© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
T2. Joint and several liability
POWER TO MAKE PERSONS JOINTLY AND SEVERALLY LIABLE​
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Power (Article 205)​
"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." (Article 205)
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- Purpose: efficient collection of VAT from the most appropriate person in the specific situation
"[26] The provisions of Section 1 of Chapter 1 of Title XI of the VAT Directive, which include Article 205 of that directive, are aimed at identifying the person liable for payment of VAT in various situations. In so doing, the purpose of those provisions is to ensure for the public exchequer the efficient collection of VAT from the most appropriate person in the light of the specific situation (judgments of 20 May 2021, ALTI, C‑4/20, EU:C:2021:397, paragraph 28, and of 12 December 2024, Dranken Van Eetvelde, C‑331/23, EU:C:2024:1027, paragraph 20).​" (Konreo C-276/24)
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Which liabilities​
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- Must relate to particular supplies rather than a VAT liability in general
"[38] In principle, therefore, Article 205 of the VAT Directive allows Member States to adopt, for the efficient collection of VAT, measures pursuant to which a person other than the person normally liable for that tax under Articles 193 to 200 and 202 to 204 of that directive is jointly and severally liable for payment of that tax (judgment of 13 October 2022, Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’, C‑1/21, EU:C:2022:788, paragraph 50 and the case-law cited).
[39] In the present case, it is not apparent from the request for a preliminary ruling that the system of joint and several liability provided for in Poland in Article 116 of the Tax Code is intended to designate a person liable for payment of the tax on one or more specific taxable transactions, within the meaning of Articles 193 and 205 of the VAT Directive, read together. Under that system, the members or former members of the management board of a company may, under certain conditions, be regarded as jointly and severally liable for all or part of the VAT debts of that company, without those debts being related to one or more specific taxable transactions.
[40] Consequently, it does not appear that Article 205 of the VAT Directive is applicable in the circumstances of the dispute in the main proceedings (see, to that effect and by analogy, judgment of 13 October 2022, Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’, C‑1/21, EU:C:2022:788, paragraphs 51, 52 and 54)." (MB C-277/24)
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Persons who may be made jointly liable​
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- For Member State to decide
"[28] However, since Article 205 of Directive 2006/112 specifies neither the persons that Member States may designate as joint and several debtors nor the situations in which such designation may be made, it is for the Member States to determine the conditions and arrangements under which the joint and several liability provided for in that article will be incurred in compliance, in particular, with the principles of legal certainty and of proportionality (judgments of 20 May 2021, ALTI, C‑4/20, EU:C:2021:397, paragraphs 31 and 32, and of 12 December 2024, Dranken Van Eetvelde, C‑331/23, EU:C:2024:1027, paragraph 22)." (Konreo C-276/24)
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- Must be justified by the factual and/or legal relationship between the persons concerned
"[30] In that context, exercise of the power conferred on Member States 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. It is for Member States to specify the particular circumstances in which a person such as the recipient of a taxable supply is to be held jointly and severally liable for payment of the tax owed by the other party to the contract (judgments of 20 May 2021, ALTI, C‑4/20, EU:C:2021:397, paragraph 34, and of 12 December 2024, Dranken Van Eetvelde, C‑331/23, EU:C:2024:1027, paragraph 24)." (Konreo C-276/24)
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- Justified where recipient of supply knew/ought to have known of connection to fraud
"[32] The Court has thus ruled that Article 205 of the VAT Directive allows a Member State to hold a person jointly and severally liable for payment of VAT where, at the time he, she or it receives the supply, that person knew or ought to have known that the tax payable in respect of that supply, or of any previous or subsequent supply, would go unpaid, and to rely on presumptions in that regard, provided that such presumptions are not formulated in such a way as to make it practically impossible or excessively difficult for the taxable person to rebut them with evidence to the contrary, thereby creating a system of strict liability going beyond what is necessary to preserve the public exchequer’s rights. 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 (judgments of 20 May 2021, ALTI, C‑4/20, EU:C:2021:397, paragraph 36, and of 12 December 2024, Dranken Van Eetvelde, C‑331/23, EU:C:2024:1027, paragraph 26)." (Konreo C-276/24)
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- Recipient of supply may be made jointly liable for supplier's output tax and denied input recovery
"[53] Having regard to all of the foregoing considerations, the answer to the question referred is that Article 205 of the VAT Directive, read in the light of the principle of proportionality, must be interpreted as not precluding a national practice which imposes on a taxable person, recipient of a supply of goods for consideration, a joint and several obligation to pay the VAT due from the supplier of those goods, even though the recipient of that supply of goods was refused the right to deduct the input VAT due or paid on the ground that he, she or it knew or ought to have known that he, she or it was participating in VAT evasion."​
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- Person who paid invoice containing VAT to supplier may still be made jointly liable
"[49] It should be noted, in that regard, that the tax authorities may designate, as jointly and severally liable under Article 205 of the VAT Directive, a taxable person who has already paid VAT by paying the price of the transaction which is subject to VAT (see, to that effect, judgment of 20 May 2021, ALTI, C‑4/20, EU:C:2021:397, paragraph 34). Accordingly, the designation of a person, other than the taxable person normally liable for the tax, as being jointly and severally liable for payment of that tax, under that article, does not depend on whether that person has paid the VAT invoiced to him, her or it by that taxable person and, consequently, is not dependent on whether or not that person has obtained the right to deduct VAT." ​(Konreo C-276/24)
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Effect​
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- May not be used to impose a separate tax liability
"[39] However, the situation in the main proceedings does not correspond to any of those cases. In that regard, it should be noted that, contrary to the submissions of the Netherlands Government, the option of providing that a person, other than the taxable person, is to be held jointly and severally liable for payment of the tax, accorded to the Member States by that provision, cannot be interpreted as allowing them to impose a separate tax liability payable by that person." (Pactor Vastgoed C-622/11)
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- Person held liable should have possibility of recourse against person otherwise liable
"[37] It should be added that, as stated, in essence, by the Czech Government, the application of such joint and several liability is without prejudice to the possible application of the national civil law rules governing the relationship between the person held jointly and severally liable for payment of VAT, and the taxable person normally liable for that tax. The referring court confirms, in that regard, that Czech law provides that, if the tax due from the taxable person is paid by the person held jointly and severally liable for it, he, she or it may bring a recourse claim against the taxable person. (Konreo C-276/24)
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- Joint liability not dependent on whether recourse likely to be possible
"[38] In that regard, in the light of the material in the file before the Court, from which it is apparent that Verami, the person liable for the tax, is the subject of insolvency proceedings, it should be noted that the decision of the tax authorities to apply the mechanism of joint and several liability, under the national provision transposing Article 205 of the VAT Directive, cannot depend on the chances of success of the recourse claim which could be brought by the person held jointly and severally liable. Otherwise, the application of that mechanism could be rendered difficult to such an extent as to undermine the efficient collection of VAT, since the tax authorities would be required to assess at the outset whether the taxable person whom they intend to designate as jointly and severally liable will obtain a refund of the amount of tax paid instead of the taxable person." (Konreo C-276/24)
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POWER TO TAKE MEASURES TO ENSURE CORRECT COLLECTION​
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- Joint and several liability system helps ensure correct collection
"[49] A system of joint and several liability such as that established by Article 116 of the Tax Code contributes to the collection of amounts of VAT which have not been paid by a taxable legal person within the mandatory time limits laid down by the VAT Directive. That system helps therefore to ensure the correct collection of VAT within the meaning of Article 273 of that directive, in accordance with the obligation laid down in Article 325(1) TFEU (see, to that effect and by analogy, judgment of 13 October 2022, Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’, C‑1/21, EU:C:2022:788, paragraph 61).
[50] It follows from the case-law 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. Article 273 therefore gives the Member States a margin of discretion with regard to the means of attaining the objectives of ensuring the collection of all the VAT and for preventing tax evasion. Nevertheless, the Member States must exercise that power in accordance with EU law and its general principles (see, to that effect, judgment of 13 October 2022, Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’, C‑1/21, EU:C:2022:788, paragraphs 69 and 72)." (MB C-277/24)
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- Imposing system of strict joint and several liability disproportionate
"[61] In that regard, according to case-law, national measures which bring about a system of strict joint and several liability go beyond what is necessary to preserve the public exchequer’s rights. 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, therefore, be considered contrary to the principle of proportionality. 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 (judgment of 14 November 2024, Herdijk, C‑613/23, EU:C:2024:961, paragraph 25 and the case-law cited)." (PK C-278/24)
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- Must be justified by factual/legal relationship between the two persons
"[62] Accordingly, 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 (judgment of 14 November 2024, Herdijk, C‑613/23, EU:C:2024:961, paragraph 26 and the case-law cited)." (PK C-278/24)
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- Fault may take a variety of forms
"In that regard, it should be noted that fault may take different forms, including a lack of due care or supervisory negligence. In addition, it seems possible to infer from a company’s failure to discharge a tax debt that a member or former member of the board of directors of that company has failed to fulfil his or her duty of care in the management of that company’s affairs and that that failure to discharge the tax debt is the consequence thereof. Accordingly, the joint and several liability of that member or former member appears to result not from a fortuitous event over which he or she has no control, but from his or her actions or omissions." (PK C-278/24)
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- Must take into account good faith and due diligence
"[63] The fact that a person other than the person liable to pay the tax acted in good faith, exhibiting all the due diligence of a circumspect trader, that he or she took every reasonable measure in his or her power and that his or her participation in abuse or fraud is excluded are points to be taken into account in deciding whether that person can be obliged to account for the VAT owed (judgment of 14 November 2024, Herdijk, C‑613/23, EU:C:2024:961, paragraph 27 and the case-law cited)." (PK C-278/24)
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- Presumption of director's knowledge and influence over activities not disproportionate
"[67] In that regard, as is apparent from the order for reference, one of the positive conditions for a member or former member of the board of directors of a company to incur joint and several liability for the tax debt of that company is that such a debt arose during the period in which that member or former member performed a management function within that company.
[68] It follows that, as can be seen from the case file before the Court, Polish law provides, in essence, for a presumption that a member of the board of directors of a company has, or should have, both direct knowledge of and influence over the activities of that company.
[69] Such a presumption does not appear, in itself, to be contrary to the principle of proportionality. It does not appear to establish strict liability." (PK C-278/24)
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- Presumption must be rebuttable
"[71] However, it is essential that a presumption such as that at issue in the main proceedings be rebuttable, in the sense that it is not practically impossible or excessively difficult for that member or former member to rebut that presumption with evidence to the contrary (see, to that effect, judgment of 14 November 2024, Herdijk, C‑613/23, EU:C:2024:961, paragraphs 33 and 41; see also, to that effect and by analogy, judgment of 12 December 2024, Dranken Van Eetvelde, C‑331/23, EU:C:2024:1027, paragraph 31)." (PK C-278/24)
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- Possibility of rebutting presumption must not be purely theoretical
"[75] In that regard, a member or former member of the board of directors of a company with a VAT debt must be able to rely on any circumstance capable of establishing that the failure to file an application for a declaration of insolvency in due time is not due to fault on his or her part. The possibility of such a demonstration should not be purely theoretical owing to an unduly broad interpretation of the concept of ‘attributability’ by the national authorities or courts (see, to that effect, judgment of 14 November 2024, Herdijk, C‑613/23, EU:C:2024:961, paragraph 36).
[76] In the present case, as can be seen from paragraph 28 of the present judgment, the referring court states that fault may be intentional or unintentional.
[77] However, it specifies that there is no fault if the member or former member of the board of directors of the company concerned shows that, while exercising due diligence in the conduct of his or her affairs, he or she did not file an application for a declaration of insolvency for reasons beyond his or her control.
[78] Therefore, it does not appear that the exemption provided for in Article 116(1)(1) of the Tax Code is purely theoretical.
[79] It follows that the principle of proportionality does not preclude a system such as that provided for in that provision." (PK C-278/24)
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