by on August 7, 2024 with No Comments

The refund of VAT abroad? An obstacle course

Obtaining a VAT refund abroad can be a real obstacle course. The complexity of the procedures and the pitfalls set by the tax authorities are major obstacles that can compromise the success of the application once and for all.

This was the bitter experience of a European company that applied for a VAT refund in Hungary.

A case that could affect any business

A European company incurs Hungarian VAT charges and applies to the Hungarian tax authorities for a refund (approximately €100,000). The Hungarian tax authorities sent a request for information in order to clarify the facts and establish whether the company was entitled to a VAT refund. More specifically, the Hungarian tax authorities are requesting a number of documents relating to the refund application within one month. The request was sent to the company by e-mail.

The company did not reply to the e-mail, and the Hungarian tax authorities took the opportunity to reject the company's request for a refund in its entirety.

The company lodged a complaint against this decision, this time attaching all the documents requested. However, the Hungarian authorities rejected the claim on the grounds that the aforementioned one-month period was a time limit. National law prohibits a company that has submitted an application for a VAT refund from providing new evidence or additional information at the stage of the claim before a second-level tax authority, where it was aware of this evidence before the first-level decision was taken.

The company decided to defend its case before the Hungarian courts and the case ultimately ended up before the Court of Justice of the European Union (CJEU).

What does the Court of Justice say?

In its ruling C-746/22 of 16 May 2024, the Court of Justice found in favour of the company. It began by stressing the importance of maintaining a fair balance between the requirements of administrative control and respect for the rights of businesses. While tax authorities must have the necessary tools to verify the validity of refund claims, businesses must not be faced with unreasonable obstacles that prevent them from asserting their legitimate rights.

The Court then ruled in favour of the company:

  • The one-month period does not constitute a time limit.
  • A taxable person has the right to appeal against a rejection decision and to regularise, within the framework of such an appeal, his claim for reimbursement by producing additional information capable of establishing the existence of his right to a VAT reimbursement. This case law applies whether the appeal is an administrative appeal or a judicial appeal.
  • If national law leads to a systematic rejection of late responses, this necessarily leads the tax authorities to contravene the principle of good administration, since they adopt a decision that they know may be based on incomplete or even erroneous information. Moreover, this has the effect of disproportionately undermining the principle of VAT neutrality by leaving the taxpayer responsible for the VAT he is entitled to obtain a refund of, whereas the common VAT system is designed to relieve entrepreneurs entirely of the burden of VAT due or paid in the context of all their economic activities.

The VAT expert's eye

The decision of the Court of Justice of the European Union (CJEU) is of key importance, as it puts a stop to a common practice by certain tax authorities.

This practice consists of routinely issuing requests for information, anticipating their possible loss, and then watching for the slightest error on the part of the company concerned in order to be able to refuse its request for a refund in its entirety.

In short, the CJEU ruling helps to establish greater fairness in the administrative process and to protect businesses from unfair practices.

Have a question about your foreign VAT refund? We offer a free video conference to assess your situation and propose a tailor-made solution.