Hungarian Motorsports Development Agency HUMDA Zrt. v. National Tax and Customs Appeals Board (C-397/21)

Refund VAT paid in error – Tax authorities have to refund VAT paid in error as it cannot be recovered from the invoice issuer

Court of Justice of the European Union (CJEU) that the national tax authorities are obligated to refund VAT paid in error to either the recipient or the issuer of the relevant invoice, and that recipients of the invoice can claim VAT from the national authorities in cases where it is impossible, or extremely difficult, to recover the amount from Invoice source.

Hungarian Agency for Motorsport and Green Movement (HUMDA) against the decision to refuse to refund the excess VAT.

In 2015, HUMDA’s predecessor company participated in the construction of Hungary’s national pavilion at that year’s World’s Fair, which was hosted in Milan. In building the pavilion, HUMDA enlisted the help of Bíró Hűtéstechnikai és Acelszerektgyártó Ipari Kft (BHA). The BHA issued nine bills to the predecessor of HUMDA, all of which were paid by the predecessor to HUMDA. BHA then paid VAT on those invoices to the Hungarian tax authorities.

After investigation, it was determined that because the construction of the pavilion had taken place in Italy rather than Hungary, VAT was not payable on the invoices. HUMDA therefore sued the Hungarian courts to recover the amount of VAT paid with interest, which was approximately 320,000 Euros. While the usual practice would have been to recover the VAT directly from the supplier itself, in this case BHA was the subject of winding-up proceedings and BHA’s liquidators argued that the claim was non-refundable.

The Hungarian court referred three specific questions about the VAT directive to the CJEU. These questions relate to:

(1) National authorities were required under the PVD law to refund VAT that was erroneously paid to either the issuer or recipient of the relevant invoice;

(ii) VAT paid in error cannot be claimed directly by the recipients of the invoices from the national tax authorities unless it is impossible, or extremely difficult, to do so otherwise under civil law; And the

(3) The national authorities in such cases were obligated to pay interest on the refund of the relevant VAT.

The CJEU found in favor of HUMDA on questions one and two, concluding that refunds of improperly paid taxes can be claimed from national tax authorities in cases where it is impossible, or extremely difficult, to recover the amount from the billing authority. CJEU also concluded that interest would be payable on the amount in such cases.

why does it matter:

The CJEU ruling was consistent with that in Cigarette factories renamed (C-35/05) in affirming that Member States must provide a mechanism for adjusting any incorrectly invoiced tax in circumstances where the person issuing the invoice acted in good faith. The Reemtsma Principles have been followed in a number of UK Tax Court decisions, and so this provides useful guidance on these principles (even if the decision is no longer binding on UK courts following the EU (Withdrawal Agreement) Act 2020).

The decision can be found here.

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