In the Humda judgment (case C 397/21), the Court ruled once again that if the customer can no longer reclaim (erroneously charged) VAT from his supplier, the tax authorities are obliged to refund these VAT amounts within a reasonable period of time.
The case concerns Hungarian VAT erroneously invoiced by BHA to HUMDA, in the context of a construction project in Milan.
HUMDA paid the Hungarian VAT to BHA and BHA remitted the VAT amounts to the Hungarian tax authorities.
During a tax inspection by the Hungarian tax authorities, they concluded that the transaction was taxable for VAT in Italy (location of immovable property) and therefore should not have been subject to Hungarian VAT.
HUMDA was not able to claim back the VAT from BHA by means of civil proceedings, because BHA was placed in liquidation.
Since HUMDA was not able to recover the VAT from BHA, it submitted a claim to the Hungarian tax authorities for reimbursement of the VAT, plus interest. However, the Hungarian tax authorities rejected the refund request.
HUMDA appealed and argued before the referring Hungarian court that the Hungarian tax authorities are breaching some fundamental principles of EU law (principle of effectiveness, fiscal neutrality and non-discrimination).
1. The referring court is asking whether the fundamental principles of the VAT Directive preclude national legislation and national practice not to refund (erroneously paid) VAT to either the issuer or the addressee of the invoice?
2. If that question is answered in the affirmative, whether the recipient of the invoice (HUMDA) should be able to request the refund directly from the tax authorities instead of BHA (supplier).
3. Finally, the referring court asks the Court whether the tax authorities are obliged to pay interest on the VAT to be refunded and, if so, over what period that interest must be paid.
Can the tax authorities be approached by the customer for VAT (erroneously paid) to the supplier?
In order to recover the incorrectly charged VAT, the customer must first contact his supplier.
The latter must correct his invoices and recover the VAT initially paid from the Tax authorities and subsequently transfer these VAT amounts to the customer.
It is therefore in the first instance up to the supplier to recover the VAT initially charged by means of an application for a refund and, secondly, to the recipient to recover the undue payment from that supplier through a civil procedure.
If the refund of VAT becomes impossible or extremely difficult, for example in the event of the insolvency of the supplier, the recipient should be able to direct his claim directly to the tax authorities. This follows from the Reemtsma judgment.
The court does add that if there is a certain negligence, sanctions in the form of administrative fines may be imposed. However, in the absence of fraud, these sanctions should not take the form of a refusal of the VAT refund that has been incorrectly settled.
The Court of Justice of the EU therefore concludes that Hungary is in breach of EU law by refusing a refund of the VAT that was wrongly paid by HUMDA, in a context where the recovery of the VAT is impossible or extremely difficult because the service provider (BHA) went in liquidation.
Should the tax authorities pay back VAT with interest?
The Court of Justice has already indicated in its previous case law that Member States are obliged to pay interest to the taxable person, if the tax has been imposed in violation of EU law. This interest must then form an appropriate compensation for the loss suffered by the entrepreneur as a result of the undue payment.
Member States are in principle free to determine what is an appropriate interest rate in this regard. The national court must assess whether this interest payment is appropriate on the basis of the principle of effectiveness and the principle of equivalence.
In this case, the Hungarian tax authorities correctly claimed the VAT on the basis of Article 203 of the EU Directive. According to this provision, VAT stated on an invoice is due even if the underlying transaction is not subject to VAT. Consequently, it cannot be held that the VAT in the present case was collected by the tax authorities in conflict with EU law.
However, there is an obligation to provide for a refund if VAT was charged by mistake. Such refund claim can, by its very nature, be compared to an excess of VAT. According to the Court, pursuant to Article 183 of the VAT Directive, interest must be paid on the excess VAT to be refunded, if that refund is not made within a reasonable time.
The Court decides that the Hungarian tax authorities should also pay interest if the refund is not made within a reasonable time.
The judgment is good news for companies that are confronted with incorrectly charged VAT. In principle, this VAT cannot be deducted by the customer, but must be claimed back from their supplier.
However, if the customer can no longer reclaim this VAT from his supplier, the tax authorities are obliged to refund the VAT amounts within a reasonable period of time following a refund request.
The judgment is in fact nothing new. It is a confirmation of the Reemsta doctrine.
An important remark, however, must be made. This case concerns VAT that was paid by the supplier to the tax authorities. This begs the following question: what about suppliers who have not paid the VAT? We can imagine that the tax authorities will try to pass on the risk to the customer for the mistake he made in “wrongly” paying this VAT to the supplier. Whether this is in line with EU law and will therefore pass the test of the EU court is another question…. learning versus traditional classes.