Provisional text

OPINION OF ADVOCATE GENERAL

KOKOTT

delivered on 4 September 2025 (1)

Case C‑121/24

‘Vaniz’ EOOD

v

Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’ – Veliko Tarnovo

(Request for a preliminary ruling from the Administrativen sad Veliko Tarnovo (Administrative Court, Veliko Tarnovo, Bulgaria))

( Reference for a preliminary ruling – Taxation – Value added tax (VAT) – Directive 2006/112/EC – Article 205 – Article 273 – Failure to pay declared VAT – Joint and several liability of a third party – Insolvency and deletion of a taxable person from the commercial register – Principle of legal certainty – Principle of proportionality )

I.      Introduction

1.        The present request for a preliminary ruling concerns the joint and several liability of a third party for the VAT debts of a person liable for payment of that VAT (a company) where that person no longer exists, and where the liability of that third party was not prescribed until after that company’s liquidation (here, deletion). The link between the person liable for payment of VAT and the third party is a contract for the supply of goods or services which was duly performed in the past.

2.        According to the referring court, the Bulgarian provision in question appears to treat as sufficient the fact that the third party considered liable knew or should have known that its trading partner would not discharge its tax debt. The referring court asks whether such a far-reaching provision governing liability for tax debts of a trading partner that has already been deleted is compatible with the provisions of the VAT Directive.

3.        The request also presents the Court of Justice with the opportunity to remedy a possible contradiction in its case-law. (2) On the one hand, the Court has in the past required that, in order to be ‘penalised’, undertakings should have at least known about the fraudulent activities of a third party in a supply chain. (3) On the other hand, a more recent judgment treats it as sufficient that the third party should have known of a mere failure to pay the tax, (4) although failure to pay the tax per se is not sufficient to assume tax fraud – which is also attested by various judgments. (5) It is not clear why a situation where a person should have known of a non-fraudulent event (failure to discharge tax debt) can be equated to a situation where a person should have known of a fraudulent event (failure to declare tax) in terms of the legal consequences thereof (liability for a third-party tax debt or refusal of the right to deduct input tax).

4.        It is true that the Court has come to consider many State measures to be proportionate in the context of ‘penalising’ those involved in VAT fraud. One could even gain the impression that – to adapt a common idiom – all’s fair in love, war and the fight against VAT fraud. Nevertheless, the obligations of due process binding State authority must be upheld for potential perpetrators of fraud as for anyone else.

II.    Legal framework

A.      European Union law

5.        The framework in EU law is provided by Directive 2006/112/EC on the common system of value added tax (‘the VAT Directive’). (6) Recital 44 of that directive reads as follows:

‘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.’

6.        Article 193 of the VAT Directive determines who is 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 199b and Article 202.’

7.        Article 205 of the VAT Directive offers 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 the payment of that tax:

‘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.’

8.        The first paragraph of Article 273 of the VAT Directive set outs options for the Member States to combat evasion, inter alia:

‘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

–       Danachno-osiguritelen protsesualen kodeks (Code of tax and social security procedure; ‘the DOPK’):

9.        Article 21(2) and (3) of the DOPK governs the duration of third-party liability:

‘(2)      The liability of third parties shall also be incurred where the facts specified in Article 168(5) to (7) are in place in respect of the debtor.

(3)      The liability of third parties shall cease when the debt for which that liability was established by a final act is extinguished. …’

10.      Article 112(1) of the DOPK concerns the beginning of the tax audit procedure:

‘(1)      A tax audit procedure shall be initiated by the issuing of a decision ordering a tax audit.’

11.      Article 168(6) and (7) of the DOPK determines when the claim governed by public law is extinguished:

‘6.      following distribution of the proceeds from realising the assets of a legal person which has been declared insolvent, unless third parties are liable for the claim governed by public law;

7.      upon deletion of a legal person following termination of winding-up proceedings, unless third parties are liable for the claim governed by public law;’

–       Zakon za danak varhu dobavenata stoynost (Law on value added tax; ‘the ZDDS’):

12.      Article 177 of the ZDDS is under the heading ‘Liability in the event of abuse’ and provides that the recipient of a supply who has claimed the right of deduction is to be held liable under certain circumstances:

‘(1)      A registered person who is the recipient of a taxable supply shall be liable for unpaid tax due from another registered person in so far as that recipient 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 DOPK].

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

1.      the 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;

2.      the taxable supply is fictitious, circumvents the law 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 failure to pay 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 imposed on the 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 imposed on any downstream recipient in the chain of supply.

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

III. Facts and request for a preliminary ruling

13.      Vaniz EOOD (‘Vaniz’) is a registered company. Its activity consists of road and freight transport. In its capacity as a taxable person, Vaniz received taxable supplies of goods (purchase of lorries and vehicles) and of services (rental of motor vehicles) from Stars International EOOD in 2017. It appears that Vaniz also paid the associated invoices. Vaniz exercised its right of deduction in respect of the invoices issued.

14.      Following an audit, the tax authorities found that, for the specified tax periods, the supplier had declared but not paid the VAT chargeable on the supplies provided (which had been set out in the invoices issued to Vaniz). In 2019, insolvency proceedings were initiated in respect of Stars International EOOD; on 4 August 2020, they were concluded and the company’s deletion from the commercial register was ordered.

15.      In 2022, a tax audit was initiated in respect of Vaniz to establish liability under Article 177 of the ZDDS for the VAT owed and not paid by Stars International EOOD, which related to the supplies of goods and services provided to Vaniz. In accordance with Article 177 of the ZDDS, a tax assessment imposed liability on Vaniz for the debts of Stars International EOOD for the tax periods of July, August and September 2017. The tax authorities gave as the ground for that liability Article 177(2) of the ZDDS, pursuant to which the elements specified in Article 177(1) of the ZDDS are satisfied where the recipient of a taxable supply knew or should have known that the tax on the invoices issued to that recipient would not be paid.

16.      Vaniz contested the tax audit assessment in an administrative procedure without success. It then brought an action before the referring court. That court points out that the party found liable (Vaniz, in the present case) first became aware of the possibility of such liability being incurred after the tax audit was initiated. At that time, its contractual partner – the person liable for payment of the VAT – had already ceased to exist. The question therefore arises whether such an interpretation is consistent with the VAT Directive.

17.      The Administrativen sad Veliko Tarnovo (Administrative Court, Veliko Tarnovo, Bulgaria) consequently decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

‘(1)      Do recital 44 and Article 205 of [the VAT Directive] and, accordingly, the principles of transparency and proportionality of liability permit the initiation, after the principal debtor has ceased to exist as a legal person, of a procedure intended to establish a person’s joint and several liability to pay VAT and the scope of such joint and several liability?

(2)      Do they, following the deletion of the debtor from the commercial register without a legal successor assuming that debtor’s rights and obligations, allow the existence of a registered claim against that debtor, for which a third party is liable a posteriori?

(3)      Is the administrative practice of the national tax authorities as described above consistent with the principle of legal certainty?’

18.      In the proceedings before the Court, Vaniz, the Republic of Bulgaria, the Bulgarian tax authorities, the Kingdom of Spain and the European Commission have submitted written observations. In accordance with Article 76(2) of its Rules of Procedure, the Court has not deemed it necessary to hold a hearing.

IV.    Legal assessment

19.      By its three questions, the referring court ultimately seeks to ascertain the extent of joint and several liability under Article 205 of the VAT Directive, in particular where the principal debtor has already ceased to exist as a legal person before the imposition of secondary liability. I will therefore answer the three questions taken together.

20.      The questions are significant because national law, if Article 177(2) of the ZDDS were considered in isolation, makes generous allowance for such a liability according to its wording. However, under the previous case-law of the Court, liability for third-party tax debts is permissible only under certain conditions. Those conditions are easier to fulfil where liability is an anti-fraud measure, but not in the case of a ‘regular’ risk of insolvency. For that reason, the Court must decide here whether the fact that a person should have known about the failure to pay a correctly declared tax may be treated in the same way as participation in tax fraud (see Section A). While the Court did address Article 177 of the ZDDS in the judgment in ALTI, (7) that judgment does not permit unlimited third-party liability (see Section B).

21.      The questions referred for a preliminary ruling – which might have been inspired by the judgment in ALTI – also require an examination as to whether Article 205 of the VAT Directive makes it possible for a person to be held liable for the tax debts of a liquidated (deleted) company on the sole ground that that person had been the company’s contractual partner, or whether a particular ground for liability is required in that respect (see Section C).

A.      Limits on ‘secondary liability’ under Article 205 of the VAT Directive, read in conjunction with Article 273 thereof, in the context of combating fraud

22.      The starting point here regarding the limits on the liability for the tax debts of a third party is Article 205 of the VAT Directive. In so far as liability serves to combat fraud or abuse, it is, however, Article 273 of the VAT Directive that needs to be taken into account. (8) According to that provision, Member States may impose other obligations which they deem necessary to ensure the correct collection of VAT and to prevent evasion, subject to the requirement of equal treatment as between domestic transactions and transactions carried out between Member States by taxable persons and provided that such obligations do not, in trade between Member States, give rise to formalities connected with the crossing of frontiers.

1.      Intentional participation in VAT fraud

23.      There was consensus initially that measures such as the refusal of the right to deduct input tax or the loss of a tax exemption come into consideration only where the person in question intentionally participates in tax evasion. (9) That limitation must also apply in respect of the prescription of joint and several liability. After all, it makes almost no difference whether Vaniz is refused the right to deduct input tax from the transactions with its contractual partner or is liable for its contractual partner’s tax debt arising from those transactions. The amount is exactly the same.

2.      Imputed knowledge of VAT fraud in the supply chain

24.      The case-law on combating fraud outlined above was expanded, however, where the person should have known (10) that a contractual partner (or another undertaking involved in the supply chain) was participating in VAT fraud. (11) Even with that expansion, however, it has not to date been possible to render a third party ‘liable’ for the conduct of another person. (12) I cannot recommend that the Court extend yet further its already very far-reaching case-law concerning fraud and abuse. That would also lead to contradictions with its previous case-law.

25.      The Grand Chamber expressly made clear in 2018 that mere failure to pay declared tax does not constitute VAT fraud. (13) As the Court expressly stated, (14) failure to pay declared VAT does not present the same degree of seriousness as VAT fraud. As soon as the taxable person has duly fulfilled his or her or its declaration obligations, the authorities have the necessary data to establish the amount of VAT chargeable and whether there is a failure to pay it. (15) The Court emphasised in that context that defaulting on the payment of tax debts may be penalised by fines imposed on the defaulting taxable person. (16)

26.      In the judgment in HA.EN., (17) the Court – in line with my Opinion (18) – therefore made it clear that, in so far as the taxable person has duly complied with his or her or its obligations to declare VAT, the mere failure to pay duly declared VAT cannot constitute VAT fraud. That applies irrespective of whether such a failure (on the part of the vendor of immovable property) is intentional or not. (19) Consequently, the tax authorities could not criticise the purchaser of immovable property in such circumstances on the basis that that purchaser knew or should have known that, in acquiring that asset, it was participating in a transaction connected with VAT fraud, (20) even though it may have known that the vendor of the immovable property, given that vendor’s financial situation, would probably be unable to pay its VAT debt.

27.      The same applies in the present case. According to the request for a preliminary ruling, the supplier correctly declared the VAT due on the supplies provided (which was also set out in the invoices issued to Vaniz). The resultant tax debt was ‘merely’ not paid. There is therefore no VAT fraud. That means, however, that the person who knew or should have known that its contractual partner would not pay the declared VAT cannot be accused of participating in fraud but can at most be accused of participating in that party’s failure to pay.

28.      ‘Participation in the failure to pay’ of a taxable person does not present the same degree of seriousness as participation in VAT fraud, as the tax authorities, also in the present case, already have all the necessary data to establish the amount of VAT chargeable and whether there is a failure to pay it. The Grand Chamber’s reasoning in the judgment in Scialdone (21) can be applied to the present situation. Mere ‘participation in the failure to pay’ does not warrant a finding to the effect that the person committed VAT fraud personally, nor a refusal of the right to deduct input tax, nor the imposition of liability for third-party tax debts.

3.      Abusive conduct by taking advantage of the lack of assets

29.      It follows that the situation can be otherwise only if Vaniz could be accused of abusive conduct by deliberately taking advantage of the lack of assets on the part of its contractual partner, which the tax authorities appear, from their observations, to assume. Such conduct may, for example, preclude the right to deduct input VAT where the transactions from which that right derives constitute an abusive practice. (22)

30.      As the deduction of input tax is for Vaniz identical in amount to the tax debt of its contractual partner, it should also be possible, as a less severe measure than refusing its right to deduct input tax, to hold Vaniz liable for that tax debt under Article 273 of the VAT Directive, in so far as it can be accused of abusive conduct. On closer inspection, however, that does not fit in with the situations typically covered by Article 205 of the VAT Directive (see Section C below for more details). As the Bulgarian Government also states, Article 177 of the ZDDS is more concerned with imposing a kind of penalty in the form of creating an additional person liable for the payment of the tax, in order to protect tax revenue from fraud and abuse.

31.      That being said, it is not abusive to pay one’s contractual partner, even where the recipient of the supplies knows or should know (no matter from what source) that the contractual partner will declare but not pay in due time the VAT included in the price. Under civil law, the recipient of the supplies is obliged to pay the price. It follows that payment which is owed under civil law cannot under normal circumstances be abusive and therefore does not warrant the imposition of liability for third-party tax debts.

32.      Something else may apply if, for example, Vaniz itself directs the non-payment of the declared VAT as a result of its influence under company law. Vaniz could then deliberately use the insolvency of its contractual partner to enrich itself via the deduction of input tax and cause a loss in tax revenue via the insolvency of the supplier. (23) However, the request for a preliminary ruling provides no indications to support that.

33.      Nevertheless, the tax authorities referred in their observations to a special connection between the two contracting parties. The facts as described therein could come close to an abusive use of the deduction of input tax and insolvency law. However, responsibility for making findings of fact lies with the referring court. This Opinion must therefore be based on the facts as presented by the referring court. According to that court’s description, the two companies are independent third parties to one another. It is for the referring court to ascertain whether that is the case.

4.      Interim conclusion

34.      The Bulgarian courts must interpret Article 177(2) of the ZDDS restrictively or in conjunction with Article 177(3) thereof. Taken in isolation, Article 177(2) of the ZDDS does not hinge on the existence of fraud (or tax evasion or an abuse of rights). On the contrary, liability is incurred ‘where the registered person knew or should have known that the tax would not be paid’. (24)

35.      Nevertheless, EU law requires that the person with secondary liability at the same time knew or should have known of being involved in VAT fraud (or VAT evasion) committed by the person liable for payment of the VAT, or personally engaged in abusive conduct – for example, by deliberately involving an insolvent supplier. A reading of Article 177(2) of the ZDDS in its schematic context, in conjunction with Article 177(3) thereof, leads to that conclusion, since Article 177(3) of the ZDDS provides for the prerequisite of the taxable supply being fictitious, circumventing the law or being made at a price that differs significantly from the market price. According to the Republic of Bulgaria, Article 177 of the ZDDS therefore governs only liability in the event of abuse or fraud. As an anti-fraud provision, that is to say, provided that its paragraph 3 is a conditio sine qua non for applying its paragraph 2, Article 177 of the ZDDS does not give cause for misgivings under EU law.

36.      However, the request for a preliminary ruling does not provide sufficient indication that the conditions set out in Article 177(3) of the ZDDS are satisfied. In the absence of such findings – which only the referring court can make – Article 205 of the VAT Directive, read in conjunction with Article 273 thereof, does not permit liability for third-party tax debts for the purpose of combating fraud.

B.      The judgment in ALTI: No unlimited liability

37.      The judgment in ALTI (25) does nothing to change that. In it, the Court stated that Article 205 of the VAT Directive allows a Member State to hold a person jointly and severally liable for payment of VAT where that person should have known that the tax payable in respect of that supply would go unpaid. (26)

38.      However – as the Court also stated – that should not lead to the creation of a system of strict liability. 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. (27)

39.      The Court emphasised that the fact that a third party’s participation in abuse or fraud is excluded is a point to be taken into account in deciding whether that person can be obliged to account for the VAT owed. (28) The Court found that, in those circumstances, it had to be held that a provision such as Article 177 of the ZDDS meets the requirements for the application of Article 205 of the VAT Directive. (29) Evidently – despite the ambiguity on that point in the operative part – the Court held that abuse or fraud was a basic prerequisite for applying Article 177 of the ZDDS.

40.      In the present case, however, the situation may be different. According to the request for a preliminary ruling, the imposition of liability on Vaniz was solely due to fact that the elements specified in Article 177(2) of the ZDDS were in place. The request states that the conditions laid down in Article 177(1) of the ZDDS are already satisfied where the recipient of a taxable supply knew or should have known that the tax set out in the invoices issued to that recipient would not be paid and that the tax authorities are able to prove that. On that reading, Article 177(2) of the ZDDS presumes that that (proved) knowledge of a failure to pay tax (which was even correctly declared in the present case) goes hand in hand with the knowledge that one’s contractual partner is participating in VAT fraud. Should such a presumption be irrebuttable, it would manifestly be contrary to EU law. (30) And even if it were rebuttable, it would be contrary to the case-law of the Court (see Section A).

41.      Furthermore, the judgment in ALTI, which is much cited in the present proceedings, is not relevant to the matter at issue. In that judgment, the Court relied primarily on paragraph 3 of Article 177 of the ZDDS and referred only to the question of whether joint and several liability under Article 205 of the VAT Directive encompassed not only the tax debt but also the default interest owed by the person liable for payment of VAT. By contrast, that judgment contains no indications as to an interpretation consistent with EU law of paragraph 2 of Article 177 of the ZDDS, which is what is requested by the referring court here.

42.      Accordingly, the crucial matter in the present case is whether Vaniz can be accused of abusive conduct (for example, collusive taking advantage of its contractual partner’s insolvency). If so, EU law would in principle make it possible to hold Vaniz liable by, for example, refusing Vaniz the right to deduct input tax. (31) That would result in Vaniz being liable for a tax debt on its own account, independently of the third party’s tax debt. It would then be irrelevant – at least according to the case-law of the Court – whether the third party has been liquidated or whether or not its tax debt still exists. None of the referring court’s questions would then arise. The same applies where such a penalty is introduced on the basis of Article 273 of the VAT Directive and is referred to as liability, but which ultimately amounts only to an additional tax debt.

43.      According to the request for a preliminary ruling, however, the conditions for that are not satisfied. The request for a preliminary ruling indicates no proximity and no collusion between the two contractual partners. If that is correct, the facts of the case alone would not warrant a refusal of the right to deduct input tax (see Section A above).

C.      Conditions for liability under Article 205 of the VAT Directive

44.      In the present case, the crucial point would be whether Article 205 of the VAT Directive permits holding Vaniz liable for the tax debts of its liquidated (or deleted) contractual partner. It therefore needs to be determined whether and, if so, subject to what limitations Article 205 of the VAT Directive permits secondary liability as provided for in Article 177(2) of the ZDDS.

45.      This concerns fundamental questions of joint and several liability for third-party tax debts under public law. In contrast to civil law, liability for third-party debts does not stem from someone volunteering to take on another person’s debts but from the State unilaterally imposing it. However, the imposition by public authorities of joint and several liability for third-party tax debts is subject – in contrast to guarantees for third-party debts under civil law – to particular obligations of due process. That relates not only to the ground for liability (see subsection 1(a)) but also to the existence of a tax debt (see subsection 1(b)) and of a person liable to pay the tax (see subsection 1(c)) at the time when liability is imposed.

1.      Conditions for establishing liability under Article 205 of the VAT Directive

46.      In line with the question referred for a preliminary ruling, therefore, the conditions governing ‘regular’ liability under Article 205 of the VAT Directive need to be determined. As I have stated on more than one occasion, (32) Article 205 of the VAT Directive empowers Member States, in the situations referred to in Articles 193 to 200 and Articles 202 to 204 thereof, 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 the tax. (33) Unlike, for example, cases where the right to deduct input tax is refused following a person’s own abusive conduct (see point 29 et seq. above), that liability is ancillary in nature. That means the amount owed and the continued existence of the liability are dependent on the tax debt of the person liable for payment (for more details, see point 57 et seq. below).

47.      Article 205 of the VAT Directive does not transfer the tax liability to another person, as is the case with, for example, Article 196 thereof. It provides for a further person who is liable to pay the tax, in addition to the taxable person. That payment obligation is joint and several but is derived from the existing tax debt of another person. It thus effectively corresponds to liability of a third party for another person’s tax debt. In order to draw a conceptual distinction between such a liability and liability for an original tax debt, it will be referred to here as (ancillary) secondary liability.

48.      Article 205 of the VAT Directive permits secondary liability in principle. However, in the exercise of the powers conferred on them by EU directives, Member States must respect the general principles of law that form part of the EU legal order, which include, in particular, the principles of legal certainty and proportionality. (34) Under the principle of proportionality, while it is legitimate for the measures adopted by the Member States to seek to preserve and safeguard the rights of the public exchequer as effectively as possible, they must not go further than is necessary for that purpose. (35)

(a)    Existence of a ground for liability

49.      There can therefore be no question of unlimited liability for another person’s tax debt. Rather, Article 205 requires there to be a special ground for joint and several liability.

50.      While Article 205 of the VAT Directive, on which the referring court relies, does not expressly provide for a ground for liability, the necessity of such a ground can be derived from the principle of proportionality. Otherwise, any third party who has no connection to the person liable for payment could be held liable for that person’s tax debt. Such serious interference with the rights of a third party cannot be justified by reference to the objective of safeguarding the State’s tax revenue and goes beyond what is necessary to achieve it. (36)

51.      The Court of Justice, too, has previously held that measures which bring about de facto strict joint and several liability are disproportionate. (37) Rather, ‘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’ (emphasis added). (38) That is no more or less than a requirement that there be a sufficient ground for liability.

52.      The fact that a party to a contract, namely an independent third party, did not use the payment received to pay the VAT incurred is not a sufficient ground warranting liability. First, that is a risk inherent in the indirect taxation system and knowingly accepted by the legislature. For instance, where tax is collected directly (for example, within the scope of the reverse charge mechanism under Article 196 of the VAT Directive), such a risk does not exist.

53.      Furthermore, the party paying for the supplies (Vaniz, in the present case) normally has no influence on the third party’s conduct (in the present case, default – that is to say, future non-payment of correctly declared tax). Under the case-law of the Court, however, such influence is necessary. ‘It would clearly be disproportionate to hold that person unconditionally liable for the shortfall in tax caused by acts of a third party over which he or she has no influence whatsoever’. (39) The possibility of recoupment under civil law by means of an internal settlement between the joint debtors – which is in any event meaningless in the present case – does not change that. (40)

54.      Systematic comparison of recognised cases of joint and several liability likewise shows that there must always be a ground for liability which ensures a sufficient connection with the third party in order for liability to arise. (41)

55.      For example, the liability of a tax representative under Article 204(1) of the VAT Directive reflects the fact that that person acts on behalf of an elusive foreign taxable person, can factor that secondary liability into his or her remuneration and also does not have to assume the role of representative. The situation applies to a manager’s joint and several liability for a company’s tax debt, (42) where and because the manager has a decisive influence on whether the company pays its tax debts. (43)

56.      Thus, Article 205 of the VAT Directive requires there to be a (justifiable) ground for liability in order for liability for third-party tax debts to be triggered. Participating in fraud or engaging in abusive conduct may constitute such a ground for liability, in the light of Article 273 of the VAT Directive (see point 29 et seq. above). As the case-law of the Court also provides, that alone is sufficient to create a tax debt on the person’s own account. (44) Knowledge of one’s contractual partner’s possible future failure to pay the correctly declared tax debts does not suffice, however.

(b)    Existence of a tax debt at the time when secondary liability is imposed

57.      Moreover, the elements specified in Article 205 of the VAT Directive require the tax debt to be in place when secondary liability is imposed. After all, secondary liability is derived from an existing tax debt, (45) for which liability is incurred. If that tax debt is extinguished (as it may have been by the conclusion of insolvency proceedings in the present case), there remains no ground that would warrant still requiring a third party to pay an already extinguished tax debt from that party’s own assets. In contrast to cases of fraud or abuse (see points 29 and 30 above), ‘only’ ancillary secondary liability is in question here.

58.      To consider the background, prescribing third-party liability is indeed a means of combating loss of tax revenue and amounts to a legitimate objective. However, onerous measures must also be necessary and proportionate. Those conditions are not satisfied where the tax creditor puts itself, by retrospectively prescribing third-party liability, in a more favourable position than it would have actually occupied. Liability is intended to safeguard the tax chargeable, not expand it. That is why, in tax law, such secondary liability of a third party is always tied to the existence of another person’s tax debt.

59.      The principle of proportionality permits only the safeguarding of an existing tax debt. Consequently, it is common practice in modern tax law – including in Bulgaria (see Article 21(3) of the DOPK) and Germany (see Paragraph 69 et seq. of the Abgabenordnung (Tax Code)) – that secondary liability is by nature ancillary (46) to a tax debt. If there is no substantive tax claim against the taxable person, a secondary claim can no longer be established. If the tax has not previously been set in respect of the person liable for payment of VAT and can no longer be set because, for example, the limitation period has expired, it follows that secondary liability can also no longer be imposed.

60.      The same applies where the tax claim against the taxable person has been extinguished on account of that person’s deletion from the commercial register following the conclusion of insolvency proceedings (according to the second question referred for a preliminary ruling, the deleted company has no legal successor). That follows logically from the ancillary nature of a third party’s secondary liability (under public law) in relation to the tax debt of the person liable for payment of the tax.

(c)    Existence of the person liable for payment of VAT

61.      Another condition for general ancillary secondary liability pursuant to Article 205 of the VAT Directive – in addition to the existence of the tax debt – is that the person liable for its payment must still exist at the time when secondary liability is imposed. Fulfilment of that condition is doubtful in the present case, given the concluded insolvency proceedings in respect of the person liable for payment of the tax.

62.      The abovementioned conditions derive from the ‘joint and several’ payment or liability under Article 205 of the VAT Directive. That requires there to have been at least two persons jointly liable for payment of the tax at the time when secondary liability was imposed. The case-law of the Court confirms that conclusion. To ensure the proportionality of the joint and several liability provided for by legislation, that case-law requires the person bearing secondary liability to have a means of recoupment vis-à-vis the principal debtor. (47) However, where the principal debtor has ceased to exist as a legal entity before secondary liability is imposed, that possibility is ruled out per se.

63.      If the person actually liable for payment of VAT is deleted from the register beforehand, only one person (in the present case, Vaniz) would owe the tax in place of the person originally liable for payment of VAT. The result of that would be not liability but a retrospective  transfer of the tax debt  from the person actually liable for payment of VAT to a third party (in the present case, Vaniz).

64.      However, the transfer of tax debts is conclusively governed by Article 196 et seq. of the VAT Directive and covers only certain sets of circumstances, which do not apply in the present case. Moreover, a transfer of the tax debt always needs to have been established and known before the transaction was carried out and thus before the consideration was paid. That is because that is the only way, in the case of a tax that is in fact indirect, that the recipient of a supply can take the transfer of tax debt into account when paying for a transaction and retain the VAT, which that recipient now personally owes, from the payment due.

65.      In that respect, I understand the legitimate concerns of the referring court regarding legal certainty. A retrospective transfer of a tax debt (even if it is referred to as liability) does not permit the person affected (in the present case, Vaniz) to prepare for it and to prevent being charged VAT twice. Rather, the transfer of the tax debt and the payment of the gross price makes that person subject to double VAT without the possibility of twice deducting input tax. That would run counter to the principle of neutrality and to the function of the person liable to pay VAT (as a tax collector on behalf of the State). (48)

66.      Lastly, the Court has previously made it clear that the ‘regular’ risk of insolvency (or risk of loss of tax revenue) in the case of a defaulting person liable for payment of tax should be minimised by other means (effective oversight, prompt enforcement) and not by transferring that risk to a third party. Accordingly, for example, a third party could not be denied a reduction in the taxable amount within the meaning of Article 90 of the VAT Directive after insolvency proceedings were opened in respect of its contractual partner’s assets. (49) The same must apply to the retrospective prescription of secondary liability following the conclusion of insolvency proceedings against the person liable for payment of VAT.

2.      Interim conclusion

67.      The secondary liability of a third party under Article 205 of the VAT Directive is contingent on there being a ground for liability and is ancillary to the tax debt of the person liable for payment of VAT. If the tax debt is extinguished as a result of the liquidation of the person liable for payment of VAT without a legal successor, the same applies to secondary liability. Ancillary joint and several liability is also contingent on the continued existence of the person liable for payment of VAT at the time when secondary liability is imposed.

68.      However, the tax authorities remain free to impose liability on the recipient of the supply as an additional  person liable for payment of VAT  in the event that that recipient engages in intentional VAT fraud or should have known of VAT fraud committed by a third party in the supply chain, or where the person with secondary liability engages in abusive conduct. Article 205 of the VAT Directive does not preclude such liability from being imposed.

V.      Conclusion

69.      I therefore propose that the Court of Justice answer the questions referred by the Administrativen sad Veliko Tarnovo (Administrative Court, Veliko Tarnovo, Bulgaria) as follows:

(1)      Article 205 of Directive 2006/112/EC on the common system of value added tax (the VAT Directive) must be interpreted as permitting no transfer of the tax debt to a third party but only ancillary liability for the tax debts of a person liable for payment of VAT where that tax debt has not been extinguished yet and that person still exists. Imposition of secondary liability following the conclusion of insolvency proceedings and the deletion of the taxable person from the commercial register is thus not covered by Article 205 of the VAT Directive.

(2)      Article 205 of the VAT Directive, read in conjunction with Article 273 thereof, permits also the imposition of liability on the recipient of a supply where that recipient knew or should have known that the transaction would lead to that recipient being involved in the commission of fraud on the part of his or her or its contractual partner, or where the recipient’s conduct itself amounts to abuse. However, mere failure to pay the declared tax does not constitute VAT fraud. Provided that the recipient of the supply cannot be accused of abusive conduct, the mere fact that that recipient knew or should have known that his or her or its contractual party would not pay the declared tax is not sufficient to warrant that recipient being held liable.

1      Original language: German.

2      That danger was created by the judgment of 20 May 2021, ALTI (C‑4/20, EU:C:2021:397), and was reinforced by the judgment of 12 December 2024, Dranken Van Eetvelde (C‑331/23, EU:C:2024:1027).

3      For example, judgments of 1 December 2022, Aquila Part Prod Com (C‑512/21, EU:C:2022:950, paragraph 39); 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); and of 13 February 2014, Maks Pen (C‑18/13, EU:C:2014:69, paragraph 27).

4      Judgment of 20 May 2021, ALTI (C‑4/20, EU:C:2021:397, paragraph 45).

5      Judgments of 15 September 2022, HA.EN. (C‑227/21, EU:C:2022:687, paragraph 32), and of 2 May 2018, Scialdone (C‑574/15, EU:C:2018:295, paragraph 38 to 41).

6      Council Directive of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1).

7      Albeit only if paragraph 40 of the judgment of 20 May 2021, ALTI (C‑4/20, EU:C:2021:397), is read in isolation and disconnected from the question and the context of the associated request for a preliminary ruling.

8      See, for example, judgment of 13 October 2022, Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’ (C‑1/21, EU:C:2022:788, paragraph 85), on the liability of a manager acting in bad faith. See also, regarding the liability of a board of directors, judgments of 30 April 2025, Genzyński (C‑278/24, EU:C:2025:299, paragraph 54), and of 27 February 2025, Adjak (C‑277/24, EU:C:2025:130, paragraph 45).

9      See, for example, judgment of 7 December 2010, R (C‑285/09, EU:C:2010:742, paragraph 54); see also the summary in the judgment of 1 December 2022, Aquila Part Prod Com (C‑512/21, EU:C:2022:950, paragraphs 27 and 39).

10      Judgments of 1 December 2022, Aquila Part Prod Com (C‑512/21, EU:C:2022:950, paragraph 39); 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).

      In some earlier decisions the Court still used the wording ‘could’ 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 – ‘could … know’)). However, that excessively broad wording, stemming purely from the question referred, now seems to have been rightly abandoned. In so far as a more recent decision – judgment of 1 December 2022, Aquila Part Prod Com (C‑512/21, EU:C:2022:950, paragraph 45) – again uses the expression ‘could have known’, that is likely to be just imprecise language ultimately based on the question referred for a preliminary ruling.

11      See, for example, judgment of 11 May 2006, Federation of Technological Industries and Others (C‑384/04, EU:C:2006:309, paragraph 33 – transaction vitiated by VAT fraud). In connection with liability, the Court has at times referred to participation in tax evasion – see judgment of 21 December 2011, Vlaamse Oliemaatschappij (C‑499/10, EU:C:2011:871, paragraph 25). Tax evasion is also not present in the event of tax being declared but not paid.

12      In so far as the judgment of 11 May 2006, Federation of Technological Industries and Others (C‑384/04, EU:C:2006:309), because of the imprecise questions referred for a preliminary ruling, refers also in its operative part to some or all of the VAT payable ‘going unpaid’, that is ambiguous, as the case in question related to classic VAT fraud rather than declared but unpaid tax.

13      Judgment of 2 May 2018, Scialdone (C‑574/15, EU:C:2018:295, paragraphs 37 to 43).

14      Judgment of 2 May 2018, Scialdone (C‑574/15, EU:C:2018:295, paragraph 41).

15      Judgment of 2 May 2018, Scialdone (C‑574/15, EU:C:2018:295, paragraph 42).

16      Judgment of 2 May 2018, Scialdone (C‑574/15, EU:C:2018:295, paragraph 49).

17      Judgment of 15 September 2022 (C‑227/21, EU:C:2022:687, paragraphs 37 and 38).

18      See my Opinion in HA.EN. (C‑227/21, EU:C:2022:364).

19      Judgment of 15 September 2022, HA.EN. (C‑227/21, EU:C:2022:687, paragraph 32).

20      Judgment of 15 September 2022, HA.EN. (C‑227/21, EU:C:2022:687, paragraph 33).

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

22      See judgments of 15 September 2022, HA.EN. (C‑227/21, EU:C:2022:687, paragraph 34); of 22 December 2010, Weald Leasing (C‑103/09, EU:C:2010:804, paragraph 26); and of 21 February 2006, Halifax and Others (C‑255/02, EU:C:2006:121, paragraph 85).

23      See also my earlier Opinion in ALTI (C‑4/20, EU:C:2021:12, point 65).

24      In that respect, there is ambiguity in the operative part of judgment of 20 May 2021, ALTI (C‑4/20, EU:C:2021:397).

25      Judgment of 20 May 2021 (C‑4/20, EU:C:2021:397).

26      Judgment of 20 May 2021, ALTI (C‑4/20, EU:C:2021:397, operative part).

27      Judgment of 20 May 2021, ALTI (C‑4/20, EU:C:2021:397, paragraph 36).

28      Judgment of 20 May 2021, ALTI (C‑4/20, EU:C:2021:397, paragraph 37).

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

30      See also the Court’s statements, applicable by analogy, regarding customs legislation in the judgment of 22 November 2017, Aebtri (C‑224/16, EU:C:2017:880, paragraphs 109 to 112).

31      See judgments of 15 September 2022, HA.EN. (C‑227/21, EU:C:2022:687, paragraph 34); of 22 December 2010, Weald Leasing (C‑103/09, EU:C:2010:804, paragraph 26); and of 21 February 2006, Halifax and Others (C‑255/02, EU:C:2006:121, paragraph 85).

32      My Opinions in ALTI (C‑4/20, EU:C:2021:12, point 26 et seq.), and Dranken Van Eetvelde (C‑331/23, EU:C:2024:700, point 33).

33      See also judgment of 12 December 2024, Dranken Van Eetvelde (C‑331/23, EU:C:2024:1027, paragraph 19 et seq.).

34      Judgments of 12 December 2024, Dranken Van Eetvelde (C‑331/23, EU:C:2024:1027, paragraph 22); 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).

35      Judgments of 12 December 2024, Dranken Van Eetvelde (C‑331/23, EU:C:2024:1027, paragraph 23); of 13 October 2022, Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’ (C‑1/21, EU:C:2022:788, paragraph 73); 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).

36      Regarding less restrictive measures in the area of fundamental freedoms, see judgment of 9 November 2006, Commission v Belgium (C‑433/04, EU:C:2006:702, paragraph 40). In the present case, prompt collection of the declared tax from the person liable for payment would appear to be the appropriate means.

37      Judgments of 30 April 2025, Genzyński (C‑278/24, EU:C:2025:299, paragraph 61); of 14 November 2024, Herdijk (C‑613/23, EU:C:2024:961, paragraph 25); and of 13 October 2022, Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’ (C‑1/21, EU:C:2022:788, paragraph 74); on the predecessor provision, Article 21(3) of the Sixth Council Directive, see judgments 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).

38      Judgments of 30 April 2025, Genzyński (C‑278/24, EU:C:2025:299, paragraph 62); of 14 November 2024, Herdijk (C‑613/23, EU:C:2024:961, paragraph 26); of 12 December 2024, Dranken Van Eetvelde (C‑331/23, EU:C:2024:1027, paragraph 24); of 13 October 2022, Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’ (C‑1/21, EU:C:2022:788, paragraph 75); and of 20 May 2021, ALTI (C‑4/20, EU:C:2021:397, paragraph 34).

39      As stated explicitly and entirely accurately in the judgments of 30 April 2025, Genzyński (C‑278/24, EU:C:2025:299, paragraph 61), and of 14 November 2024, Herdijk (C‑613/23, EU:C:2024:961, paragraph 25).

40      For a possible contrasting view – albeit without further reasoning – see judgment of 12 December 2024, Dranken Van Eetvelde (C‑331/23, EU:C:2024:1027, paragraphs 36 and 37).

41      See judgment of 13 October 2022, Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’ (C‑1/21, EU:C:2022:788, paragraph 75).

42      An example of such liability was at issue in the judgment of 13 October 2022, Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’ (C‑1/21, EU:C:2022:788, paragraph 75).

43      See judgments of 30 April 2025, Genzyński (C‑278/24, EU:C:2025:299, paragraph 64); of 14 November 2024, Herdijk (C‑613/23, EU:C:2024:961, paragraph 29); of 27 February 2025, Adjak (C‑277/24, EU:C:2025:130, paragraphs 40 and 45); and of 13 October 2022, Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’ (C‑1/21, EU:C:2022:788, paragraph 77 et seq.).

44      That is sometimes also referred to as ‘secondary liability’, which may be the underlying idea in Article 177 of the ZDDS.

45      See my Opinions in Dranken Van Eetvelde (C‑331/23, EU:C:2024:700, points 33 and 41) and ALTI (C‑4/20, EU:C:2021:12, point 28).

46      My Opinion in Dranken Van Eetvelde (C‑331/23, EU:C:2024:700, point 33). In similar vein, my previous Opinion in ALTI (C‑4/20, EU:C:2021:12, point 28).

47      As has been held expressly outside VAT law in, for example, the judgment of 1 July 2010, Speranza (C‑35/09, EU:C:2010:393, paragraph 56 et seq.). In VAT law, the judgment of 12 December 2024, Dranken Van Eetvelde (C‑331/23, EU:C:2024:1027, paragraphs 36 and 37), is based on the existing possibility of recoupment under civil law.

48      See judgments of 8 May 2019, A-PACK CZ (C‑127/18, EU:C:2019:377, paragraph 22); 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). In a similar vein, judgment of 15 October 2020, E. (VAT – Reduction of the taxable amount) (C‑335/19, EU:C:2020:829, end of paragraph 48). See also, in that regard, my Opinion in Di Maura (C‑246/16, EU:C:2017:440, point 21).

49      Judgment of 15 October 2020, E. (VAT – Reduction of the taxable amount (C‑335/19, EU:C:2020:829, paragraph 42).