Provisional text

OPINION OF ADVOCATE GENERAL

KOKOTT

of 14 December 2023 (1)

Case C‑519/22

MAX7 Design Kft.

v

Nemzeti Adó- és Vámhivatal Fellebbviteli Igazgatósága (Appeals Division of the National Tax and Customs Authority, Hungary)

(Request for a preliminary ruling from the Fővárosi Törvényszék (Budapest High Court, Hungary))

(Reference for a preliminary ruling – Common system of value added tax – Directive 2006/112/EC – Subsequent imposition of a guarantee – Guarantee linked to the amount of the tax debts owed by a third party – Cancellation of the tax number in the event of non-payment of the guarantee – Fundamental rights – Right to property and freedom to conduct a business – Principle of proportionality – Proportionality in the strict sense – Right to an effective judicial remedy)

I.      Introduction

1.        This preliminary ruling procedure demonstrates once again how difficult it is, in the context of VAT law, for the Member States to strike an appropriate balance between effective tax collection and the legal positions of taxable persons. On the one hand, an indirect tax collection system covering all transaction tiers with simultaneous granting of input tax deduction is particularly susceptible to abuse. Furthermore, the Member States bear a certain risk of taxable persons in tax arrears being declared insolvent, whereas the recipients of their supplies or services can still claim an input tax deduction. On the other hand, such a system affords Member States a constant inflow of funds, low collection costs due to the involvement of private persons as tax collectors, a high level of control, including over other types of taxes, and a relatively low overall collection effort.

2.        Some Member States currently tend to take advantage of the benefits of the present VAT system, while imposing the risks inherent in the system on the taxable person. It is therefore unsurprising that references for a preliminary ruling relating to VAT law are increasingly concerned with the scope of the taxable person’s fundamental rights. In the present case, Hungary requires a company to lodge an additional guarantee if one of its executive officers had worked in the same position at another company within the previous five years, and that other company had accumulated tax debts in excess of approximately EUR 2 500 and had then been dissolved. The amount of the guarantee to be lodged for its own potential tax debts is linked to the amount of the tax debts accumulated by that other company. Any challenge to that decision must be made within eight days. Otherwise, the guarantee is to be lodged even if the executive officer is dismissed in a timely manner. If the guarantee is not lodged, an order for cancellation of the tax number is to be issued, which is tantamount to a prohibition on the practice of a commercial activity.

3.        It is clear that the objective is to prevent the same persons from repeatedly setting up new companies, accumulating tax arrears via those companies and then liquidating them, with the result that some of the tax revenue cannot be collected. On the other hand, it appears that the legislation also captures companies with no close links to the liquidated company. Nor does it appear to presuppose that the executive officer had caused his or her former employer to enter into tax arrears. Hence, the proportionality of the legislation needs to be examined more closely with respect to the associated interference with the fundamental rights of those affected.

II.    Legislative framework

A.      European Union law

4.        The EU-law framework is based on Articles 16, 17 and 47 and Article 52(1) of the Charter of Fundamental Rights of the European Union (‘the Charter’) and Directive 2006/112/EC on the common system of value added tax (‘the VAT Directive’). (2)

5.        Article 273 of the VAT Directive sets out, inter alia, options for Member States to combat tax 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.      Hungarian law

6.        Under Hungarian law, Articles 19, 24, 26, 28 and 246 of the adózás rendjéről szóló 2017. évi CL. törvény (Law CL of 2017 on General Taxation Procedure; ‘the Law on General Taxation Procedure’) are relevant.

7.        According to the provisions of the Law on General Taxation Procedure relied on, the requirement to lodge a tax guarantee after the tax identification number has been issued falls to be imposed if an executive officer of the taxable person has previously held the same position in another taxable person which, in the five years prior to the date on which the application for the issue of a tax identification number was filed, was dissolved, without successor, with a tax debt in excess of 1 million forint (HUF) (approximately EUR 2 500). An appeal against the decision imposing the requirement to lodge a tax guarantee may be brought within 8 days of that decision having been notified and a decision on that appeal must be issued within 23 days at the latest. Any such appeal is not to have the effect of suspending the requirement to lodge the aforementioned guarantee.

8.        The executive officer concerned may, within the same eight-day time limit, apply for an exemption from the requirement to lodge the guarantee if – according to the arguments presented by Hungary at the hearing – three conditions are met. First, the non-payment of tax debts at the time in question must have been due to non-payment by the customers, secondly, those outstanding receivables must equal or exceed the amount of the tax debt and, thirdly, the executive officer must have acted diligently at the relevant time. A decision on that application must be issued within 30 days. According to the information submitted by Hungary at the hearing, that request for exemption also has no suspensory effect on the requirement for the taxable person to lodge a guarantee. If the application is rejected and the guarantee has not been lodged in the meantime, the tax number is to be cancelled. A tax guarantee must still be lodged even if, once the decision has become final but before the payment deadline has expired, the executive officer concerned leaves the company with the effect that the reason for the imposition of that requirement to lodge a tax guarantee ceases to exist.

9.        According to the information provided by Hungary at the hearing, the tax guarantee for the company’s own future tax debts is to correspond to the amount of the outstanding tax debt of the taxable person at which the executive officer had previously held the same position, and may be lodged by means of a single payment or presentation of a bank guarantee. The time limit for lodging the guarantee is 30 days from notification of the decision imposing the requirement to lodge the tax guarantee. According to the information provided by Hungary at the hearing, that amount is to be reimbursed after 12 months. In the event of a failure to meet that deadline, no application to reset that time limit is to be allowed. If the taxable person fails to lodge the tax guarantee within the prescribed time limit, the tax authority is to order the cancellation of the taxable person’s tax identification number.

10.      In the context of the rules governing the tax registration procedure, the Law on General Taxation Procedure provides that the tax authority must refuse to issue a tax identification number if an executive officer of the taxable person held or holds the same position in another taxable person which, at the time when the application for the issue of a tax identification number is filed, has a tax debt in excess of HUF 5 million (approximately EUR 12 500). In that event, the tax authority must give the taxable person notice to make good the impediment to the issue of a tax identification number within 45 days of receipt of that notice. If the taxable person does not comply with that notice, the tax authority must order the cancellation of the tax identification number.

11.      According to Articles 3:17 and 3:190 of the Polgári Törvénykönyvről szóló 2013. évi V. törvény (Law V of 2013 on the Civil Code; ‘the Civil Code’), members of the company are to be issued invitations to attend the general company meeting that must include the agenda for the meeting. At least 15 days must elapse between the sending of the invitation and the date of holding of the general meeting.

III. Facts of the case and preliminary ruling procedure

12.      By decision of 19 December 2019, the Nemzeti Adó- és Vámhivatal Észak-Budapesti Adó- és Vámigazgatósága (Budapest-North Tax and Customs Office, which is part of the National Tax and Customs Administration, Hungary; ‘the tax authority’) imposed on the company MAX7 Design Kft., the applicant in the main proceedings (‘the applicant’), an obligation to lodge a tax guarantee in the amount of HUF 1 930 979 (approximately EUR 4 900) to cover any of its own subsequent tax debts. The reason for the requirement to lodge that guarantee was that, between 14 February and 2 June 2017, one of the applicant’s executive officers had been an executive officer of another company in liquidation which, at the time of its dissolution, had a tax debt of the same amount as the guarantee required.

13.      The tax authority sent the applicant and the executive officer in question the decision imposing the requirement to lodge the aforementioned guarantee. In both cases, it was the executive officer in question who took receipt of that decision. The date of receipt was 21 December 2019. The tax guarantee should have been lodged within 30 days of receipt, that is to say, by 20 January 2020 at the latest. Any appeal against that decision should have been brought within eight days of its notification. As that did not happen, the decision became final on 31 December 2019.

14.      On 7 January 2020, the members of the applicant dismissed the executive officer in question and appointed another in his place. As the reason for imposing the requirement to lodge a tax guarantee had thereby been removed, the applicant did not lodge that guarantee.

15.      Nevertheless, once 20 January had passed, the tax authority ordered the cancellation of the applicant’s tax identification number and VAT identification number, on the ground that the applicant had not lodged the tax guarantee within the period indicated. The applicant brought an administrative appeal against that decision. The defendant in the main proceedings, the Nemzeti Adó- és Vámhivatal Fellebbviteli Igazgatósága (Appeals Division of the National Tax and Customs Authority, Hungary; ‘the defendant’), upheld that decision.

16.      The applicant brought an action against that decision. It claimed that, under Hungarian law, if a company under an obligation to lodge a tax guarantee does not do so, it cannot be exempted from the legal consequences flowing from that omission even if it removes the reason for the imposition of that requirement after the decision imposing it has become final but within the prescribed time limit for lodging the guarantee. According to the applicant, the national legislation applicable in the present case disproportionately limits its freedom to conduct a business.

17.      The defendant argues that the contested decision called upon the applicant not to remove the reason for the imposition of the requirement to lodge a tax guarantee, but rather to lodge that guarantee. Since the applicant chose not to take up the option available to it of appealing that decision, the subject matter of the main proceedings is no longer that decision but the legality of the decision ordering the cancellation of the tax identification number.

18.      The Fővárosi Törvényszék (Budapest High Court, Hungary), which has jurisdiction to hear the case, stayed the proceedings and referred the following three questions to the Court of Justice for a preliminary ruling under Article 267 TFEU:

‘(1)      In the light of Article 273 of [the VAT Directive] and the principle of proportionality under Article 52(1) of the [Charter], is legislation of a Member State under which a company’s tax identification number or VAT identification number may be cancelled for failure to comply with the requirement to lodge a tax guarantee imposed on that company compatible with the freedom to conduct a business enshrined in Article 16 of the Charter, even in the case where the members of the company are not directly aware that the requirement to lodge that guarantee has been imposed on the company or that the reason why the requirement to lodge a tax guarantee was imposed on the company is that one of its executive officers is or was a member or executive of another legal person with an outstanding tax debt?

(2)      In the light of [the] principle of necessity under Article 273 of [the VAT Directive] and the principle of proportionality under Article 52(1) of the Charter, is legislation of a Member State under which a company’s tax identification number or VAT identification number may be cancelled for failure to comply with the requirement to lodge a tax guarantee imposed on that company compatible with the freedom to conduct a business enshrined in Article 16 of the Charter and the right to an effective remedy under Article 47 of the Charter, even in the case where the minimum notice period for properly convening a meeting of that company’s decision-making body, in accordance with the general provisions of the legislation of that Member State, does not allow that body to dismiss the executive officer affected by the impediment giving rise to the requirement to lodge that guarantee, and thus to remove that impediment within a timeframe such as to cause the obligation to lodge the guarantee to be extinguished, thereby obviating the need to cancel the tax identification number, before the tax authority’s decision imposing the requirement to lodge that guarantee becomes final?

(3)      Is legislation of a Member State which provides in mandatory terms, and without leaving any discretion to law-enforcement bodies, that:

(a)      the removal by the company, as a taxable person, of the impediment giving rise to the imposition of the requirement to lodge a tax guarantee once the decision imposing that requirement has become final has no effect on the obligation to lodge a tax guarantee or, therefore, on the cancellability of the tax identification number, even if that impediment was removed after the decision imposing the requirement to lodge a guarantee became final but within the prescribed time limit for lodging that guarantee; and that,

(b)      if the tax guarantee has not been lodged, the company, as a taxable person, cannot remedy the legal consequences of the cancellation of its tax identification number once the prescribed time limit for lodging that guarantee has expired, even if it removed the impediment giving rise to the imposition of the requirement to lodge a guarantee after the decision imposing that requirement became final but within the prescribed time limit for lodging that guarantee,

compatible with the freedom to conduct a business enshrined in Article 16 of the Charter, subject to the necessary limitation thereof provided for in Article 273 of … [the VAT Directive], and proportionate in accordance with Article 52(1) of the Charter and with the right to effective judicial protection under Article 47 of the Charter?’

19.      In the proceedings before the Court, only Hungary and the European Commission submitted written observations and participated in the hearing held on 29 June 2023.

IV.    Legal assessment

A.      The questions referred for a preliminary ruling and the course of the investigation

20.      The three questions referred raise the question concerning the extent of the discretion conferred on Member States by Article 273 of the VAT Directive to impose other obligations on taxable persons in order to ensure the correct collection of VAT and to prevent evasion.

21.      That presupposes, first, that a requirement to lodge an additional guarantee for an amount equivalent to the tax debts of a third party is in fact covered by Article 273 of the VAT Directive (in that regard, see subheading B). It must then be examined whether, on the one hand, the taxable person’s fundamental rights under the Charter (in particular the right to freedom to conduct a business under Article 16 of the Charter, but also the right to property under Article 17 of the Charter) restrict that discretion (in that regard, see subheading C) if a taxable person is required to lodge a guarantee for the tax debts of another taxable person that may be completely unknown to the former. On the other hand, it is necessary to examine whether the so-called fundamental judicial rights (in particular the right to an effective remedy under Article 47 of the Charter) limit the scope of discretion in the present case where, in the absence of a suspensory effect of the remedy, it is neither possible to suspend the payment obligation, nor sufficient to remove the reason for the imposition of the guarantee before the expiry of its payment deadline (in that regard, see subheading D). In that regard, both Hungary and the Commission assume that the restriction on the taxable person’s fundamental rights is proportionate.

B.      Article 273 of the VAT Directive and the requirement to lodge an additional guarantee in an amount equivalent to another taxable person’s VAT debts on penalty of cancellation of the tax number

22.      It must first be clarified whether Article 273 of the VAT Directive permits the Member States to impose on the taxable person a requirement to lodge an additional guarantee in certain circumstances (employment of an executive officer who was previously employed by another company which was still in tax arrears at the time of its removal from the register) and to cancel the taxable person’s tax number in the event of non-compliance with that requirement.

1.      The importance of the tax number in the context of VAT law

23.      That requires a more detailed examination of the importance of the tax number in the context of VAT law. Article 213 of the VAT Directive provides that every taxable person is to state when his or her activity as a taxable person commences. According to Article 214 of the VAT Directive, Member States are to take the measures necessary to ensure that almost all taxable persons are identified by means of an individual VAT identification number. That is necessary, for example, in order to receive exempt intra-community supplies or to issue an invoice to another company under Article 226 of the VAT Directive (see points (3) and (4)) as well as to provide their customers with proof of their own status as a taxable person. (3) Consequently, no Member State may refuse to assign an individual number to a taxable person without legitimate grounds. (4)

24.      Under VAT law, cancelling the tax number of an active company is tantamount to a de facto prohibition on the practice of a commercial activity. That is probably also one of the reasons why the Court has already clarified on several occasions that such a measure is not automatically possible under VAT law. For example, in so far as cancellation of the tax identification number involves forfeiture of the right to deduct the input VAT paid, the Court has ruled that such a penalty appears disproportionate where no evasion or detriment to the budget of the State is ascertained. (5) In the present case, the applicant cannot be accused of evasion or causing detriment to the budget of the State.

25.      In the present case, it is apparent from the request for a preliminary ruling that the applicant’s tax number has already been cancelled. In Hungary, that entailed the loss of legal personality, which is why the Commercial Register has already prohibited the applicant from carrying on trading and has ordered that compulsory winding-up proceedings be opened against it.

26.      By way of interim conclusion, it can therefore be asserted that the VAT number is a matter of particular importance. That is why the VAT Directive also lays down an obligation for Member States to issue that number to every taxable person. By contrast, the VAT Directive does not contain any provision allowing for that number to be revoked from an active taxable person. A penalty whereby a taxable person is to be removed from the register for failing to lodge an additional guarantee is also alien to the VAT Directive. That applies a fortiori in cases where, as in the present case, the applicant was a ‘normal’ taxable person within the meaning of Article 9 of the VAT Directive, who had not hitherto committed any VAT fraud, or similar offences, himself or herself.

2.      Does VAT law provide for an obligation to lodge a guarantee?

27.      Similarly, the VAT Directive does not provide that taxable persons are to lodge an additional guarantee after commencing their economic activity if they wish to retain their tax number. However, Article 273 of the VAT Directive provides that Member States may impose other obligations which they deem necessary to ensure the correct collection of VAT and to prevent evasion.

28.      In the present case, the Hungarian legislation requires, inter alia, that a special guarantee is to be lodged for a taxable person’s own tax debt in cases where an executive officer has, during the previous five years, been employed as an executive officer with another taxable person that failed to pay taxes in an amount at least equivalent to approximately EUR 2 500 and that other taxable person has now been removed from the register, with the consequence that its tax debt cannot be collected. The amount of the guarantee is linked to the amount of the unpaid tax debt of that other taxable person. For the purposes of imposing the requirement to lodge the guarantee, it appears to be irrelevant whether the taxable person concerned and the defaulting taxable person had been in any way related to each other. It is sufficient that the executive officer was the same person. The question of whether or not the executive officer concerned was responsible for the loss of tax revenue also appears to be irrelevant for the purposes of imposing the requirement to lodge a guarantee.

29.      According to the statements made by Hungary at the hearing, the objective is to take account of the fact that, in Hungary, taxable persons are often established (probably as companies) but then disappear without paying their tax debts, only to be re-established subsequently in a similar form. Such chain formations of taxable persons which adversely affect creditors and the tax authorities can cause considerable damage and may also be used for tax evasion purposes. However, if that is the objective of the legislation then, contrary to the Commission’s arguments, I doubt whether Article 273 of the VAT Directive even permits such an imposition of a requirement to lodge an additional guarantee in the case at issue.

30.      First, Article 273 of the VAT Directive is not a provision that authorises the Member States to derogate freely from the rules of the directive on the VAT system. According to the Court, (6) a provision of national law can be regarded as compatible with Article 273 only in so far as it complies with, inter alia, the other provisions of the directive. Thus, whereas the directive lays down a strict requirement for the issuance of a tax number, Article 273 permits Member States to provide for other procedures – sometimes the Court also speaks of formalities – (7) but not to refuse to issue, or revoke, the tax identification number of an active taxable person. Moreover, Article 273 permits other obligations only where necessary to ensure the correct collection of VAT and to prevent evasion.

31.      As the Court has already clarified, a belated payment (that is to say, non-payment by the due date) cannot, per se, be equated with evasion. (8) Hence, the Hungarian legislation can at best be regarded as preventing tax evasion in cases where the former company intentionally omitted to pay taxes, and was thus placed in insolvency, in order to then continue its activities through a new company established by the same persons. However, that presupposes the existence of a nexus between those two companies at the level of their members; it therefore follows that the founder of the first company would also have to have been the founder of the second company in order for a risk of tax evasion on the part of the second company to be claimed. In this instance, that does not appear to be even remotely the case. No evidence has been presented in the course of the preliminary ruling proceedings that would indicate a nexus between the former employer of the executive officer and the applicant. In the absence of such a nexus, lodging a guarantee cannot prevent tax evasion because there is simply no evidence of any such tax evasion. Hence, the lodging of a guarantee is not covered by Article 273 of the VAT Directive in that respect.

32.      Contrary to the view adopted by the Commission, that draws a decisive distinction between the legislation at issue in the present case and that which had to be assessed in the judgment in BB construct, which, at the time in question, permitted a new taxable person to be required to lodge a guarantee linked to the VAT arrears of another company with which the director or associate member of BB construct had a personal or proprietorial connection. (9) In that case, the decisive factor was the existence of a connection between two taxable persons. (10) That is not the situation in the present case.

33.      In the present case, moreover, lodging a guarantee does not ensure the correct collection (11) of VAT within the meaning of Article 273 of the VAT Directive. Lodging an additional guarantee for the taxable person’s own tax debts does not improve the correctness of the VAT collection. It merely reduces the risk of default to which the State is exposed. However, a risk of default will always be present (even in the case of a direct tax) and, as such, has no bearing on the matter of correct tax collection. A correct collection is different from a complete collection.

34.      The VAT Directive already reduces a State’s exposure to default risks through its method of fractionated tax collection at each transaction tier, such that, in a chain of transactions, only a portion of the tax revenue will ever be lost if one of the entrepreneurs should become insolvent. The residual risk of default is therefore accepted under the VAT Directive, but without that affecting the correct collection of the tax. It therefore follows that reducing the general insolvency risks to which a tax creditor (in this case, Hungary) is exposed also falls outside the scope of Article 273 of the VAT Directive.

35.      That is also reflected in the application of the rule at issue to the present case. It is clear that correct tax collection from the applicant presented no difficulties prior to the executive officer’s appointment. It therefore follows that the lodging of an additional guarantee could neither resolve any difficulties encountered during the process of correctly calculating and setting the tax owed by the applicant nor ensure the correct enforcement of that tax debt. That is particularly obvious when it is considered that the guarantee amount depends solely on the amount of the outstanding tax debts of another taxable person. However, if that taxable person, B, has no particular proximity to, or connection with, the taxable person, A, affected by the requirement to lodge a guarantee, it is unclear why B’s outstanding tax debts could be expected to have any bearing on the correct collection of tax from A.

36.      A requirement to lodge an additional guarantee such as that imposed in the present case could fall within the scope of Article 273 of the VAT Directive only in cases involving a corporate link, recognised under company law, between the two taxable persons. (12) Hence, the fact that the two taxable persons are consecutive employers of the same executive officer would at best suffice if there is, or was, an additional closer link between those two taxpayers. In the absence of that additional link, Article 273 does not authorise the imposition of any requirement to lodge an additional guarantee in respect of the outstanding tax debts of a third party. No additional link of that nature is discernible in the present case.

C.      Limiting effect of the taxable person’s fundamental rights on the margin of discretion

37.      Even if it were to be assumed that Article 273 of the VAT Directive could be considered a legal basis for the requirement to lodge an additional guarantee, its scope would not be unlimited.

38.      It is true that the Court has clarified 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 confers on 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. (13) However, the Member States must exercise their powers in accordance with EU law and, thus, also with EU fundamental rights, (14) and its general principles and, consequently, in accordance with the principle of proportionality. (15)

1.      Fundamental rights and limitations on those rights

39.      Imposing a requirement whereby the taxable person concerned must lodge an additional monetary guarantee in order to be able – as explained above in point 26 – to continue its economic activity could interfere with the taxable person’s fundamental rights under both Articles 16 and 17 of the Charter. In view of the fact that Article 16 of the Charter is drafted in impersonal terms and [the German and French language version of] Article 17 uses the word ‘person’ [the English language version uses ‘everyone’], it follows that legal persons such as the applicant also fall within the personal scope of those fundamental rights. (16)

40.      Article 17(1) of the Charter protects all rights with an asset value creating an established legal position under the legal system, enabling the holder to exercise those rights autonomously and for his or her benefit. (17) Available money constitutes such a legal position with an asset value. Even if the deprivation of money is not permanent – the guarantee is to be repaid after 12 months – that money can no longer be used for a period of 12 months. Consequently, there is an interference with Article 17 of the Charter.

41.      The protection conferred by Article 16 of the Charter covers the freedom to exercise an economic or commercial activity, and the freedom of contract and free competition. (18) A requirement to lodge an additional financial guarantee in respect of an economic activity, the non-payment of which results in the cancellation of the tax number and, consequently, the cessation of that economic activity, also constitutes an interference with Article 16 of the Charter.

42.      However, according to the case-law of the Court, the freedom to conduct a business is not unfettered. It may be subject to a broad range of interventions on the part of public authorities which may, in the public interest, limit the exercise of economic activity. (19) The same applies in respect of the right to property, as the use of property may be regulated by law in so far as is necessary for the general interest (third sentence of Article 17(1) of the Charter).

2.      Limits on the options for restriction: the principle of proportionality

43.      However, restrictive interventions are, in turn, subject to limits arising from Article 52(1) of the Charter; in the present case, the most important of those limits is the principle of proportionality.

44.      Under the principle of proportionality, interferences with fundamental rights are justified only if they pursue a legitimate aim, are appropriate for furthering that aim and are also necessary (that is to say, that there is no equally suitable, less severe remedy). Lastly, in addition to appropriateness and necessity, it is necessary to examine proportionality in the strict sense, (20) that is to say, that the requirement to lodge a guarantee must be considered proportionate in terms of the balance between the remedy and the aim being pursued.

(a)    Legitimate aim of the legislation and its appropriateness

45.      An objective aimed solely at the prevention of tax evasion would certainly be a legitimate objective, but the legislation at issue would be manifestly inappropriate and, moreover, unnecessary for the purposes of the present case, in which there is no evidence at all of any involvement in tax evasion. If there is no requirement for a corporate link recognised by company law (which could also be an indirect link), taxable persons having no connection of their own to the taxable person that caused a loss of tax revenue will also be affected. The imposition on the former of a requirement to lodge a guarantee is an unsuitable means of preventing tax evasion (what tax evasion is there?). In that respect, a requirement to lodge a guarantee in cases involving an actual corporate link recognised by company law between the new employer and the former employer would constitute a less severe, but at least equally suitable, means of avoiding tax evasion perpetrated through so-called chain formations.

46.      The situation might be different if the real objective was not to prevent tax evasion, but rather to reduce the tax creditor’s exposure to the risk of incurring tax losses in the event of corporate insolvencies. In the light of the principle that creditors should be treated equally, it is certainly questionable as to whether the legislative granting of privileged creditor status to the tax authorities can really constitute a legitimate aim. On the other hand, considering that the taxes are used to fund public expenditure, it can probably still be assumed – in the light of the legislative margin of discretion for defining legitimate aims – that granting privileged creditor status to the tax authorities would be a legitimate aim. Imposing a requirement to lodge an additional guarantee is certainly a suitable means of reducing a State’s tax default risk by the amount of the guarantee.

(b)    No equally suitable, less severe method (necessity)?

47.      It is a prerequisite, however, that no equally suitable, less severe method is available. In the present case, that is doubtful since the guarantee in question, which is to serve as security for the future tax debts of the taxable person, is linked to the tax loss caused by a third party. A less severe and equally suitable means of reducing the existing risk of tax loss presented by the taxable person would be to link the amount of the guarantee to the tax loss, or the risk of tax loss, that the taxable person has himself or herself caused in the past or may cause in the future through the actions or omissions of the new employee. Ultimately, the guarantee serves only to secure the tax debts of the taxable person and therefore the risk of tax losses that it presents.

48.      In the context of non-issuance of a tax identification number, the Court has already expressly stated (21) that it goes further than what is necessary to ensure the correct collection of the tax if a taxable person is not assigned a VAT identification number solely because its director is a partner in another company which is subject to insolvency proceedings, without, however, examining whether there is a risk to the correct collection of VAT or a risk of evasion. In my view, the same applies a fortiori to a guarantee linked to a third party’s tax debts.

49.      Similarly, the Court has already ruled in that context that a Member State may not refuse to assign a VAT number solely on the ground that the owner of the shares in the taxable person has already obtained, on various occasions, such an identification number for companies which have never carried out any real economic activity, and the shares of which were transferred shortly after obtaining the individual number, where the tax authority concerned has not established, on the basis of objective factors, that there is sound evidence leading to the suspicion that the VAT identification number assigned will be used fraudulently. (22) The focus on the specific risk of harmful conduct on the part of the taxable person appears to have been the less severe measure in that case.

50.      Even attribution of the risk of tax loss which may have potentially increased as a result of the executive officer’s appointment would be an equally suitable, less severe method. That presupposes that the executive officer was responsible for causing the tax loss at the time in question. However, even that is not specified in the Hungarian legislation. The requirement to lodge a guarantee is not in any way conditional upon the executive officer’s responsibility for causing the tax loss. According to the information provided at the hearing, it is only the executive officer (but not the taxable person) who may apply for an exemption if the tax losses sustained in respect of his or her former employer had been ‘unavoidable’. The requirement to lodge a guarantee is therefore imposed on the basis of a presumption that the executive officer must have been in some way responsible for the unpaid tax debts. It appears that that presumption cannot be rebutted by the taxable person himself or herself.

51.      Even if such a risk were to be attributed in the abstract, a concrete assessment of the risk – based on the taxable person’s own transactions and tax liabilities (and not those of a third party) – would be an equally suitable and less severe method. For example, the Court requires that the severity of the sanctions imposed on the taxable person must be adaptable to the specific circumstances of the particular case in order for them to be deemed necessary. (23)

52.      In the present case, however, the outstanding tax debts of a third party (the former employer of the executive officer) are relied on even though it is unclear how those outstanding tax debts present a risk of tax loss in the case of the taxable person (the current employer). If, by way of example, the current employer is a small enterprise with an annual turnover of EUR 100 000 and the executive officer joins from a large enterprise, with an annual turnover of EUR 100 million, which had to file for insolvency as a result of the coronavirus pandemic and, as a consequence of that insolvency, the Hungarian State (alongside other creditors) had to accept a tax loss of, for example, EUR 2 million, then the problem is quite apparent.

53.      If I have understood the Hungarian legislation correctly, that would result in the new employer being required to lodge a guarantee in the amount of EUR 2 million. In the case of an enterprise with an annual turnover of EUR 100 000, I find it difficult to accept that there could be a risk of tax loss in the amount of EUR 2 million. In that sense, the Court has already clarified, as the Commission also argued at the time in question, that the imposition of such a guarantee is not proportionate to the risk to be securitised. (24) In its judgment in BB construct, on which the Commission primarily relies, the Court also emphasised the fact that the amount of the guarantee must be in correlation to the risk of non-payment in the future and the amount of the earlier tax debts. (25) However, that is not so in the present case.

54.      Moreover, a method that takes account of whether or not the abstract risk presented by the new executive officer still even exists by the due date (expiry of the payment deadline) for the guarantee (that is to say, whether he or she is still an executive officer) would be an equally suitable, less severe method than a method whereby the guarantee and the serious legal consequences are determined in a manner that fails to take any account of that factor. It is clear from the Hungarian legislation governing first-time tax registration that a less onerous option of that nature does exist. According to the request for a preliminary ruling, the serious impediments that would lead to the imposition of a requirement to lodge a tax guarantee in that context can even be removed within 45 days (the period for payment of the tax guarantee is 30 days). In the present case, the taxable person has only 8 days. Taking the due date as a reference date would also make it possible to comply with the 15-day notice period for convening a general company meeting that is required under Hungarian law.

(c)    In the alternative: is the legislation proportionate?

55.      It is also questionable whether the imposition of the additional guarantee is proportionate. It is proportionate only if the guarantee does not cause disadvantages that are disproportionate to the aims pursued. (26) That ultimately involves an evaluative balancing of legal interests.

56.      There is, on the one hand, Hungary’s interest in establishing a privileged creditor status to secure tax revenues. On the other hand, there are the fundamental rights of the taxable person. The taxable person is deprived of financial resources in an amount corresponding to the outstanding tax debts of another taxable person. Even though the deprivation is not permanent – the guarantee is to be repaid after 12 months – the corresponding liquid funds will be unavailable to the taxable person for 12 months. If the liquid funds cannot be raised, there is the threat of a ‘prohibition on practising a profession’ as a consequence of revocation of the tax number, even though the substantive conditions for holding a tax number (that is, the status of a taxable person) are met. As the present case demonstrates, such a prohibition on practising a profession may have existential implications. An order for compulsory winding-up proceedings has now been issued against the applicant as a result of the cancellation of its tax number, which apparently still entails loss of legal personality in Hungary.

57.      The degree of interference with the applicant’s fundamental rights is therefore very far-reaching. By contrast, Hungary’s interest in establishing privileged creditor status in order to secure tax revenues is of a minor nature at best (in that regard, see point 45). It is even more minor if such privileged creditor status is not intended to protect against a specific risk of tax loss presented by the taxable person, but rather to protect against a merely abstract risk – potentially imparted by an employee – pertaining to another taxable person. In my view, Hungary no longer has an interest worthy of protection in benefiting from a privileged status of that nature if the source of risk has ceased to exist by the time of expiry of the payment deadline because the executive officer has been dismissed. A guarantee imposed in that manner would be manifestly disproportionate to the pursued aim.

58.      The case-law of the Court confirms that conclusion. (27) With regard to additional liability, 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. Contrary to the Commission’s assertions, an additional liability for the tax debts of a third party is absolutely comparable with an additional 12-month guarantee for an amount equivalent to the tax debts of a third party. In both cases, the burden on the taxable person is dependent on the actions of a third party, over which the taxable person had no control. In the case of the guarantee, the burden takes effect for at least 12 months, whereas, in the case of liability, it remains uncertain as to whether or not the burden will crystallise until the event giving rise to the liability occurs.

59.      According to the Court, 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 be considered contrary to the principle of proportionality. It would be clearly 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. (28)

60.      The position is no different vis-à-vis the imposition of a requirement to lodge an additional guarantee (on penalty of cancellation of the tax number). In the present case also, an additional financial burden is imposed on the applicant in an amount that is linked to the tax debt of another person, but without allowing the applicant to escape that requirement to lodge a guarantee by providing proof that it had nothing whatsoever to do with the outstanding tax debts of that other person. To – temporarily – hold the applicant unconditionally liable for the shortfall in tax caused by acts of a third party over which the applicant had no influence whatsoever would be clearly disproportionate in the present case also.

61.      Leaving aside the question of whether Article 273 of the VAT Directive does in fact allow for a Member State to benefit from privileged creditor status through the imposition of a requirement to lodge an additional guarantee, the legislation adopted by Hungary in the present case infringes the fundamental rights under Articles 16 and 17 of the Charter, as it is disproportionate.

D.      Limiting effect of the fundamental judicial rights on the margin of discretion

62.      A consideration of the right to an effective remedy under Article 47 of the Charter raises similar doubts. When introducing further obligations under Article 273 of the VAT Directive, the Member States must observe that fundamental right also.

63.      [The German and French wording of] Article 47 of the Charter refers also to ‘persons’ [similar to the English wording ‘everyone’] and thus also covers legal persons such as the applicant. (29) Article 47(1) of the Charter provides that everyone whose rights and freedoms guaranteed by the law of the European Union are breached has the right to an effective remedy before a tribunal in compliance with the conditions laid down in that article.

64.      In that respect, the referring court highlights concerns regarding the fact that the decision was notified to the company’s executive officer and not to its members. However, whether or not that is sufficient depends solely on whether the executive officer was also authorised to accept service of decisions; that would probably be true in the case of a managing director as the legal representative of a company, for example. Ultimately, that is a matter for the national court to decide.

1.      Exclusion of the possibility for the addressee to assert its own objections to the requirement to lodge a guarantee

65.      In the present case, the main problem lies rather in the fact that the taxable person has eight days (which is very short) in which to challenge the imposition of the requirement to lodge a guarantee. However, lodging such a challenge does not have a suspensory effect. Nor does it appear that lodging a challenge makes it possible to put forward arguments relating to the causal link between the tax loss and the particular person acting as executive officer. It appears that the imposition of the requirement to lodge a guarantee can be challenged on the substance only by the executive officer himself or herself, by applying for an exemption from that requirement to lodge a guarantee. At the hearing, however, Hungary confirmed that that application did not have a suspensory effect either; the guarantee must still be lodged within 30 days.

66.      The taxable person would thus fall between two stools – as Advocate General Bobek has already observed (30) a few years ago with respect to other, also Hungarian, legislation. In the present case, a challenge would have been admissible but lacking in merit. The conditions for imposing the requirement to lodge an additional guarantee were met. That could be one of the reasons for why the requirement was not challenged. The applicant also has no possibility of successfully challenging the cancellation of the tax number, as that is conditional only upon non-payment by the due date.

67.      In order for the judicial review guaranteed by Article 47 of the Charter to be effective, it is necessary not only that the court reviewing the legality of a decision implementing EU law be able to verify whether the evidence on which that decision is founded has been obtained and used in breach of the rights guaranteed by EU law and, especially, by the Charter, (31) but also, in my view, that the addressee (in this case, the applicant) of an adverse decision (in this case, the imposition of a requirement to lodge a guarantee) be able to assert substantive objections against that decision itself and in its own right. Since that was not possible in the present case, there is an infringement of Article 47 of the Charter with no apparent legal justification.

2.      Possibility of judicial protection before enforceability

68.      It is also questionable whether the system of legal protection implemented by Hungary guarantees an effective remedy before a tribunal in accordance with Article 47 of the Charter.

69.      If I have correctly understood the Hungarian legal situation, as explained in detail at the hearing, the tax authority would have had a total of 23 days (8 at first instance and 15 at second instance) to rule on the appeal against the decision imposing the requirement to lodge a guarantee, even if the taxable person (and not just the executive officer) could have raised substantive objections. If an appeal were to be lodged on the eighth day of that short contestation period, it is possible that the guarantee would have to be paid before the authority had even ruled on the appeal. It therefore appears that the Hungarian system does not provide for any possibility of obtaining a judicial remedy against the administrative decision before the due date for lodging the guarantee.

70.      It is true that it is possible to pursue a legal remedy against the subsequent cancellation of the tax number, which includes the possibility of bringing an action before a court. That is what happened in the present case. However, it is apparent that in those proceedings, there is also no possibility to present arguments relating to whether the newly appointed executive officer was responsible for the tax loss in the amount of the imposed guarantee. It also appears that there is no possibility of obtaining a judicial suspension of enforcement of the guarantee, or a court order declaring the suspensory effect of the appeal contesting the imposition of that guarantee.

71.      If that is indeed the case – which it is for the referring court to ascertain – then the way in which Hungary has arranged the legal protection against the imposition and enforcement of the requirement to lodge a guarantee is also a breach of the principle of the right to an effective remedy laid down in Article 47 of the Charter. The applicant itself had no possibility of obtaining judicial protection against the imposition of the requirement to lodge a guarantee before it became due and the tax number was, subsequently, cancelled. Moreover, there is no apparent justification for that restriction.

V.      Conclusion

72.      I therefore propose that the Court should answer the questions referred for a preliminary ruling by the Fővárosi Törvényszék (Budapest High Court, Hungary) as follows:

(1)      Article 273 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, read in conjunction with Articles 16 and 17 of the Charter of Fundamental Rights of the European Union,

must be interpreted as precluding the imposition of a guarantee in the amount of the unpaid tax debts of another taxable person, such as that at issue in the present case.

(2)      Article 47 of the Charter

must be interpreted as precluding legislation under which the imposition of a requirement to lodge a guarantee in the amount of the unpaid tax debts of another taxable person cannot itself be challenged as to its substance. It also precludes legislation under which all conceivable appeals against the imposition of a requirement to lodge a guarantee have no suspensory effect, such that the payment deadline will expire before a decision on the appeal has been made by the authorities and before there was even the possibility of obtaining judicial protection against it.

1      Original language: German.

2      Council Directive of 28 November 2006 (OJ 2006 L 347, p. 1), in the version applicable to the year at issue (2019); last amended in that respect by Council Directive (EU) 2018/2057 of 20 December 2018 amending Directive 2006/112 as regards the temporary application of a generalised reverse charge mechanism in relation to supplies of goods and services above a certain threshold (OJ 2018 L 329, p. 3).

3      According to the case-law of the Court, the latter is necessary because the recipient is required to prove, for example, that it has a right to deduct input VAT, which in turn presupposes, according to Article 168(a) of the VAT Directive, that the supplies were provided by another taxable person – see, most recently, judgment of 11 November 2021, Ferimet (C‑281/20, EU:C:2021:910, paragraph 41).

4      Judgments of 18 November 2021, Promexor Trade (C‑358/20, EU:C:2021:936; paragraph 41), and of 14 March 2013, Ablessio (C‑527/11, EU:C:2013:168, paragraph 23).

5      Order of 3 June 2022, Megatherm-Csillaghegy (C‑188/21, EU:C:2022:444, paragraph 52), with reference to the judgment of 12 July 2012, EMS-Bulgaria Transport (C‑284/11, EU:C:2012:458, paragraph 70).

6      Judgment of 9 September 2021, Dyrektor Izby Administracji Skarbowej w Bydgoszczy (Intra-Community acquisition of diesel fuels) (C‑855/19, EU:C:2021:714, paragraph 36).

7      Judgment of 3 July 2019, UniCredit Leasing (C‑242/18, EU:C:2019:558, paragraphs 40 and 41).

8      Judgment of 12 July 2012, EMS-Bulgaria Transport (C‑284/11, EU:C:2012:458, paragraph 74).

9      Judgment of 26 October 2017, BB construct (C‑534/16, EU:C:2017:820, paragraph 6).

10      Judgment of 26 October 2017, BB construct (C‑534/16, EU:C:2017:820, paragraphs 22 and 45).

11      The French version of the directive refers to an ‘exacte perception’ and the English version refers to a ‘correct collection’.

12      To that effect, simply see judgment of 26 October 2017, BB construct (C‑534/16, EU:C:2017:820, paragraphs 22 and 45).

13      Judgments of 13 October 2022, Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’ (C‑1/21, EU:C:2022:788, paragraph 69); of 9 September 2021, Dyrektor Izby Administracji Skarbowej w Bydgoszczy (Intra-Community acquisition of diesel fuels) (C‑855/19, EU:C:2021:714, paragraph 35); and of 17 May 2018, Vámos (C‑566/16, EU:C:2018:321, paragraph 38).

14      See, expressly, judgments of 21 December 2021, Bank Melli Iran (C‑124/20, EU:C:2021:1035, paragraph 72), and of 4 May 2023, MV – 98 (C‑97/21, EU:C:2023:371, paragraph 34).

15      Judgments of 13 October 2022, Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’ (C‑1/21, EU:C:2022:788, paragraph 72); of 9 September 2021, Dyrektor Izby Administracji Skarbowej w Bydgoszczy (Intra-Community acquisition of diesel fuels) (C‑855/19, EU:C:2021:714, paragraph 35); of 28 February 2018, Pieńkowski (C‑307/16, EU:C:2018:124, paragraph 33); and of 15 April 2021, Grupa Warzywna (C‑935/19, EU:C:2021:287, paragraph 26).

16      In that sense, see also judgment of 22 December 2010, DEB (C‑279/09, EU:C:2010:811, paragraph 38 et seq.)

17      Judgments of 21 May 2019, Commission v Hungary (Usufruct over agricultural land) (C‑235/17, EU:C:2019:432), and of 22 January 2013, Sky Österreich (C‑283/11, EU:C:2013:28, paragraph 34).

18      Judgments of 26 October 2017, BB construct (C‑534/16, EU:C:2017:820, paragraph 35), and of 22 January 2013, Sky Österreich (C‑283/11, EU:C:2013:28, paragraph 42).

19      Judgments of 21 December 2021, Bank Melli Iran (C‑124/20, EU:C:2021:1035, paragraph 81); of 26 October 2017, BB construct (C‑534/16, EU:C:2017:820, paragraph 36); and of 22 January 2013, Sky Österreich (C‑283/11, EU:C:2013:28, paragraphs 45 and 46).

20      See my Opinions in PrivatBank and Others (C‑78/21, EU:C:2022:738, point 88), and in G4S Secure Solutions (C‑157/15, EU:C:2016:382, point 112).

21      Judgment of 18 November 2021, Promexor Trade (C‑358/20, EU:C:2021:936, paragraph 42).

22      Judgment of 14 March 2013, Ablessio (C‑527/11, EU:C:2013:168, operative part).

23      Judgment of 4 May 2023, MV – 98 (C‑97/21, EU:C:2023:371, paragraphs 58, 59 and 63), and of 15 April 2021, Grupa Warzywna (C‑935/19, EU:C:2021:287, paragraph 28 et seq., paragraph 34 et seq.).

24      See judgment of 10 July 2008, Sosnowska (C‑25/07, EU:C:2008:395, paragraphs 30 and 31).

25      Judgment of 26 October 2017, BB construct (C‑534/16, EU:C:2017:820, paragraph 28).

26      See, to that effect, judgment of 28 February 2018, Pieńkowski (C‑307/16, EU:C:2018:124, paragraph 34).

27      Judgments of 13 October 2022, Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’ (C‑1/21, EU:C:2022:788, paragraph 74), and of 21 December 2011, Vlaamse Oliemaatschappij (C‑499/10, EU:C:2011:871, paragraph 24).

28      Judgments of 13 October 2022, Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’ (C‑1/21, EU:C:2022:788, paragraph 74), and of 21 December 2011, Vlaamse Oliemaatschappij (C‑499/10, EU:C:2011:871, paragraph 24).

29      Judgment of 22 December 2010, DEB (C‑279/09, EU:C:2010:811, paragraphs 40 and 59).

30      Opinion of Advocate General Bobek in Glencore Agriculture Hungary (C‑189/18, EU:C:2019:462, point 43).

31      Judgment of 17 December 2015, WebMindLicenses (C‑419/14, EU:C:2015:832, paragraphs 86 and 87).