A procedure is to be introduced for reclaiming VAT withheld under a legislative provision ruled incompatible with EU law.

The Hungarian VAT Act provided that claims for a refund of deductible input VAT where the payment to which it related had not been paid in full had to be carried forward until it was fully paid.

This resulted in some claims being carried forward over several tax periods, and others over several years. In July 2011, the ECJ ruled this provision incompatible with EU law.

Once the procedure comes into force, taxpayers will have until 20 October 2011 to apply for a refund of any VAT withheld on this basis, whether or not they have to file a tax return by the same date (ie including those with yearly VAT periods). But taxpayers may also choose to file the refund request as part of their normal, upcoming tax returns.

Taxpayers may also make a separate application for reimbursement of any penalties and late payment interest levied on them for not complying with the unlawful provision. 

There is no provision for claiming interest on the wrongly withheld VAT itself; and it remains to be seen whether any taxpayers would want to seek compensation for loss suffered on that basis.

Law:  C-274/10 – European Commission vs. Republic of Hungary