European Court judgment in a case with Hungarian elements

In the case subject to the judgment, the taxpayer had a conditional tax assessment confirming that its transactions were not subject to value added tax (VAT); however, for certain periods (when it had still issued invoices increased by 27% VAT), it had only corrected the documents at invoice level and not the returns.

The period in question was subsequently subjected to a tax audit, which made no findings in relation to VAT, but the period was therefore treated as closed by audit. The taxpayer wished to correct the erroneously charged and declared VAT for the relevant period retrospectively.

Under Hungarian regulations, a repeated audit may be initiated, among other cases, if the taxpayer discloses a new fact or circumstance that was not previously known. The tax authority took the view that the above did not qualify as such, as all necessary materials had already been available to the taxpayer. The taxpayer argued that this unduly hindered the correction of erroneously invoiced VAT.

The European Court held that it is not contrary to EU law for national rules to make the correction of VAT for a closed period conditional upon the disclosure of a new fact by the taxpayer, provided that the taxable person was otherwise able to exercise its right to deduct within a reasonable time. In the present case, approximately 2.5 years elapsed between the conditional tax assessment and the commencement of the tax audit.

The above also indicate, beyond VAT, that taxpayers must pay particular attention during tax audits to the disclosure of all relevant facts, documents, and arguments. Information withheld or deferred during the audit can generally no longer be successfully relied upon in any subsequent review of a closed period.