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Hungary faces penalties on late VAT credits

  • Aug 13, 2014 | Richard Asquith

Hungary faces penalties on late VAT credits

Hungary has lost a ruling at the European Court of Justice (ECJ) this month that will require it to penalties to Hungarian VAT registered businesses that have overdue VAT credits.

VAT refunds

VAT credits (or refunds) are excess VAT inputs suffered by businesses, and arise when company has more taxable purchases (inputs) than sales (outputs).  The most common example is businesses buying goods locally, which incurs local VAT.  If they then sell them to customers in other EU countries or export them from the EU,  then there is not sales VAT.  Hence an excess of VAT, or credit, which they are entitled to a speedy refund on through their VAT return.

ECJ rules Hungary infringes EU VAT Directive

In 2011, the ECJ held that Hungary was unfairly withholding such refunds, in breach of the EU VAT Directive.  Hungary duly changed its tax code, but failed to include a provision for damages and interest where it had not refunded on time in the past.  The ECJ ruled this month that Hungary should correct this, and make good damages to the companies affected.

VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is VP Global Indirect Tax at Avalara, helping businesses understand their compliance obligations as they grow globally. He is part of the European leadership team which won International Tax Review's 2020 Tax Technology Firm of the Year. Richard trained as an accountant with KPMG in the UK, and went on to work in Hungary, Russia and France with EY.