The stricter rules were originally intended to apply for the first time to VAT returns covering 1 July 2026. At the same time, the Hungarian Ministry of Finance indicated that the Hungarian government plans to submit a proposal to the Parliament to ensure that the stricter rules do not have to be applied in practice for any VAT return period.

Why did the change raise questions?

In recent months, we have participated in several professional consultations with NAV regarding the introduction of the M2M (Machine-to-Machine) VAT return solution. During these consultations, the question repeatedly arose as to what justified the tightening of the form M reporting requirements during a period when, according to current plans, VAT data reporting will already take place through an M2M connection or the e-VAT web interface from 1 January 2027.

This question was particularly relevant because the new VAT return solutions do not require the completion of the form M (as detailed invoice data are submitted through these systems anyway). Therefore, the reporting obligation introduced from 1 July 2026 would likely be relevant only on a temporary basis.

What did the NAV say during the consultations?

The response of the NAV was clear: as long as the applicable legislation prescribes a specific obligation, the Hungarian tax authority cannot act differently.

During the professional consultations, representatives of the tax authority emphasised that compliance with the effective statutory provisions is mandatory. Consequently, the question of applying the form M rules is fundamentally not a tax authority issue but a legislative matter.

The solution may come from the legislative side

Based on the statement of the Hungarian Ministry of Finance that has now been published, it appears that this issue has also reached the legislative agenda. According to the statement, the government’s objective is to ensure that the stricter rules do not have to be applied in practice during any VAT return period.

If the Hungarian Parliament adopts the planned amendment, businesses in Hungary will be able to continue fulfilling the form M reporting obligation applicable to invoice recipients in the same way as before, without having to apply the stricter rules introduced from 1 July 2026.

What should businesses monitor in the upcoming period?

At present, the statement of the Hungarian Ministry of Finance reports on a planned legislative amendment. Accordingly, businesses should continue to monitor legislative developments and official communications issued by the NAV to ensure they are informed of the final rules in a timely manner.

The tax advisers of WTS Klient Hungary continuously monitor the legislative process surrounding the digitalisation of VAT returns and can provide clients with the most up-to-date answers to questions arising in this area. In addition, the experts of our Digital Solutions business line, who have extensive experience in both IT development and taxation, are ready to assist you with the transition to the Hungarian e-VAT system and preparations for the implementation of M2M VAT reporting. Contact us today to benefit from expert support from the very beginning of the process.

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In practice, this means that a formally compliant invoice and a genuinely performed transaction are no longer sufficient in themselves to guarantee the safety of the right to deduct VAT. Although the Hungarian tax authority and the courts had already examined in previous years to what extent the taxable person was aware of potential tax evasion connected to certain transactions, and whether such evasion could reasonably have been recognised, Opinion No. 1/2025. KK represents a declared shift in emphasis in both administrative and judicial approaches in Hungary.

A paradigm shift in the assessment of the right to deduct VAT?

One of the key messages of the new Curia opinion is that the refusal of the right to deduct VAT is not merely an “objective” issue but essentially depends on the qualification of the taxpayer’s conduct and state of awareness. This reflects the transposition of European Court of Justice case law from the past decade into Hungarian judicial practice, and a definitive departure from the tax authority’s earlier tendency to objectify the liability of invoice recipients, particularly in subcontractor chains. At the same time – alongside the direction and scope of the tax authority’s burden of proof – it places business partner due diligence and compliance processes of companies in Hungary into a new perspective.

Cases of refusal of the right to deduct VAT

The Curia identifies four clearly distinguishable categories, each requiring different evidentiary standards and tax authority approaches:

1. Intentional active conduct – non-existent economic transaction

The classical case remains where no actual performance underlies the invoice. If the tax authority proves that the economic event did not occur, this alone justifies the refusal of the right to deduct VAT, and further examination of the invoice recipient’s state of awareness is not relevant in this category.

2. Intentional active conduct – abuse of rights

A major element of the new opinion is the structured incorporation of the previously known but less systematised “Halifax test” into Hungarian judicial practice.

Accordingly, the right to deduct VAT may also be refused where:

• the transaction formally complies with applicable legislation,
• but results in a tax advantage contrary to the purpose of VAT rules,
• and objective circumstances indicate that the primary purpose of the transaction was to obtain that tax advantage.

The examination of this possibility is particularly important in the case of:

• complex structures,
• chain transactions,
• intermediary arrangements, or
• economically questionable transactions

In this category, the invoice recipient may face a tax penalty amounting to 200% of the tax difference, and in extreme cases even criminal proceedings.

In practice, however, the greatest risk for companies does not stem from overtly fraudulent schemes, but from the two categories of passive participation.

3. Knowing passive participation

Knowing passive participation refers to situations where the taxpayer does not itself commit tax evasion but is aware that another participant in the transaction or supply chain engages in abusive conduct and still takes part in the transaction.

In such cases, the Hungarian tax authority must prove:

• the existence of tax evasion, and
• that the taxpayer had knowledge of it.

4. Negligent passive participation: the new “key focus area”

A genuine novelty of Opinion No. 1/2025. KK is the recognition of negligent passive participation as a separate category.

In practice, this means that the right to deduct VAT may also be refused if the taxpayer did not actually know about the fraud but could have recognised it with the level of due care reasonably expected.

In cases of passive participation:

• criminal liability of the invoice recipient does not arise,
• however, a “standard” tax penalty (up to 50% of the tax difference) may apply.

Payment of VAT does not provide protection

It is important to emphasise that, according to the Curia in Hungary, the existence of tax evasion does not depend exclusively on a loss of tax revenue to the state budget. In other words, the mere fact that VAT relating to the transaction has been paid into the state treasury by someone does not automatically render the VAT deduction lawful on the recipient’s side.

This represents a significant shift in approach, as taxpayers previously often argued that “the VAT was ultimately paid,” and therefore no actual budgetary loss occurred. Under the new approach, however, the focus is no longer solely on the outcome, but on the legality of the transaction and the conduct of the parties involved.

What can the Hungarian tax authority expect from a “reasonably prudent” taxpayer?

With Opinion No. 1/2025. KK, the Curia has effectively confirmed in writing the Hungarian tax authority’s evolving audit practice, which increasingly focuses on:

• the circumstances of selecting business partners,
• the realism of pricing,
• the economic rationality of the transaction,the actual operation of business partners,
• the depth of partner due diligence performed by the taxpayer.

Currently, there is no detailed public guidance of the Hungarian tax authority specifying exactly which due diligence steps are sufficient. In practice, expectations typically emerge retrospectively during audits, in audit reports or resolutions. However, based on audit experience, the following can be expected:

• verification of the partner’s VAT number and company data,
• examination of representation rights,
• verification of actual business activity,review of references, online presence, registered seat and infrastructure,documented assessment of unusual pricing or structures,
• evidentiary documentation of the circumstances of performance.

Particularly in higher-risk industries or in high-value transactions, it may become a key issue whether the taxpayer can demonstrate that it has taken all reasonably expected steps, potentially exceeding standard due diligence measures.

Typical risk indicators

Enhanced partner due diligence is required in particular in the following circumstances:

• unusually low prices,
• relatively newly established or undercapitalised partners,
• difficult-to-reach management,unrealistic performance conditions,cash-based structures,
• lack of economic rationale.

What should companies do now?

Based on Opinion No. 1/2025. KK, it is clear that traditional “paper-based compliance” is no longer sufficient. The tax authority increasingly examines companies’ internal control systems, decision-making processes and partner due diligence mechanisms.

Therefore, it is particularly advisable for companies in Hungary to:

• review partner due diligence processes,
• establish internal checklists and documented procedures,
• conduct prior tax expert reviews of high-risk transactions,
• document business decisions and control steps,
• provide targeted training for finance and procurement staff.

The new Curia opinion confirms that the loss of the right to deduct VAT not only threatens businesses participating in intentional fraud, but also those unable to credibly demonstrate that they acted with due care. It is therefore clear that VAT risk is no longer merely an invoicing or documentation issue, but a complex compliance and risk management matter. If your company requires an experienced tax professional to assess VAT risks in Hungary, feel free to contact us with confidence.

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What was the case about?

A Croatian company sold timber to another EU Member State. The company acted as many businesses typically do in everyday operations: based on invoices, transport documents and customer confirmations, it applied the VAT exemption for intra‑Community supply.

However, the Croatian tax authority rejected the VAT exemption. According to its reasoning, the submitted documents did not fully comply with the proof requirements listed in Article 45a of Implementing Regulation 282/2011/EU (the so-called Quick Fixes) – even though the authority itself fully acknowledged that the goods had actually left Croatia.

The Croatian court initiated a preliminary ruling procedure to clarify whether the VAT exemption may be denied solely because the taxpayer does not rely on the documents explicitly listed in the regulation to prove the dispatch of goods to another Member State.

Essence of the Court’s decision

1. The evidence under Article 45a is not exclusive

The Court stated that Article 45a of the Implementing Regulation is not exhaustive. It creates a presumption regarding the dispatch of goods to another Member State, but it does not restrict the taxpayer from relying on other types of evidence to prove the reality of the EU cross‑border supply of goods.

2. The tax authority may not automatically deny the exemption

The Court emphasised that VAT exemption cannot be denied solely on formal grounds if the transaction was in fact an intra‑Community supply. The tax authority must assess all relevant evidence, even if such evidence is not listed in Article 45a.

3. Proportionality of the burden of proof and protection of taxpayers

The Court reaffirmed that the tax authority may only deny the exemption if objective circumstances show that the taxpayer abused the rules or if the transaction did not take place. The evidentiary requirements must remain proportionate and must not impose an unreasonable burden on the taxpayer.

Why is this CJEU decision important in practice?

• More flexible evidentiary framework: The decision ends the rigid, formalistic approach where authorities denied VAT exemption even when the goods had undeniably left the Member State.

• Obligations of tax authorities: National authorities must now examine a broader set of evidence, not only the prescribed list.

• Positive precedent for businesses: Particularly in commercial practice – where shipments cannot always be documented strictly according to the Regulation – taxpayers now have more flexible opportunities to prove the VAT exemption of an intra‑Community supply.

The conflict between the current practice of the Hungarian tax authority and the CJEU’s interpretation

The Hungarian tax authority often ties the application of VAT exemption for an intra‑Community supply strictly to the presence of the documents listed in Article 45a, even if the transaction has clearly taken place. In many cases the Hungarian tax authority does not accept alternative evidence at all and automatically assesses a VAT difference due to deficiencies in the Quick Fixes documentation.

The Flo Veneer judgment sends a clear message: the evidentiary system is flexible, and the actual fulfilment of the transaction prevails. The decision aligns with the CJEU’s consistent case law, according to which economic reality is paramount in the application of VAT exemptions, and formal requirements may not override actual transactions. This significantly enhances legal certainty in the field of intra‑Community supply, including for Hungarian businesses.

The Hungarian tax authority will need to adapt its practice accordingly, which requires a substantial shift in mindset and audit methodology: instead of focusing on formal errors, economic reality must be examined. Once this happens, the Hungarian tax authority is expected to place greater emphasis on risk analysis and the verification of actual fulfilment, since it must accept a wider range of documents such as bank transfers, customer delivery confirmations, warehouse dispatch documents, and even GPS data. This could create a more predictable environment for businesses operating in Hungary.

What do we recommend?

• Documentation should continue to be organised and consistent.
• Companies involved in intra‑Community supply should retain all evidence supporting the dispatch of goods.
• Businesses should review their contracts with transporters and their internal procedures.

If you need expert support regarding the VAT processes of your intra‑Community supply, the VAT advisers of WTS Klient Hungary are ready to assist you with reviewing internal procedures, designing documentation systems or preparing for Hungarian tax authority audits. Feel free to contact us and request a proposal!

This article provides general information and does not constitute advice.

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