European Commission v Republic of Hungary.

• Jurisdiction: European Union
• Celex Number: 62010CC0274
• ECLI: ECLI:EU:C:2011:353
• Court: Court of Justice (European Union)
• Date: 26 May 2011
• Procedure Type: Recurso por incumplimiento – fundado
• Docket Number: C-274/10

OPINION OF ADVOCATE GENERAL

BOT

delivered on 26 May 2011 ¹(1)

Case C‑274/10

European Commission

v

Republic of Hungary

(Failure of a Member State to fulfil its obligations – Taxation – Value‑added tax – National legislation allowing the refund of excess VAT only if it exceeds the amount of tax on transactions not yet paid for – Principle of fiscal neutrality)

1. Value-added tax (‘VAT’), under the common system introduced by European Union law, is a tax on consumption, charged at each stage of production or distribution, which must be borne entirely by the end consumer.

2. In order to enable economic operators, who recover it from their customers at the same time as they receive the price of their products or services, not to bear the burden, the common VAT system provides a deduction mechanism, designed to ensure the ‘neutrality’ of the tax in regard to them.

3. Economic operators who are ‘taxable persons’ are thus allowed to deduct from the tax which they have received from their customers and for which they are liable to the Member State the input VAT which they themselves paid when they purchased the goods and services necessary for carrying on their business.

4. This action for failure to fulfil obligations concerns the provisions of the common system of VAT where the taxable person’s rights to deduct exceed the amount of the tax for which he is liable.

5. Article 183 of Council Directive 2006/112/EC (2) provides that, where for a given tax period the amount of authorised deductions exceeds the amounts of VAT due, the Member States may either carry the excess forward to the following period, or make a refund according to conditions which they are to determine.

6. The Republic of Hungary considers that, in accordance with that provision, it was entitled to limit the refund to that part of the VAT actually paid by the taxable person. The European Commission, believing that that provision does not allow Member States that possibility, has brought the present action for failure to fulfil obligations.

7. In this Opinion, I shall set out the reasons why, in my view, this action is well founded.

8. I shall maintain that, contrary to what the Commission claims in its pleadings, the limitation provided for by Hungarian law does not infringe the principle of neutrality on which the common system of VAT is based. I shall explain, however, that, as that institution has also submitted, Article 183 of Directive 2006/112, read in the light of the other provisions of the directive concerning the right to deduct, clearly limits the power of the Member States to the alternative of refunding the excess or carrying it forward to the following period, and does not distinguish between VAT which has been paid and VAT which is merely payable.

9. Therefore, a Member State cannot limit the refund of the excess to that part of the VAT which has actually been paid by the taxable person without exceeding the discretion it enjoys under Directive 2006/112.

I – Legal context

A – European Union legislation

10. According to Article 2 of Directive 67/227/EEC, (3) the principle of the common VAT system involves the application to goods and services of a general tax on consumption exactly proportional to the price of goods and services, whatever the number of transactions which take place in the production and distribution process before the stage at which tax is charged. On each transaction, VAT, calculated on the price of the goods or services at the rate applicable to such goods or services, shall be chargeable after deduction of the amount of VAT borne directly by the various cost components.

11. Title VI of Directive 2006/112, entitled ‘Chargeable event and chargeability of VAT’, includes, inter alia, the following provisions:

‘Article 62

For the purposes of this Directive:

(1) “chargeable event” shall mean the occurrence by virtue of which the legal conditions necessary for VAT to become chargeable are fulfilled;

(2) the tax becomes “chargeable” when the tax authority becomes entitled under the law at a given moment to claim the tax from the person liable to pay, notwithstanding that the time of payment may be deferred.

…

Article 63

The chargeable event shall occur and VAT shall become chargeable when the goods or the services are supplied.

…

Article 65

Where a payment is to be made on account before the goods or services are supplied, VAT shall become chargeable on receipt of the payment and on the amount received.

Article 66

By way of derogation from Articles 63, 64 and 65, Member States may provide that VAT is to become chargeable, in respect of certain transactions or certain categories of taxable person at one of the following times:

(a) no later than the time the invoice is issued;

(b) no later than the time the payment is received;

(c) where an invoice is not issued, or is issued late, within a specified period from the date of the chargeable event.

…’

12. Title X of Directive 2006/112 is devoted to deductions. Chapter 1, entitled ‘Origin and scope of right of deduction’, includes, inter alia, Articles 167 and 168, which are worded as follows:

‘Article 167

The right to deduct shall arise at the time when the deductible tax becomes chargeable.

Article 168

‘In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:

(a) the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person

...’

13. Chapter 4 of Title X of Directive 2006/112 deals with the rules governing exercise of the right of deduction. It includes, inter alia, the following articles:

‘Article 178

In order to exercise the right of deduction, a taxable person must meet the following conditions:

(a) for the purposes of deductions pursuant to Article 168(a), in respect of the supply of goods or services, he must hold an invoice drawn up in accordance with Articles 220 to 236 and Articles 238, 239 and 240;

…

Article 179

The taxable person shall make the deduction by subtracting from the total amount of VAT due for a given tax period the total amount of VAT in respect of which, during the same period, the right of deduction has arisen and is exercised in accordance with Article 178.

…

Article 183

Where, for a given tax period, the amount of deductions exceeds the amount of VAT due, the Member States may, in accordance with conditions which they shall determine, either make a refund or carry the excess forward to the following period.

However, Member States may refuse to refund or carry forward if the amount of the excess is insignificant.’

14. Chapter 5 of Title X of Directive 2006/112 is entitled ‘Adjustment of deductions’. It states, in Articles 184 and 185:

‘Article 184

The initial deduction shall be adjusted where it is higher or lower than that to which the taxable person was entitled.

Article 185

1. Adjustment shall, in particular, be made where, after the VAT return is made, some change occurs in the factors used to determine the amount to be deducted, for example where purchases are cancelled or price reductions are obtained.

2. By way of derogation from paragraph 1, no adjustment shall be made in the case of transactions remaining totally or partially unpaid or in the case of destruction, loss or theft of property duly proved or confirmed, or in the case of goods reserved for the purpose of making gifts of small value or of giving samples, as referred to in Article 16.

However, in the case of transactions remaining totally or partially unpaid or in the case of theft, Member States may require adjustment to be made.’

15. The obligations of taxable persons with regard to VAT are stated in Title XI of Directive 2006/112, which contains, inter alia, the following articles:

‘Article 206

Any taxable person liable for payment of VAT must pay the net amount of the VAT when submitting the VAT return provided for in Article 250. The Member States may, however, fix a different date for the payment of the amount or may demand an interim payment.

…

Article 250

1. Every taxable person shall submit a VAT return setting out all the information needed to calculate the tax that has become chargeable and the deductions to be made …

…

Article 252

1. The VAT return shall be submitted by a deadline to be determined by Member States. That deadline may not be more than two months after the end of each tax period.

2. The tax period shall be set by each Member State at one month, two months or three months.

Member States may, however, set different tax periods provided that those periods do not exceed one year.’

B – National legislation

16. Paragraph 55(1) of Law No CXXVII on VAT of 2007 (4) provides:

‘VAT shall become chargeable on the occurrence of the event by which the transaction which gives rise to the tax is objectively completed (“the chargeable event”).

17. Under Paragraph 56 of the Hungarian law on VAT, ‘[u]nless otherwise provided in this Law, the amount of VAT payable shall be determined at the time the chargeable event occurs’.

18. Paragraph 119(1) of that Law provides:

‘Unless otherwise provided in this Law, a right of deduction shall arise at the time the amount due in respect of input VAT is determined [Paragraph 120].’

19. Paragraph 131 of the Hungarian law on VAT provides:

‘(1) A taxable person registered for VAT on national territory may deduct from the total amount of tax for which he is liable for a given tax period the amount of deductible input VAT which has arisen during the same tax period or previous period or periods.

(2) If the difference calculated according to subparagraph (1) is negative, the person registered for VAT in...