ECJ Rules In Favour Of Hungarian Taxpayers

Taxpayers' right to deduct input VAT should not be subject to excessive administrative and investigative burdens, according to the ECJ.

This judgment, in the joined Hungarian VAT cases of Mahagében and Dávid, will come as a big relief to Hungarian businesses and will prompt some taxpayers to have their own, similar cases revisited.

In both cases:

the taxpayer had exercised its right to deduct input VAT on the basis of invoices that complied with all formal and substantive criteria the supplies to which those invoices related had also actually been made the tax authority had nonetheless denied the claimants' right to deduct the VAT that was charged to them in those invoices on the basis that certain irregularities had been discovered elsewhere in the supply chain The ECJ ruled that:

taxpayers cannot be subjected to strict liability for tax fraud committed by others in the supply chain in order to deny the deduction of the VAT, the burden is on the tax authority to prove that the taxpayer knew or should have known that the transaction in question constituted VAT fraud this means, in effect, that the tax authority has to show that the taxpayer has not taken reasonable care when dealing with other taxpayers reasonable care does not include a requirement to make investigations in lieu of the tax auditing obligation of the state tax authority, such as whether the supplier is a VATable person or whether it actually...