Advocate-General opinions

In "ALTI" OOD Case C-4/20, the taxpayer acquired agricultural equipment from a Bulgarian-based supplier. The supplier charged the taxpayer VAT which the taxpayer paid (along with the rest of the invoice) and sought to deduct the VAT paid as input tax. Although the supplier declared its output tax liability, it did not account to the tax authority for the output tax. The tax authorities sought to recover the unpaid output tax from the taxpayer on the basis that it was jointly and severally liable under Bulgarian law for the seller’s unpaid VAT and for interest where it knew or should have known that the VAT would not be paid by the supplier.

The Principal VAT Directive allows Member States to impose joint and several liability for the payment of VAT on parties other than the supplier in order to prevent fraud but the Advocate-General was asked, in the light of the principle of proportionality, whether the joint and several liability could extend to: (i) statutory interest in relation to the debtor’s default calculated from the time of the debtor’s default; and (ii) interest on the unpaid secondary liability, as well as the tax.

In the view of the Advocate General, both the wording and the spirit and purpose of the VAT Directive meant that the liability could only extend to the tax and not to the interest. According to the Advocate-General, the ability to charge interest is a “lever (or penalty) in tax law” to prompt the defaulting person to pay in good time but that objective cannot be achieved by recovering VAT from another party under joint and several liability. Charging interest would only be appropriate if the person with the secondary liability were late in discharging that liability.

DLA Piper comment: In accordance with the AG opinion, it seems reasonable to conclude that default interest owed by the third party does not constitute tax revenue due to the State, but they are 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. 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.

The Advocate General was asked in CS, C-844/19 whether EU law permits a taxpayer to claim interest where the tax authorities fail to process a VAT refund in good time, even though national law does not provide for such an interest payment. The Advocate-General opined that interest is to be paid, in principle, on excess VAT under Article 183, just as on an entitlement to a refund resulting from the adjustment of the taxable amount under Article 90 of the VAT Directive, when the refund is not made within a reasonable period.

DLA Piper comment: Since the VAT Directive does not provide a specific rule on interest, action for the recognition of interest falls within the competence of the Member States which shall operate in compliance with the EU law. However, the power of the Member States seems rather limited in light of Article 27, par. 2 of the VAT Refund Directive which does not exclude the recognition of interest.