On 30 April 2026, the Court of Justice ruled in Case C-544/24 that a Member State may fix default interest on VAT arrears by law, without regard to the nature or seriousness of the infringement.
The case
After an inspection, the Lithuanian tax authority found that a company had deducted VAT on invoices that were not legally valid and had taken part in transactions involved in VAT fraud. On 4 September 2018, it set additional VAT of EUR 6,517,901.36, default interest of EUR 2,431,505.31 and a penalty of EUR 1,862,257. The company later asked to be exempted from the interest and the penalty, including what it called the punitive part of the interest. The authority refused.
The ruling
Article 325 TFEU and Article 273 of the VAT Directive, read in the light of proportionality, do not preclude these rules. That holds even though the authority cannot apply a lower rate, waive part of the interest, or grant an exemption outside the cases set out exhaustively in the law.
Default interest on VAT arrears is preventive. It encourages taxpayers to meet their obligations as a priority, because the debt grows with the length of non-payment. Punitive measures must take account of the nature and seriousness of the infringement, but this kind of interest is different. That the amount can exceed the actual loss to the Treasury is simply a result of compensation at a flat rate.
What to check
- Do not expect EU law to reduce statutory interest on the ground of proportionality alone.
- Look at the exemption grounds in national law. In Lithuania, these include infringements not attributable to the taxpayer.
- Penalties are assessed differently from interest, so challenge them separately.
mr. J. el Khalfioui LL.M.