CJEU on rejecting application for VAT refund
The Court of Justice of the European Union (CJEU) has held that the one-month time limit for submitting additional information in the proceedings for a VAT refund is not a limitation period. If national legislation does not allow new evidence to be submitted in the appeal process, it systematically prevents the refund of VAT.
A Slovak company operating in the energy sector carried out assembly and installation work in Hungary. For this purpose, the company purchased various supplies in Hungary, in respect of which they subsequently applied for a VAT refund. The Hungarian tax authorities called upon the company to provide additional information on the matter within a deadline of one month. The company did not respond, and the tax authority discontinued the proceedings. The company then appealed and provided all the requested information. The appellate authority upheld the decision to reject the application on the grounds that new evidence could not be submitted in the appeal if the appellant had already been aware of such evidence before the first decision was issued.
The company brought an action against this decision before the Budapest municipal court. In particular, the company argued that the prohibition of the submission of new evidence under Hungarian law constituted a substantive limitation of the right to appeal, and that the one-month period to remedy the deficiencies under the directive was not a limitation (expiry) period.
Following the submission of preliminary questions by Hungary, the CJEU first pointed out that according to the principle of neutrality, input VAT must be refunded if the substantive requirements have been met, even if the taxable person has not complied with certain formal requirements. The opposite approach may only be applied if the failure to comply with the formal requirements results in the impossibility to produce reliable evidence of compliance with substantive requirements.
According to the CJEU, the facts of the case under examination imply that the dispute in the original proceedings was not about a breach of formal requirements resulting in the impossibility to produce evidence of compliance with the substantive requirements, but about the date by which such evidence must be produced.
The CJEU also referred to its decision in Case C 133/18 Sea Chefs Cruise Services, according to which the one-month period provided for in the directive is not a limitation period. According to the principle of good administration, the tax administrator should ensure that when carrying out their inspection duties, they conduct a diligent and impartial examination of all relevant aspects to make sure that they have the most complete and reliable information possible when making their decision. In the present case, therefore, the national legislation constitutes a substantive limitation of the right of appeal.
According to the CJEU, if an application for a VAT refund is rejected, the applicant who failed to provide additional information within the one-month period has the right to appeal against the rejection. Within the appeal, they have the possibility to remedy the deficiencies of their application by submitting additional information. If the tax authority could not take into account a late reply to a request for additional information, with the result that such late replies would be systematically rejected, this would necessarily lead the tax administrators to breach the principle of good administration, as they would be issuing a decision which they know may be based on incomplete or even incorrect information.