C-164/24 – “Cityland” EOOD

According to the Court of Justice of the European Union (CJEU), the temporary failure to fulfil VAT payment obligations cannot, in itself, justify the cancellation of a VAT number.

In the underlying case, the Bulgarian tax authority cancelled the VAT number of a local company on the ground that, between 1 September 2013 and 30 June 2018, the company failed to pay declared VAT on five occasions, two of which involved minor amounts. The company contested the cancellation of its VAT number, arguing that in all five instances, the invoices had not been paid by its customers, forcing the company to initiate legal proceedings. After the appellate tax authority upheld the first-instance decision, the company brought the case before the administrative court. The court referred the matter to the CJEU for a preliminary ruling, as it considered that the measure imposed by the tax authority was disproportionate to the severity of the infringement. The CJEU held that a national legal provision allowing for the automatic cancellation of a VAT number, without any further investigation or individual assessment, merely due to non-compliance with VAT payment obligations, is contrary to the principles of proportionality and legal certainty.

In Hungary, Section 246 of the Act on the Rules of Taxation governs the cancellation of tax numbers. The law expressly defines the non-compliant conditions and taxpayer behaviours that may give rise to the cancellation of a tax number. Within the scope of VAT obligations, only the failure to submit a VAT return for more than 180 days may serve as grounds for cancellation – and even then, only if the tax authority has called upon the taxpayer to rectify the omission and the taxpayer has nevertheless failed to comply with this obligation.