Do not hesitate to object if you disagree with an Acts for establishing administrative violations, a Penalty decree, or an Order for a compulsory administrative measure (often the sealing/closure of premises) issued to your company for a tax violation.

There is no doubt that fiscal control is important to protect the legal order. The problem arises when the drive for revenue collection turns into “mechanical” sanctioning without an individual assessment of the case.

En masse, Bulgarian businesses, regardless of the scale, choose to pay the initial sanction even when they consider it unjust. While large corporations view payment as a “pragmatic” way to save administrative resources, small businesses often perceive it as a “cheaper” alternative to investing in specialized legal defense.

In both cases, however, this apparent peace is a strategic illusion.

Payment constitutes an admission of a committed violation, which places you in a hypothesis of “repeated violation”. This means that during a subsequent check or audit, the risk of an exponentially higher sanction is significantly increased, and the sealing of the business premises becomes justified. Appealing an unfairly imposed first sanction is an investment in the security of your business tomorrow.

More importantly, your defense is supported by three rulings of the Court of Justice of the European Union (CJEU), issued on Bulgarian cases:

• Case C-97/21 (MV-98) – establishes the principle of proportionality and the impermissibility of accumulating a sanction (fine) and the sealing of premises as it creates an excessive burden for the business.
• Case C-733/23 (“Beach and Bar Management” EOOD) – confirms that specific facts for the case must be considered upon determining a sanction. It establishes that even the minimum statutory penalty is excessively high if the damage to the state is insignificant – in this case, 85 sanctions of 500 BGN each (totaling 42,500 BGN or approximately €21,250) were imposed for unissued receipts, while the total VAT due on them was only 268.02 BGN (approximately €134).
• Case C-605/23 (“Ati-19” EOOD) – reaffirms the primacy of EU law, empowering national courts, on their own initiative, to set aside any active national provision that contradicts it.

These three rulings are a clear signal from the CJEU against administrative arbitrariness in our country. With them, the CJEU confirms that national revenue authorities cannot impose sanctions mechanically but must strictly observe the balance between the violation and the penalty. The fiscal interest of the state cannot justify measures that lead to an excessive financial burden or a punitive effect beyond reasonable limits.

At the beginning of 2026, the Euro is already a reality, and audits from the National Revenues for potential abuses are likely to intensify. Nevertheless, supranational standards for justice and predictability must be actively upheld.

Do not allow administrative pressure to jeopardize the stability of your business.

The law is on your side – use it strategically!

I will remember the end of this year for the extremely aggressive control activity by the revenue authorities. In the name of increasing collection rates, Acts for establishing administrative violations (Acts) were issued en masse, immediately followed by Penal Decrees. The goal seems not to be prevention, but sanctioning at any cost, mainly small and medium-sized local businesses.

What we are witnessing is a mechanical application of pecuniary sanctions, without in-depth factual and legal assessment of the specific case and with total disregard for the principles of proportionality and fairness.

The Penal Decrees are often combined with the harshest coercive administrative measure – “sealing of a business premise” which comes at the busiest business period of the year.

It is exactly in such moments that one feels the immense value of the jurisprudence of the Court of Justice of the European Union (CJEU) as a safeguard against abusive practices of local administration.

The case law of the CJEU is the instrument that sets clear boundaries for the national administration.

The CJEU Judgment in Case C-97/21 (MV-98), delivered regarding a Bulgarian case, categorically establishes that:

• Sanctions and coercive measures must be strictly proportional;
• The accumulation of pecuniary sanctions (fine plus sealing) cannot lead to an excessive burden for the trader;
• Fiscal interest cannot justify measures that lead to substantial financial losses or a punitive effect beyond reasonable limits.

This judgment provides a strong legal basis for successfully challenging:

• Orders for the sealing of commercial premises;
• Acts and Penal Decrees issued in violation of the principle of proportionality;
• Systemic practices that contradict EU law.

A Wish for 2026

Tomorrow, we wake up in a new reality – the Euro becomes our country’s currency. I wish for this change not to be merely monetary, but to mark the beginning of a truly European, predictable, and fair tax administration!

Background

Case C-277/24 (M.B. – Adjak) of 27 February 2025

A former manager seeks to participate in tax proceedings regarding the obligations of a company he managed, in order to protect his rights in potential proceedings against him personally. However, this is not permitted by Polish law.

Case C-278/24 (P.K.) of 30 April 2025

The chairman of the management board of a company was held jointly and severally liable after unsuccessful collection of the company’s VAT debts. He objects that even if he acted in good faith, Polish law does not allow him to be released from liability.

Question referred to the court

• Is it permissible to engage joint and several liability without proving fault or bad faith on the part of the manager?
• Is the right of defense violated if the manager cannot participate in the proceedings against the company whose debt may be transferred to him?

CJEU conclusion

It is not mandatory for the manager to participate in the tax proceedings against the company, as long as, in the proceedings against the manager himself, he has an effective opportunity to challenge the facts and obligations of the first proceedings.

There are no obstacles to legislation providing for criteria, the non-fulfilment of which entails joint and several liability of the manager, insofar as his right of defense is guaranteed.

Practical significance

These decisions reinforce the CJEU’s position that the liability of managers can be engaged under clear and predictable conditions, ensuring effective protection of their rights. The question of the balance between the state’s interest in collecting taxes and the protection of bona fide managers remains key for national jurisprudence.

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The Polish tax authorities found that, between January 2010 and April 2014, Company P had issued 1 679 invoices for the sale of fuel in a petrol station without paying the corresponding VAT to the state budget. It appeared that all of these invoices were falsely issued by the employee P.K. with no consent or knowledge of the employer, Company P.

The invoices were accompanied by authentic receipts, that were collected by other employees and delivered to P.K. against financial benefit. P.K sold the invoices to entities that fraudulently obtain VAT refunds.

The false invoices were recorded on the petrol station’s computer in a different format to that of the normal invoices of Company P and could not be consulted without unlocking that computer. The Polish tax authorities claimed that the responsibility for the payment of the VAT charged by these invoices was entirely on the employer Company P due to its lack of supervision of its employee.

Questions referred to the ECJ

Within the meaning of Article 203 of the VAT Directive that provides that VAT shall be payable by any person who enters the VAT on an invoice, in the particular case:

• Who needs to be considered liable for the VAT fraudulently shown in the invoices – the employer or the employee?
• Does the potential failure of the employer to exercise due diligence in supervising its employee affect this liability?

Key Points of the Case

• The VAT entered on an invoice is payable by the issuer of the invoice even in the absence of an actual taxable transaction.
• Liable for the VAT shown on the invoice may be taxable person but also a non-taxable person.
• In any case when there is a risk of loss of tax revenue, the issuer of the invoice is liable for the VAT indicated in the invoice irrespective of any fault. By contrast, if there is no such risk, Article 203 of the VAT Directive does not apply.
• An employer who failed to exercise the due diligence reasonably required to monitor the conduct of its employee must be considered the issuer who entered the VAT on the invoices and who is liable for the VAT.

Court’s Conclusion

Article 203 of the VAT Directive must be interpreted as follows: If an employee of a taxable person for VAT purposes has issued a fake invoice showing VAT using the employer’s identity without the employer’s knowledge or consent, that employee must be considered the person who enters the VAT. However, this responsibility shifts to the taxable person if it is determined that this taxable person did not exercise the due diligence reasonably required to monitor the conduct of its employee.

Significance

This ruling clarifies the interpretation of Article 203 of the VAT Directive in cases of fraudulent VAT invoices issued without the knowledge or consent of the person identified as an issuer. It emphasizes the importance of due diligence by taxable persons to prevent VAT fraud.

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