authorising Hungary to introduce a special measure derogating from Article 193 of Directive 2006/112/EC on the common system of value added tax

EXPLANATORY MEMORANDUM

Pursuant to Article 395(1) of Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (hereafter ‘the VAT Directive’), the Council, acting unanimously on a proposal from the Commission, may authorise any Member State to apply special measures for derogation from the provisions of that Directive in order to simplify the procedure for collecting VAT or to prevent certain forms of tax evasion or avoidance.

By letter registered with the Commission on 13 July 2017, Hungary requested authorisation to introduce a measure to derogate from Article 193 of the VAT Directive. In accordance with Article 395(2) of the VAT Directive, the Commission informed the other Member States by letter dated 15 January 2018 of the request made by Hungary. By letter dated 16 January 2018 the Commission notified Hungary that it had all the information it considered necessary for appraisal of the request.

1.CONTEXT OF THE PROPOSAL

•Reasons for and objectives of the proposal

Based on Article 199(1)(g) of the VAT Directive, Member States may provide that the person liable for the payment of VAT is the taxable person to whom the supply of immovable property sold by a judgement debtor in a compulsory sale procedure is made (the reverse charge mechanism). Hungary would like to extend the application of the reverse charge mechanism to supplies of capital goods of the company and to supplies of goods or services of the open market value exceeding HUF 100 000 (approximately 320EUR), if the taxable person supplying the goods or services is the subject of liquidation or any other proceedings legally establishing its insolvency. According to Hungary, capital goods are typically high value tools, machinery and objects and there are a large number of transactions exceeding the threshold of HUF 100 000 carried out by insolvent taxable persons. The liquidator frequently fails to pay the VAT due since the amount has to be used to settle earlier claims. At the same time, the purchaser, being taxable person with the right of deduction, can still deduct the VAT incurred negatively impacting the budget and basically financing the liquidation. Hungary also registered cases of fraud whereby companies in liquidation would issue fictitious invoices to active companies greatly reducing their payable tax without the guarantee that the issuer would pay the VAT due. Hungary therefore submits that there is a real need to safeguard the tax revenue and the budgetary interests on account of the number of taxable persons in financial difficulties performing the above supplies. The reverse charge mechanism is, according to Hungary, an appropriate tool to this aim. The taxable person in liquidation would not be liable to pay the VAT due and the customer would not be penalised while losses to the public budget would be avoided.

It is proposed to grant the derogation until 31 December 2021.

In case Hungary would consider an extension of the derogating measure beyond 2021, a report including a review of the measure should be submitted to the Commission together with the extension request and this no later than 31 December 2020.

2.LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY

•Legal basis

Article 395 of the VAT Directive.

•Subsidiarity (for non-exclusive competence)

Considering the provision of the VAT Directive on which the proposal is based, the subsidiarity principle does not apply.

•Proportionality