Hungary faces penalties on late VAT credits

Thu 14th Aug 2014

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.