Automatic deregistrations not allowed by ECJ

The Court of Justice of the European Union (CJEU) has issued an important judgment on the removal of taxable persons from the VAT register, focusing on the principle of proportionality and the limits of national tax authorities' powers. According to this judgement, automatic deregistrations are not compatible with the principle of proportionality.

Background: What Was the Case About?

The case (C‑164/24) involved a Bulgarian company (BG Co.) in the construction sector. In 2022, Bulgarian tax authorities removed BG Co. from the VAT register, claiming the company had persistently failed to meet its VAT obligations. These failures included non-payment of VAT declared for five tax periods between 2013 and 2018.

BG Co. argued that the unpaid VAT related to unpaid invoices issued to a client involved in separate legal proceedings. Although the outstanding VAT was eventually paid (with only interest remaining), the authorities still proceeded with deregistration.

The Bulgarian Administrative Court raised doubts about the national law used to justify this decision. Specifically, it questioned whether removing a company from the VAT register for such infringements, without a detailed assessment of the situation, was compatible with EU law—in particular, the principles of proportionality and legal certainty. The court referred the matter to the CJEU.

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Conclusions of the CJEU in Case C-124/24

The CJEU ruled that national laws allowing automatic removal from the VAT register without a proper analysis of the taxpayer’s conduct are not compatible with the VAT Directive. The ECJ held that removing a taxable person from the VAT register solely on the basis of persistent, even minor, non-compliance, without an individualized assessment of conduct, violates EU law. This decision strengthens taxpayer protections and underscores the need for proportional, fair, and procedurally sound enforcement mechanisms within the EU VAT framework.

Key Points from the Judgment:

• Proportionality must be respected: Removing a business from the VAT register is a serious sanction. Authorities must consider the nature and seriousness of any non-compliance, including whether the infractions are minor or due to circumstances beyond the taxpayer’s control.
• No general rule in EU law allows deregistration: The VAT Directive does not include provisions that generally authorize Member States to deregister businesses from the VAT system for non-compliance.
  Authorities must assess conduct case by case: Tax authorities cannot remove VAT status based only on formal criteria (like the number of missed filings or amounts due). They must carry out a case-specific evaluation, taking into account the taxpayer’s overall behavior and the risk of fraud.
• Legal certainty is essential: Sudden deregistration affects both the taxable person and their customers, who may lose the right to deduct input VAT. This legal uncertainty is inconsistent with the principle of legal certainty under EU law.

Final Takeaway

This ruling reaffirms the principle of proportionality that Member States must observe when transposing the Directive into their national legal systems, so that the most severe sanctions they may impose—such as VAT deregistration—must be supported by an appropriate case-by-case analysis and a well-founded justification for the decision taken.

This ruling also sends a clear message to national tax authorities: VAT deregistration must not be automatic. It must be based on a careful, proportional assessment of each case. Minor, isolated infractions or late payments—especially where justified—do not justify such a severe penalty without proper analysis.

For businesses, this decision provides stronger protection against disproportionate enforcement actions and highlights the importance of defending your tax position when faced with aggressive measures by authorities.

How Can Marosa Help You?

Navigating complex VAT rules and defending your company in front of tax authorities can be challenging—especially when facing deregistration risks or verification processes. At Marosa, we support businesses with VAT registrations across multiple EU countries, ongoing VAT compliance with a especialized software, and communication with tax authorities. Our team has hands-on experience in managing verification procedures and ensuring that your business meets its obligations while protecting your rights under EU law. Whether you are entering a new market or resolving issues with the tax office, we are here to help you stay compliant and confident.