netto Supermarkt (C‑271/06, EU:C:2008:105, paragraph 21); and of 20 October 1993, Balocchi (C‑10/92, EU:C:1993:846, paragraph 25).

¹⁸ Judgments of 21 June 2012, Mahagében (C‑80/11 and C‑142/11, EU:C:2012:373, paragraph 48); of 21 December 2011, Vlaamse Oliemaatschappij (C‑499/10, EU:C:2011:871, paragraph 24); and of 11 May 2006, Federation of Technological Industries and Others (C‑384/04, EU:C:2006:309, paragraph 32); and Opinion of Advocate General Poiares Maduro in Federation of Technological Industries and Others (C‑384/04, EU:C:2005:745, point 27).

¹⁹ As is expressly held in the judgment of 21 December 2011, Vlaamse Oliemaatschappij (C‑499/10, EU:C:2011:871, paragraph 24).

²⁰ Judgments of 21 December 2011, Vlaamse Oliemaatschappij (C‑499/10, EU:C:2011:871, paragraph 24), and of 21 February 2008, Netto Supermarkt (C‑271/06, EU:C:2008:105, paragraph 23).

²¹ Judgments of 21 December 2011, Vlaamse Oliemaatschappij (C‑499/10, EU:C:2011:871, paragraph 25); of 21 February 2008, Netto Supermarkt (C‑271/06, EU:C:2008:105, paragraph 24); of 27 September 2007, Teleos and Others (C‑409/04, EU:C:2007:548, paragraph 65); and of 11 May 2006, Federation of Technological Industries and Others (C‑384/04, EU:C:2006:309, paragraph 33).

²² See judgment of 21 December 2011, Vlaamse Oliemaatschappij (C‑499/10, EU:C:2011:871, paragraph 26); similarly, judgments of 21 February 2008, Netto Supermarkt (C‑271/06, EU:C:2008:105, paragraph 25), and of 27 September 2007, Teleos and Others (C‑409/04, EU:C:2007:548, paragraph 66).

²³ Judgments of 21 December 2011, Vlaamse Oliemaatschappij (C‑499/10, EU:C:2011:871, paragraph 25); of 21 February 2008, Netto Supermarkt (C‑271/06, EU:C:2008:105, paragraph 24); of 27 September 2007, Teleos and Others (C‑409/04, EU:C:2007:548, paragraph 65); and of 11 May 2006, Federation of Technological Industries and Others (C‑384/04, EU:C:2006:309, paragraph 33).

²⁴ In some earlier decisions the Court still used the wording ‘could not know’ (see, for example, judgment of 6 July 2006, Kittel and Recolta Recycling (C‑439/04 and C‑440/04, EU:C:2006:446, paragraph 60)). However, this excessively broad wording, stemming solely from the question referred, now seems to have been rightly abandoned.

²⁵ Judgments of 20 June 2018, Enteco Baltic (C‑108/17, EU:C:2018:473, paragraph 94); of 22 October 2015, PPUH Stehcemp (C‑277/14, EU:C:2015:719, paragraph 48); of 13 February 2014, Maks Pen (C‑18/13, EU:C:2014:69, paragraph 27); of 6 September 2012, Mecsek-Gabona (C‑273/11, EU:C:2012:547, paragraph 54); of 6 December 2012, Bonik (C‑285/11, EU:C:2012:774, paragraph 39); and of 6 July 2006, Kittel and Recolta Recycling (C‑439/04 and C‑440/04, EU:C:2006:446, paragraph 56).

²⁶ See judgments of 22 October 2015, PPUH Stehcemp (C‑277/14, EU:C:2015:719, paragraph 47); of 18 December 2014, Schoenimport Italmoda Mariano Previti (C‑131/13, C‑163/13 and C‑164/13, EU:C:2014:2455, paragraph 62); of 13 March 2014, FIRIN (C‑107/13, EU:C:2014:151, paragraph 40); of 13 February 2014, Maks Pen (C‑18/13, EU:C:2014:69, paragraph 26); of 6 December 2012, Bonik (C‑285/11, EU:C:2012:774, paragraph 37); of 21 June 2012, Mahagében (C‑80/11 and C‑142/11, EU:C:2012:373, paragraph 42); and of 6 July 2006, Kittel and Recolta Recycling (C‑439/04 and C‑440/04, EU:C:2006:446, paragraphs 59 and 61).

²⁷ See paragraph 5 of the French version of the request for a preliminary ruling (page 4 of the original) and paragraph 3 of the German summary of the request for a preliminary ruling.

²⁸ Judgment of 2 May 2018, Scialdone (C‑574/15, EU:C:2018:295, paragraphs 39 and 40).

²⁹ Judgment of 2 May 2018, Scialdone (C‑574/15, EU:C:2018:295, paragraphs 41 and 42).

³⁰ Judgment of 2 May 2018, Scialdone (C‑574/15, EU:C:2018:295).