Hungary: EJC ruling on VAT deduction

Hungarian courts referred three cases to the European Court of Justice with the intention to clarify the conditions set by national legislation for deducting input VAT.

The ECJ has acknowledged that Member States may adopt measures they deem necessary to ensure the correct collection of VAT and to prevent evasion, provided that such measures do not go beyond what is necessary in order to achieve these objectives. Therefore, they cannot be used in a way that would systematically undermine the right to deduct VAT.

According to the ECJ, the question whether the VAT payable on the prior or subsequent sales of the goods concerned has or has not been paid to the national budget is irrelevant to the right of the taxable person to deduct input VAT.

The ECJ has repeatedly ruled that it is contrary to Community law to refuse a taxable person the right to deduct input VAT in respect of the services supplied to it on the ground that the issuer of the invoice relating to those services, or one of its suppliers, acted improperly, if the tax authority does not establish on the basis of objective evidence, that the taxable person concerned knew, or ought to have known, that the transaction relied on as a basis for the right to deduct was connected with fraud committed by the issuer of the invoice.

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