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Prohibition on the Retroactive Application of the VAT Provisions

Prohibition on the Retroactive Application of the VAT Provisions


On 13 February 2019 the Court of Justice of the European Union (CJEU) delivered a ruling in a Hungarian case concerning the application of the provisions on VAT. According to the VAT Directive, as a general rule, VAT is be payable by the person carrying out the taxable supply of goods or services. However, in specific cases the Member States may deviate from this provision and provide that the person liable for payment of VAT is the taxable person to whom the supplies are made.

On 23 December 2014 Hungary requested authorisation to introduce a special measure derogating from the above mentioned general rule of the VAT Directive, with regard to persons liable for VAT, in order to combat certain fraudulent practices in the temporary employment agencies sector. Consequently, Hungary introduced a new provision providing for that in connection with the supply of temporary employment, VAT must be paid by the taxpayer receiving the services (i.e. reverse charge). This provision entered into force on 1 January 2015 and it has been applied by the tax authorities since that date. However, Hungary was notified of the decision authorising such derogation from the VAT Directive only on 11 December 2015.

In the present case, Human Operator Zrt. (a Hungarian company whose business activities consist of staff recruitment and temporary employment services) failed to pay VAT in relation to receiving services. According to the CJEU’s decision, Human Operator – as a company receiving the services – was not obliged to pay VAT, since under the general rule, VAT was payable by the person supplying goods or services. The CJEU concluded that the Hungarian Government had not been in a position to introduce the reverse charge procedure before Hungary was notified of the decision authorising the reverse charge.

By Gabriella Galik, Partner, KCG Partners Law Firm

Hungary Knowledge Partner

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