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European Court of Justice Issues Preliminary Ruling on Hungarian VAT Deduction Rules for Irrecoverable Payments

The European Court of Justice (ECJ) Oct. 24 issued a preliminary ruling on Hungarian VAT deduction rules for irrecoverable payments due to the liquidation of the recipient company. The Hungarian tax authority determined that under domestic Hungarian law a taxpayer could not retroactively seek an adjustment for VAT related to payments that became irrecoverable due to liquidation of the debtor. The taxpayer argued that by not allowing a reduction of the VAT tax base in the event of definitive default by the debtor, Hungarian VAT law is contrary to the EU VAT directive. The ECJ held that this situation didn’t constitute a case of non-payment where EU member countries may deviate from the VAT directive.


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