VAT on bad debts – new opportunities based on a recently published resolution of the European Court of Justice
Based on Hungary's VAT Act, and the related practice of the Tax Authority, the refund of VAT was not possible for a supplier, if the consideration had not been paid by the purchaser of the goods or services.
The amendment of the VAT Act, coming into force by 1 January 2020, enforced by previous judgements of the European Court, enables the retrospective reduction of tax base in the case of VAT related to considerations, which are deemed as irrecoverable, if the strict conditions set out by the VAT Act are fulfilled. However, the new rules are only applicable to transactions performed before its entry into force, if the related supply date falls after 31 December 2015.
Based on the request submitted by a Hungarian court, in the case no. C-292/19 the European Court of Justice ruled in a recently-published resolution that each member state shall enable the retrospective reduction of the value-added tax base, if the taxable person is able to prove that their claim on the purchaser is definitively irrecoverable.
Based on the resolution, taxable persons might have the opportunity to reduce their tax base (and to recover the related VAT which has been paid) regarding considerations which are recognised as definitively irrecoverable claims within the applicable limitation period, through submission of self-revised VAT returns. Accordingly, this might present an opportunity to recover VAT levied on supplies prior to 2016; furthermore, it might be possible to recover VAT in the case of transactions where the provisions set out by the new rules of the VAT Act, coming into force by 2020, are not fulfilled as a whole (however, the fact that the claim is definitively irrecoverable has been proven.)
We remain at our clients’ disposal regarding any questions that may arise.