The increased activity of the Court of Justice of the European Union is exerting a growing impact on the cross-border business activities of companies and on related tax issues. We recently reported on the ruling of the Court of Justice of the European Union in case no. C 628/16, which affected the tax law judgement on chain transactions, while somewhat earlier we closely examined the ruling influencing the judgement on leasing VAT and another one affecting reverse charging. Now we turn the spotlight on a judgment detailing when the right to deduct VAT and the right for a refund of VAT arise.
It took 6 years to realise they were doing things wrongly
On 21 March 2018 the Court of Justice of the European Union published its judgment in case no. C‑533/16, namely the case initiated by an application for a preliminary ruling submitted by the Najvyšší súd Slovenskej republiky (Supreme Court of the Slovak Republic) on 20 October 2016. In this case, companies related to the Hella Group (Hella companies) sold casting moulds for the manufacture of lights for Volkswagen AG (Germany) passenger cars, with the place of performance being Slovakia.
The Hella companies did not include VAT on their invoices because they considered the transactions not as supplies of goods but as “financial compensation”, which is exempt from VAT. However, in 2010 they realised this was incorrect, and issued invoices charging the VAT due by Volkswagen AG, and filed corrective VAT returns for the period between 2004 and 2010 and paid the unpaid tax to the Slovak state.
Was the right for a refund of VAT statute-barred?
Volkswagen submitted an application to the Slovak tax authority for a refund of the VAT charged on the supplied goods. The Slovak tax authority partly upheld Volkswagen’s application and ordered a VAT refund for the supply of goods between 2007 and 2010. However, it dismissed the refund of VAT for the supplies between 2004 and 2006 with reference to the fact that the right for a refund of VAT arose on the date of delivery of the goods, namely, at the same time as the tax liability.
Consequently, the right for a refund of VAT for the period from 2004 to 2006 had expired by the time the application for a refund was submitted (these periods are statute-barred). In Slovakia the case was forwarded to the Supreme Court, which turned to the Court of Justice of the European Union for a legal interpretation.
Member state legislation contradicting European Union law
According to the ruling of the Court, any Member State legislation under which in circumstances such as those at issue in the main proceedings in which the benefit of the right for a refund of VAT is denied on the grounds that the limitation period provided for the exercise of that right began to run from the date of supply of the goods and expired before the application for a refund was submitted is contradictory to European Union law.
The Court declared that a refund of VAT may be requested if all substantive and formal conditions giving rise to a right to deduct VAT are met, namely, it is not enough that the transaction was performed, the invoice is also necessary for the VAT refund.
A major modification of the rules on deducting input VAT entered into force in Hungary on 1 January 2016, which must be adopted in practice by taxpayers from 2018.
If you have any questions about VAT deductions or the right for a refund of VAT, do not hesitate to contact the VAT consultants of WTS Klient Hungary.