The Court of Justice of the European Union (Court) has pronounced several relevant statements in its decision rendered at the end of April 2017 relating to a case in which a private person purchased a mobile hangar from an insolvent limited liability company in an auction.
In the case, the applicant paid the purchase price and the VAT according to the invoice issued by the insolvent company, and then deducted the VAT. The Hungarian tax authority stated that the rules on reverse charge should have been applied for the transaction, thus, it did not approve the deduction of the VAT and levied a penalty in the amount of 50% of the VAT.
The Court established in the given case that the provisions of the Hungarian VAT Act on the reverse charge regime and the imposition of the tax penalty is incompatible with the directive on the common system of value added tax, since the relevant provisions of such directive are applicable only for real properties. In addition, the Court declared that under the principles of fiscal neutrality, effectiveness and proportionality, the purchaser shall be able to request the reimbursement of the value-added tax unduly invoiced by the seller directly from the tax authority in case the reimbursement becomes impossible or excessively difficult for the purchaser, in particular due to the insolvency of the seller. Furthermore, according to the Court’s decision, the tax penalty of 50% of the amount of value added tax is contrary to the principle of proportionality, with respect to the fact that in the given case the authorities suffered no loss of tax revenue and there is no evidence of tax evasion.
By Gabriella Galik, Partner, KCG Partners Law Firm