In its latest decision of May 16, 2024 the European Court of Justice (ECJ) reflected on the Hungarian foreign VAT refund regime. ECJ established once again that non-compliance with formal requirements should not prevent reimbursement of VAT provided that substantive requirements can and have been satisfied.
Background
A Slovak company (Company) – not established in Hungary for VAT purposes – purchased various goods and services in Hungary and incurred Hungarian VAT on its incoming invoices, accordingly. In order to recover the Hungarian VAT charged to it, the Slovak Company submitted a so-called foreign VAT refund claim to Hungarian tax authorities on the basis of Directive 2008/9. The Hungarian tax authority issued a request for documents to be presented by the Company within a one-month deadline. The Company did not respond to the request and as a consequence the tax authority dismissed (discontinued) the proceedings without granting (or denying) the refund.
The Company filed an appeal against the decision together with all the materials previously requested by the tax authority in the annex. The Hungarian tax authorities – both in the first and second instance – denied the appeal and upheld the original decision of dismissal. Finally, the Company filed and action at the competent Hungarian court, and the court referred the following questions for preliminary decision to the ECJ with regard to the applicable Hungarian rules on VAT refunds:
Questions to be considered
(1) – (2) Whether the Hungarian legislation precluding the provision of additional evidence at the stage of the complaint before a second-tier tax authority is compatible with Article 23(2) of Directive 2008/9 and with the principles of VAT neutrality and effectiveness; and
(3) Whether the Hungarian legislation providing for the dismissal of a VAT refund procedure where the taxable person has not provided, within the time limit additional information requested by that authority – in the absence of that information, the VAT refund application cannot be processed – is compatible with the Article 23 of Directive 2008/9?
Decision by the court
With regard to the first two questions, the ECJ – after reiterating the basic principles and well-established case-law – firmly confirmed, that such national regulation is contrary to the EU law, namely, the Council Directive 2008/9/EC and the corresponding principles of value-added tax (VAT) neutrality and effectiveness. It also follows that
(i) Hungarian legislation should not preclude taxpayers from providing the necessary information and documents even at the stage of the complaint (appeal) before a second-tier tax authority; and
(ii) the one-month period set by the tax authority for the provision of documents should not be considered as constituting a limitation period.
Regarding the third question, the ECJ found that the EU Directive allows national legislation to close (discontinue) the VAT refund procedure if the taxable person does not provide the requested additional information within the prescribed period in the absence of that information, the VAT refund application cannot be processed, provided that
(i) the discontinuation decision is regarded as a decision refusing that refund application, therefore
(ii) it can be the subject of an appeal.
Conclusion
The ECJ confirmed that the Hungarian legislation is non-compliant with the EU rules with regard to the foreign VAT refund claims and taxpayers should be permitted to provide additional documentation even after the first instance decision has been made. This should serve as a significant step forward relating to foreign VAT refund claims, however, the question still remains, whether, by analogy of principles, a similar approach would not be applicable to domestic, Hungarian VAT reclaims as well?
By Balint Zsoldos, Head of Tax, KCG Partners Law Firm
