The Court of Justice of the European Union, in its ruling C-397/21 from 13th of October 2022, indicated that the recipient of the service has the right to submit a request for a refund to the tax office if the tax has been paid and the service provider is in liquidation.
The substance of the case
In the present case, a Hungarian company, which is a VAT payer in Hungary, purchased services related to a property located in Italy.
The service provider issued several invoices for the provision of services, which were paid by the Hungarian company. As a result of a tax audit by the Hungarian tax authorities, it turned out that tax had been wrongly paid in Hungary. In fact, due to the location of the property in Italy, it should have been paid to the Italian tax authorities.
Due to the pending liquidation proceedings against the service provider, the receiver considered the amount of VAT paid to be irrecoverable. The service provider therefore applied to the Hungarian tax authority for a refund of the erroneously reported tax. The Hungarian tax authority, however, systematically refused to reimburse, until the case was first brought before a Hungarian court, which then submitted a preliminary question to the CJEU.
CJEU ruling gives hope to taxpayers
According to the CJEU ruling in this case, Member States should provide for the measures and procedures necessary to enable the refund of unduly paid tax.
This interpretation is in line with a previous CJEU ruling from 15th of March 2007. There, too, the Court held that, where it is not possible to obtain a refund of VAT from the supplier, Member States should lay down measures to enable the recovery of tax unduly invoiced.
In addition, the CJEU ruling indicates the obligation to pay interest on unduly invoiced tax when it has not been reimbursed within a reasonable period of time, provided that the parties to the transaction cannot be accused of fraud or abuse of rights.
The above CJEU ruling gives taxpayers hope of recovering erroneously paid VAT and gives them the right to invoke the above ruling when applying for a refund to the local tax office.
Our tax department has successfully represented taxpayers in VAT refund cases, so we are at your disposal if you should have any questions.
Aleksandra Philips, LL.B., VAT-specialist
Maciej Gryka, junior tax consultant