Late Payment of VAT under Bulgarian and EU Law: Can It Be Treated as a Minor Violation?

Corporate Clients, Corporate Tax

In principle, failure to pay Value Added Tax (“VAT”) within the statutory deadline exposes the taxpayer to potential sanctions under Bulgarian law. However, in certain circumstances — particularly when any possible harm to the public budget has been swiftly remedied—this breach of the law may be deemed as minor violation. The following analysis examines both Bulgarian and EU legal frameworks to clarify whether belated VAT payment invariably entails sanctions or if it can, under specific conditions, be qualified as a less serious violation with reduced or waived penalty.

Framework under Bulgarian Law

According to established case law in Bulgaria, such actions are always deemed to be culpable. However, to determine whether such a violation invariably leads to the imposition of a sanction on the person who breached the law, one needs to consider whether this violation can be treated as a minor case and whether the principle of proportionality is observed.

Minor Violations (Mаловажен случай)

Bulgarian legal doctrine recognizes that some breaches, while formally constituting a violation, are sufficiently insignificant to be characterized as “minor.” This classification typically requires:

• Lower degree of public danger. Compared to standard VAT infractions, a minor violation suggests reduced threat to public interests.
• Negligible or absent harmful consequences. If there is no actual loss or risk of loss to the State Treasury, the offense may not warrant a severe sanction.
• Presence of mitigating circumstances. For instance, if the taxpayer acted promptly to pay any outstanding VAT and rectify their reporting.

Principle of Proportionality (Принцип на пропорционалност)

When applying the principle of proportionality, the following must be taken into account:

• The act (the violation)
• The consequences of the act
• The prescribed sanction

In Bulgaria, when examining the proportionality between the act, its consequences, and the prescribed sanction, one must observe Article 35, Paragraph 3 of the Criminal Code, which requires that the punishment be commensurate with the offense and achieve the objectives stated in Article 36 of the same code, as well as the legal definition in Article 93, Item 9 of the Criminal Code—namely, that the lack or insignificance of harmful consequences must be considered.

The application of the principle of proportionality in assessing the imposed property sanction (fine) also arises from the obligation to comply with the principles of EU law.

EU Perspective and Directive 2006/112

According to the consistent case law of the Court of Justice of the European Union (CJEU), Member States have a legitimate interest in taking appropriate measures to protect their financial interests. Combating tax fraud, tax evasion, and possible abuses is a goal recognized and encouraged by Directive 2006/112 —see, for example, the Judgment of 14 March 2013 in Valsts, C‑525/11, paragraph 28, and the cited case law therein.

According to the Judgment of the CJEU of 9 February 2012 in Mаrton Urbаn, C‑210/10, paragraph 23 and the case law cited therein, “in the absence of EU-level harmonization concerning the penalties applicable for non-compliance with the conditions provided by that legislation, the Member States are competent to choose the penalties they deem appropriate. However, they must exercise that competence in compliance with EU law and its general principles, including the principle of proportionality.”

Moreover, when an EU law provision refers to national rules on the imposition of sanctions related to the common system of VAT, the principle of loyal cooperation under Article 4(3) of the TFEU requires Member States to take all measures suitable to guarantee the scope and effectiveness of EU law. Retaining their discretion in the choice of such measures, they must ensure that, in any event, they give the penalty an effective, proportionate, and dissuasive character—see Judgment of 7 October 2010, Stils Met SIA, C‑382/09, paragraph 44, and the case law cited therein. With regard to the property sanctions at issue, paragraph 46 of that same judgment states that the mere existence of a fine intended to ensure that taxpayers fulfill their tax-reporting obligations is not contrary to EU law.

In the judgment mentioned in the present discussion, Mаrton Urbаn, paragraph 24, and the case law cited therein, it is noted that if EU law does not contain more specific rules for determining national sanctions—since it does not explicitly provide criteria for assessing the proportionality of such sanctions—“the national legislative measures on sanctions must not exceed what is appropriate and necessary to attain the legitimate objectives of that legislation, bearing in mind that when there is a choice among several appropriate measures, the least onerous one should be chosen, and that the disadvantages caused must not be disproportionate to the pursued objectives.”

Risk Assessment and Timely Rectification of Late Payment of VAT

The critical question in many late-payment scenarios is whether there is a material risk of loss to the Treasury. If the taxpayer ultimately pays the VAT due (or if it is offset) without undue delay, the practical harm to the public budget may be minimal or nonexistent. In such cases, if there is also no indication of fraudulent intent, one could argue that the violation should be treated as a minor offense.

That said, the timing of the corrective action is important. While a prompt voluntary disclosure and payment might mitigate or remove the need for severe penalties, a long period of noncompliance or repeated late payments could suggest higher culpability and thus justify a more stringent approach.

In this regard, paragraph 71 of the Judgment in Joined Cases C‑95/07 and C‑96/07, Ecotrade S. v. Agenzia delle Entrate-U. di Geneva, CJEU, states that when imposing sanctions for non-compliance with tax legislation, one must always consider whether “there is a risk of loss of tax revenue for the relevant Member State” and whether “in principle no tax is due to the state budget.”

All of the above raises the question whether a sanction must indeed be imposed if there is no risk of loss to the treasury resulting from a tax that has been paid or offset at a later date by the taxable person, thereby rectifying the violation.

This question is answered in the Judgment of the CJEU (Eighth Chamber) of 20 June 2013 in Case C‑259/12, which, pursuant to Article 267(1) TFEU, may give a so-called “preliminary ruling.” A significant feature of the Court’s decisions is that they create a precedent, establishing the principle that once a preliminary ruling has been delivered on a certain matter, all other courts must accept it as binding for identical matters that arise before them and should refrain from referring their own questions on issues already examined.

According to the operative part of this CJEU judgment:

“… The national court must determine—under Articles 242 and 273 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, taking into account the circumstances of the main proceedings, and in particular the timing of the rectification of the violation, its gravity, as well as any existence of tax evasion or circumvention of the applicable law for which the taxable person is responsible—whether the amount of the imposed penalty does not exceed what is necessary to achieve the objectives of ensuring the correct collection of the tax and preventing tax evasion.”

In this connection, paragraph 42 of the judgment in question specifically emphasizes that the mere late accounting of VAT cannot in itself be regarded as an abuse (see Judgment of 12 July 2012, EMS-Bulgaria Transport, C‑284/11), meaning that in each specific case, such abuse must be proved by the administrative authorities.

4. Conclusion

Although late payment of VAT generally constitutes a breach of Bulgarian law and can expose the taxpayer to sanctions, both Bulgarian and EU legal principles require a tailored approach. This means:

• Establishing proportionality between the severity of the violation and the penalty imposed;
• Evaluating the actual risk to the Treasury—where no real harm or loss exists and the violation is swiftly remedied, sanctions may be considered disproportionate; and
• Assessing mitigating factors such as the taxpayer’s good faith and immediate rectification of the breach.

Ultimately, each case demands an individualized review. If a taxpayer can demonstrate that any late payment did not jeopardize public finances and was promptly and voluntarily addressed, the chances increase that the violation could be treated as minor. In such instances, national courts—guided by domestic legislation and the relevant CJEU case law—may reduce or even waive the penalty altogether.