On 23 April 2020 the European Court of Justice gave its judgment in combines cases C‑13/18 (Sole-Mizo Zrt.) and C‑126/18 (Dalmandi Mezőgazdasági Zrt.). Both cases deal with the question if a tax payer can receive interest on he (late) payment of a VAT refund.
Article in the EU VAT Directive
Article 183 of the EU VAT Directive 2006/112/EC
Article 183
Where, for a given tax period, the amount of deductions exceeds the amount of VAT due, the Member States may, in accordance with conditions which they shall determine, either make a refund or carry the excess forward to the following period.
However, Member States may refuse to refund or carry forward if the amount of the excess is insignificant.
Facts
Both cases are similar, we describe the first case (C-13/18).
Sole-Mizo Zrt., based in Hungary, lodged an application for an extraordinary reimbursement of VAT. This request was granted and the VAT was repaid, but without interest.
Sole-Mizo therefore requested a reimbursement of the interest. The request related to the interest period from December 2005 to June 2011 (hereinafter: the first interest period), and to the interest due to the late payment of the interest that became due during this first period (hereinafter: the second interest period).
The Hungarian tax authorities at first instance declared the applicant’s request to be well founded, setting a default interest of HUF 99,630,000 for the first interest period (calculated with the base interest rate of the central bank). The request with regard to compound interest (second interest period) was rejected.
However, the Objections Section of the national tax and customs service found an error in the calculation of the interest by the tax authority at first instance and amended the decision of the authority. It also annulled the decision of the tax authority at first instance in so far as it concerned the fixing and payment of default interest on the interest (second interest period) and ordered that authority to re-examine the case.
Considerations
The ECJ considers that the referring courts essentially seek to ascertain whether EU law , in particular Article 183 of the VAT Directive, and the principles of effectiveness, equivalence, direct effect and proportionality must be interpreted as precluding a practice of a Member State, whereby the interest on the surpluses of deductible VAT that has been withheld longer than reasonable in breach of Union law by that State shall be calculated on the basis of an interest rate corresponding to the base rate of the national central bank.
Questions
Is a practice of a Member State pursuant to which, when the relevant default-interest provisions are examined, it is proceeded on the basis that the national tax authority has not committed an infringement (failure to act) ― that is, it has not delayed payment as regards the non-recoverable part of the value added tax (‘VAT’) … on the taxable persons’ unpaid purchases ― because when the national tax authority adopted its decision, the national legislation infringing Community law was in force and it was not until later that the Court of Justice declared that the requirement laid down in that legislation did not comply with Community law, consistent with the provisions of Community law, with the provisions of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (‘the VAT Directive’) 1 (having regard in particular to Article 183 thereof), and with the principles of effectiveness, direct effect and equivalence?
Is a practice of a Member State which, when the relevant default-interest provisions are examined, distinguishes between whether the national tax authority failed to refund the tax in compliance with the national provisions then in force ― which, moreover, infringed Community law ― or whether it failed to do so in breach of such provisions and which, as regards the amount of the interest accrued on the VAT whose refund could not be claimed within a reasonable period due to a national-law requirement declared contrary to EU law by the Court of Justice, sets out two definable periods, with the result that,
in the first period, taxable persons only have the right to receive default interest at the central bank base rate, in view of the fact that since the Hungarian legislation contrary to Community law was still then in force, the Hungarian tax authorities did not act unlawfully by not authorising the payment within a reasonable period of the VAT included in the invoices, whereas
in the second period interest double the central bank base rate ― applicable moreover in the event of delay in the legal system of the Member State in question ― must be paid only for the late payment of the default interest corresponding to the first period
consistent with Community law, in particular with the provisions of the VAT Directive (having regard in particular to Article 183 thereof), and with the principles of equivalence, effectiveness and proportionality?
Must Article 183 of the VAT Directive be interpreted as meaning that the principle of equivalence precludes a practice of a Member State pursuant to which, on the VAT not returned, the tax authority only pays interest at the central bank base (simple) rate if EU law has been infringed, whereas it pays interest equivalent to double the central bank base rate if there has been an infringement of national law?
AG Opinion
In the light of the foregoing considerations, I propose that the Court answer the questions asked by the Szegedi Közigazgatási és Munkaügyi Bíróság (Administrative and Labour Court of Szeged, Hungary) and the Szekszárdi Közigazgatási és Munkaügyi Bíróság (Administrative and Labour Court of Szekszárd, Hungary) as follows:
(1) The principle of the primacy of Union law must be interpreted, in a situation such as that described by those courts, as precluding a national practice from calculating the interest due to compensate the damage caused by the application of the paid consideration condition, on the basis of a rate corresponding to the one applied by the competent central bank to the main refinancing operations, without either increasing that rate to reflect the rate that a taxable person who is not a credit institution could have obtained to borrow the same amount, or providing any interest to offset monetary erosion as regards the value of the compensation due, when the latter has been calculated on the date on which that damage definitively accrued.
(2) The principles of effectiveness and equivalence of remedies must be interpreted as not precluding a national practice which, in circumstances such as those in the main proceedings, takes as the starting date for the calculation of default interest due for the late payment of the compensation not the date on which the interest as compensation for the main damage first became due, but a later date, provided, on the one hand, that this date is not postponed beyond a reasonable period of time after the obligation to pay that compensation has been recognised and that, on the other hand, the same date is applied in the event of late payment of a compensation based exclusively on national law.
(3) The principles of effectiveness and equivalence must be interpreted as not precluding a national practice requiring taxable persons to introduce a special claim when claiming default interest, if that requirement equally applies irrespective of whether the damage at the origin of the debt for which payment is late arose from a breach of EU law or national law.
(4) The principles of effectiveness and equivalence must be interpreted as not precluding a national practice according to which default interest may be granted only if a taxable person has submitted a claim of which the content does not concern the payment of the compensation due for all the damage inflicted as a result of the application of the paid consideration condition, but the recovery, on the date of repeal of that condition, of the excess deductible VAT existing on that date, if, in order to submit such a request, the taxable person does not need to still have, at that date, an excess of deductible VAT, and that such a requirement also applies in the event of late payment of a compensation for breach of national law.
(5) The principle of effectiveness and equivalence must be interpreted as not precluding a national practice whereby default interest is applied only in respect of the amount of financial loss which occurred during the VAT reporting period preceding the introduction of the request, if the limitation period thus established by that national practice is not too short to allow a reasonably observant and circumspect individual to submit a claim for default interest, if such a condition is not applied retroactively and if it also applies in the event of late payment of a debt resulting from a breach of a rule of national law.
(6) The principles of effectiveness and equivalence must be interpreted as precluding a national practice that definitively deprives taxable persons of the possibility of claiming default interest because the paid consideration condition was in force at the time when it was applied. These principles do not preclude, however, a national practice that definitively deprives taxable persons of the possibility of claiming default interest because the limitation period for making such a claim has expired, if that limitation period is (i) not unreasonably short and (ii) applies also to late payments of debts relating to damage caused by a provision infringing national law.
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Decision
EU law and, in particular, the principles of fiscal effectiveness and fiscal neutrality must be interpreted as precluding the practice of a Member State of calculating interest on an excess of deductible value added tax (VAT) withheld by that Member State beyond a reasonable period in breach of EU law by applying a rate which corresponds to the basic rate of the national central bank, where, first, that rate is lower than that which a taxable person who is not a credit institution would have to pay to borrow a sum equal to that amount, and, second, interest on the excess VAT concerned accrues during a given reporting period, without application of interest to compensate the taxable person for the monetary depreciation caused by the passage of time following that reporting period until actual payment of that interest.
EU law and, in particular, the principles of effectiveness and equivalence must be interpreted as not precluding a practice of a Member State which subjects to a limitation period of five years claims for payment of interest on excess deductible value added tax withheld on account of the application of a national provision which was found to be contrary to EU law.
EU law and, in particular, the principle of effectiveness must be interpreted as not precluding a practice of a Member State which, first, makes the payment of default interest due by reason of the tax administration’s failure to pay it within the prescribed period conditional upon the payment of a claim due in respect of the refund of an excess of value added tax withheld in breach of EU law to the lodging of a specific application, while in other cases such interest is granted automatically, and, second, applies such interest from the expiry of the 30 or 45 day time limit prescribed for the administration to process such an application and not from the date on which the excess was created.
Source
Comments
The principles of effectivity and tax neutrality require that the rules for calculating interest on excess deductible VAT retained by a Member State beyond a reasonable period do not result in the taxable person not receiving reasonable indemnification for a loss suffered due to the unavailability of such amounts, and that the set interest compensates for the economic burden of the amounts unlawfully withheld. The judgments state, inter alia, that where
interest is calculated at a rate lower than that which the taxable person would have to pay to borrow the same amount, and no interest is granted to compensate the taxable person for the reduction of the financial value due to the passage of time from this taxation period until the payment of interest, compensation is not considered adequate
How did countries implement the case?
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