Removal from the VAT Register for Persistent Breach of Tax Obligations – position of the European Court of Justice

The removal of a Taxpayer from the VAT register results in serious consequences not only for the Taxpayers themselves but also for the Buyers of goods and service Recipients. Therefore, it is necessary to consider whether it is sufficient for the Tax Authorities merely to state that the Taxpayer does not meet the conditions required to hold the VAT Taxpayer status in order to remove them from the VAT Register.

The Court of Justice of the European Union (CJEU) addressed this issue in its judgment published as of 3^rd April 2025 in Case C-164/24, emphasizing that EU Law opposes national legislation which allows the competent Tax Authority to remove a Taxpayer from the VAT Register due to breaches of VAT obligations without examining the nature of the infringements and the behavior of the Taxpayer concerned.

Case Background

“Citylad”, a Bulgarian commercial Company registered for the VAT in Bulgaria, operated in the construction sector. Following a tax inspection, the Bulgarian Tax Authorities decided to remove the Company from the VAT register. The decision was justified by the Company’s repeated failure to comply with the national tax obligations: namely non-payment of the declared and due VAT for a total of five settlement periods. The decision was upheld by the second instance Authority. Eventually, the matter reached an Administrative Court, which questioned the compatibility of the national legislation permitting the removal from the VAT Register with the EU Law, arguing that the VAT Directive does not provide for the exclusion of a Taxpayer from the VAT system.

CJEU’s Position

In its judgment published as of 3^rd April 2025, the CJEU ruled that “Article 213(1), first subparagraph, and Article 273 of the VAT Directive, as well as the principles of legal certainty and proportionality, must be interpreted as precluding national provisions which – as interpreted by national Tax Authorities and Courts – allow the competent Tax Authority to remove a Taxpayer from the VAT Register on the grounds that Taxpayer has failed to comply with the respective VAT obligations, without assessing the nature of the infringements and the behavior of the Taxpayer concerned.”

The Court pointed out that the removal from the VAT Register under national provisions, applied to Taxpayers who have breached the tax obligations without assessing the nature of the infringements, constitutes a sanction that is overly severe and incompatible with the principles of proportionality and legal certainty.

It should be stressed that the principle of proportionality requires that measures taken by a Member State must be appropriate and necessary to achieve the intended objective, without going beyond what is needed. According to the established case law, removal from the VAT Register without verification of the Taxpayer’s behavior cannot be considered as consistent with this principle. Without examining the nature and extent of any potential tax fraud, it is impossible to assess whether the imposed sanction is appropriate for ensuring VAT collection and combating fraud in this area.

The principle of legal certainty, according to established case law, aims to guarantee predictability of legal situations and relationships. In particular, it requires that the Taxpayer’s legal position with respect to their rights and obligations towards the Tax Authorities cannot be indefinitely questioned. Therefore, a sanction consisting of the removal of a Taxpayer from the VAT Register without a formal prohibition on carrying out taxable activities may lead to the permanent and recurring deterioration of the taxpayer’s situation, as well as that of purchasers of goods and service recipients.

Commentary

Although the judgment in question concerns Bulgarian legislation, it should serve as the guidance for Polish Tax Authorities when making decisions whether to remove a Taxpayer from the Register of active VAT taxpayers. The CJEU emphasizes the essential need for an individual assessment of the Taxpayer’s situation by the Tax Authorities. All decisions, including removal from the VAT register, should be based solely on reliable, objective, and lawfully obtained evidences. Each and every decision must be carefully justified, both legally and factually. Automatic removal of a Taxpayer based only on non-exhaustive analysis may further result in a numerous and severe tax consequences.