Proposal for a COUNCIL IMPLEMENTING DECISION authorising Hungary to introduce a special measure derogating from Article 193 of Directive 2006/112/EC on the common system of value added tax
Date: 2018-03-14
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Hungary, VAT, derogation from EU law, goods and services, liquidation, real property, supply, taxpayer

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   EUROPEAN COMMISSION  Brussels, 14.3.2018 COM(2018) 126 final 2018/0057 (NLE)  Proposal for a COUNCIL IMPLEMENTING DECISION 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 tax1 (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. 

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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.  

1 

OJ L 347, 11.12.2006, p. 1. 

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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 

The proposal complies with the proportionality principle for the following reasons. 

The Decision concerns an authorisation granted to a Member State upon its own request and 
does not constitute any obligation. 

Given  the  limited  scope  of  the  derogation,  the  special  measure  is  proportionate  to  the  aim 
pursued, i.e. to simplify tax collection and combat tax evasion. It does not go beyond what is 
required to fulfil these aims.  

• 

Choice of the instrument 

Under  Article  395  of  the  VAT  Directive,  derogation  from  the  common  VAT  rules  is  only 
possible  with  the  authorisation  of  the  Council  acting  unanimously  on  a  proposal  from  the 
Commission.  Moreover,  a  Council  Decision  is  the  most  suitable  instrument  since  it  can  be 
addressed to individual Member States. 

3. 

• 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

Stakeholder consultations 

This proposal is based on a request made by Hungary and concerns only this Member State. 

• 

Collection and use of expertise 

There was no need for external expertise. 

• 

Impact assessment 

The  proposal  for  Implementing  Decision  aims  at  safeguarding  tax  revenues  and  budgetary 
interests on account of companies under insolvency procedure in case they carry out supplies 
of capital goods or supplies of goods or services with an open market value exceeding HUF 
100 000.  According  to  Hungary,  applying  the  reverse  charge  mechanism  to  these  types  of 
transactions  will  simplify  tax  collection  and  prevent  tax  evasion.  It  would  limit  losses  to 
public  revenues  and  generate  additional  budget  revenue  of  approximately  HUF  4-5  billion 
(approximately  13–14  million  EUR)  each  year.  Consequently,  the  derogating  measure  will 
have a potential positive impact.  

Because of the narrow scope of the derogation and the limited application in time, the impact 
will in any case be limited. 

4. 

BUDGETARY IMPLICATIONS 

The proposal will have no negative implications for the EU budget. 

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OTHER ELEMENTS 

The proposal includes a sunset clause set at 31 December 2021. 

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2018/0057 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

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

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty on the Functioning of the European Union,  

Having  regard  to  Council  Directive  2006/112/EC  of  28  November  2006  on  the  common 
system of value added tax2, and in particular Article 395(1) thereof, 

Having regard to the proposal from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

(5) 

Article 193 of Directive 2006/112/EC provides that the taxable person supplying the 
goods or services is, as a general rule, liable for the payment of value added tax (VAT) 
to the tax authorities. 

By  letter  registered  with  the  Commission  on  13  July  2017,  Hungary  requested  an 
authorisation to introduce a special measure derogating from Article 193 of Directive 
2006/112/EC  regarding  the  person  liable  for  payment  of  VAT  in  case  of  certain 
supplies carried out by taxable persons subject to liquidation or any other proceedings 
legally establishing its insolvency.  

In  accordance  with  Article  395(2)  of  Directive  2006/112/EC,  the  Commission 
informed the other Member States of the request made by Hungary by letters dated 15 
January 2018. By letter dated 16 January 2018, the Commission notified Hungary that 
it had all the information necessary to consider the request.  

Hungary  claims  that  taxable  persons  in  liquidation  or  under  insolvency  procedure 
frequently  do  not  pay  the  VAT  due  to  the  tax  authorities.  At  the  same  time  the 
purchaser, being a taxable person with the right of deduction, can still deduct the VAT 
incurred, thus negatively impacting the budget and financing the liquidation. Hungary 
also registered cases of fraud whereby companies in liquidation would issue fictitious 
invoices  to  active  companies  and  greatly  reduce  their  payable  tax  without  the 
guarantee that the issuer would pay the VAT due.  

In  accordance  with  point  (g)  of  Article  199(1)  of  Directive  2006/112/EC,  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"). To remedy the 
losses to public revenues, Hungary requests a derogation from Article 193 of Directive 
2006/112/EC  to  be  authorised  to  introduce  the  reverse  charge  mechanism  to  other 
supplies  by  taxable  persons  under  insolvency  procedure,  namely  supplies  of  capital 
goods  and  supplies  of  other  goods  or  services  with  an  open  market  value  exceeding 
HUF 100 000.  

2 

OJ 347, 11.12.2006, p. 1. 

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(6) 

(7) 

(8) 

Based on information provided by Hungary, designating the recipient being a taxable 
person  as  the  person  liable  for  the  payment  of  VAT  in  those  particular  cases  will 
simplify  the  procedure  for  collecting  VAT  and  prevent  tax  evasion  and  avoidance. 
Hungary  considers  that  the  derogating  measure  will  also  limit  losses  to  public 
revenues and will result in generating additional revenues.  

The derogation should be limited in time.  

Given  the  scope  and  novelty  of  the  derogation  it  is  important  to  evaluate  its  impact. 
Therefore, if Hungary would consider an extension of the derogating measure beyond 
2021,  it  should  submit  to  the  Commission  a  report  including  a  review  of  the 
derogating measure together  with  the  extension request by 31 December 2020 at  the 
latest.  

(9) 

The  derogation  has  no  adverse  impact  on  the  Union's  own  resources  accruing  from 
VAT, 

HAS ADOPTED THIS DECISION:  

Article 1 

By way of derogation from Article 193 of Directive 2006/112/EC, Hungary is authorised to 
provide  that  the  person  liable  for  payment  of  VAT  is  the  taxable  person  to  whom  the 
following supplies are made: 

(1)  supplies  of  capital  goods  by  a  taxable  person  subject  to  liquidation  or  any  other 
proceedings legally establishing its insolvency;  

(2) supplies of other goods and services with an open market value exceeding HUF 100 000 at 
the time of supply by a taxable person subject to liquidation or any other proceedings legally 
establishing its insolvency.  

This Decision shall take effect on the day of its notification. 

This Decision shall expire on 31 December 2021. 

Article 2 

This Decision is addressed to Hungary. 

Done at Brussels, 

Article 3 

For the Council 
The President 

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