HUNGARIAN VAT REGULATIONS ARE CONTRARY TO THE EU LAW

In a recent case the European Court of Justice considered that certain Hungarian regulations in connection with late payment interest are contrary to the EU law. A grain trader Hungarian company had requested to refund of about HUF 4.5 billion VAT from the tax authority. However, before the refund, the authority performed a tax audit, in the course of which the authority imposed default penalty on the company several times due to the breach of submitting the requested documents. Due to the fact that the tax audit procedure extended for a long time, the company did not receive the amount of the refund until the procedure was done, thus, it required the tax authority to pay the late payment interest, which was refused by the tax authority.

The Budapest-Capital Administrative and Labour Court decided that it was not the fault of the company that the tax audit procedure was prolonged for a long time. In addition, the Court has asked the European Court of Justice to confirm whether Hungarian provisions that suspense the payment of the tax refund until the tax authority audit is completed without any indemnification provided that default penalties were imposed on the taxpayer during the procedure are in conformity with the EU rules.

The European Court of Justice ruled that the EU law must be interpreted as precluding national legislation under which, where a tax investigation procedure is initiated by a tax authority and where a taxable person is fined for failure to cooperate, the date of the refund of overpaid value added tax may be delayed until the formal report on that investigation is delivered to the taxable person and the payment of default interest may be refused, even where the duration of the tax investigation procedure is excessive and cannot be attributed entirely to the conduct of the taxable person.