The Hungarian Supreme Court ruled on the conditions when the issuance of a fictitious invoice does not trigger value added tax.
According to the general rule, VAT is triggered when a supply subject to VAT occurs. However, in an effort to combat VAT fraud, the Hungarian legislation stipulates that the issuance of a fictitious invoice in which VAT is charged also triggers VAT liability.
Nevertheless, based on the legislation, the issuance of such an invoice would not trigger VAT if the supplier:
- proves that the supply indicated in the invoice did not occur between the parties indicated in the invoice (the legislation does not set out any provisions on how this may be proved); and
- cancels the invoice without delay, or, if the invoice is issued in its name by another person, notifies the customer without delay that no supply has been rendered between them.
In a recent decision, the Hungarian Supreme Court took the view that the supplier (issuer of the invoice) may rely on a decision of the tax authority (or a court decision upholding this decision) made to the recipient of the invoice, in which the invoice has been found to be fictitious. The supplier may use such ruling in order to prove that the first condition has been fulfilled, i.e., that no supply took place between the parties. As regards the second condition, the Hungarian Supreme Court held that the cancellation of the invoice should be deemed to have been undertaken without delay even if it took place subsequently to the appeals initiated by the customer (invoice recipient) against the afore-mentioned decision of the tax authority.
Based on the above, it may be possible for the issuer of a fictitious invoice to reclaim the VAT paid in connection with such an invoice if the customer's right to deduct the input VAT was denied by the tax authority.