Briefing document & Podcast: ECJ VAT C-427/23 VAT Refunds for Non-EU Customers: Taxable Services or Exempt?

Briefing Document: VAT Treatment of Refund Administration Services (Határ Diszkont Case)

Case Reference: Határ Diszkont Kft. v. Nemzeti Adó- és Vámhivatal Fellebbviteli Igazgatósága (Case C‑427/23), Judgment of the Court (Fourth Chamber) 1 August 2025 (ECLI:EU:C:2025:596)

Purpose: This briefing document reviews the key themes and most important legal principles established by the Court of Justice of the European Union (CJEU) in the Határ Diszkont case, focusing on the VAT treatment of services for administering refunds to non-EU customers.

I. Executive Summary

The CJEU ruled that the service of administering VAT refunds to non-EU resident customers, such as that provided by Határ Diszkont Kft., constitutes a distinct and independent supply of services subject to VAT, rather than an ancillary service to the goods supply or an exempt financial or export-related service. Crucially, the Court also determined that the principle of legitimate expectations does not generally prevent retroactive taxation based on past audit acceptances or non-binding advice. However, to uphold the principle of VAT neutrality, where a supplier cannot recover VAT from the end consumer, the administration fees must be considered a gross amount already including VAT. This judgment provides crucial clarification on the VAT classification of such services and the application of fundamental VAT principles.

II. Background of the Dispute (Határ Diszkont Case)

Határ Diszkont Kft., a Hungarian retailer, sold goods to non-EU resident customers who exported them. Határ Diszkont facilitated VAT refunds for these customers, charging an administration fee (15% of the refunded VAT). Határ Diszkont initially treated these fees as VAT-exempt, believing them to be incidental to the exempt supply of goods, an exempt financial service, or an exempt service directly connected with exports.

The Hungarian tax authorities disagreed, reclassifying the administration fees as VAT-taxable and demanding retroactive payment. The dispute led to a request for a preliminary ruling from the Szegedi Törvényszék (Szeged High Court, Hungary) to the CJEU on four key questions concerning:

Whether the administration service is a distinct, taxable supply or exempt as ancillary to goods/export-connected.
Whether it qualifies for exemption as a financial transaction.
Whether the principle of legitimate expectations prevents retroactive taxation.
How the taxable amount should be determined when the supplier cannot recover VAT from customers.

III. Main Themes and Key Rulings

The CJEU’s judgment clarifies several fundamental VAT principles:

A. Distinction between “Single Supply” and “Distinct and Independent Supplies” (First Question)

Fundamental Principle: The second subparagraph of Article 1(2) of the VAT Directive states that “On each transaction, VAT… shall be chargeable.” This means “each transaction must normally be regarded as distinct and independent” for VAT purposes.
Single Supply Exception: However, multiple formally distinct supplies can be considered a “single transaction when they are not independent” and “form, objectively, a single, indivisible economic supply, which it would be artificial to split.” This often applies when one element is a “principal supply” and others are “ancillary supplies which share the tax treatment of the principal supply,” serving “a means of better enjoying the principal service of the supplier.”
Court’s Application to VAT Refund Administration Service: The Court ruled that the VAT refund administration service provided by Határ Diszkont is a distinct and independent supply from the sale of goods for the following reasons:
- Lack of Reciprocal Link: While connected, the “supply of goods, which takes place before the VAT refund administration service is completed, in no way depends on that service.” A mere connection is insufficient.
- Not a Necessary Outcome: The provision of the service “is not the necessary outcome of the supply of goods.” The goods sale is complete regardless of whether the customer pursues the refund or meets the conditions for it.
- “End in Itself”: The service is “not merely a means of better enjoying that supply of goods, but is an end in itself” for the customer (i.e., to obtain the VAT refund).
- No Incidental Expense: Consequently, the fees for this service cannot constitute “incidental expenses” to the supply of goods under Article 78 of the VAT Directive, as they relate to an independent supply.

B. Inapplicability of Export-Related Services Exemption (Article 146(1)(e)) (First Question)

Exemption Scope: Article 146(1)(e) exempts “the supply of services… directly connected with the exportation or importation of goods covered by Article 61 and Article 157(1)(a).” These refer to goods typically not in free circulation or under specific warehousing arrangements.
Direct Connection Requirement: For the exemption to apply, the service must “contribute to the actual performance of an exportation transaction.”
Court’s Application: The Court found that:
- There was “nothing in the file before the Court to suggest that the exported goods in question… are in one of the situations referred to in Article 146(1)(e).”
- Even if they were, the VAT refund administration service “cannot be concluded that that activity contributes to the actual performance of an exportation transaction.” The exportation “is carried out entirely by the foreign customer irrespective of the VAT refund administration service; the latter has no bearing on the carrying out of that transaction and, moreover, takes place at a later stage, after that transaction has already been completed.”
Strict Interpretation: The Court reiterated that VAT exemptions “constitute exceptions to the general principle that VAT is to be levied on all services supplied for consideration by a taxable person,” and must therefore be “interpreted strictly.”

C. Inapplicability of Financial Transactions Exemption (Article 135(1)(d)) (Second Question)

Exemption Scope: Article 135(1)(d) exempts transactions “concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments.”
Key Criterion for Financial Transactions: Such transactions must “effect the legal and financial changes which are characteristic of the transfer of a sum of money” or “fulfils in effect the specific, essential functions of such a transfer.”
Court’s Application: The Court found that Határ Diszkont’s service “did not cause the actual or potential transfer of ownership of funds to the customers… It merely retained the amounts of VAT… pending the submission… of the documentation proving that the conditions for the exemption for exports were in fact fulfilled.” The service was thus classified as “a supply of an administrative service,” not a financial service.

D. Limits of the Protection of Legitimate Expectations (Third Question)

Principle: The principle of legitimate expectations requires “precise assurances provided” by an administrative authority to create justified expectations in a “prudent and well-informed trader.”
Court’s Application: The Court ruled that the principle does not preclude retroactive taxation in this case for the following reasons:
Mere Acceptance of Returns: “The national tax authority’s mere acceptance, even for several years, of the VAT returns… does not amount to a precise assurance.”
Lack of Information on Legislative Change: “Such an omission cannot under any circumstances constitute a ‘precise assurance’.” Prudent traders “should be aware” of tax legislation changes.
“Ex-post” Non-binding Advice: Information provided during an ongoing audit, which is “non-binding” and “ex-post,” “could not have had any effect on the transactions which were the subject of that audit and which Határ Diszkont had carried out before that information was provided to it.”

E. Determination of the Taxable Amount and VAT Neutrality (Fourth Question)

Taxable Amount Principle: Under Article 73 of the VAT Directive, the taxable amount is the “consideration actually received” by the supplier. This is the “subjective value” received.
VAT Neutrality Principle: The “VAT system is aimed at taxing only the end consumer.” This implies that the supplier should not bear the VAT burden.
Court’s Application: The Court ruled that Articles 73 and 78 preclude the tax authorities’ practice of deeming the administration fees to be “net amounts, not including VAT,” where the supplier cannot subsequently recover the VAT from the customers.
- Implicit VAT Inclusion: The “price agreed… for the VAT refund administration service… must be regarded as a gross price already including the tax,” even if the supplier mistakenly believed it was exempt.
- Supplier Bearing Burden: If the fees were treated as net, and the supplier “has no means of recovering from the purchaser the VAT claimed subsequently by the tax authorities,” it would lead to “the supplier which bears the VAT burden, thereby conflicting with the principle that VAT is a tax on consumption to be borne by the end consumer.” It would also “conflict with the rule that the tax authorities may not charge a VAT amount exceeding the amount paid by the taxable person.”
- Conclusion: Since Határ Diszkont “is clearly unable subsequently to pass onto its customers… the VAT,” the fees must be considered to include VAT.

IV. Implications for Businesses

The Határ Diszkont judgment has significant implications for businesses offering VAT refund administration services to non-EU customers within the EU:

VAT Liability: Such services are generally subject to VAT and do not qualify for common exemptions like those for financial services or services directly connected with export/import. Businesses must apply VAT to these administration fees.
Review of Service Classification: Businesses must carefully assess whether their refund administration services meet the strict criteria for “distinct and independent supplies” as outlined by the Court. The timing of invoicing and payment, the necessity of the service for the main transaction, and whether the service is an “end in itself” for the customer are critical factors.
Protection of Legitimate Expectations: Businesses cannot rely solely on past periods of unchallenged tax returns or non-binding, ex-post advice from tax authorities to claim a legitimate expectation of VAT exemption. “Precise, unconditional and consistent” assurances from “authorised and reliable sources” are required.
Taxable Amount Calculation: In cases where VAT was not explicitly charged and cannot be recovered from the customer, the agreed price for the administration service must be considered a gross amount already including VAT. This impacts how retroactive tax liabilities are calculated, preventing the supplier from inadvertently bearing the VAT burden.
Customer Communication: Clear communication with non-EU customers about the VAT treatment of administration fees is essential, especially regarding whether VAT is included in the stated fee and if it will be explicitly charged