EU Council Proposal to Extend Hungary’s VAT Deduction Limit for Passenger Cars Until December 2027

Proposal for Extension: The European Commission proposes to extend Hungary’s authorization to apply a special VAT measure, limiting the right to deduct VAT on passenger cars not wholly used for business purposes to 50%, until December 31, 2027.
Simplification and Prevention: The special measure aims to simplify VAT collection and prevent tax evasion by removing the need for businesses to keep detailed records of private use of leased business cars.
Positive Impact: Hungary reports that the measure has had positive results, reducing administrative burdens for both businesses and tax authorities, and that the 50% deduction limit remains appropriate based on data from 2016-2022.
Consistency with Other Member States: Similar VAT deduction limitations have been granted to other EU Member States, ensuring consistency in the application of VAT rules across the EU.
Future Review: Hungary must submit a report reviewing the percentage limit by March 31, 2027, if it seeks further extension beyond 2027. The measure is considered proportionate and has negligible impact on overall tax revenue and the EU’s own resources from VAT.