The CJEU has prevented the Bulgarian tax authorities from taxing the same transaction twice, in GST-Sarviz AG Germania v Direktor na Direktsia8.


In 2010, GST-Sarviz AG Germania (GST-Sarviz), a German entity, provided technical consultancy services to GST Skafolding Bulgaria EOOD (GST Skafolding), a Bulgarian entity. GST-Sarviz also paid rent to GST Skafolding, in respect of scaffolding and materials which that company provided to it. As GST-Sarviz did not have a fixed establishment in Bulgaria for VAT purposes at the time it supplied its services, GST Skafolding paid the VAT due under the reverse charge procedure. GST Skafolding accordingly self-charged the VAT due, and simultaneously deducted it as an input VAT credit.

In 2012, the Bulgarian tax authorities determined that GST-Sarviz did have a fixed establishment in Bulgaria and was therefore liable for VAT for the period during which it supplied services to GST Skafolding.

GST-Sarviz paid the VAT demanded and submitted an application to the Bulgarian tax authorities for the VAT to be offset or refunded. Its application was refused.

GST Skafolding also submitted an application for a refund which was rejected.

CJEU decision

VAT had been paid twice, once by GST-Sarviz, the supplier of the services, and also by GST Skafolding, the recipient of the services, notwithstanding that it is a fundamental principle of  the VAT Directive that only the supplier of services is liable for the payment of VAT. As GST- Sarviz was found to have a fixed establishment in Bulgaria, it was the only entity liable for the VAT due. The erroneous payment by GST Skafolding, on the incorrect assumption that GST- Sarviz did not have a fixed establishment in Bulgaria, did not permit the Bulgarian tax authorities to derogate from this fundamental principle.

Any suggestion that the application of the reverse-charge mechanism by a recipient could relieve a supplier from its obligations as a VAT liable person was firmly dismissed by the CJEU.

In the view of the CJEU, the Bulgarian tax authorities’ refusal to refund the VAT to GST-Sarviz was commensurate to them transferring the fiscal burden to the supplier. This was contrary to the principle of fiscal neutrality. National tax authorities are not permitted to refuse to refund VAT to the supplier of services in circumstances where the recipient of those services has also paid VAT. GST-Sarviz was accordingly entitled to a refund of the VAT it had paid.


This case illustrates one of the fundamental principles of VAT law, that the application of VAT must achieve fiscal neutrality. The operation, or disapplication, of the reverse-charge mechanism may not lead to a circumstance where this principle is disturbed and any national provision which results in a distortion must yield to this overriding principle.

The decision can be read here.