The judgement in case “Legafact” might be instructive for Member States applying revenue thresholds for VAT registration
C‑122/23. – „Legafact” EOOD | The judgement in case “Legafact” might be instructive for Member States applying revenue thresholds for VAT registration.
The European Court of Justice in the “Legafact” case examined the Bulgarian regulations. In Bulgaria, economic activities may be performed without having a tax number if the resulting revenue does not exceed 50,000 leva in any 12 months. Those surpassing this registration threshold must register for VAT purposes within seven days.
Bulgarian law provides small business VAT exemption for businesses with annual revenue up to 25,600 euros; however, businesses failing to timely register forfeit this exemption. In the core case, a Bulgarian consulting firm issued invoices on August 21, 2018, exceeding the 50,000 leva threshold, with subsequent invoices on August 23rd and 24th for consultancy fees. The Bulgarian tax authority required registration within seven days starting from the threshold breach (August 21), missed by the plaintiff by three days. Consequently, the plaintiff lost VAT exemption and owed retroactive VAT from August 21 on revenue exceeding the threshold.
The European Court of Justice addressed whether EU law allows tying VAT exemption to timely registration and whether penalties or mere reimbursement of budget losses are involved when the tax authority claims VAT on the revenues beyond the threshold from late registrants. The Court found the Bulgarian law aligns with EU law, as it links VAT exemption to timely registration. Demanding VAT on all revenue that should have been invoiced upon timely registration does not inherently conflict with EU law, but national courts must assess whether the tax assessment was made in accordance with the principle of proportionality (the plaintiff was only three days late).
This case does not affect Hungarian regulations since Hungary does not apply revenue thresholds; all economic operators must register for VAT.
