Hungary: VAT rules contrary to EU law

Hungary
27/04/2009
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The ECJ has ruled that the Hungarian tax authorities should not have reduced the amount of input VAT it allowed taxpayers to deduct in respect of goods acquired to reflect to the extent to which they had been financed by state subsidies.

This provision of the Hungarian VAT Act was in force from the date of Hungary’s accession to the EU on 1 May 2004 until 1 January 2006 but, when it was repealed, the repeal was not retroactive.

The ECJ not only decided that the provision infringed Article 17 of the Sixth VAT Directive but also ruled that taxpayers could rely directly on the Directive to recover any input VAT they had been prevented from deducting.

However, the Hungarian Parliament is expected to adopt legislation limiting the period within which claims may be brought to 180 days from the date of the ECJ’s judgment (23 April 2009). It is also likely that the tax authorities will refuse to reimburse any input VAT which was itself financed by a state subsidy.

Prospective claimants will need to act quickly, not only in making a careful assessment of their VAT records for the relevant period but also in analysing the nature and amount of any state subsidies received. Please contact us if you require any assistance in understanding the implications of this decision for your business.

Law: ECJ case C-74/08: PARAT Automotive Cabrio Textiltetőket Gyártó Kft; Article 38(1)(a) of Law No LXXIV of 1992

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