Wolf Theiss

SEVERAL BILLION FORINTS MAY BE REFUNDED TO HUNGARIAN FIRMS

In its recent decision concerning Hungary, the European Court of Justice ruled that any national regulation and practice precluding the payment of default interest after VAT sums the taxpayer cannot claim to be refunded within a reasonable period as a result of domestic regulation in breach of EU law is not compatible with the EU VAT Directive. The European Court of Justice also confirmed that the interest payable as a result of the breach of Community law may not be less favourable than the interest due when the internal law is infringed. All this could bring domestic companies billions of Forints.

In its recent decision concerning Hungary, the European Court of Justice ruled that any national regulation and practice precluding the payment of default interest after VAT sums the taxpayer cannot claim to be refunded within a reasonable period as a result of domestic regulation in breach of EU law is not compatible with the EU VAT Directive. The European Court of Justice also confirmed that the interest payable as a result of the breach of Community law may not be less favourable than the interest due when the internal law is infringed. All this could bring domestic companies billions of Forints. The former domestic VAT legislation prohibited any VAT refund claims in connection with financially unsettled purchases, such as the unpaid purchases of companies. In its judgement passed in case C-274/10, the European Court of Justice concluded that the above provision was contrary to Community law, thus the restrictive regulation was annulled in 2011. It remained unclear, however, in what way the aggrieved taxpayers could receive compensation (default interest) for their VAT refund claim enforced with a delay as a result of the domestic regulation, which was in breach of Community law. In practice, most taxpayers tried to enforce their interest claims in administrative procedures and administrative legal actions, in accordance with the rules of procedure relating to taxation. The courts, however, established that such rules could not be applied, and the tax claims of the taxpayers should be enforced in legal actions for compensation rather than administrative legal actions. However, in these types of cases the enforcement of claims in the form of a claim for compensation is, in practice, excluded. This resulted in the fact that the aggrieved taxpayers ultimately did not receive any compensation, which was in contradiction with the previous adjudicative practice of the European Court of Justice. Recognizing this contradiction, the Court of Szombathely initiated the procedure of the European Court of Justice. In accordance with its previous similar decisions, the European Court of Justice has made it clear in a Hungarian case, too, that interest is due after VAT non-recoverable as a result of the breach of Community law. It is the duty of domestic courts to ensure compensation for the financial losses incurred by taxpayers, even by “disregarding” domestic law, if necessary. Accordingly, it will depend on the legal interpretation of the Hungarian court in what form – whether in accordance with the rules of tax procedure or the rules of compensation – taxpayers may enforce their claims. However, in view of the statute of limitations, it is worth using the available legal means even before the decision of the court – notes Dr. János Pásztor, Head of the tax group of Faludi Wolf Theiss Attorneys at Law.

For further information please contact

Barbara Fürchtegott
Barbara
Fürchtegott
Public Relations & Communications Manager
T. +43 1 51510 3808
Schubertring 6
1010 Vienna
Austria

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