Antonio Merino, Head of VAT at BakerMcKenzie Luxembourg. Photo: Baker McKenzie Luxembourg

Antonio Merino, Head of VAT at BakerMcKenzie Luxembourg. Photo: Baker McKenzie Luxembourg

The principle of proportionality cannot be invoked by a taxable person involved in a case of tax fraud to avoid paying the VAT for which another taxable person would normally be liable. However, a national provision providing for the joint and several liability of a taxable person without fault remains applicable insofar as the taxable person is in a position to demonstrate that he has taken all reasonable steps to ensure that the transactions in which he participated did not contribute to a fraud scheme.

CJEU ruling on VAT joint and several liability

In the Dranken Van Eetvelde NV judgment (C-331/23) handed down on 12 December 2024, the Court of Justice of the European Union (hereinafter, "CJEU") clarified, among other things, that Member States have the option of imposing a joint and several obligation to pay VAT in full on a taxable person other than the one liable for the tax in the first place, provided that the taxable person has been able to prove that he has taken all measures that can reasonably be required of him to ensure that he has not actively participated in fraud.

The provisions of the VAT Directive

Article 205 of the VAT Directive authorises Member States to impose joint and several liability for the payment of VAT on a person other than the person liable for payment in certain cases, including construction work, the supply of mobile phones and the transfer of greenhouse gas emission allowances. As the concept of joint and several liability for payment of the tax is not defined by the VAT Directive, it must be interpreted as a guarantee of recovery, on a subsidiary basis, of the tax due by the party liable for payment when the latter fails to fulfil this obligation.

Joint and several liability under Luxembourg law

What is the situation in Luxembourg? Luxembourg VAT law also provides for a measure to ensure that VAT is paid, since "any person who is party to the taxable transaction, with the exception of the non-taxable end consumer, is jointly and severally liable to pay the tax to the State with the person who is the debtor". This measure is in line with the general principle established in registration matters for the payment of duties due on deeds submitted for formality. However, this joint and several liability is waived when it is proven that all or part of the price and the related VAT have been paid in good faith.

Special cases and exclusions

Limiting the joint and several liability of another taxable person for VAT is tantamount to attempting to restrict a complex and ubiquitous mechanism in tax relations. This mechanism is designed to guarantee the recovery of tax in the event of default by a principal taxpayer, but its implementation remains delicate. Attempts to limit it often come up against the need to protect the tax interests of Member States.

Among the cases in which joint and several liability could be activated in Luxembourg for the payment of VAT is that of the authorised trader when goods leave a customs warehouse or are placed under a VAT warehouse regime and the conditions laid down are not complied with. Members of the VAT group are also jointly and severally liable for transactions relating to the period during which they are members of the group. Lastly, there is also the liability of managing directors, managers and any de iure or de facto manager involved in day-to-day management when they failed in the performance of their duties.

Tax fines and indirect taxes

With regard to tax fines, it should be noted that the taxable person's co-contractor is jointly and severally liable for payment of the fine if it is established that he participated in the inaccurate statement in the invoices.

It should be remembered that the amended General Tax Law of 22 May 1931 ("Abgabenordnung") is not applicable to indirect taxes such as VAT, according to the consistent case law of the Luxembourg courts. Consequently, the liability referred to in the general tax law cannot be invoked by the Administration de l'Enregistrement, des Domaines et de la TVA.

For further information and assistance, please , Head of VAT at the law firm .

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