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Hungary: Bad debts and VAT refund opportunities

Hungary: Bad debts and VAT refund opportunities

An amendment to the value added tax (VAT) law in Hungary may allow refunds of VAT to suppliers in certain bad debt situations.


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Previously, under the VAT law in Hungary and under the procedures followed by the tax authority, a supplier was not allowed a refund of VAT if the purchaser had not paid for the subject goods or services.

The amendment to the VAT law—effective 1 January 2020—allows for a retroactive reduction of the tax base for VAT purposes when it is shown that purchaser will not pay the amount owed for the goods or services and that the resulting bad debt is deemed to be unrecoverable. There are certain strict conditions and limitations periods set out in the VAT rules that must be satisfied for this bad debt provision to apply.

The new measures effectively follow a judgment of the Court of Justice of the European Union (CJEU) in a case referred to the CJEU by a Hungarian court. In that case (C-292/19), the CJEU announced that each EU Member State must allow for the retroactive reduction of the VAT base if the taxable person is able to prove that the claim against the purchaser of the goods or services is definitively unrecoverable.

KPMG observation

There may be opportunities for taxable persons to reduce their tax base (and to recover the related VAT) regarding amounts that are unrecoverable as bad debts within the applicable limitation period. These refunds will require a submission of amended VAT returns.

Suppliers also may want to investigate whether there is an opportunity to recover VAT paid on supplies prior to 2016 and whether they may recover VAT in situations when all of the requirements under the new VAT rules are not satisfied but the claim against the purchaser is nevertheless clearly unrecoverable.

Read a November 2019 report prepared by the KPMG member firm in Hungary

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