Joint VAT liability for a third party – ECJ Bulgarian case ruling Vaniz (C-121/24)

In VAT jurisdictions throughout the EU, a supplier who fails to pay the VAT collected on his taxable supplies may create a financial risk for VAT authorities. Some Member States counter this potential loss of revenue through domestic legislation which allows that the liability to pay VAT be extended to customers or other intermediaries involved in the sales chain, where the supplier does not pay. In the case of Vaniz EOOD (“Vaniz”), the Bulgarian VAT Authorities asked the ECJ whether their national legislation is compatible with EU VAT law, where the supplier has become insolvent and has been removed from the commercial register, meaning that the VAT can no longer be paid by him.

Background of the Case

Vaniz, a Bulgarian road transport company, purchased goods and services (trucks and vehicle rentals) from another Bulgarian company, Stars International EOOD, during 2017 and received invoices that included Bulgarian VAT. Vaniz paid the invoices and deducted the incurred input VAT in his VAT return. However, during a subsequent tax audit, the Bulgarian tax authorities established that although Stars International had reported the output VAT due in its returns, it had not actually paid it. Stars International later entered insolvency proceedings and was removed from the Bulgarian commercial register (it ceased to exist as a legal entity).

In 2022, the Bulgarian tax authorities initiated proceedings against Vaniz to make the company jointly and severally liable for the VAT debt that Stars had failed to pay, and assessed Vaniz for both VAT and penalties. Bulgarian VAT legislation would allow this where the recipient of goods or services knew or should have known that the supplier would not pay the VAT, and nevertheless claimed input VAT deduction.

Vaniz contested the assessment, arguing that the liability could not be imposed because the supplier no longer existed at the time the VAT debt recovery proceedings were initiated. It claimed that EU law should prevent imposing retrospective joint liability under these circumstances. The Bulgarian administrative court referred questions to the ECJ for a preliminary ruling on the interpretation of EU VAT rules and key legal principles.

Relevant EU Legislation and Legal Framework

The Vaniz case primarily focused on Article 205 of the EU VAT Directive 2006/112/EC, which expressly allows Member States, in specific circumstances described in the Directive, to hold a person other than the principal debtor jointly and severally liable for VAT payments. Recital 44 of the EU VAT Directive supports this Article by stating that Member States should be able to provide such joint liability in VAT law.

Key aspects of the legislative framework were:

• Article 193 of the VAT Directive: Establishes that VAT is payable by any taxable person carrying out a taxable supply, except in specific cases where liability is shifted.
• Article 205 VAT Directive: This provision allows Member States, at their discretion, to extend liability for VAT to persons other than the principal debtor in cases of unpaid VAT arising from supplies of goods or services.
• Principles of Legal Certainty and Proportionality: Even where the Directive authorises the introduction of joint liability, such measures must comply with the general principles of EU law. The principle of legal certainty requires that taxpayers be able to predict, with reasonable clarity, the legal consequences of their actions under the applicable VAT rules. The principle of proportionality, in turn, requires that any extension of liability be limited to what is appropriate and necessary to attain a legitimate objective.

 Outcome of the Case

In its judgment of 11^th December 2025, the ECJ held that the mere fact that the taxable person who failed to pay the VAT (i.e., the supplier) ceased to exist as a legal entity does not, by itself, prevent a Member State from seeking to enforce joint and several liability against a third party who has been made liable for that unpaid VAT under national law. In other words, the liability does not automatically cease to exist just because the supplier has gone into insolvency.

The EU VAT Directive (in particular Article 205 and Recital 44) permits Member States to introduce such joint liability and in that respect, the Bulgarian practice was not, as such, incompatible with EU law.

The Court nevertheless emphasised that the imposition of such liability must be compliant with the general principles of EU law. In particular, the taxable person must have been in a position, at the time of the transaction, to reasonably foresee that they could be held liable for unpaid VAT at a later stage, in accordance with the principle of legal certainty.

Moreover, any extension of liability must comply with the principle of proportionality. The referring court asked whether Member States could still enforce such liability after the principal supplier had ceased to exist and whether doing so complied with transparency, proportionality, and legal certainty under EU law.

The ECJ clarified that Member States may indeed pursue joint liability even after the principal supplier has been has ceased to exist, provided that the domestic rules implementing joint liability are compatible with the EU VAT Directive and general EU law principles. This decision leaves the Bulgarian national court free to apply this interpretation, and decide whether to allow the assessment of VAT and penalties to Vaniz to remain in place.

Relevance for Companies & Practical Lessons

This judgment is relevant to EU companies because it confirms that, in certain circumstances, tax authorities can pursue VAT debts from parties other than the original supplier, including from purchasers,  even if the supplier has become insolvent and ceased to exist.

The following should be taken into consideration:

• Due diligence: When engaging with suppliers, companies should exercise caution if there are red flags suggesting potential non-compliance with VAT obligations. Knowledge or constructive knowledge (“should have known”) of a supplier’s risk of not paying VAT plays a role in some Member States’ joint liability regimes.
• Internal controls and documentation: Strong internal processes can verify the VAT compliance and substance of supplier transactions and can reduce exposure to liability under joint liability rules.
• Monitoring supplier solvency and compliance: Proactively assessing the financial health and compliance history of key suppliers can help companies anticipate and mitigate risks of being targeted for joint liability after supplier insolvency.

For businesses, awareness and preventive measures are key to avoiding unexpected VAT liabilities on behalf of others.

Should your company be impacted by this ruling, or you wish to discuss your VAT processes with an expert, please feel free to contact us and one of our consultants will be happy to assist you.