ECJ C-521/24 (Aptiv Services Hungary Kft.) – Questions – Can VAT deductions be denied based on formal compliance issues?

Summary

Case C-521/24: Aptiv Services Hungary Kft. is involved in a tax dispute with the Hungarian tax authority over the deduction of VAT for intracommunity acquisitions, where the tax authority denied the deduction based on formal requirements.
Legal Question: The referring court asks whether the European VAT Directive and principles such as fiscal neutrality and proportionality oppose a national regulation that refuses to allow the deduction of input tax because the taxpayer exercised their right in a different tax period.
Relevant Legislation: The case concerns the interpretation of articles from the VAT Directive (2006/112/EC) and Hungarian VAT legislation, which set conditions for the right to deduct.
Arguments: Aptiv argues that it met the material conditions for deduction, while the tax authority contends that the deduction can only be applied in the tax period in which the VAT due is established.
Conclusion: The referring court concludes that the national regulation preventing Aptiv’s right to deduct is inconsistent with European VAT rules, as there is no evidence of fraud or adverse effects on the public budget.

Articles in the EU VAT Directive

Article 168: This article specifies the conditions under which a taxable person is entitled to deduct VAT paid on goods and services used for their taxable activities. Specifically, Article 168(c) addresses deductions for VAT on intracommunity acquisitions.
Article 178: This article outlines the conditions that must be fulfilled for a taxable person to exercise their right to deduct VAT. It includes requirements for providing necessary information in the VAT return and possessing valid invoices.
Article 179: This article describes how taxable persons apply the deduction by offsetting the total amount of VAT due against the total amount of deductible VAT for the same tax period.
Article 180: This article allows Member States to permit deductions that are not applied according to Articles 178 and 179, providing flexibility in national implementations of VAT rules.
Article 181: This article states that Member States may allow a taxable person who does not possess a valid invoice to still apply the deduction for VAT on intracommunity acquisitions under certain conditions.
Article 182: This article discusses the general principles of VAT deduction and emphasizes the importance of allowing deductions to ensure the neutrality of the VAT system.

Facts & Background

Parties Involved: Aptiv Services Hungary Kft. (the taxpayer) is in a tax dispute with the Hungarian tax authority (Nemzeti Adó- és Vámhivatal Fellebbviteli Igazgatósága) regarding VAT deductions.
VAT Control: The Hungarian tax authority conducted a VAT audit on Aptiv for the period from November 1, 2020, to December 31, 2021, and found discrepancies in the reported VAT for intracommunity acquisitions.
Disputed Amounts: The tax authority determined that Aptiv had incorrectly claimed a higher amount of deductible VAT for intracommunity acquisitions, specifically related to transactions from the years 2016-2018.
Denial of Deduction: The tax authority denied Aptiv’s request to submit a corrected VAT return for the earlier period, stating that the taxpayer had exercised their right to deduct in a different tax period.
Legal Issue: The core issue revolves around whether the national regulation preventing the deduction of VAT due to the timing of the taxpayer’s return is consistent with the principles of the European VAT Directive, particularly regarding material versus formal conditions for deduction.

Questions

Must Articles 168(c) and 178(c) and (d) and Articles 179, 180, 181 and 182 of Council Directive 2006/112/EC ¹ of 28 November 2006 on the common system of value added tax and the principles of tax neutrality, proportionality and effectiveness be interpreted as meaning that the legislation and practice of a Member State are compatible with them where, according to that legislation and practice, the deduction of the input VAT in respect of intra-Community acquisitions of goods is refused and definitively excluded (no corrected return can be filed and the application for a special tax refund procedure is refused) on the ground that the taxable person, for administrative reasons, did not exercise its right to the deduction during the same tax period as that for which the tax due was calculated, although it did do so within the relevant time limit, in circumstances in which, in previous inspections, the tax authority of the Member State had not raised any objection to such exercise of the right?

Source

Reference to other ECJ cases

C-81/17, Zabrus Siret: This case involved the refusal of a tax authority to allow a taxpayer to deduct VAT because the amounts in question pertained to a tax period preceding a completed audit. The ECJ ruled that the principle of VAT neutrality requires allowing deductions if material conditions are met, even if formal conditions are not fully satisfied.
C-332/15, Astone: This case reaffirmed the principle that the non-compliance with formal conditions that can be remedied should not hinder the proper functioning of the VAT system. The ECJ emphasized the importance of material conditions for VAT deduction.
C-284/11, EMS-Bulgaria Transport: In this case, the ECJ held that an absolute refusal to allow VAT deductions could be considered disproportionate if no fraud or negative impact on the budget was evident. The court stressed that penalties should not undermine the right to deduct if material conditions are fulfilled.
C-590/13, Idexx Laboratories Italia: This case discussed the conditions under which the right to deduct VAT could be exercised, emphasizing that if the tax authority has sufficient information to determine that material conditions are met, it should not impose additional requirements that would prevent the exercise of that right.
C-895/19: Although specific details about this case were not included in the previous summary, it generally involves issues related to the timing and conditions for VAT deductions, reinforcing the principles of fiscal neutrality and the necessity of considering the taxpayer’s good faith.