CELEX: 62018CJ0013
Reference for a preliminary ruling
Taxation
Value added tax (VAT)
Directive 2006/112/EC
Right to deduct input tax
Refunding of excess VAT
Late repayment
Calculation of interest
Procedure for awarding interest due because of the unavailability of excess deductible VAT retained in breach of EU law and interest due as a result of delay by the tax authority in paying an amount due
Principles of effectiveness and equivalence

The requests for a preliminary ruling concern the interpretation of EU law regarding the right to a refund of tax collected in a Member State in breach of EU law.
Those requests were made in two sets of proceedings between Sole-Mizo Zrt. (C‑13/18) and Dalmandi Mezőgazdasági Zrt. (C‑126/18) and the Nemzeti Adó- és Vámhivatal Fellebbviteli Igazgatósága (Appeals Division of the National Tax and Customs Authority, Hungary) concerning the substantive and procedural conditions under which a refund is made to the taxable person of the excess value added tax (VAT) that was not recoverable within a reasonable period because of a condition laid down by the law of a Member State which was subsequently declared by this Court to be contrary to EU law.
Legal context
European Union law
Article 183 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (
OJ 2006 L 347, p. 1
; ‘the VAT Directive’) provides:
‘Where, for a given tax period, the amount of deductions exceeds the amount of VAT due, the Member States may, in accordance with conditions which they shall determine, either make a refund or carry the excess forward to the following period.
However, Member States may refuse to refund or carry forward if the amount of the excess is insignificant.’
Hungarian law
The Law on VAT
Paragraph 186(2) of the az általános forgalmi adóról szóló 2007. évi CXXVII. törvény (Law CXXVII of 2007 on value added tax) (
Magyar Közlöny
2007/155 (XI.16.); ‘the Law on VAT’) made the refund of excess deductible VAT conditional on the full payment of the consideration due, including VAT, in respect of the transaction that generated the deductible VAT (‘the paid consideration condition’). In the absence of payment, the excess had to be carried forward to the subsequent tax period.
The Court, in its judgment of 28 July 2011, Commission v Hungary (
C‑274/10
,
EU:C:2011:530
), held, in essence, that Paragraph 186(2) of the Law on VAT was contrary to Article 183 of the VAT Directive.
The az általános forgalmi adóról szóló 2007. évi CXXVII. törvény jogharmonizációs célú módosításáról és az adó-visszaigénylés különös eljárás szabályairól szóló 2011. évi CXXIII. törvény (Law CXXIII of 2011 amending with a view to harmonisation Law CXXVII of 2007 on value added tax and laying down rules on the special procedure for claims for the refund of VAT; ‘the amending law’) repealed, with effect from 27 September 2011, Paragraph 186(2) to (4) of the Law on VAT. It now allows excess deductible VAT to be refunded without the need to wait for the payment of the consideration due for the transaction in respect of which VAT is deductible.
The Code of Fiscal Procedure
Paragraph 37(4) and (6) of the az adózás rendjéről szóló 2003. évi XCII. törvény (Law XCII of 2003, enacting the Code of Fiscal Procedure; ‘the Code of Fiscal Procedure’), provides:
‘4.   The due date for the payment of a budget subsidy due to the taxable person shall be governed by the Annexes to this Law or a specific law. The budget subsidy or VAT whose refund is claimed must be paid within 30 days of receipt of the request (declaration), but not before the due date, this period being extended to 45 days where the amount of recoverable VAT exceeds 500000 forint [(HUF)]. …
…
6.   Where the tax administration makes a late payment, it shall pay interest at a rate equivalent to that of a late payment penalty for each day of delay. …’
Paragraph 124/C of that code provides:
‘(1)   Where the Alkotmánybíróság [(Constitutional Court, Hungary)], the Kúria [(Supreme Court, Hungary)] or the Court of Justice of the European Union find, with retroactive effect, that a rule of law prescribing a tax obligation is contrary to the Fundamental Law or to a mandatory act of the European Union or, in the case of a municipal regulation, to any other rule of law, and that this judicial decision gives rise to a right of reimbursement for the taxable person under the provisions of this Paragraph, the first-instance tax authority shall proceed with the reimbursement at the taxable person’s request, in accordance with the procedures specified in the decision concerned.
(2)   The taxable person may submit his or her request in writing to the tax authority within 180 days of the publication or notification of the decision of the Alkotmánybíróság [(Constitutional Court)], the Kúria [(Supreme Court)] or the Court of Justice of the European Union; no request for relief from the foreclosure shall be allowed at the end of the period. The tax authority shall reject the request in the event that, on the date of publication or notification of the decision, the right to claim for compensation has expired.
…
(6)   If the taxable person’s right to a refund is well founded, the tax authority shall pay – at the time of refund – interest on the tax to be refunded, at a rate equal to the central bank’s base rate and calculated from the date of payment of the tax until the day on which the decision granting the refund became final. The refund is due on the date on which the decision granting it became final and must be made within 30 days of the date on which it became due. The provisions relating to the payment of budget subsidies shall apply
mutatis mutandis
to the reimbursement governed by this subparagraph, with the exception of Paragraph 37(6).’
Paragraph 124/D(1) to (3) of that code is worded as follows:
‘(1)   Unless otherwise provided for in this Paragraph, the provisions of Paragraph 124/C shall apply to refund applications based on the right to deduct VAT.
(2)   The taxable person may exercise the right referred to in subparagraph 1 above by means of a declaration of regularisation – submitted within 180 days of the publication or notification of the decision of the Alkotmánybíróság [(Constitutional Court)], the Kúria [(Supreme Court)] or the Court of Justice of the European Union – of the declaration or declarations corresponding to the tax year or tax years in which the right of deduction concerned was created. No request for a statement of foreclosure will be accepted at the end of the time limit.
(3)   If the statement, as rectified in the regularisation declaration, shows that the taxable person is entitled to a refund either because of the reduction in the tax he or she has to pay or because of the increase in the amount recoverable … the tax authority shall apply to the amount to be refunded an interest rate equivalent to the central bank’s base rate, calculated for the period between the date fixed for payment in the declaration or declarations concerned by the regularisation declaration, or the due date – or the date of payment of the tax if this is later – and the date on which the regularisation declaration is submitted. The reimbursement – to which the provisions relating to the payment of budgetary subsidies apply – must be made within 30 days of the date of submission of the regularisation declaration.’
Paragraph 164(1) of the Code of Fiscal Procedure reads:
‘The right to the assessment of the tax shall lapse five years after the last day of the calendar year in which the declaration or notification relating to that tax should have been made or, in the absence of such declaration or notification, during which the tax should have been paid. Unless otherwise provided by law, the right to request a budget subsidy and the right to reimbursement of overpayments shall lapse five years after the last day of the calendar year in which the right to request the subsidy or reimbursement was opened. …’
Paragraph 165(2) of that code provides:
‘The late penalty rate for each calendar day is equal to 1/365th of twice the central bank’s base rate in effect on the date of its application. A delay penalty cannot itself give rise to the application of a delay penalty. The central tax and customs administration does not order the payment of late penalties of less than [HUF] 2000 …’
The disputes in the main proceedings and the questions referred for a preliminary ruling
Case C‑13/18
In the order of 17 July 2014, Delphi Hungary Autóalkatrész Gyártó (
C‑654/13
, not published,
EU:C:2014:2127
, paragraph
), the Court held that EU law, and in particular Article 183 of the VAT Directive, must be interpreted as precluding the legislation and practice of a Member State which exclude the payment of interest on the amount of excess deductible VAT which was not recoverable within a reasonable period because of a national provision considered contrary to EU law. The Court further held, however, that in the absence of EU legislation in this field, it is for the Member States to determine, in compliance with the principles of equivalence and effectiveness, the arrangements for paying such interest.
As a result of that order, the Hungarian tax administration adopted an administrative practice, on the regularity of which the Kúria (Supreme Court) ruled in decision No Kfv.I.35.472/2016/5 of 24 November 2016. On the basis of that decision, that court adopted a decision (No EBH2017.K18) entitled ‘Examination (as to the rate and limitation period) of the question of interest on VAT necessarily accrued because of the payment condition’ (‘decision of principle of the Supreme Court No 18/2017’) setting out the procedure for calculating interest on the amount of VAT that was not recoverable because of the paid consideration condition. According to the decision in principle, two periods are to be distinguished:
–
for the period between the day following the last day of the deadline for lodging the VAT return and the date of expiry of the deadline for lodging the next return, Paragraphs 124/C and 124/D of the Code of Fiscal Procedure, which govern the situation where the Alkotmánybíróság (Constitutional Court) or the Kúria (Supreme Court) find that a rule infringes a higher national rule, are applicable by analogy and
–
for the period between the date on which the interest payable by the tax authority fell due to the date on which the competent tax authority actually paid the interest, Paragraph 37(6) of the Code of Fiscal Procedure is to be applied.
On 30 December 2016, Sole-Mizo submitted to the tax authority, on the basis of the order of 17 July 2014, Delphi Hungary Autóalkatrész Gyártó (
C‑654/13
, not published,
EU:C:2014:2127
), a request for payment of interest on the excess deductible VAT which had not been repaid within a reasonable period because of the paid consideration condition. That request was for interest in respect of various reporting periods from December 2005 to June 2011. Default interest due to the late payment of this interest was also sought.
By decision of 3 March 2017, the first-instance tax authority partially granted Sole-Mizo’s request and ordered the payment of interest, calculated at a rate corresponding to the Hungarian Central Bank’s simple base rate, in the amount of HUF 99630000 (approximately EUR 321501), but rejected it in so far as it concerned payment of default interest calculated at a rate equivalent to twice the Hungarian Central Bank’s simple base rate, due to the late payment of that interest.
In a decision of 19 June 2017, adopted following an administrative appeal lodged by Sole-Mizo, the second-instance tax authority amended that decision and ordered the payment of HUF 104165000 (approximately EUR 338891) in interest on the amount of excess deductible VAT which was not recoverable because of the paid consideration condition. The amount due by way of that interest was calculated on the basis of Paragraphs 124/C and 124/D of the Code of Fiscal Procedure, by applying a rate corresponding to the Hungarian Central Bank’s simple base rate.
Sole-Mizo brought an action before the referring court in Case C‑13/18 against the decision of the second-instance tax authority, arguing that the sum due by way of interest on the amount of excess deductible VAT which was not recoverable because of the paid consideration condition should also be determined by applying a rate corresponding to twice the Hungarian Central Bank’s base rate, in accordance with Paragraph 37(6) of the Code of Fiscal Procedure.
That court asks whether the procedure for calculating interest on the amount of VAT laid down in decision of principle of the Supreme Court No 18/2017 is compatible with EU law and, in particular, with the principles of equivalence and effectiveness.
In those circumstances, the Szegedi Közigazgatási és Munkaügyi Bíróság (Administrative and Labour Court, Szeged, Hungary) decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling:
‘(1)
Is a practice of a Member State pursuant to which, when the relevant [interest] provisions are examined, it is assuumed that the national tax authority has not committed an infringement (failure to act) – that is, it has not delayed payment as regards the non-recoverable part of the value added tax (“VAT”) … on the taxable persons’ unpaid purchases – because when the national tax authority adopted its decision, the national legislation infringing [EU] law was in force and it was not until later that the Court of Justice declared that the requirement laid down in that legislation did not comply with [EU] law, consistent with the provisions of [EU] law, with the provisions of [the VAT Directive] (having regard in particular to Article 183 thereof), and with the principles of effectiveness, direct effect and equivalence?
(2)
Is a practice of a Member State which, when the relevant [interest] provisions are examined, distinguishes between whether the national tax authority failed to refund the tax in compliance with the national provisions then in force – which, moreover, infringed [EU] law – or whether it failed to do so in breach of such provisions and which, as regards the amount of the interest accrued on the VAT whose refund could not be claimed within a reasonable period due to a national-law requirement declared contrary to EU law by the Court of Justice, sets out two definable periods, with the result that,
–
in the first period, taxable persons only have the right to receive [interest] at the central bank’s base rate, in view of the fact that since the Hungarian legislation contrary to [EU] law was still then in force, the Hungarian tax authorities did not act unlawfully by not authorising the payment within a reasonable period of the VAT included in the invoices, whereas,
–
in the second period interest double the central bank’s base rate –applicable moreover in the event of delay in the legal system of the Member State in question – must be paid only for the late payment of the [interest] corresponding to the first period,
consistent with [EU] law, in particular with the provisions of the VAT Directive (having regard in particular to Article 183 thereof), and with the principles of equivalence, effectiveness and proportionality?
(3)
Must Article 183 of the VAT Directive be interpreted as meaning that the principle of equivalence precludes a practice of a Member State pursuant to which, on the VAT not returned, the tax authority only pays interest at the central bank’s base (simple) rate if EU law has been infringed, whereas it pays interest equivalent to double the central bank’s base rate if there has been an infringement of national law?’
Case C‑126/18
On 30 December 2016, Dalmandi Mezőgazdasági submitted to the first-instance tax authority a request for payment of interest on the excess deductible VAT that had not been repaid within a reasonable period between 2005 and 2011 due to the paid consideration condition. The sum claimed came to HUF 74518800 (approximately EUR 240515). For the calculation of the interest, the claim took into account the entire period between the due date of the refund for each reporting period concerned and the due date of the refund for the reporting period during which the amending law was adopted, namely, in this case, 5 December 2011. It applied, for the purposes of this calculation, a rate of twice the Hungarian Central Bank’s base rate, in accordance with Paragraph 37(6) of the Code of Fiscal Procedure. In addition, Dalmandi Mezőgazdasági requested payment of additional interest for the period from 5 December 2011 to the effective payment date, also applying the rate referred to in Paragraph 37(6) of the Code of Fiscal Procedure.
By a decision of 10 March 2017, the first-instance tax authority partially granted that request, by awarding interest of HUF 34673000 (approximately EUR 111035) in respect of the excess deductible VAT unlawfully withheld for the period between the fourth quarter of 2005 and the third quarter of 2011, under Paragraph 124/D(3) of the Code of Fiscal Procedure. It rejected the request for the remainder of the claim.
The first-instance tax authority’s decision was based on the principles set out in decision of principle of the Supreme Court No 18/2017. First, in order to determine the amount of the claim for interest, the tax authority applied Paragraphs 124/C and 124/D of the Code of Fiscal Procedure, which provide for application of a rate equivalent to the Hungarian Central Bank’s base rate. Secondly, it held that Dalmandi Mezőgazdasági’s claim for the payment of default interest was unfounded, inasmuch as it had submitted neither a claim for a special refund nor a VAT return that included a claim for a refund. Thirdly, as regards the year 2005, the first-instance tax authority dismissed Dalmandi Mezőgazdasági’s claim for interest, finding that the claim in respect of the first three quarters of that year was time-barred.
By decision of 12 June 2017, the second-instance tax authority, before which Dalmandi Mezőgazdasági had lodged an administrative appeal, reduced the amount of interest on the excess deductible VAT that was not recoverable because of the paid consideration condition, accrued in favour of Dalmandi Mezőgazdasági to HUF 34259000 (approximately EUR 111527). In accordance with decision of principle of the Supreme Court No 18/2017, that interest was calculated, under Paragraphs 124/C and 124/D of the Code of Fiscal Procedure, at a rate equivalent to the Hungarian Central Bank’s simple base rate. In addition, that authority awarded default interest of HUF 7000 (approximately EUR 22) because the time limit for processing the claim, calculated from 9 March 2017, had been exceeded, and upheld the first-instance tax authority’s decision as to the remainder of the claim.
Dalmandi Mezőgazdasági brought an action against that decision before the referring court. In particular, it argued that decision of principle of the Supreme Court No 18/2017 infringed the principles of equivalence, effectiveness and direct effect of EU law.
In those circumstances, the Szekszárdi Közigazgatási és Munkaügyi Bíróság (Administrative and Labour Court, Szekszárd, Hungary) decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling:
‘(1)
Is a judicial practice of a Member State pursuant to which, when the relevant [interest] provisions are examined, it is assumed that the national tax authority has not committed an infringement (failure to act) – that is, it has not delayed payment as regards the non-recoverable part of the value added tax (“VAT”) … on the taxable persons’ unpaid purchases – because when that tax authority adopted its decision, the national legislation infringing [EU] law was in force and it was not until later that the Court of Justice declared that the requirement laid down in that legislation did not comply with [EU] law, consistent with the provisions of [EU] law, with the provisions of [the VAT Directive] (having regard in particular to Article 183 thereof), and with the principles of effectiveness, direct effect and equivalence? Accordingly, the national practice accepted that the application of that requirement laid down in the national legislation infringing EU law was quasi-compliant with the law until the point at which the national legislature formally repealed the requirement.
(2)
Are the legislation and practice of a Member State which, when the relevant [interest] provisions are examined, distinguish between whether the tax authority failed to refund the tax in compliance with the national provisions then in force – which, moreover, infringed [EU] law – or whether it failed to do so in breach of such provisions and which, as regards the amount of the interest accrued on the VAT whose refund could not be claimed within a reasonable period due to a national-law requirement declared contrary to EU law by the Court of Justice, set out two definable periods, with the result that,
–
in the first period, taxable persons only have the right to receive [interest] at the central bank base rate, in view of the fact that since the Hungarian legislation contrary to [EU] law was still then in force, the Hungarian tax authorities did not act unlawfully by not authorising the payment within a reasonable period of the VAT included in the invoices, whereas
–
in the second period interest double the central bank base rate –applicable moreover in the event of delay in the legal system of the Member State in question – must be paid only for the late payment of the default interest corresponding to the first period
consistent with [EU] law, in particular with the provisions of the VAT Directive (having regard in particular to Article 183 thereof), and with the principles of equivalence, effectiveness and proportionality?
(3)
Is a practice of a Member State which sets as the initial date for the calculation of default interest (compound interest, or interest on interest) accrued in accordance with a Member State’s provisions on the delay in payment of the default interest on the tax retained contrary to EU law (interest on the VAT; in this case, the principal) not the original date of accrual of the interest on the VAT (principal), but a later point in time, consistent with [EU] law, with Article 183 of the VAT Directive and with the principle of effectiveness, taking into account in particular the fact that a claim for interest on taxes retained, or not refunded, contrary to EU law is a substantive right which flows directly from EU law itself?
(4)
Is a practice of a Member State pursuant to which the taxable person must submit a separate claim if it claims interest accrued because of a tax authority’s default, while in other cases where default interest is claimed such a separate claim is not required because interest is granted automatically, consistent with [EU] law, with Article 183 of the VAT Directive and with the principle of effectiveness?
(5)
If the previous question is answered in the affirmative, is a practice of a Member State pursuant to which compound interest (interest on interest) for the delay in the payment of interest on the tax retained contrary to EU law as declared by the Court of Justice (interest on the VAT; in this case, the principal) may only be granted if the taxable person submits a special claim whereby interest is not specifically claimed, but rather the amount of the tax indebted on the unpaid purchases precisely at the time when the Member State’s rule contrary to EU law which required the VAT due on account of that failure to pay to be retained was repealed under national law, although the interest on the VAT which serves as the basis for claiming the compound interest as regards the tax return periods prior to the special claim has already accrued and has still not been paid, consistent with [EU] law, with Article 183 of the VAT Directive and with the principle of effectiveness?
(6)
If the previous question is answered in the affirmative, is a practice of a Member State which entails the loss of the right to receive compound interest (interest on interest) for the delay in the payment of interest on the tax retained contrary to EU law as declared by the Court of Justice (interest on the VAT; in this case, the principal) in relation to claims for interest on VAT which was not the subject of the VAT return period affected by the limitation period laid down for the submission of the special claim, since such interest had accrued beforehand, consistent with [EU] law, with Article 183 of the VAT Directive and with the principle of effectiveness?
(7)
Is a practice of a Member State which definitively deprives the taxable person of the possibility of claiming interest on the tax retained in accordance with national legislation subsequently declared contrary to [EU] law and which prohibited claiming the VAT in respect of certain unpaid purchases, with the result that
–
[pursuant to that practice] the claim for interest was not considered well-founded at the point in time when [the refund of] the tax was demandable, on the basis that the provision subsequently declared contrary to [EU] law was in force (on the ground that there had been no delay and that the tax authority had simply applied the law in force),
–
and subsequently, when the provision declared contrary to [EU] law and which limited the right to refund had been repealed in the national legal system, on the basis of being time-barred,
consistent with [EU] law and with Article 183 of the VAT Directive (taking into account in particular the principle of effectiveness and the character of a substantive right of the claim for interest for the taxes wrongfully not returned)?
(8)
Is a practice of a Member State pursuant to which the possibility of claiming the [interest] which must be paid on the interest on the VAT (principal) to which the taxable person is entitled in respect of the tax not refunded when it was originally demandable, due to a national-law rule subsequently declared contrary to [EU] law, is made dependant, for the entirety of the period between 2005 and 2011, upon whether the taxable person is currently in a position to request the refund of the VAT for the tax return period during which the provision contrary to [EU] law in question was repealed in the national legal system (September 2011), although the payment of the interest on the VAT (principal) had not occurred before that point in time nor has occurred subsequently, before the claim is brought before the national court, consistent with [EU] law and with Article 183 of the VAT Directive and with the principle of effectiveness?’
By decision of the President of the Court of 12 March 2018, Cases C‑13/18 and C‑126/18 were joined for the purposes of the written and oral procedure and of the judgment.
The jurisdiction of the Court
The Hungarian Government contends that the requests for a preliminary ruling are inadmissible. In its view, it is not for the Court to examine questions raised in the main proceedings about the payment of interest, when the rate, calculation and procedural details of that interest are governed not by EU law but by national law.
By its arguments, the Hungarian Government is in reality challenging the jurisdiction of the Court to answer the questions referred.
When a matter is brought before it under Article 267 TFEU, the Court has jurisdiction to rule on the interpretation of the Treaties and on the validity and interpretation of acts adopted by the EU institutions. In that regard, although it is not the task of the Court to rule upon the compatibility of national law with EU law or to interpret national legislation or regulations, it is however competent to give the referring courts full guidance on the interpretation of EU law in order to enable them to determine the issue of compatibility for the purposes of the cases before them (judgment of 16 October 2019, Glencore Agriculture Hungary,
C‑189/18
,
EU:C:2019:861
, paragraph
and the case-law cited).
In the present case, it should be noted that Member States are required to repay with interest tax levied in breach of EU law. Although, in the absence of EU legislation, it is for the internal legal order of each Member State to lay down the conditions in which such interest must be paid, particularly the rate of that interest and its method of calculation, those conditions must comply with the principles of equivalence and effectiveness as well as the principle of fiscal neutrality (see, to that effect, judgments of 18 April 2013, Irimie,
C‑565/11
,
EU:C:2013:250
, paragraphs
and
, and of 28 February 2018, Nidera,
C‑387/16
,
EU:C:2018:121
, paragraphs
,
and
and the case-law cited).
By their questions, the referring courts ask the Court about the interpretation of EU law, and in particular interpretation of the principles of EU law referred to in the preceding paragraph of the present judgment, which falls within the jurisdiction of the Court.
In the light of those considerations, it must be held that the Court does have jurisdiction to answer the questions referred for a preliminary ruling.
The questions referred
The first to third questions in Case C‑13/18 and the first and second questions and the first part of the seventh question in Case C‑126/18
By the first to third questions in Case C‑13/18 and by the first and second questions and the first part of the seventh question in Case C‑126/18, which should be examined together, the referring courts ask in essence whether EU law and, in particular, Article 183 of the VAT Directive, and the principles of effectiveness and equivalence, direct effect and proportionality must be interpreted as precluding a practice of a Member State, such as that at issue in the main proceedings, pursuant to which interest is calculated on excess deductible VAT retained by that State beyond a reasonable period in breach of EU law, by applying a rate corresponding to the national central bank’s base rate.
In that regard, it is clear from the case-law of the Court that the right to a refund of charges levied in a Member State in breach of rules of EU law is the consequence and complement of the rights conferred on individuals by provisions of EU law as interpreted by the Court. The Member State is therefore in principle required to repay charges levied in breach of EU law (judgment of 19 July 2012, Littlewoods Retail and Others,
C‑591/10
,
EU:C:2012:478
, paragraph
and the case-law cited).
The Court has also held that, where a Member State has levied charges in breach of the rules of EU law, individuals are entitled to reimbursement not only of the tax unduly levied but also of the amounts paid to that State or retained by it which relate directly to that tax. That also includes losses constituted by the unavailability of sums of money as a result of a tax being levied prematurely (judgment of 19 July 2012, Littlewoods Retail and Others,
C‑591/10
,
EU:C:2012:478
, paragraph
and the case-law cited).
It is clear from that case-law that the principle of the obligation of Member States to repay with interest amounts of tax levied in breach of EU law follows from that law (judgment of 19 July 2012, Littlewoods Retail and Others,
C‑591/10
,
EU:C:2012:478
, paragraph
and the case-law cited).
In the absence of EU legislation, it is for the internal legal order of each Member State to lay down the conditions in which such interest must be paid, particularly the rate of that interest and its method of calculation (simple or compound interest). Those conditions must comply with the principles of equivalence and effectiveness; that is to say that they must not be less favourable than those concerning similar claims based on provisions of national law or arranged in such a way as to make the exercise of rights conferred by the EU legal order practically impossible (judgment of 19 July 2012, Littlewoods Retail and Others,
C‑591/10
,
EU:C:2012:478
, paragraph
and the case-law cited). Those conditions must, in addition, observe the principle of fiscal neutrality (judgment of 28 February 2018, Nidera,
C‑387/16
,
EU:C:2018:121
, paragraph
and the case-law cited).
In the present case, the referring courts ask, first, whether the practice of the tax authority, based on decision of principle of the Supreme Court No 18/2017, is compatible with the principle of equivalence, in so far as it provides that interest on the amounts of excess deductible VAT which could not be recovered because of the paid consideration condition is to be calculated in accordance with Paragraphs 124/C and 124/D of the Code of Fiscal Procedure and not on the basis of Paragraph 37(4) and (6) thereof.
According to the information contained in the orders for reference, Paragraphs 124/C and 124/D of the Code of Fiscal Procedure provide that the rate of interest applicable to amounts to be refunded to the taxable person following a decision of the Court of Justice or the Alkotmánybíróság (Constitutional Court) or Kúria (Supreme Court), finding that a rule of national law prescribing a tax obligation is contrary to EU law or the Hungarian Fundamental Law or, in the case of a municipal regulation, to any other rule of law, is equal to the base rate of the Hungarian Central Bank. However, according to the same information, Paragraph 37(6) of the Code of Fiscal Procedure provides that application of a rate corresponding to twice the base rate of the Hungarian Central Bank is to be applied in the event that the authority does not pay the VAT whose refund is claimed within 30 or 45 days of receipt of the claim for a refund.
Ultimately, it is for the national courts, which alone have direct knowledge of the procedural rules governing restitution actions against the State, to verify whether the procedural rules intended to ensure that the rights derived by individuals from EU law are safeguarded under domestic law comply with that principle and to consider both the purpose and the essential characteristics of allegedly similar domestic actions. For that purpose, the national courts must consider whether the actions concerned are similar as regards their purpose, cause of action and essential characteristics (judgment of 19 July 2012, Littlewoods Retail and Others,
C‑591/10
,
EU:C:2012:478
, paragraph
).
Subject to such verification incumbent on the referring courts, it should be noted that the interest provided for in Paragraphs 124/C and 124/D of the Code of Fiscal Procedure would appear to have as its legal basis a judgment of the Court or of a superior national court, finding with retroactive effect that a rule of national law imposing a tax obligation is contrary to a superior rule. Paragraph 37(4) and (6) of that code, however, seems to cover a situation in which the tax authority has not responded to a claim for a refund of VAT within the time limit set. Consequently, that provision penalises the tax authority for failing to comply with the time limit for refunding an amount which it was liable to pay.
It should be added that, as the European Commission stated in essence in its written observations, whereas the default interest provided for in Paragraph 37(6) of that code seems to apply for a period after the date of the taxable person’s request for payment of an amount due, the interest provided for in Paragraphs 124/C and 124/D of that code seems to apply, in particular, for a period preceding such a request. It thus appears that Paragraphs 124/C and 124/D of the Code of Fiscal Procedure and Paragraph 37(4) and (6) of that code do not have the same purpose and basis, which is, however, a matter for the referring courts to determine.
Secondly, the principle of effectiveness requires that the national rules referring, in particular, to the calculation of interest which may be due in the event of a claim for a refund of excess deductible VAT retained contrary to EU law should not lead to depriving the taxpayer of adequate compensation for the loss sustained through the unavailability of the amounts concerned (see, to that effect, judgment of 18 April 2013, Irimie,
C‑565/11
,
EU:C:2013:250
, paragraph
and the case-law cited).
In that context, it should be noted that, given the purpose of the payment of interest on excess VAT retained by a Member State in breach of the rules of EU law is to compensate the taxable person for the financial loss that he or she incurred owing to the unavailability of the amounts concerned, the principle of fiscal neutrality requires that the procedure for paying interest must be established in such a way that the economic burden of the amounts of tax unlawfully retained may be offset (see, to that effect, judgments of 16 May 2013, Alakor Gabonatermelő és Forgalmazó,
C‑191/12
,
EU:C:2013:315
, paragraphs
and
, and of 28 February 2018, Nidera,
C‑387/16
,
EU:C:2018:121
, paragraphs
,
and
).
In the present case, the referring courts ask whether the tax authority’s practice at issue in the main proceedings is compatible with the principles referred to in the preceding two paragraphs of the present judgment, having regard, first, to the level of the interest rate provided for by Paragraphs 124/C and 124/D of the Code of Fiscal Procedure and, secondly, the period covered by the application of that interest.
With regard to that interest rate, it should be noted that Paragraphs 124/C and 124/D of that code provide for the application of interest on excess VAT at a rate equal to the Hungarian Central Bank’s base rate, corresponding to the interest rate that the national central bank applies to the main refinancing operations. However, as the Advocate General noted in points 72 and 74 of his Opinion, if a taxable person had to borrow a sum of money equal to the amount of the excess deductible VAT from a credit institution in order to resolve a cash flow problem caused by the absence of a refund of the excess deductible VAT retained in breach of EU law, he or she would have to pay a higher interest rate than the national central bank base rate, which is available only to credit institutions.
With regard to the period covered by the application of that interest, it is apparent from the documents submitted to the Court that, according to the national practice at issue, interest on the amount of excess deductible VAT which was not recoverable because of the paid consideration condition is calculated on the basis of the VAT reporting period. According to decision of principle of the Supreme Court No 18/2017, that interest runs from the day following the day on which the VAT return form is lodged on which the taxable person has indicated an excess of VAT that must be carried forward to the following reporting period because of the paid consideration condition until the last day for lodging the next VAT return form.
It is apparent in that regard from the evidence submitted to the Court by Sole-Mizo and Dalmandi Mezőgazdasági, evidence that it is for the referring courts to verify, that the period between the date on which the amount of interest on excess deductible VAT not recoverable because of the paid consideration condition was determined and the date of the actual payment of that interest varied, for those two companies, between 5 years to nearly 11 years, a period of time during which no interest appears to have been provided for in order to compensate the taxable person for the monetary erosion caused by the passage of time affecting the value of the amount concerned.
A national practice, pursuant to which, in the event of reimbursement at the taxable person’s request of an amount of excess deductible VAT retained in breach of EU law, the interest on that amount is, first, calculated at a rate that is lower than that which a taxable person who is not a credit institution would have to pay to borrow a sum equal to that amount and, secondly, runs for a given reporting period, without the application of interest to compensate the taxable person for the monetary erosion caused by the passage of time following that reporting period up until the actual payment of that interest, may deprive the taxable person of adequate compensation for the loss sustained through the unavailability of the amounts concerned and, accordingly, does not observe the principle of effectiveness. Furthermore, such a practice is not such as to offset the economic burden of amounts of tax unlawfully retained, contrary to the principle of fiscal neutrality.
There is therefore no need to examine the present questions with regard to the principles of direct effect and proportionality.
In the light of the foregoing, the answer to the first to third questions in Case C‑13/18 and the first and second questions and the first part of the seventh question in Case C‑126/18 is that EU law and, in particular, the principles of effectiveness and fiscal neutrality must be interpreted as precluding the practice of a Member State, pursuant to which interest is calculated on excess deductible VAT retained by that Member State beyond a reasonable period in breach of EU law on the basis of a rate corresponding to the national central bank’s base rate, where, first, that rate is lower than the rate that a taxable person who is not a credit institution would have to pay to borrow a sum equal to that amount and, secondly, the interest on the excess VAT concerned runs for a given reporting period without the application of interest to compensate the taxable person for the monetary erosion caused by the passage of time following that reporting period up until the actual payment of that interest.
The second part of the seventh question in Case C‑126/18
By the second part of its seventh question in Case C‑126/18, the referring court asks, in essence, whether EU law and, in particular, the principles of effectiveness and equivalence must be interpreted as precluding a practice of a Member State which imposes a five-year limitation period on claims for payment of interest on excess deductible VAT retained because of the application of a provision of national law declared contrary to EU law.
In that regard, it follows from the case-law referred to in paragraph 37 of the present judgment that, in the absence of EU legislation, it is for the internal legal order of each Member State to lay down the conditions in which interest on amounts of tax levied in breach of EU law must be paid, in compliance, in particular, with the principles of equivalence and effectiveness.
First, as regards the principle of effectiveness, the Court has stated that it is compatible with EU law to lay down reasonable time limits for bringing proceedings in the interests of legal certainty, which protects both the taxpayer and the authorities concerned. Such periods are not by their nature liable to make it virtually impossible or excessively difficult to exercise the rights conferred by EU law, even if the expiry of those periods necessarily entails the dismissal, in whole or in part, of the action brought (judgment of 14 June 2017, Compass Contract Services,
C‑38/16
,
EU:C:2017:454
, paragraph
and the case-law cited).
It is clear from the case-law of the Court that the possibility of making an application for the refund of excess VAT without any temporal limit would be contrary to the principle of legal certainty, which requires the tax position of the taxable person, having regard to his or her rights and obligations vis-à-vis the tax authority, not to be open to challenge indefinitely (judgment of 21 January 2010, Alstom Power Hydro,
C‑472/08
,
EU:C:2010:32
, paragraph
).
The Court has previously held that a national limitation period of three years which runs from the date of the contested payment appears to be reasonable (judgment of 11 July 2002, Marks & Spencer,
C‑62/00
,
EU:C:2002:435
, paragraph
and the case-law cited).
In the present case, it is clear from the order for reference in Case C‑126/18 that the national practice at issue in the main proceedings, based on Paragraph 164(1) of the Code of Fiscal Procedure, allows the taxable person to claim interest to compensate for losses he or she has suffered since the last reporting period in 2005 because of the application of the paid consideration condition. According to that national practice, a request for payment of interest was to be submitted no later than the last day of the fifth calendar year after the entry into force on 27 September 2011 of the amending law – which introduced a procedure for refunding excess deductible VAT retained because of the paid consideration condition – that is to say, 31 December 2016.
Thus it appears that that national practice makes the right to claim interest on excess deductible VAT, retained by the State in breach of EU law, conditional on a five-year limitation period, which runs from the date of the entry into force of national legislation introducing a procedure for refunding that excess. It should be noted that a national practice of this type meets the requirements arising from the principle of effectiveness.
Secondly, as regards the principle of equivalence, the Court has no evidence causing it to doubt that the national practice at issue in the main proceedings complies with that principle, since a request for payment of interest is subject to the same five-year limitation period, irrespective of whether that request is based on a breach of EU law or on infringement of national law having the same purpose and basis.
In the light of the foregoing, the answer to the second part of the seventh question in Case C‑126/18 is that EU law and, in particular, the principles of effectiveness and equivalence must be interpreted as not precluding a practice of a Member State which imposes a five-year limitation period on requests for payment of interest on excess deductible VAT retained because of the application of a provision of national law declared contrary to EU law.
The third and fourth questions in Case C‑126/18
By its third and fourth questions in Case C‑126/18, which should be examined together, the referring court asks, in essence, whether EU law and, in particular, Article 183 of the VAT Directive and the principle of effectiveness must be interpreted as precluding a practice of a Member State which, first, makes payment of default interest due because the tax authority has not paid within the time limit set a claim for interest in respect of a refund of excess VAT retained in breach of EU law dependent upon the submission of a specific request, while in other cases such interest is awarded automatically, and, secondly, applies that interest with effect from the end of a period of 30 or 45 days within which the administration is required to deal with such a request, and not from the date on which the excess was constituted.
As a preliminary point, it should be noted that those questions do not relate to the interest on excess deductible VAT retained in breach of EU law, but to the default interest, provided for in Paragraph 37(4) and (6) of the Code of Fiscal Procedure, which is applicable in the event of delay by the administration in paying an amount in respect of which the taxable person requests a refund. In that regard, it is clear from the order for reference in Case C‑126/18 that Dalmandi Mezőgazdasági did not submit its request for a refund of the interest on that company’s excess VAT in respect of various reporting periods from December 2005 to June 2011 immediately upon the entry into force of the amending law introducing a procedure for refunding excess deductible VAT retained by the Hungarian State because of the paid consideration condition during 2011, but only on 30 December 2016. Dalmandi Mezőgazdasági’s request for payment, with effect from a date prior to the submission of that request and the expiry of the time limit for the administration to process default interest under Paragraph 37(6) of the Code of Fiscal Procedure, was dismissed by the tax authority on the grounds that, in the absence of a request, no delay can be attributed to the administration.
As the Advocate General stated in point 100 of his Opinion, since the default interest provided for in Paragraph 37(4) and (6) of the Code of Fiscal Procedure is due because of the late payment by the tax authority of a claim made in a request from the taxable person, the payment of such interest does not originate directly from the obligation, under EU law, to compensate for losses sustained through the unavailability of the excess VAT retained in breach of EU law, but from the tax authority’s exceeding of a procedural time limit which it was required to comply with under national law.
The fact remains that, where, as in the main proceedings, the claim has arisen as a result of a breach of EU law by a Member State, the principle of effectiveness requires that State to pay default interest in the event of late payment of that claim by the administration, otherwise Member States would have no incentive to compensate for the effects of such a breach on taxable persons without undue delay.
As regards the conditions in which such interest is paid, it is clear from the case-law referred to in paragraph 37 of the present judgment that, in the absence of EU legislation, it is for the internal legal order of each Member State to lay down those conditions, provided the latter comply, inter alia, with the principles of equivalence and effectiveness.
With regard to the principle of effectiveness, which is the only one referred to in the third and fourth questions in Case C‑126/18, the requirement that the taxable person must submit a request for payment of default interest due in the event of delay in the payment by the administration of a claim arising from a breach by the State of EU law is not, in itself, likely to make it impossible in practice to exercise the right to a refund of excess VAT retained in breach of EU law. As the Hungarian Government observed, it is by submitting such a request that the taxable person informs the tax authority of his or her claim and it is that request which enables the administration to ascertain the amount and legal basis of the claim concerned.
In view of the procedural autonomy enjoyed by the Member States to lay down, in their national law, procedural conditions for the payment of interest on amounts of tax levied in breach of EU law, the requirement concerning the submission by the taxable person of a request for payment of default interest due in the event of delay in payment by the administration of a claim arising as a result of a breach by the State of EU law is not incompatible with the principle of effectiveness.
Consequently, nor is a national practice pursuant to which the default interest provided for by national law is applied in the event of late payment by the tax authority of a claim made in a request from the taxable person, with effect from the end of a time limit of 30 or 45 days imposed on the tax authority for dealing with that request contrary to the principle of effectiveness, irrespective of whether the claim has arisen in the context of repayment of excess VAT retained in breach of EU law.
In those circumstances, the answer to the third and fourth questions in Case C‑126/18 is that EU law and, in particular, the principle of effectiveness must be interpreted as not precluding a practice of a Member State which, first, makes payment of default interest due because the tax authority has not paid within the time limit set a claim in respect of a refund of excess VAT retained in breach of EU law dependent upon the submission of a specific request, while in other cases such interest is awarded automatically, and, secondly, applies that interest with effect from the end of a time limit of 30 or 45 days within which the administration is required to deal with such a request, and not from the date on which the excess was constituted.
Fifth and sixth questions in Case C‑126/18
Since, first, the fifth question in Case C‑126/18 is referred in the event that the Court should answer the fourth question in the affirmative and, secondly, the sixth question in that case is referred in the event that the Court should answer the fifth question in the affirmative, there is no need to answer those questions.
Eighth question in Case C‑126/18
By its eighth question in Case C‑126/18, the referring court asks, in essence, whether EU law and, in particular, Article 183 of the VAT Directive and the principle of effectiveness must be interpreted as precluding a practice of a Member State pursuant to which payment of default interest, due because the tax authority has not paid within the time limit set a claim for interest in respect of a refund of excess VAT retained in breach of EU law, can be awarded in respect of the period during which that excess has been constituted only if the taxable person’s return for the period during which that Member State ended that breach of EU law shows an excess of deductible VAT.
In that regard, it is clear from the order for reference in Case C‑126/18 that Dalmandi Mezőgazdasági obtained payment of default interest in the sum of HUF 7000 (approximately EUR 22) because the time limit had been exceeded for processing its claim of 30 September 2016 for payment of interest on excess deductible VAT retained in breach of EU law, in respect of a period subsequent to its request, while the tax authority refused to pay it such interest in respect of the period prior to its request. Furthermore, it is common ground that that company’s tax return for the period during which the Hungarian State ended that breach of EU law had not shown an excess of deductible VAT.
As is clear from paragraphs 67 and 68 of the present judgment, the tax authority was entitled, without infringing the principle of effectiveness, to refuse to pay such default interest in respect of the period prior to the submission of the request.
In those circumstances, there is no need to answer the question whether, in view of the requirements arising from that principle, the administration was entitled to refuse to pay such interest in respect of the same period on grounds other than delay in the submission of the request relating to the absence of excess VAT in the taxable person’s return for the period during which the Hungarian State ended that breach of EU law.
Costs
Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national courts, the decision on costs is a matter for those courts. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.

On those grounds, the Court (Second Chamber) hereby rules:

1.
EU law and, in particular, the principles of effectiveness and fiscal neutrality must be interpreted as precluding the practice of a Member State, pursuant to which interest is calculated on excess deductible value added tax (VAT) retained by that Member State beyond a reasonable period in breach of EU law on the basis of a rate corresponding to the national central bank’s base rate, where, first, that rate is lower than the rate that a taxable person who is not a credit institution would have to pay to borrow a sum equal to that amount and, secondly, the interest on the excess VAT concerned runs for a given reporting period without the application of interest to compensate the taxable person for the monetary erosion caused by the passage of time following that reporting period up until the actual payment of that interest.

2.
EU law and, in particular, the principles of effectiveness and equivalence must be interpreted as not precluding a practice of a Member State which imposes a five-year limitation period on requests for payment of interest on excess deductible value added tax retained because of the application of a provision of national law held to be contrary to EU law.

3.
EU law and, in particular, the principle of effectiveness must be interpreted as not precluding a practice of a Member State which, first, makes payment of default interest due because the tax authority has not paid within the time limit set a claim in respect of a refund of excess value added tax retained in breach of EU law dependent on the submission of a specific request, while in other cases such interest is awarded automatically, and, secondly, applies that interest with effect from the end of a period of 30 or 45 days within which the administration is required to deal with such a request, and not from the date on which the excess was constituted.

[Signatures]
(
*1
)	Language of the case: Hungarian.