Knowledge of Tax Non-Payment Is Insufficient: A Watershed Opinion from the CJEU Advocate General on VAT Liability
On September 4, 2025, Advocate General Juliane Kokott issued her opinion in Case C-121/24, which may fundamentally reshape the application of joint and several liability in VAT enforcement across the European Union. The opinion addresses one of the most contentious issues in contemporary tax law: the boundaries of liability for third-party tax obligations and the proper balance between effective revenue collection and the protection of compliant taxpayers. The case involving Bulgarian company Vaniz EOOD presents the Court of Justice with three fundamental questions: whether joint and several liability may be established when the primary obligor has ceased to exist as a legal entity; whether a tax obligation of a deregistered entity may survive its dissolution and burden a third party; and whether such a practice comports with the principle of legal certainty. Significantly, Advocate General Kokott proposes an interpretation that may necessitate substantial revision of joint liability enforcement practices not only in Bulgaria, but also in Poland and other Member States.
Transformative Opinion on Fundamental Questions of Tax Liability
The factual matrix is relatively straightforward, rendering it an ideal vehicle for resolving fundamental legal questions. Vaniz, a Bulgarian transport company, purchased vehicles and services from Stars International in 2017. All invoices were paid on time, and Vaniz properly deducted the input VAT. The difficulty arose subsequently when it emerged that the supplier, while having duly declared the tax in its periodic returns, failed to remit it to the tax authority. In 2019, Stars International entered insolvency proceedings, and in 2020 was struck from the register. Only two years later, in 2022, did the Bulgarian tax authorities determine to impose joint and several liability on Vaniz for tax unpaid by its now-defunct counterparty. The Administrative Court in Veliko Tarnovo, reviewing Vaniz’s appeal, deemed the situation sufficiently problematic under EU law to stay proceedings and refer preliminary questions to the CJEU.
The Critical Distinction: Non-Payment Versus Fraud
Advocate General Kokott’s opinion transcends mere statutory analysis and reaches to the foundational principles underlying joint and several liability in tax law. The central thesis rests on a distinction between non-payment of properly declared tax and tax fraud – a distinction with profound practical implications that forms the core of her entire analysis.
When a business files a proper VAT return, the tax authority knows precisely what tax is owed and may pursue enforcement measures against the appropriate debtor. This scenario differs fundamentally from deliberate concealment of obligations or manipulation of declarations to perpetrate VAT fraud. The Advocate General invokes the Grand Chamber’s judgment in Scialdone (C-574/15), wherein the Court expressly held that failure to remit VAT that has been properly declared does not carry the same weight as tax fraud. Where a taxpayer has properly discharged its declaration obligations, the tax authority possesses at that moment the information necessary to determine the amount of VAT due and ascertain any non-payment.
The Advocate General proceeds further, explaining that a purchaser’s mere awareness of a counterparty’s financial difficulties, or even knowledge that the tax will likely remain unpaid, cannot automatically give rise to joint and several liability. Consistent with the Court‘s jurisprudence, such liability requires demonstrating that the purchaser knew or should have known that through its transaction it was participating in fraud committed by its counterparty, or that it committed abuse itself. Yet in the Vaniz matter, the tax authorities predicated their decision solely on the presumption that because the supplier ultimately failed to remit the tax, the purchaser “should have known” of the future non-payment.
Accessoriness as an Inherent Feature of Joint and Several Liability
The opinion also develops the concept of accessoriness – the dependent nature of joint and several liability – which bears fundamental significance for the case’s resolution. In classical civil law, joint and several obligors may pursue recourse claims among themselves, ensuring systemic equilibrium. The tax law context presents greater complexity, as third-party liability derives from the existence of the primary obligor’s underlying obligation. If that obligor no longer exists, a legal paradox emerges: the third party would be liable for a debt that the original debtor can no longer satisfy, having ceased to exist as a legal person. Moreover, the third party cannot pursue recourse, as there is no entity from which to recover.
Advocate General Kokott emphasizes that the concept of “joint and several” liability within the meaning of Article 205 of the VAT Directive requires that at the moment liability is established, at least two persons must be jointly obligated to pay the tax. Were the person actually obligated to pay the tax previously struck from the register, only one person would be obligated to pay instead of the original obligor. Consequently, this would not constitute joint and several liability, but rather a subsequent transfer of the tax obligation from the person actually liable to a third party.
Such transfer of tax obligations is exhaustively regulated in Articles 196 et seq. of the VAT Directive and encompasses only certain constellations not present in Vaniz. Furthermore, transfer of tax obligations invariably presupposes that the obligation was established and known before the transaction occurred – that is, before payment for the reciprocal performance. Only in this manner, in the case of an effectively indirect tax, can the recipient of the performance account for this transfer of tax obligation within the remuneration payment and adjust its pricing calculations accordingly.
The Proportionality Requirement and Grounds for Liability
Advocate General Kokott also analyzes in detail the proportionality of such liability in the context of fundamental EU law principles. She posits that unconditionally attributing to a third party liability for actions over which it exercised no control violates the principle of proportionality. Article 205 of the VAT Directive requires a justified basis for liability before liability for third-party tax obligations may arise. Participation in fraud or one’s own abuse may constitute such a basis; however, knowledge of the counterparty’s possible future non-performance of properly declared tax obligations proves insufficient.
The opinion underscores that the circumstance that the counterparty failed to apply the payment received toward satisfaction of the arising VAT obligation does not sufficiently justify joint and several liability. This constitutes a risk inherently associated with the indirect tax system and consciously accepted by the EU legislature. The paying counterparty typically exercises no control over the other party’s conduct. As the Advocate General notes, unconditionally attributing to this person the loss of tax revenue caused by third parties’ actions over which the taxpayer exercises no control would manifestly be disproportionate.
The situation may differ only when the purchaser may be charged with abuse through deliberate exploitation of the counterparty’s insolvency. Vaniz might deliberately exploit the counterparty’s bankruptcy to enrich itself through input tax deduction while harming tax revenues through the supplier’s insolvency – for instance, where capital or personal connections exist between the counterparties. However, the reference for a preliminary ruling discloses no such proximity or collusion between the parties in the Vaniz matter.
The Polish Context: Article 105a of the VAT Act
The Polish legal system provides for an analogous joint and several liability institution in Article 105a of the VAT Act. Under this provision, a taxpayer to whom goods listed in Annex 15 to the Act were supplied bears joint and several liability with the supplier for the supplier’s tax arrears if the taxpayer knew or had reasonable grounds to believe that all or part of the tax attributable to the supply would not be paid to the tax office. The construction of this provision thus resembles Bulgarian Article 177 ZDDS at issue in Vaniz.
The critical difference lies in the manner of interpretation and application. The Polish legislature introduced in paragraph two of Article 105a a catalogue of circumstances giving rise to a presumption of knowledge of future tax non-payment. These concern primarily situations where the circumstances attending the supply of goods or the conditions under which it occurred departed from the circumstances or conditions customarily prevailing in trade of such goods, particularly where the price for the delivered goods was, without economic justification, lower than their market value. This constitutes an objective criterion that, in the legislature’s design, was intended to facilitate the tax authorities’ application of the provision.
In Polish tax authority practice, one observes a tendency toward expansive interpretation of this provision. It frequently suffices that the price fell below the market average or that the counterparty experienced financial difficulties known to the authorities to attribute joint and several liability to the purchaser. Tax authorities often employ a reasoning schema whereby a divergent price automatically signifies that the taxpayer “should have known” of future problems with tax payment by the counterparty. Yet Advocate General Kokott’s opinion makes clear that such automaticity proves irreconcilable with EU law.
The opinion expressly indicates that mere predictability of the counterparty’s payment difficulties proves insufficient to attribute joint and several liability. Demonstration is required that the purchaser actually participated in a scheme aimed at VAT fraud or at minimum should have known thereof based on the specific circumstances of the case. This represents a fundamental difference in evidentiary standards. It does not suffice, therefore, for the tax authority to demonstrate that objective circumstances suggested the supplier’s financial problems existed. Proof must be adduced of specific circumstances indicating the purchaser’s participation in a scheme designed to perpetrate VAT fraud or at minimum deliberate exploitation of the counterparty’s situation in a manner constituting abuse.
The Polish system provides several protective mechanisms against joint and several liability that assume particular significance in light of the Advocate General’s opinion. Joint and several liability does not apply to transactions at fuel stations for standard vehicle tanks, to payments employing the split payment mechanism, or where the arising arrears were not connected with the supplier’s dishonest tax settlement aimed at obtaining financial advantage. This last exclusion proves particularly significant, as it suggests that the Polish legislature recognizes the difference between ordinary non-payment and deliberate fraud. In practice, however, tax authorities rarely find this exclusion applicable, adopting an expansive definition of “dishonest settlement”.
The White List of VAT Taxpayers as a Verification Tool
Since September 1, 2019, Poland has operated an additional mechanism related to joint and several liability, introduced by Article 96b of the VAT Act. The Head of the National Revenue Administration maintains an electronic register of VAT taxpayers, popularly termed the White List, containing data on registered active and exempt VAT taxpayers as well as entities struck from the register. Significantly, the register also contains taxpayers’ settlement account numbers indicated in their identification or updating notifications and confirmed through the clearing house teleinformation system.
The White List serves taxpayers in verifying their counterparties and constitutes a practical instrument for discharging due diligence obligations. From January 1, 2020, Article 117ba of the Tax Ordinance additionally provides that a taxpayer bears joint and several liability for its counterparty’s tax arrears if payment of the consideration for the supply of goods or provision of services was effected by transfer to an account other than that contained on the day the transfer was ordered in the taxpayer register, where separate provisions impose an obligation to effect payment through a payment account. This liability applies to invoices in which the total amount due exceeds PLN 15,000 or its foreign currency equivalent.
This mechanism differs materially from Article 105a liability, as it rests on the objective circumstance of improper payment rather than subjective knowledge of the counterparty’s future tax non-payment. A taxpayer may avoid this liability if within three days of ordering the transfer it notifies the head of the tax office competent for the supplier of payment to an account other than that indicated on the White List, or if it effected payment using the split payment mechanism. This mechanism was designed in a more formalized and predictable manner than Article 105a liability.
In the context of Advocate General Kokott’s opinion, one should observe that the Polish joint and several liability system operates on a dual track. On one hand exists liability predicated on knowledge or reasonable grounds to believe tax will not be paid (Article 105a); on the other, liability grounded in the objective circumstance of improper payment (Article 117ba of the Tax Ordinance). The Advocate General’s opinion directly concerns the first type of liability, yet also influences the second, as it emphasizes the necessity of a justified basis for liability and the proportionality requirement.
Implications for Polish Legal Practice
Should the Court of Justice embrace the Advocate General’s position, Polish application of Article 105a of the VAT Act must undergo substantial modification. Attribution of liability solely on the basis of objective circumstances – such as prices diverging from market rates or the supplier’s financial difficulties known from publicly available sources – will no longer prove permissible. Tax authorities must demonstrate that the purchaser actually participated in a scheme designed to perpetrate VAT fraud or at minimum should have known thereof based on the case’s specific circumstances.
This signifies heightened evidentiary standards for tax authorities and greater protection for compliant businesses. It proves insufficient for the authority to indicate that with due diligence the purchaser could have predicted the counterparty’s financial difficulties. Proof must be adduced of specific circumstances indicating participation in fraud. These might include, for example, repeated transactions with entities that systematically fail to remit taxes, disregard of obvious warning signals indicating the transaction’s fictitious character, deliberate transaction structuring to impede oversight, or capital or personal connections between counterparties suggesting collusion.
Simultaneously, the Advocate General’s opinion does not signify complete impunity for dishonest businesses. Where the purchaser genuinely exploits the counterparty’s insolvency – for instance, through capital or personal connections enabling control of its operations – joint and several liability will prove fully justified. The shift concerns moving from automatic liability based on objective presumptions to liability for genuine abuse or knowing participation in fraud. This represents a more balanced approach that better protects the equilibrium between effective tax collection and commercial security.
The resolution of liability for obligations of already-defunct taxpayers will assume particularly significant importance. The Advocate General’s opinion makes clear that accessory joint and several liability obligations require the existence of both the tax obligation and the person obligated to pay the tax at the moment joint and several liability is established. Where the tax obligation expires through liquidation of the person obligated to pay tax without a legal successor, this equally affects the liability obligation. This thesis may carry far-reaching consequences for Polish practice, where tax authorities occasionally attempt to attribute joint and several liability even after the supplier’s deregistration.
The opinion also merits attention for emphasizing the significance of the person subjected to joint and several liability being able to pursue recourse against the primary obligor. This constitutes a structural element of joint and several liability ensuring its proportionality and fairness. Where the primary obligor has ceased to exist, recourse becomes impossible, further militating against attributing liability in such circumstances. While the Polish legal system does not unequivocally regulate recourse among joint and several obligors in tax law, the CJEU judgment in Vaniz may contribute to clarifying this problematic.
Balancing Fisc and Commercial Certainty
Case C-121/24 presents European tax law with the fundamental question of proper equilibrium between protecting state fiscal interests and securing commercial transactions. The VAT system, predicated on self-assessment and trust in taxpayers, proves inherently vulnerable to abuse. Joint and several liability constitutes one instrument for counteracting such abuses and ensuring effective tax collection. The difficulty arises when this instrument receives overly broad application, transferring to honest businesses the risk of their counterparties’ insolvency over which they exercise no control.
Advocate General Kokott’s opinion proposes a more balanced approach. Joint and several liability should be imposed on those who genuinely participate in or facilitate fraud, not on all who suffered the misfortune of encountering an insolvent counterparty. This approach demands greater effort from tax authorities in evidence gathering and analysis, yet better protects honest businesses and preserves legal system proportionality. The objective is not to weaken the fight against VAT fraud, but rather to properly target that fight toward the genuine perpetrators of abuse.
One should emphasize that Advocate General Kokott does not challenge the institution of joint and several liability per se. She acknowledges that Article 205 of the VAT Directive authorizes Member States to provide for such liability. The problem lies in the conditions of its application. Critical are the existence of a justified basis for liability and observance of proportionality. Member States retain discretion in designing anti-fraud mechanisms, yet must respect fundamental EU law principles.
The ultimate CJEU judgment in Vaniz will carry significance transcending the particular Bulgarian case. For Poland it may signify the need to alter not so much Article 105a’s text itself as primarily its interpretation and application by tax authorities and administrative courts. This provision must be construed in light of principles deriving from EU law, with particular emphasis on the requirement of demonstrating fraud or abuse rather than merely objective circumstances suggesting the possibility of the counterparty’s financial difficulties.
This presents an opportunity for a more equitable system, where liability is incurred for genuine misconduct or knowing participation in abuses rather than for ordinary business risk associated with counterparty selection. Simultaneously it challenges tax authorities, which must elevate the standards of their proceedings and evidence collection. Effective combat of VAT fraud demands precise identification of abuse perpetrators, not broad casting of a liability net that may ensnare honest businesses as well. Advocate General Kokott’s opinion indicates the proper direction for this evolution, leaving ultimate resolution to the Court of Justice.
Founder and Managing Partner of Skarbiec Law Firm, recognized by Dziennik Gazeta Prawna as one of the best tax advisory firms in Poland (2023, 2024). Legal advisor with 19 years of experience, serving Forbes-listed entrepreneurs and innovative start-ups. One of the most frequently quoted experts on commercial and tax law in the Polish media, regularly publishing in Rzeczpospolita, Gazeta Wyborcza, and Dziennik Gazeta Prawna. Author of the publication “AI Decoding Satoshi Nakamoto. Artificial Intelligence on the Trail of Bitcoin’s Creator” and co-author of the award-winning book “Bezpieczeństwo współczesnej firmy” (Security of a Modern Company). LinkedIn profile: 18 500 followers, 4 million views per year. Awards: 4-time winner of the European Medal, Golden Statuette of the Polish Business Leader, title of “International Tax Planning Law Firm of the Year in Poland.” He specializes in strategic legal consulting, tax planning, and crisis management for business.
