CJEU Case C‑544/24 / Opinion

31. By its second question referred for a preliminary ruling, which the Court has requested be the focus of the present Opinion, the referring court is, in essence, asking whether Article 325 TFEU and Article 273 of the VAT Directive, read in the light of Article 49(3) of the Charter, must be interpreted as precluding national legislation providing for the payment of late payment interest relating to VAT arrears which, irrespective of the nature and severity of the infringement, sets a fixed penalty part with no possibility to impose a rate of interest lower than the rate provided for by the law or to waive the penalty part of that late payment interest. The referring court therefore asks the Court to determine, first, the extent to which the late payment interest relating to VAT arrears which the applicant was required to pay following an administrative tax inspection is criminal in nature for the purpose of Article 49(3) of the Charter and, second, whether such national legislation complies with the principle of proportionality as interpreted and assessed in the context of the interpretation and application of Article 325 TFEU and Article 273 of the VAT Directive.

32. As a preliminary point, I would point out that Article 49(3) of the Charter, which provides that the severity of penalties must not be disproportionate to the offence, refers to penalties of a criminal nature.

33. According to the Court’s settled case-law on the interpretation of Article 50 of the Charter and transposed into Article 49(3) thereof, three criteria (‘the Engel criteria’) ( 8 ) are relevant for assessing the criminal nature of a penalty, namely (i) the legal classification of the offence under national law, (ii) the intrinsic nature of the offence, and (iii) the degree of severity of the penalty which the person concerned is liable to incur. ( 9 ) In addition, even for offences which are not classified as ‘criminal’ by national law, the intrinsic nature of the offence in question and the degree of severity of the penalties to which it is liable to give rise may nevertheless result in its being criminal in nature. ( 10 )

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37. In addition, it should be noted that the non-punitive nature of late payment interest has also been emphasised in the Court’s case-law on VAT in cases similar to that at issue in the main proceedings. Although the latter did not directly concern the question whether late payment interest relating to VAT arrears was criminal in nature within the meaning of Article 49(3) of the Charter, the Court nevertheless held that the charging of late payment interest was, first, preventive in nature, by encouraging the taxpayer to fulfil the tax obligation as soon as possible after those time limits expire ( 15 ) and, second, compensatory in nature (or a compensatory function), in that such interest is intended to offset the financial losses suffered by the State as a result of the non-payment or late payment of a tax. ( 16 )

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41. In the light of the foregoing, I consider that none of the three Engel criteria for determining that the late payment interest at issue in the main proceedings is criminal in nature is satisfied and, therefore, Article 49(3) of the Charter is not relevant for the purpose of answering the second question referred for a preliminary ruling.

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56. In the light of the foregoing, I propose that the answer to the second question referred for a preliminary ruling should be that Article 325 TFEU and Article 273 of the VAT Directive, read in the light of Article 49(3) of the Charter, must be interpreted as not precluding national legislation which, irrespective of the nature and severity of the infringement found by the tax authority, sets the amount of late payment interest without that authority being able to reduce one of the parts of that amount and thereby apply a rate of interest which is lower than the rate provided for by that legislation or waive a part of that amount and which provides that the taxpayer may be exempted from paying late payment interest only in the cases expressly defined by that legislation.