EU VAT Liability After Liquidation: Vaniz EOOD Case

Joint and several liability for value-added tax occupies a delicate position within the EU VAT system. It is designed to safeguard the collection of tax revenues, yet its application inevitably interferes with fundamental principles of EU law, in particular legal certainty and proportionality. This tension becomes especially pronounced where liability is extended beyond the original taxpayer to third parties who did not themselves incur the tax debt.

In Vaniz EOOD (C-121/24), the Court of Justice of the European Union addresses this issue in a particularly sensitive context. The case concerns the question of whether joint and several VAT liability may still be imposed on a third party after the original debtor has ceased to exist as a legal entity following insolvency and liquidation. Put differently, the judgment explores whether VAT liability can survive the disappearance of the taxpayer to whom it initially attached.

Interpreting Article 205 of Directive 2006/112/EC in light of the principles of proportionality and legal certainty, the Court adopts a distinctly effectiveness-oriented approach. It confirms that the disappearance of the principal debtor does not, in itself, preclude the imposition of liability on a third party, provided that it is established that the latter knew or should have known that the VAT would not be paid.

This contribution examines the Court’s reasoning and considers its broader implications for the scope of third-party liability in EU VAT law, with particular attention to the balance between effective tax collection and the protection of taxable persons.

Facts and Background of the Dispute

Vaniz EOOD is a Bulgarian company engaged in road freight transport. During the period from July to September 2017, Vaniz acquired trucks and leased transport vehicles from another Bulgarian company, Stars International EOOD. These transactions were documented by 35 invoices, each charging Bulgarian VAT.

Stars International duly reported the VAT due on these transactions in its VAT returns. Vaniz, as the recipient of the supplies, exercised its right to deduct the input VAT in full. However, despite declaring the VAT, Stars International failed to remit the amounts due to the Bulgarian tax authorities.

In July 2019, insolvency proceedings were opened against Stars International. These proceedings were concluded in August 2020, after which the company was struck off the Bulgarian commercial register and ceased to exist as a legal person. Only in January 2022 did the Bulgarian tax authorities initiate a tax audit against Vaniz in order to assess its potential joint and several liability for the unpaid VAT. The tax authorities took the view that Vaniz knew or should have known that the VAT declared by Stars International would not be paid to the Treasury. On that basis, Vaniz was assessed for approximately BGN 217,000 in VAT, together with substantial default interest.

Vaniz challenged the assessment before the Bulgarian administrative court. Its core argument was that, since Stars International had been liquidated and removed from the register before the initiation of the liability procedure, the VAT obligation no longer existed and could therefore not be transferred to a third party.

Legal Framework

At the EU level, the central provision governing joint and several VAT liability is Article 205 of Directive 2006/112/EC. This provision allows Member States to designate a person other than the one primarily liable under Articles 193 to 204 as jointly and severally liable for the payment of VAT. However, Article 205 itself does not define the categories of persons who may be held liable, the conditions under which such liability arises, or its temporal limits. Consequently, Member States enjoy a degree of procedural autonomy in implementing this provision, subject to compliance with the general principles of EU law.

The Court’s interpretation in Vaniz builds on established case law, in particular ALTI (C-4/20), in which it was held that joint and several liability may extend beyond the unpaid VAT itself to include ancillary amounts such as interest, provided that the third party knew or should have known that the VAT would not be paid.

In exercising their discretion under Article 205, Member States must respect fundamental principles of EU law. Two principles are of particular importance in this context. First, the principle of proportionality requires that national measures do not go beyond what is necessary to ensure effective VAT collection. Second, the principle of legal certainty demands that tax rules are clear and predictable, ensuring that taxable persons are not exposed to indefinite or unforeseeable liability.

Against this background, Bulgarian law provides for a specific regime of third-party liability. Under the ZDDS, a taxable person may be held liable for VAT owed but not paid by another taxable person where the former has exercised a right of deduction while knowing, or being deemed to know, that the tax would not be remitted. Moreover, Bulgarian procedural law explicitly stipulates that the extinction of a legal person following liquidation does not extinguish public claims where third parties may still be held liable for the tax debt.

Legal Question

Against this legal background, the dispute in Vaniz centred on the temporal scope of joint and several liability. Vaniz argued that imposing liability after the disappearance of the principal debtor was incompatible with Article 205 of the VAT Directive and infringed the principles of proportionality and legal certainty. In its view, liability for another person’s tax debt presupposes the continued legal existence of that debtor.

The Bulgarian tax authorities, by contrast, maintained that VAT debts retain their public-law character irrespective of the legal fate of the debtor. Since national law expressly preserves the possibility of holding third parties liable, the disappearance of the principal debtor does not preclude the imposition of joint and several liability.

In light of these opposing positions, the referring court asked whether EU law precludes a national regime under which a person may be held jointly and severally liable for VAT after the original debtor has ceased to exist as a legal subject.

The Court’s Judgment

The Court began by recalling that joint and several liability entails that each liable person is responsible for the entire debt, allowing the creditor to seek payment from any of them. The disappearance of one debtor does not, in itself, extinguish the obligations of the others.

Accordingly, the Court held that the removal of the VAT debtor from the commercial register does not preclude the imposition of liability on a third party. The extinction of the principal debtor, therefore, has no decisive effect on the enforceability of joint and several liability.

The Court then emphasised that Article 205 of the VAT Directive forms part of a broader framework aimed at ensuring effective VAT collection. Allowing liability to lapse upon liquidation would undermine this objective and could facilitate abusive practices, such as the use of insolvency to avoid tax obligations.

As regards proportionality, the Court found that imposing liability on a third party is not excessive where it is established that the latter knew or should have known that the VAT would not be paid. In such cases, the measure is appropriate and necessary to protect the Treasury.

Finally, the Court rejected any breach of legal certainty, noting that Bulgarian law clearly provides for such liability and that it is subject to reasonable limitation periods. The Court therefore concluded that Article 205 of the VAT Directive, read in light of proportionality and legal certainty, does not preclude a national regime allowing joint and several liability to be established after the original debtor has ceased to exist.

Practical Implications

The Vaniz judgment confirms a strict, risk-oriented approach to joint and several VAT liability within the EU. Although such liability remains linked to an underlying VAT debt, the Court makes clear that its enforceability does not depend on the continued existence of the principal debtor. As a result, VAT risk may persist even after a supplier has been dissolved.

From a business perspective, this significantly limits the protective effect of a supplier’s insolvency or liquidation. Even where input VAT has been deducted in the past, a taxable person may still face liability for unpaid VAT if it is established that it knew or should have known that the tax would not be remitted. In that context, the judgment reinforces the importance of adequate VAT due diligence. While EU law does not impose a general duty to investigate trading partners, businesses are expected to respond to clear risk indicators, such as unusual pricing or commercially implausible arrangements.

At the same time, the Court reiterates that legal certainty is safeguarded through the application of reasonable limitation periods. Within those temporal boundaries, however, retrospective liability remains a real possibility. Although the case arose under Bulgarian law, the Court’s reasoning is of broader relevance and is likely to influence the application of comparable liability regimes across the EU, including in jurisdictions such as the Netherlands.

Conclusion

The judgment in Vaniz EOOD (C-121/24) marks a significant reaffirmation of the effectiveness-driven interpretation of Article 205 of the VAT Directive. The Court makes clear that joint and several VAT liability is not extinguished by the disappearance of the main debtor and that third parties who knowingly participate in transactions linked to unpaid VAT may be pursued long after the original supplier has ceased to exist.

For taxable persons, the message is unequivocal. The end of a supplier does not mean the end of VAT risk. Legal certainty is protected through clarity of legislation and reasonable time limits, not through immunity following liquidation. In an environment of increasing scrutiny and enforcement, proactive compliance and robust supplier checks remain the most effective defence.

Source: C‑121/24 - Vaniz v Director of the ‘Appeals and Tax/Social Insurance Practice’ Directorate