On April 10, 2024, the ECJ issued its Order in the Case C-532/23 (Lear Corporation Hungary).
Context: Reference for a preliminary ruling – Article 99 of the Rules of Procedure of the Court of Justice – Questions the answer to which may be clearly deduced from the Court’s existing case-law – Taxation – Value added tax (VAT) – Directive 2006/112/EC – Article183 – Right to deduct input VAT – Rules governing exercise of that right – Late refund – Delay caused by the application of a national provision – Effect of a preliminary ruling given by the Court after those facts occurred – Late payment interest– Limitation – Principles of equivalence, effectiveness and fiscal neutrality
Article in the EU VAT Directive 2006/112/EC
Article 183 in 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
- Lear Corporation produces equipment for motor vehicles at several sites located in Hungary. For the VAT return periods from December 2005 to July 2011, it was unable to rely on its right to a refund of VAT because of the existence of the condition then in force and referred to in paragraph 4 above, known as the ‘paid consideration condition’, according to which only purchases paid in full gave rise to a right to deduct input VAT.
- In the judgment of 28 July 2011, Commission v Hungary (C‑274/10, EU:C:2011:530, paragraph 54), the Court held that Article 183 of Directive 2006/112 did not permit Member States to impose a condition relating to the payment of the amount due for the transaction at issue on the exercise of the right to a refund of a deductible VAT excess.
- Following that judgment, the Hungarian legislature adopted the Law amending the law on VAT. However, that new law does not contain any rule providing for compensation to taxpayers for the financial damage resulting from the application of the ‘paid consideration condition’, which was held to be incompatible with EU law.
- On 30 September 2011, Lear Corporation, pursuant to the Law amending the law on VAT, submitted a claim for recovery of VAT relating to the period referred to in paragraph 10 above. The Hungarian tax authority refunded Lear Corporation the amount of VAT claimed, without, however, paying late payment interest.
- In the order of 17 July 2014, Delphi Hungary Autóalkatrész Gyártó (C‑654/13, not published, EU:C:2014:2127, paragraph 39), the Court held that EU law, and in particular Article 183 of Directive 2006/112, must be interpreted as precluding the legislation and practice of a Member State which exclude the payment of late payment interest on the amount of VAT which was not recoverable within a reasonable period due to a national provision held to be contrary to EU law.
- In that judgment, the Court stated that, in the absence of relevant EU legislation, it was for that Member State to determine, in compliance with the principles of equivalence and effectiveness, the procedure for the payment of such interest, which must not be less favourable than those applicable to actions based on infringement of national law having a similar purpose and cause of action to those based on the infringement of EU law (principle of equivalence) or be arranged such as to render the exercise of rights conferred by the EU legal order virtually impossible or excessively difficult (principle of effectiveness).
- On 23 December 2014, referring to the order of 17 July 2014, Delphi Hungary Autóalkatrész Gyártó (C‑654/13, EU:C:2014:2127), Lear Corporation submitted to the Nemzeti Adó- és Vámhivatal Kiemelt Adózók Adóigazgatósága (Tax Directorate for Large-scale Taxpayers of the National Tax and Customs Administration, Hungary) (‘the first-instance tax authority’) a claim for late payment interest in the amount of HUF 457 916 030 (that is, on the date of that request, approximately EUR 1 458 656) for late refund of VAT (‘late payment interest’). It also claimed interest on account of late payment of late payment interest (‘compound interest’) for the period from 1 January 2008 to 31 July 2011.
- Following the rejection of its application by the first-instance tax authority, Lear Corporation brought the matter before the Appeals Directorate, which, by decision of 12 October 2015, set aside the decision taken by that authority and ordered it to rule on the case afresh.
- By decision of 10 November 2015, delivered at the end of the review procedure, the first-instance tax authority granted Lear Corporation’s request in part. By a supplementary claim submitted on 2 November 2016, Lear Corporation asked that authority to supplement its decision by awarding it an amount of HUF 122 108 685 (that is, on the date of that additional claim, approximately EUR 396 380), by way of compound interest, claiming the first-instance tax authority should have awarded it the compound interest of its own motion.
- In a judgment of 24 November 2016, the Kúria (Supreme Court) ruled on the practice followed by the Hungarian tax authority, in order to give due effect to the order of 17 July 2014, Delphi Hungary Autóalkatrész Gyártó (C‑654/13, EU:C:2014:2127). On the basis of that order, it adopted the decision of principle No 18/2017, in which it set out the procedure for calculating late payment interest on the amounts of VAT not recoverable because of the ‘paid consideration condition’, repealed by the Law amending the law on VAT.
- In the light of that decision of principle, the Appeals Directorate, by decision of 7 March 2017, annulled the decision of 10 November 2015 and ordered the first-instance tax authority to carry out a further examination of Lear Corporation’s claim for late payment interest. By decision of 18 April 2017, that authority granted that request in part, awarding late payment interest in the amount of HUF 225 825 000 (that is to say, on 18 April 2017, approximately EUR 720 585), calculated on the basis of the Hungarian Central Bank base rate, for the period between 1 January 2008 to 31 July 2011.
- Lear Corporation, not satisfied with that decision, brought an action before the Appeals Directorate, requesting that it also be awarded late payment interest for the period between December 2005 and December 2007, in order to take into account the entire period during which it had not been able to rely on its right to a refund of VAT, in the light of the decision of principle No 18/2017 of the Kúria (Supreme Court).
- After observing that Lear Corporation had submitted its claim for late payment interest on 23 December 2014, that is to say, within the limitation period imposed under penalty of becoming time-barred, by expressly stating therein the period from 1 January 2008 to 31 July 2011 as the period on which that request was based, the Appeals Directorate considered that, having regard to the principle that the parties have the right to limit the subject matter of an action, the first-instance tax authority was required to rule only on that claim. That directorate therefore took the view that the claim for late payment interest for the period from 1 December 2005 to 31 December 2007 should be examined as a new claim. Consequently, the Appeals Directorate referred the case back to that authority for it to rule on the award of late payment interest sought in that claim.
- By decision of 1 September 2017, the first-instance tax authority rejected that claim on the ground that it was out of time, given that, by virtue of the decision of principle No 18/2017, the award of late payment interest was expressly subject to a request submitted by a taxpayer who, in view of the limitation period, could be made only until 31 December 2016. That decision was confirmed by the Appeals Directorate on 1 December 2017.
- Lear Corporation therefore brought an action before the Fővárosi Törvényszék (Budapest High Court, Hungary), claiming that it was also entitled to receive late payment interest corresponding to the period from December 2005 to December 2007 inclusive, on the ground, inter alia, that, by submitting the request referred to in paragraph 13 above in 2011, it had asserted its right to a refund of VAT, which would have been the condition for the grant of interest. It recalled that it had specifically submitted a claim for late payment interest on 23 December 2014, that is to say, within the limitation period, and that, under the decision of principle No 18/2017, the first-instance tax authority should have paid it such interest for the entire period concerned without being bound, in that regard, by the terms of its application, since the principle of effectiveness must prevail over the principle that the parties have the right to limit the subject matter of an action.
Questions
Must Article 183 of Council Directive 2006/112/EC of 28 November 2006 1 on the common system of value added tax (‘the VAT Directive’), and also the principles of equivalence and effectiveness, be interpreted as meaning that, when a taxpayer requests a refund of value added tax (VAT) which he or she could not request previously due to the application of a regulatory requirement that has been declared, in a judgment of the Court of Justice, to be contrary to EU law, it is appropriate to consider that, in that case, the refund request at the same time constitutes a claim for late payment interest, in view of the incidental nature of the interest and the fact that the claim for late payment interest is governed by the same provision of national law as regulates the request for the refund of the VAT, the late repayment of which has caused the default?
Is a practice of a Member State compatible with the principles of equivalence and effectiveness, and also, especially, with the principle of fiscal neutrality, where, pursuant to that practice, in the context of an administrative procedure relating to tax, relying on the principle that the parties have the right to limit the subject matter of an action (‘the dispositive principle’), a subsequent claim by the taxpayer for late payment interest is rejected on the grounds that his or her first claim for late payment interest, which gave rise to the procedure being initiated, did not include the additional period referred to in the subsequent claim, such that the subsequent claim is classified as a new claim and is declared time-barred, even though the tax authority did not consider itself to be bound in any way by the dispositive principle in relation to the taxpayer’s first claim, but rather has invoked that principle exclusively in relation to the late payment interest claimed for a period that, at the time when the claim giving rise to the initiation of the procedure was submitted, was not yet known, that period having been defined by case-law while that procedure was under way?
Having regard to the principles of equivalence, effectiveness and fiscal neutrality should a subsequent claim submitted in the context of an administrative procedure relating to tax, on the basis of the case-law established by the courts, be regarded as constituting a supplement to the first claim, which gave rise to the procedure being initiated, or as a modification of that first claim, where the two claims only differ as regards the interest payment period?
Is a practice of a Member State compatible with the principles of equivalence, effectiveness and fiscal neutrality where, pursuant to that practice, a claim submitted after the expiry of the limitation period is declared time-barred without examining whether admissible circumstances exist which may have suspended or interrupted the limitation period, especially in view of the fact that the first claim was submitted by the applicant in 2014, and also that, even though during the limitation period the current legislation was not amended, given that that legislation only established the requirements for requesting a refund of the VAT, in the absence of relevant rules, the Kúria (Supreme Court, Hungary) and the Court of Justice, by means of an extensive interpretation of that legislation, defined in case-law the requirements for claiming late payment interest, such that, during a decisive part of the limitation period of five years, the rules for claiming late payment interest were not only not known by or clear to taxpayers, but rather they did not even exist in the form of legislative provisions?
AG Opinion
- None
Decision (Order)
- 1. Article 183 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted, in the light of the principles of equivalence, effectiveness and fiscal neutrality, as meaning that when a taxpayer person claims a refund of value added tax (VAT) which he or she could not request previously due to the application of a regulatory requirement that the Court has held to infringe that article, it does not preclude, in the circumstances provided for by the law of the Member State concerned, that claim for a refund from being regarded as also including a claim for late payment interest, having regard to the purpose of the payment of interest on excess VAT retained by a Member State in breach of the rules of EU law, which is intended to compensate the taxpayer for the financial loss that he or she incurred owing to the unavailability of the amounts concerned.
- 2. The principles of effectiveness and fiscal neutrality must be interpreted as meaning that they (a) do not preclude a practice of a Member State which consists of excluding any obligation on the part of the tax authority of that State to allocate, at the stage of a claim for late payment interest, submitted within the limitation period, relating to amounts of VAT retained by that State in breach of EU law, interest not covered by that claim, but, in contrast, (b) do preclude that authority from classifying as new, with the consequence that it is time-barred, a second claim for late payment interest referring to a period which was not the subject of that first claim, where the second claim concerns late payment interest relating to amounts of VAT retained on account of the same infringement of EU law as that on which the first claim was based and where the possibility of extending the temporal scope of that claim was not known to the taxpayer until after the adoption of a national judicial decision following a decision of the Court delivered in the exercise of the jurisdiction conferred on it by Article 267 TFEU.
- 3. The principles of effectiveness and fiscal neutrality must be interpreted as meaning that they imply that, in accordance with the procedure which it is for each Member State to determine in the light of its national law, a second claim for late payment interest referring to a period which was not the subject of a first claim for payment of such interest must be regarded as supplementing that first claim (a) where that second claim concerns late payment interest relating to amounts of VAT retained on account of the same infringement of EU law as that on which the first claim was based and (b) where the possibility of extending the temporal scope of that first claim was known to the taxpayer only after the adoption of a national judicial decision following a decision of the Court delivered in the exercise of the jurisdiction conferred on it by Article 267 TFEU.
Summary Order
Article 183 of Council Directive 2006/112/EC must be interpreted in line with the principles of equivalence, effectiveness, and fiscal neutrality. It allows a taxpayer to claim a refund of VAT, including late payment interest, when previously unable to do so due to a regulatory requirement infringing EU law. The principles also allow for a second claim for late payment interest if the temporal scope was not known to the taxpayer until after a national judicial decision following a decision of the Court.
Source
- Join the Linkedin Group on ECJ VAT Cases, click HERE
- VATupdate.com – Your FREE source of information on ECJ VAT Cases
