Exercise of the right of the VAT deduction

Court of Justice of the European Union (CJEU) issued a sentence explaining the exercise of the right of the VAT deduction.

The request for a preliminary ruling was lodged by Administrative and Labour Court (Hungary). The case concerned the company which lodged an application for a refund with the tax authority for overpaid VAT (approximately EUR 12.4 mln) in respect of input VAT paid in September 2011. Following the application and prior to the refund claimed, the tax authority initiated an investigation procedure concerning the legality of the claim.

During the investigation, the tax authority sent to company numerous requests for data disclosure and imposed three fines on the ground of delay in responding to some of its requests, since the delay in its replies was, according to that authority, found to have obstructed the conduct of the investigation. Then the tax authority returned the company approximately EUR 5.9 mln as a partial refund of the overpaid VAT. In connection with that partial refund, the company requested that authority to pay it approximately EUR 1.3 mln as default interest.

The tax authority rejected the request on the ground that the company was fined for obstruction of the investigation of the legality of the claim for refund of the overpaid VAT, and any default interest were to be calculated from the date of the delivery of the formal report containing the findings of the investigation.

The company brought an action before the Court challenging the decision of the tax authority refusing its application. Company submitted before that court that national legislation, under this case, is contrary to EU law, in particular, to the principles of proportionality, legal certainty and fiscal neutrality. Furthermore, the investigation procedure at issue in the main proceedings took more than two years for reasons which were not connected with the late disclosure of the information requested, but in principally with the actions of the tax authority.

The CJEU stated in the judgment, that although the VAT Directive does not lay down any obligation to pay interest on a refund of overpaid VAT or the date from which such interest is payable, it cannot be concluded from that fact alone that regulation must be interpreted as meaning that no control may be exercised under EU law over the procedures established by Member States for the refund of overpaid VAT.

Nevertheless, national legislation or practices according to which the mere fact that a taxable person has been fined due to his negligence during a tax investigation to which he was subject allows the tax authority to extend that investigation over a period not justified by that negligence, without having to pay him default interest, cannot be considered to be compatible with the requirements arising from the principle of fiscal neutrality.

In consequence, in a situation such as that at issue, for the purposes of determining whether default interest is due and, where relevant, the point in time from which the right to such interest arises, the proportion of the duration of the tax investigation procedure which can be attributed to the conduct of the taxable person must be ascertained.

It should be noted that when national courts apply domestic law they are bound to interpret that law, so far as possible, in the light of the wording and the purpose of the directive concerned in order to achieve the result sought by the directive.


Source: Judgment of the Court of Justice of the European Union 6 July 2017 (C-254/16).

Po polsku: