Does the scope of liability of the third party under Article 177 of the Value Added Tax Act include interest for late payment? Review of Interpretative Decision No. 4 of 10.05.2022 by the Supreme Administrative Court

According to Article 177, Paragraph 1 and 2 of the Value Added Tax Act (VATA), a VAT-registered recipient of a taxable supply is liable for unpaid tax by another person, to the extent that it has exercised the right to deduct a tax credit directly or indirectly related thereto, when the latter has been aware or ought to have been aware that the associated tax would remain unpaid.

The interpretation of this article has given rise to questions in the realm of judicial practice concerning the extend of liability imposed on the third party under Article 177 VATA, specifically addressing whether this party is also liable for the interest for late payment on the outstanding tax obligation.


Two viewpoints emerged within the judicial practice.


Some of the judges have upheld that the scope of liability under Article 177 of the VATA does not include interest for late payment on the unpaid tax. This conclusion was based on two groups of motives.


In certain judicial decisions that align with this perspective, it has been asserted that the liability under Article 177 of the VATA constitutes a specific form of joint liability. This form is characterized by the obligation of one VAT-registered person to settle the outstanding VAT obligations of another VAT-registered person. Thus, Article 177 of the VATA introduces an exception to the general principle by establishing joint liability for persons other than the supplier, while also delineating the scope of liability to include the “owed and unpaid tax”. Accordingly, this scope excludes any associated interest. The provision of Article 177 of the VATA is specific and excludes the application of Article 16, para. 3 of the VATA (which introduces wider scope of liability of the third liable persons).


In others court decisions from the same group a different perspective has emerged, asserting that the obligation under Article 177 of the VATA regulates a form of liability categorized as a tax tort. Under the purview of Article 177 VAT, the concerned party is not characterized as a “responsible third party” within the meaning of Art. 14(3) and Art 16 of the Tax and Social Insurance Procedural Code (TSIPS), given the absence of an obligation to remit the tax neither as a tax payer nor as a person, obliged to deduct and remit taxes. Their liability extends only insofar as they have exercised the right to deduct a tax credit directly or indirectly linked to the outstanding tax obligation. Hence, the liability under Article 177 VAT does not include the interest for late payment.


According to the second opinion, the liability under Article 177 of the VATA includes the interest for late payment accrued on the outstanding VAT obligation. This second group of court decisions have indicated that the persons liable under Article 177 VATA bear liability according to Article 14(3) of the TSIPC, as persons who are accountable for the tax bearer’s obligation. Insofar as the scope of liability of the third parties under Article 14(3) of the TSIPC includes, along with the taxes, interest, and expenses related to their collection, the liability under Article 177 of the VATA, as a specific form of joint liability, includes the interests for late payment, as well.


The Supreme Administrative Court (SAC) has upheld the second opinion in its Interpretative Decision No. 4 of 10.05.2022. According to SAC, Article 177 of the VATA introduces s a specific form of joint liability of VAT-registered persons. This liability pertains to cases where, under specific cumulative conditions set forth in the law, they are required to assume responsibility for the obligations of another person, who is the VAT payer. Subjects of joint liability under Article 177 of the VATA are VAT-registered persons which differ from the VAT payer. The VAT-registered persons under Article 177 of the VATA are third parties who are liable for the tax obligation of another VAT-registered person, which is the tax bearer. As per Article 16, Para. 1 of the TSIPC, they fall under the category of liable persons under Article 14(3) of the TSIPC. Accordingly, the scope of their liability is determined by the provision of Article 16, Para. 3 of the TSIPC, pursuant to which the liability of the third liable party under Article 14(3) of the TSIPC includes interest, and expenses related to their collection, as well.


Based on these grounds, with its final act, the SAC has adopted the view that the scope of liability of the third party under Article 177 of the VATA includes obligations for interest for late payment on the owed and unpaid tax.

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