European Union: CJEU Opens New VAT Appeal Strategies

In brief

On 16 July 2026, the Court of Justice of the European Union (CJEU) in the decision QJ (C‑158/25) followed the Advocate General’s proposed outcome on 5 March 2026 and interpreted that directors/managers of Luxembourg companies subject to a guarantee call mechanism should benefit from the right to an effective remedy. 

Therefore, a manager/director of a Luxembourg company must be able to challenge incidentally the factual and legal findings contained in the company’s final VAT assessment insofar as it is relevant to his/her personal joint and several liability.

Key takeaways

• Directors/Managers of Luxembourg companies should avail from the right to an effective remedy as stated by article 47 of the Charter of Fundamental Rights of the European Union (Charter). This text enshrines the fundamental rights people enjoy in the EU.
• The company and the director/manager are legally distinct and may have divergent interests, but because representing the company is not equivalent to exercising one’s own defence rights, the company’s final VAT assessment cannot be made irrebuttable against the director/manager in a guarantee call decision.
• The CJEU did not say that the Luxembourg indirect tax authorities (AEDT) must always include a director personally in the original VAT assessment procedure conducted against the company, but the directors must have an effective opportunity to challenge the relevant findings used against them (either during the administrative guarantee call procedure and/or through an incidental challenge before the court reviewing the guarantee call).
• Confidentiality (e.g., tax secrecy) can justify proportionate limits on disclosure, but it cannot be used to make an effective defence impossible for the director/manager against a VAT debt of the company.
• The current Luxembourg guarantee call procedure needs to be revamped in order to align with the decision of the CJEU. 
• The judgment’s implications may extend beyond VAT and could lead to corresponding amendments to the Luxembourg General Tax Law (Abgabenordnung) for the purposes of the personal liability of directors and managers.
• The judgment creates a practical opportunity for directors and managers who are personally liable for a company’s unpaid VAT to revisit, at least incidentally, the factual and legal basis of the underlying VAT assessment. This may materially change appeal strategy, evidence gathering and settlement discussions in ongoing and future guarantee call cases.
• For instance, directors/managers can request access to the company’s VAT assessment file, audit correspondence and supporting calculations, coordinate the VAT technical defence with the procedural and litigation strategy and consider whether parallel discussions with the AEDT may be appropriate to manage exposure, timing and settlement options.

In more detail

• An individual served as a director of a Luxembourg company from 22 April 2013 to 15 February 2019 and was responsible for its day-to-day management.
• On 17 March 2018, the AEDT issued two VAT assessments against the company, one relating to 2014 and another relating to years 2015 and 2016.
• The company challenged those assessments, but the appeal was declared inadmissible because it had been lodged out of time. The assessments therefore became final.
• On 16 May 2019, due to the fact that the company failed to pay the VAT amounts due for the years 2014 to 2016, the AEDT issued a guarantee call decision against the individual under Articles 67-1 to 67-3 of the Luxembourg VAT Law. It required him, in his capacity as director responsible for its day-to-day management, to pay the company’s VAT debt. 
• The individual brought proceedings before the Luxembourg District Court, seeking the amendment or, alternatively, the annulment of the guarantee call decision. He argued that, because the company’s VAT assessments had not been notified to him personally, he should be entitled to challenge them in his own name as part of his action against the guarantee call.
• The Luxembourg District Court rejected the individual’s action and the judgment was subsequently upheld by the Luxembourg Court of Appeal. Nevertheless, the individual appealed to the Luxembourg Court of Cassation, maintaining that the refusal to allow him to challenge the company’s VAT assessments in his personal capacity was incompatible with the right to an effective remedy under Article 47 of the Charter.
• After review, the Luxembourg Court of Cassation referred to the CJEU:
  • Whether the Charter applies to the Luxembourg rules imposing personal and joint and several liability on company directors for unpaid VAT;
  • Whether a director subject to a guarantee call must be permitted to challenge the company’s final VAT assessment incidentally; and
  • A clarification about the scope of the arguments that the director may raise, including arguments concerning the VAT liability itself and alleged infringements of the director’s fundamental rights.
• First, the CJEU concluded that under the Luxembourg rules the AEDT is allowed to recover unpaid VAT from directors/managers who have failed to comply with their legal obligations and, as a result, Luxembourg is implementing EU law when it applies the guarantee call mechanism. As a consequence, the procedural guarantees contained in the Charter, including the right to an effective remedy, must therefore be respected. It means that the Luxembourg Court reviewing the decision must be able to examine all relevant questions of fact and law necessary to protect the director’s/manager’s rights.
• Secondly, the CJEU concluded that the director/manager must be able to challenge the VAT assessment issued by the AEDT to the company, at least incidentally in the proceedings against the guarantee call because the latter makes the director/manager personally liable by relying on the VAT debt established against the company. It would be unfair that the director/manager is not allowed to question whether that VAT debt was correctly established. The CJEU considered that the rights of defence are personal rights and hence a director/manager must be capable of exercising those rights personally when their own assets are at risk. It goes without saying that the interests of the company and those of the director/manager may be different. Therefore, the director’s/manager’s incidental challenge does not necessarily reopen or cancel the VAT assessment issued by the AEDT to the company: its purpose is to determine whether the assessment can legitimately be relied upon to impose personal liability on the director/manager.
• Thirdly, the CJEU interpreted that the directors must be able to challenge the factual findings and legal conclusions that are relevant to establishing their personal and joint and several liability (e.g., whether the transactions carried out by the company were correctly treated for VAT purposes or whether the taxable amounts were correctly calculated).
• We are of the opinion that this CJEU decision materially broadens the potential defence strategy in the framework of a guarantee call arising from a VAT litigation: indeed, the director/manager should have a genuine opportunity to contest the elements used to establish his/her personal liability for the payment of the VAT due.
• However, the CJEU did not rule that the director/manager is automatically released from liability or that the underlying VAT assessment is invalid.
• For directors/managers, a guarantee call should no longer be treated as a purely collection-driven step, but each of them should assess whether the VAT assessment can be challenged, at least insofar as it is relied upon to impose personal liability.
• It goes without saying that Luxembourg companies should preserve audit files, correspondence, supporting evidence and internal decision-making records.

How we can help

Our Tax and Litigation teams would be happy to assist you with any ongoing VAT audits, the guarantee call decisions issued to determine whether the statutory conditions for the personal and joint and several liability are satisfied or with the preparation of procedural arguments based on the right to an effective remedy and rights of defence.

For further information and to discuss what this development might mean for you, please get in touch with your usual Baker McKenzie contact.