The Court of Justice of the European Union ruled that fixed default interest rates on overdue VAT payments do not violate EU law principles, rejecting a proportionality challenge to Lithuania's VAT enforcement regime.

The Court distinguished default interest from administrative penalties, emphasizing that interest serves a compensatory rather than punitive purpose within VAT systems. Default interest compensates tax authorities for the time value of money during delayed payment periods, aligning with broader VAT system objectives of fiscal neutrality and effective collection.

Member States retain discretion in setting VAT sanctions and interest rates, provided they respect fundamental EU principles including proportionality and fiscal neutrality. The Court confirmed that cumulative application of both interest and penalties does not automatically constitute disproportionate enforcement, as long as each measure serves distinct purposes and remains within reasonable bounds.

The ruling clarifies that fixed interest rates, as opposed to variable rates tied to market conditions, are permissible enforcement tools provided they do not become excessive relative to their compensatory function. This provides legal certainty for Member States operating similar fixed-rate default interest systems across the EU.