EU VAT case law

Tax interest is not a penalty.  It is not treated as a penalty under the Charter.  It is also proportional - even if it exceeds the cost of using the capital.

Judgment of the CJEU of 30.04.2026, C-544/24, Nekilnojamojo turto valdymas

Background

• The Lithuanian authorities conducted a tax audit of a Lithuanian company.
• They determined that the taxpayer had unlawfully deducted input VAT.
• They assessed an additional VAT liability (€6.5 million), late payment interest (€2.4 million), and fines (€1.8 million).
• The company applied to be exempted from part of the interest.
• According to the company (and the national court), the interest consists of two parts.
• The first part is compensation for the use of capital (corresponding to the interest rate on government bonds).
• The second part is a “penalty” component (7 additional percentage points).
• The company requested an exemption from the penalty component.

The question

• The authority cannot reduce the late payment interest on the basis of the (minor) nature of the violation.
• Is this consistent with EU law?

The answer

• Yes.

The Court’s reasoning

Does Article 49(3) of the Charter of Fundamental Rights (penalties must be proportionate) apply to interest on tax arrears?

• To apply this provision, there must be a penalty.