A European company that pays VAT abroad can apply for a refund. To do so, it must send an electronic application from its country of establishment, which then forwards it to the tax authorities of the country concerned. The tax authorities have four months to process the application and refund the VAT.
The procedure, which in theory is simple and efficient, can become a real trap for businesses that carelessly make mistakes in their refund applications.
The misadventure of the Belgian company with its Hungarian VAT refund claim is worth telling as it could happen to any other company.
What does the Court of Justice say?
The Court starts by lecturing the company ...
The Court starts by lecturing the Belgian company that did not take its case seriously: it should be remembered that the taxable person is in the best position to know the reality of the transactions for which it is applying for a refund and that it must therefore, at least to some extent, bear the consequences of his own administrative behaviour. It is bound, specifically, by the particulars he includes on the invoices it issues and, by those relating to the amount of VAT and the applicable rate.
...then firmly calls the tax authorities to order
The Court then called the Hungarian tax authorities to order: if, as a result of a duly detected error on the part of the taxpayer, the tax authorities concerned were able to establish with certainty the amount of VAT to be refunded to him, the principle of sound administration requires them to inform the taxpayer of this fact with all due dispatch, using the means they consider most appropriate, in order to invite him to rectify his claim for a refund, so that the tax authorities can respond favourably. Otherwise, it would be ignoring the right to a refund of VAT, which is a fundamental principle of the VAT system.
The Belgian company went through the needle's paces. After having lectured the company, the Court of Justice ultimately ruled in its favour (Judgment of 21/10/2021, CHEP Equipment Pooling NV, C-396/20).
What can we learn from this judgment?
When a company applies for a refund of foreign VAT, the tax administration must refund it within four months.
In this case, the Belgian company, for not having been serious, will have waited not four months but four years for its refund!
The moral of this story? Being able to successfully apply for a refund of foreign VAT is not something you can improvise.