Too heavy fine imposed

Both the Hungarian VAT law and its implementation are problematic – stated the European Court of Justice (ECJ). The ECJ’s preliminary ruling came after having examined a case, in which the tax authorities demanded direct payment when the rules on reverse charge should have been applied for the given transaction.

According to the ruling, certain provisions of the Hungarian VAT law aren’t in line with relevant EU legislation. What is more, the fine imposed by the tax authorities was disproportionally big. MAZARS’ analysis reveals that a person called Tibor Farkas purchased a mobile hangar from an insolvent company in an auction. The applicant paid the purchase price along with the VAT charged on the transaction by the seller, and then deducted this VAT. However, the Hungarian tax authority (NAV) indicated that the rules on reverse charge should have been applied for the transaction, so they challenged the deduction of the VAT.

The tax authority demanded payment of the VAT amount and levied a penalty worth 50 percent of the VAT. The ECJ called attention to the fact that the 50 percent tax penalty is hardly a proportionate sanction for selecting the incorrect taxation method when the Treasury did not lose any taxes and there is no evidence of abuse. /