The Court of Justice of the European Union has issued a ruling in Case C-544/24 concerning the proportionality of VAT late payment penalties
On April 30, 2026, the Court of Justice of the European Union (hereinafter “the Court of Justice,” CJEU) issued a judgment in Case C-544/24, BUAB “Real Estate Management” v. the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania, in which a request for a preliminary ruling submitted by the Tax Disputes Commission (hereinafter referred to as the Commission) was examined.
This ECJ judgment provides guidance on the application of Article 273 of Directive 2006/112/EC and the principle of proportionality in cases where it is assessed whether national legislation establishing the procedure for calculating late payment interest for VAT arrears, is compatible with EU law.
The tax dispute referred to the CJEU arose from a decision by the Inspectorate, which did not exempt the applicant from paying the VAT late payment interest and fine assessed against her. The Inspectorate found that the applicant had violated the provisions of the Law on Value Added Tax of the Republic of Lithuania by participating in transactions related to VAT fraud, which were also the subject of a pre-trial investigation in a criminal case. The applicant, challenging the Inspectorate’s decision, requested to be exempted from part of the calculated VAT late payment interest, taking into account its punitive nature and the ongoing criminal proceedings.
The Commission, in pursuit of its primary objective—to properly and objectively examine the complaint and adopt a lawful and well-founded decision—sought a ruling from the CJEU to determine whether the provisions of Articles 96–99 of the Tax Administration Act (hereinafter “TAA”) , insofar as they do not ensure coordination between the procedures for imposing administrative late payment penalties and criminal prosecution, are compatible with Article 273 of Directive 2006/112/EC, Article 325 TFEU, and Articles 49(3) and 50 of the Charter of Fundamental Rights of the European Union, as well as the principles of proportionality and the prohibition of double jeopardy (non bis in idem). Further details regarding the Commission’s request are set out in the Commission’s information note: https://mgk.lrv.lt/en/news/the-tax-disputes-commission-referred-to-the-court-of-justice-a-question-concerning-the-coordination-of-procedures-for-imposing-penalties-and-criminal-prosecution-WUY/
In answering whether late payment interest is “of a penal nature” within the meaning of Article 49(3) of the Charter, the Court of Justice indicated that the issue must be assessed according to three criteria: 1) classification under national law, 2) the nature of the infringement, 3) the severity of the sanction. The CJEU found that the late payment interest at issue did not appear to meet the criteria for being considered a measure of a criminal nature and therefore could not be assessed under Article 49(3) of the Charter.
However, the Court of Justice clearly stated that even if a measure falls outside the scope of Article 49(3) of the Charter, the national court must still assess compliance with the general principle of proportionality, as Member States implement EU law (the VAT Directive).
Finally, in response to the second question referred for a preliminary ruling, the Court of Justice held that Article 325 TFEU and Article 273 of Directive 2006/112/EC, read in conjunction with the principle of proportionality, must be interpreted as not precluding national legislation which lay down the procedure for calculating the rate of interest on VAT arrears without taking into account the nature and gravity of the infringement established by the tax authority, and which do not allow the tax authority to apply a rate of interest lower than that provided for by law, refuse to calculate a portion of the late payment interest or exempt the taxpayer from paying such interest, except in cases specifically defined by law.
The ECJ’s decision and its reasoning can be found in more detail at this link:
https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:62024CJ0544