ECJ Case C‑434/17 (Human Operator) – Judgment – Determination of the taxable person liable for VAT; Retroactive effect

On 13 February 2019 the European Court of Justice gave its judgment in case C‑434/17 (Human Operator Zrt.), regarding the question

Facts (simplified):

Human Operator Zrt, established in Hungary, is a commercial company whose business activities consist of staff recruitment, temporary employment services, and other forms of provision of human resources.

In order to provide those services to its clients, Human Operator, by means of contracts for the supply of services, used the services of other commercial companies which made their workers available to the clients of Human Operator.

During 2015, Human Operator accepted the invoices received from those companies for ‘other supply of human resources’, and which included VAT. The VAT was deducted by Human Operator.

The Hungarian tax authorities denied the VAT deduction, arguing that the VAT was wrongly charged, and that the reverse charge should have been applied. They levied VAT from Human Operator, arguing that Human Operator should have applied the reverse charge, and thus was liable for the VAT.

The tax authorities based themselves on the Implementing Decision which authorises the Hungarian Government, by way of derogation from Article 193 of the VAT Directive, to apply the reverse charge procedure laid down in Article 142(1)(c) of the Law on VAT. They inferred from that provision, which entered into force on 1 January 2015, that the reverse charge procedure was applicable from that date, especially since,  the Hungarian Government had expressly requested that the derogation sought should apply from that date.

According to Human Operator, the Hungarian tax authorities could not apply the rules retroactively, as the notification from the EU Commission to Hungary that they were allowed to apply the reverse charge was only sent on 11 December 2015.

The Hungarian Court therefore asked the ECJ the following question:

‘Must [the Implementing Decision] be interpreted as precluding the Hungarian practice of considering that the provision of national law, approval of which derives from the abovementioned Implementing Decision and which establishes a derogation from Article 193 of [the VAT Directive], entered into force on 1 January 2015, the date from which it must be applied, when that Implementing Decision contains no provision concerning retroactivity of its effects or of its applicability and, in its request for authorisation to establish the derogation, Hungary indicated that date as the date of application?’


The European Court of Justice rules as follows:

“European Union law precludes national legislation which provides for the application of a measure derogating from Article 193 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2013/43/EU of 22 July 2013, before the EU act authorising that derogation has been notified to the Member State which requested it, despite the fact that that EU act does not mention the date of its entry into force or the date from which it applies, even if that Member State has expressed the wish for that derogation to apply with retroactive effect.”

In other words: Hungary was not allowed to apply the rules retroactively.

Source: Curia