Flashback on ECJ Cases – C-274/10 (Commission v Hungary) – No limitation of refund if invoices are not paid

On July 28, 2011, the ECJ issued its decision in the case C-274/10 (Commission v Hungary).

Context: Failure of a Member State to fulfil obligations – Taxation – VAT – Directive 2006/112/EC – Right to deduct – Procedures for exercise – Article 183 – National legislation allowing the refund of VAT excess only if it exceeds the amount of input tax corresponding to transactions not yet paid for

Article in the EU VAT Directive

Article 183 in the EU VAT Directive 2006/112/EC.

Article 183 (Right to deduct VAT – Rules Governing Exercise of the Right of Deduction)

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 & Questions

Taking the view that the national legislation requiring taxable persons to carry the excess forward within the meaning of Article 183 of Directive 2006/112 to the following tax period, where that excess includes an amount of input VAT corresponding to transactions for which the taxable person has not yet paid consideration, infringed that directive, the Commission decided to initiate the procedure provided for by Article 226 EC and sent a letter of formal notice to the Republic of Hungary on 21 March 2007.
That Member State replied to the letter of formal notice by letter of 30 May 2007 in which it disputed that any law of the European Union had been infringed.
As it still took the view, after receiving that reply, that the Republic of Hungary had not fulfilled its obligations under Directive 2006/112, the Commission issued a reasoned opinion on 8 October 2009 calling on that Member State to take the necessary measures to comply with it within two months of receiving it.
As the Republic of Hungary replied to that reasoned opinion by letter of 16 December 2009 claiming that there had been no infringement of European Union law, the Commission decided to bring the present action.

AG Opinion

1. declare this action for failure to fulfil obligations well founded in so far as the European Commission alleges that the Republic of Hungary has failed to comply with its obligations under Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax:

– by requiring taxable persons whose tax declaration for a given tax period records an ‘excess’ within the meaning of Article 183 of Directive 2006/112 to carry forward that excess or a part of it to the following tax year where the taxable person has not paid the supplier the full amount for the purchase in question, and

– because, as a result of that requirement, certain taxable persons whose tax declarations regularly record such an ‘excess’ may be required more than once to carry forward the excess to the following tax year.

2. order the Republic of Hungary to pay the costs.

Decision

1. Declares that the Republic of Hungary,

– by requiring taxable persons whose tax declaration for a given tax period records an ‘excess’ within the meaning of Article 183 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax to carry forward that excess or a part of it to the following tax period where the taxable person has not paid the supplier the full amount for the purchase in question, and

has failed to fulfil its obligations under that directive.

Simmeary

The Republic of Hungary has failed to fulfill its obligations under the VAT Directive,

– by requiring taxable persons whose tax returns for a given tax period show a surplus within the meaning of Article 183 of this Directive to carry forward all or part of that surplus to the next tax period if they do not provide their supplier with the full amount of the relevant purchase have paid, and

– because certain taxpayers whose tax returns regularly show a surplus are forced, as a result of this obligation, to carry over that surplus several times to the next tax period.

Source: