For years now, opportunities to reclaim VAT on bad debts have come up again and again. Although many had thought they had definitely missed the boat on this one, taxpayers have just been given one last chance.
The story so far
The saga goes all the way back to 2017, when the Court of Justice of the European Union (ECJ) made a surprisingly favourable decision in an Italian case. It was clear from this decision that in Hungary, too, operators should be given the chance of getting a refund of VAT on bad debts, that is, to have the VAT that the taxpayer had paid to the government despite not getting it from its bankrupt customer reimbursed.
Accordingly, the Hungarian legislature also allowed the reclaiming of such VAT, but only for claims that arose after 1 January 2016. Moreover, the law imposed a variety of other formal conditions on the reclaim. Prior to that, by directly citing the decision of the ECJ, the possibility of reclaiming VAT on certain claims dating back to before 2016 also opened. This special opportunity, however, was eliminated in mid-2020.
But partly due to legislative changes and partly to a new decision of the ECJ, it is now possible to reclaim VAT on certain older claims.
If you’re good, Santa will bring you your VAT
Anyone who did not make use of the special VAT reclaim option for claims dating back to before 2016 on the basis of the previous ruling of the ECJ, either, should remember two dates: 7 December 2021 and 11 December 2021. Those are the deadlines for submitting two new special applications, which may enable you to get a VAT refund even if it is not possible for you to perform a self-audit.
The simplest way is to remember that if you have any irrecoverable claims dating back to before 2016, you need to get your application in by the time Santa comes to town (6 December in Hungary!). But let’s look at it in more detail.
The 7 December deadline may be of interest to those:
- who delivered the unpaid-for product or service before 1 January 2016 and
- whose resulting claim became definitively irrecoverable between 10 June 2020 and 10 June 2021, when
- the original payment deadline had already expired for tax purposes and
- the additional statutory conditions applicable to irrecoverable claims are fulfilled.
(Those whose past-due claims became definitively irrecoverable after 10 June 2021 still have one year, from the date on which they became irrecoverable, to file the application.)
You should remember the date 11 December if (i) the sale on which your claim is based took place before 2016, but (ii) your claim became definitively irrecoverable before 10 June 2020. If this is the case, all you can do is cite the recent decision of the ECJ, as the Hungarian VAT Act no longer provides for the possibility of a refund for such claims.
What to expect in the proceedings...
The two types of application will take you along two different paths. The tax authority has 6 months to assess the applications to be submitted by 7 December, after which it will decide whether or not to refund the requested VAT. Still, the outcome of these applications is fairly easy to predict, as you should definitely get your VAT back, provided that the statutory conditions are met.
As regards applications that are due in by 11 December, again, it is the tax authority that will decide, and in just a couple of weeks. However, this is a somewhat more difficult nut to crack, as here, you will need to convince the tax authority that you are entitled to a VAT refund based on the decision of the ECJ. So, in this latter case, you can expect to have a fight on your hands, and you will probably need to take the matter to court in order to get your VAT back.
But based on what we have seen so far, it is often worth the fight: most of those who have taken the bull by the horns have ended up getting their VAT back.