Interest on retained excess deductions yet again before Court of Justice of the European Union
The Court of Justice of the European Union confirmed yet again that tax administrators should refund excess deductions to taxpayers within a reasonable time. If they fail to do so, the taxpayer is entitled to late payment interest (default interest); however, such interest is not due for any delay caused by the taxpayer.
Legal regulations of value added tax in individual EU member states are based on Council Directive 2006/112/EC (the “VAT Directive”). Recently, the Court of Justice of the European Union (CJEU) has repeatedly dealt with the issue whether national regulations that restrict the payment of the default interest on retained excess deductions or do not award such interest at all are compliant with EU law.
In the latest instance, the compliance of Hungarian legal regulations with EU law was in question. Hungarian law stipulates that if a taxpayer has been fined for failing to cooperate in an investigation of an excess deduction, the default interest is to be calculated only as of the date on which the formal report on the findings of the investigation was delivered.
According to the CJEU, this provision of Hungarian law is obviously inadequate: it does not take into consideration the concrete circumstances of the delay on the taxpayer’s part; as a result, tax administrators may retain an excess deduction for a rather long time, even without the taxpayer being entirely at fault for the delay. It is thus always necessary to determine the proportion of the duration of the tax investigation procedure that can be attributed to the taxpayer, and take it into consideration when calculating the default interest on the retained excess deduction. If the investigation of the excess deduction takes longer because the taxpayer refused to cooperate with the tax administrator, the taxpayer then cannot claim default interest for the period of delay caused by such lack of cooperation.
Finally, the CJEU emphasised the national courts’ obligation to interpret national law in conformity with EU law. In other words, when exercising their jurisdiction, national courts may refuse to apply a provision of national law if it is in conflict with community law, while it is not necessary for the courts to request or to await the prior setting aside of that provision of national law by legislative or other constitutional means.
To summarise: the CJEU requires that tax (excess deduction) must be refunded within a reasonable time. If that is not the case, the fiscal neutrality principle requires that the financial loss caused to a taxable person must be compensated by the payment of default interest. This approach has to be applied by all courts within the EU, irrespective of whether it is stipulated in national legislations. The same opinion was voiced by the Supreme Administrative Court in its judgment approximately two weeks ago.