The Final Word on Bad Debt VAT Relief

In cases involving bad debts, taxpayers have fought several battles in national and EU courts to recover the VAT on unpaid customer receivables from the tax authority. Now another – probably the last – chapter of this multi-round battle has come to an end.

We had already successfully petitioned the ECJ to have the VAT on uncollectible debts returned at all. In fact, the legislator was even forced to amend the VAT Act for this reason. This time, the dispute between the taxpayers and the tax authority was about when the tax authority is obliged to start paying interest on the tax reclaimed by taxpayers: from the moment the receivables become uncollectible, or from the moment the tax is paid.

In recent weeks, Hungary’s supreme court the Curia has twice ruled in cases involving taxpayers represented by our firm that the tax authority is obliged to pay interest to taxpayers from the date of payment of the tax. In many cases, this moment preceded the date on which the debt became uncollectible by many years – so the judgment is clearly a major victory for taxpayers. Not to mention the fact that, since the Curia has had the final say in the cases, these judgments are precedent-setting and will be applicable to similar bad debt cases.