On July 17, 2014, the ECJ issued its Order in the case C-654/13 (Delphi Hungary Autóalkatrész Gyártó).
Context: Reference for a preliminary ruling – Article 99 of the Rules of Procedure of the Court – VAT – Directive 2006/112 / EC – Article 183 – Reimbursement of excess VAT – National regime excluding the payment of default interest relating to non-recoverable VAT within a reasonable time by reason of a condition declared to be contrary to Union law – Principle of equivalence
Article in the EU VAT Directive
Article 183 of the EU VAT Directive 2006/112/EC
Article 183 (Rules Governing Exercise of the Right of Deduction)
Where, for a given tax period, the amount of deductions exceeds the amount of VAT due, the Member States may, in accordance with conditions which they shall determine, either make a refund or carry the excess forward to the following period.
However, Member States may refuse to refund or carry forward if the amount of the excess is insignificant.
Facts
- Delphi Hungary and the companies it represents are economic operators established in Hungary who form a group of taxable persons. Between 2007 and 2011, these companies were unable to recover, along with other VAT expenses, an amount of 17,048,792,000 Hungarian Forints (HUF) paid for VAT relating to unpaid acquisitions. They were only able to recover these sums after having paid the invoices corresponding to them, as provided for, until 30 December 2007, by Article 48 (7) of the old law on VAT, and, since 1 st January 2008, Article 186, paragraph 2 of the law on VAT.
- During that period, the member companies of that group did not therefore submit claims for the recovery of VAT relating to unpaid acquisitions. The national rules on tax procedure not only excluded the possibility of satisfying such a request, but even provided for a penalty in the event that a request was made to that end.
- However, Article 48 (7) of the old Law on VAT and Article 186 (2) of the Law on VAT did not exclude the possibility for the taxable person to deduct the VAT relating to unpaid acquisitions of VAT for which the latter was liable. These provisions allowed the negative difference to be carried over to the next taxable period, but they prohibited its recovery as long as the taxable person had not paid the equivalent value of these acquisitions.
- The Court, in its Commission v Hungary judgment (C-274/10, EU: C: 2011: 530), found in substance that Article 186 (2) of the Law on VAT was contrary to the Article 183 of the VAT Directive.
- Following that judgment, the Hungarian Parliament adopted the amending law defining the modalities of the special VAT recovery procedure, which, however, did not provide for any rule in order to compensate taxable persons for financial losses resulting from the application of Article 48 (7) of the old Law on VAT as well as Article 186 (2) of the Law on VAT.
- On 21 December 2012, Delphi Hungary lodged a claim with the first-degree tax authority seeking payment of default interest in the amount of 215,412,161 HUF, such an amount having been determined on the basis of VAT relating to unpaid acquisitions which, between 2007 and 2011, could not be recovered until later than the VAT relating to paid acquisitions.
- In support of its request, Delphi Hungary argued that, in its Commission / Hungary judgment (EU: C: 2011: 530), the Court had found, with erga omnes and ex tunc effect, incompatibility with the law of the Union of the Hungarian rule known as “regulated acquisitions”. It maintained that its right to collect the interest claimed arises from a provision of EU law which implies the illegality of the rule of domestic law and that it can be regarded as a right of the taxable person having its basis in Union law. In application of the principle of equivalence, established by the case-law of the Court, the payment of default interest due due to an infringement of Union law cannot be less advantageous than when it is due subsequently violation of domestic law.
- In support of its position, Delphi Hungary relied, in particular, on Metallgesellschaft and Others (C ‑ 397/98 and C ‑ 410/98, EU: C: 2001: 134); Test Claimants in the FII Group Litigation (C ‑ 446/04, EU: C: 2006: 774); Test Claimants in the Thin Cap Group Litigation (C ‑ 524/04, EU: C: 2007: 161); Enel Maritsa Iztok 3 (C ‑ 107/10, EU: C: 2011: 298); Commission / Hungary (EU: C: 2011: 530); Littlewoods Retail and others (C ‑ 591/10, EU: C: 2012: 478), as well as Irimie (C ‑ 565/11, EU: C: 2013: 250).
- As the complaint by Delphi Hungary was rejected by a decision of 7 February 2013 of the first degree tax authority, this company lodged a hierarchical appeal before the second degree tax authority, namely the NAV, which was rejected by a decision of the latter of April 11, 2013.
- Those rejection decisions are based on the fact that Delphi Hungary has not invoked any specific rule of law requiring the payment of interest in a situation such as that at issue in the main proceedings and that neither the amending law nor the judgment of the Court Commission / Hungary (EU: C: 2011: 530) would not have provided for the payment of default interest in such a situation. According to those tax authorities, on the one hand, this judgment, in which the Court ruled on an action for failure to fulfill obligations, has no retroactive effect and, on the other hand, the case-law of the Court relied on by this company no. ‘was not applicable in the case submitted to them, because it concerned the reimbursement of recoverable VAT which occurred during subsequent reporting periods.
- Furthermore, Article 37 (6) of the Code of Fiscal Procedure could only be applicable if Delphi Hungary still had an unfulfilled right to reimbursement on the basis of the amending law. In addition, according to the NAV, the fact that the taxpayer must carry the excess VAT over several tax periods following the one in respect of which this excess appeared cannot be considered as a violation of Union law justifying a right to compensation. In addition, that company has not demonstrated that the sums to be reimbursed were withheld by the administration for a period covering several tax returns or for an unreasonable period. Finally, the right to default interest would be prescribed for the months of January to November 2007.
- Delphi Hungary challenged the decision rejecting NAV of 11 April 2013 before the referring court, upholding the arguments relied on in its complaint and in its hierarchical appeal. It concludes that this decision be reformed and the interest calculated as calculated in its claim or that the said decision be annulled and the case referred to the first degree tax authority.
- In its legal action, Delphi Hungary relies on Articles 183 of the VAT Directive, 6 (1) TEU, and 17 of the Charter.
- Delphi Hungary also claims, in the alternative, that the Hungarian legal system does not guarantee the effectiveness of the principle of State liability for breach of EU law. It specifies, however, that it had knowingly presented its complaint on the basis of administrative law, and more specifically of tax law, in particular by relying on Article 37, paragraph 6, of the Code of Tax Procedure.
- As for the NAV, it reiterates the line of argument which formed the basis of the decisions of 7 February and 11 April 2013 which rejected the complaint and the hierarchical appeal by Delphi Hungary respectively.
Questions
Must Council Directive 2006/112/EC 1 of 28 November 2006 on the common system of value added tax, in particular Article 186 thereof, Article 17 of the Charter of Fundamental Rights of the European Union and the principles of equivalence and effectiveness be interpreted as meaning that they preclude legislation and practice of a Member State which prevent the payment of default interest on amounts of value added tax which could not be claimed under legislation which the Court of Justice of the European Union ruled to be contrary to Community law, although in other cases the Member State’s legislation provides for the payment of interest in the event of the delayed repayment of value added tax which can be claimed back?
Is the practice of a Member State’s courts contrary to the principles of effectiveness and equivalence insofar as it refuses to allow claims made in administrative proceedings – thus limiting the options available to a legal person who has suffered loss to an action for damages, despite the fact that such an action is excluded in practice in the national legal order – merely because there is no specific legal rule which is applicable on the facts in the proceedings although [dealing with and] paying similar claims for interest falls within the powers of the tax authority?
If the answer to question 2 is in the affirmative, are the courts of the Member State required to interpret and apply in accordance with Community law legal rules of the Member State which are not applicable on the facts, so that equivalent and effective judicial protection can be provided?
Must the Community law cited in the first question be interpreted as meaning that [a claim for] interest on taxes collected, retained and not repaid in breach of Community law constitutes an individual right which derives directly from Community law and may be relied on directly before the courts and administrative authorities of the Member State pursuant to Community law, including where the law of the Member State does not provide for the payment of interest in that specific case, it being sufficient, in order to justify a claim for interest, to show that Community law has been breached and that the tax has been collected, retained or not repaid?
AG Opinion
None
Decision (Order)
EU law, and in particular Article 183 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, must be interpreted as meaning that it precludes legislation and practice of a Member State, such as those at issue in the main proceedings, which prevent the payment of default interest on amounts of value added tax which were not recoverable within a reasonable period and on account of a national provision held to be contrary to EU law. In the absence of EU legislation on the subject, it is for the national law to establish, in conformity with the principles of equivalence and effectiveness, the procedure for the payment of such interest, which must not be less favourable than that applicable to actions based on infringement of domestic law with a similar purpose and cause of action to those based on the infringement of the EU law or be arranged such as to render the exercise of the rights conferred by the European Union legal order impossible in practice or excessively difficult, which it is for the referring court to ascertain in the case before it. The national courts are required, if necessary, to disapply any provision of national law contrary to EU law.
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