A piece of Switzerland in Hungary
A piece of SwitzerlandABT blog
The Court of Justice of the European Union has in case no. C-292/19 decided that the subsequent reduction of the VAT base possible, if the vendor can prove that his claim against his debtor has become definitively irrevocable.
Dear Clients! Dear Readers!
Recently the Court of Justice of the European Union has made a decision in a case relating to Hungary according to which the Member States shall make the subsequent reduction of the VAT base possible, if the vendor can prove that his claim against his debtor has become definitively irrevocable.
In our Newsletter the consequences of this decision are summarized for the companies concerned, which have not yet reduced their VAT liabilities in similar circumstances.
The classification of claims according to the accounting and tax rules has always required special caution. Basically, a supply of goods or the provision of services may really be claimed if the customer has accepted them, that is he/she has not disputed them. In practice we often encounter cases when an invoice is issued but the other party that is the customer dropped objections against the delivered product or disputed the provision of the given service. In such a case no real claim can be spoken about, and the dispute shall be resolved in another way, and the grand total of the invoice as well as the invoiced VAT have to be adopted to the agreement.
The new regulation detailed below only applies to cases when the issued invoice is about a sale that is not disputed but accepted by a customer, and in which VAT was also charged, but the invoice - primarily due to insolvency - was not paid by the customer.
The partial or complete recovery (more precisely the subsequent reduction of the tax base) was not hitherto possible on the basis of the Hungarian VAT Act if the debtor did not partially or completely pay the debt to his/her business partner. So in connection with the non-performance of the debtor the vendor could not claim the VAT paid to the budget from the tax authority.
In its order the Court relied on the principle of the Directive on the Community value added tax (VAT Directive), according to which the tax authority is not allowed to collect a higher amount of tax than the one, which the taxpayer, in this case the vendor, collected from the customer. In the case of the mentioned jurisprudence the taxability of the debtor was terminated in the liquidation process, the claim clearly became 'finally irrevocable', thus the reduction of the VAT base became possible according to the Court, and thus the vendor can be refunded the paid VAT by the Hungarian tax authority.
Due to the mentioned ruling of the Court of Justice of the European Union the VAT non-deducted and non-paid partially or fully to the customer by the vendor within the limitation period - even in the following tax return - can become reclaimable.
It means that VAT obligations arising in December 2013 in case of a monthly VAT return and In case of a quarterly VAT return arising in the last quarter of 2013 can be amended until the end of 2019.
In case of reclaim it shall be taken into account that the tax authority will examine all the circumstances and documents in the specific case during a tax inspection before allocation. If the tax authority refuses the reduction of the tax base in judicial proceedings can the VAT be claimed from the tax authority.
It is noted that neither the Court of Justice of the European Union nor the VAT Directive defines the term and conditions of 'finally irrevocable claim', and the examination of the uncollectability fall under national competence. The conditions of the finally irrevocable claim shall be proven by the vendor before the national tax authority or before court.
Before the reduction of the VAT base in the actual tax return it is worth considering carefully how proportionate the VAT amounts to be claimed are to the expected costs and risks.
As a result of some previous decisions made by the Court of Justice of the European Union this summer he Parliament has modified the rules of tax base reduction and tax refund relating to the finally irrevocable claims.
Based on the changes to be in force from 2020 the vendor will subsequently be able to reduce the tax base provided the claim arising out of the invoice is considered to be uncollectible.
The conditions of VAT reclaim are described in details in our Newsletter on the amendments to tax laws adopted in the summer.
In case you also have claims which you have been trying to recover unsuccessfully for a long time, our professionals will be pleased to help you decide whether the charged VAT may be recovered in the light of the above changes.
Kind regards,
ABT Treuhand Group
Date: 22. November 2019 | Topic:
The above summary is provided for information purposes only. We recommend that you consult our experts before making any decision based on this information.
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