Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision (EU) 2018/1493 authorising Hungary to introduce a special measure derogating from point (a) of Article 26(1) and Articles 168 and 168a of Directive 2006/112/EC on the common system of value added tax
Date: 2024-10-24
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Hungary, VAT, derogation from EU law, hire purchase, motor car, tax relief

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   EUROPEAN COMMISSION  Brussels, 24.10.2024  COM(2024) 491 final 2024/0273 (NLE)  Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision (EU) 2018/1493 authorising Hungary to introduce a special measure derogating from point (a) of Article 26(1) and Articles 168 and 168a 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  (‘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 value added tax (‘VAT’) or to prevent certain forms of tax evasion or avoidance. 

By  letter  registered  with  the  Commission  on  26  March  2024,  Hungary  requested  an 
authorisation to continue to apply a measure  derogating from  point (a) of Article 26(1) and 
Articles 168 and 168a of the VAT Directive and to restrict the right of deduction of VAT on 
the  leasing  of  certain  passenger  cars  not  wholly  used  for  business  purposes,  and  to  relieve 
taxable persons from having to treat the private use of such vehicles as a supply of services 
for  consideration.  The  request  was  accompanied  by  a  report  including  a  review  of  the 
percentage foreseen for the limitation of the right of deduction.  

In accordance with Article 395(2) of the VAT Directive, the Commission informed the other 
Member States by letter dated 29 May 2024 of the request made by Hungary. By letter dated 
30 May 2024, 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 

Articles 168 of the VAT Directive provides that a taxable person is  entitled to  deduct  VAT 
charged on purchases made for the purpose of taxed transactions. Article 168a(1) of the VAT 
Directive provides that the VAT on expenditure related to immovable property forming part 
of  the  business  assets  of  a  taxable  person  and  used  both  for  business  and  non-business 
purposes shall be deductible only to the proportion of the property’s use for purposes of the 
taxable person’s business. Pursuant to Article 168a(2) of the VAT Directive Member States 
may also apply this rule in relation to expenditure related to other goods forming part of the 
business assets as they specify.  Point (a) of paragrph 1 of Article 26 of the same Directive 
requires the use of goods forming part of the assets of a business for private purposes to be a 
supply of services for consideration if the VAT on the goods was eligible for deduction. This 
system allows for the recovery of initially deducted VAT in relation to the private use. 

In  the  case  of  passenger  cars,  this  system  is  difficult  to  apply,  in  particular  because  it  is 
difficult to identify the split between private and business use. Where records are kept, they 
add  an  additional  burden  to  both  the  business  and  the  administration  in  maintaining  and 
checking them.  

Pursuant to Article 395 of the VAT Directive, Member States may apply measures derogating 
from the provisions of the VAT Directive to simplify the procedure for collecting VAT or to 
prevent certain forms of tax evasion or avoidance if they have been authorised by the Council. 

Hungary  is  currently  authorised  on  the  basis  of  Council  Implementing  Decision  (EU) 
2018/14932  to  limit  to  50%  the  right  to  deduct  the  VAT  paid  on  expenditure  eligible  for 
deduction in respect of the leasing of passenger cars which are not wholly used for business 
purposes  and  to  relieve  taxable  persons  from  having  to  treat  the  non-business  use  of  such 

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OJ 347, 11.12.2006, p.1.  
Council Implementing Decision (EU) 2018/1493 of 2 October 2018 authorising Hungary to introduce a 
special  measure  derogating  from  point  (a)  of  Article  26(1)  and  Articles  168  and  168a  of  Directive 
2006/112/EC on the common system of value added tax, OJ L 252/46, 8.10.2018, p. 44. 

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passenger cars as a supply of services for consideration. Passenger cars covered by the special 
measure are motor vehicles designed for the transportation of a maximum of 9 persons with a 
gross vehicle weight not exceeding 5 tons. Vehicles designed for transport of goods, vehicles 
serving special purposes (i.e. crane truck, fire engine, truck-mixer), vehicles designed for the 
transport of 10 or more than 10 persons, tractors and trailers are excluded from the restriction 
to the right of deduction of VAT and are treated under the normal rules. Taxable persons who 
do not wish to apply the 50% deduction limit and who wish to apply the VAT deduction up to 
the proportion of actual business use are allowed to do so provided they dispose of detailed 
evidence on the business use of leased passenger cars. The period of validity of this special 
measure  is  set  to  expire  on  31  December  2024  following  its  prolongation,  approved  by 
Council Implementing Decision (EU) 2021/17743. 

Hungary has requested to prolong the authorisation to limit the initial deduction to a set flat 
percentage rate and in turn to relieve the business from accounting for tax on the private use. 
Hungary informed the Commission that the grounds for the prolongation of the measure are 
largely  the  same  as  described  in  the  previous  request.  Hungary  confirms  that  the  special 
measure  has  delivered  positive  results  for  both  companies  and  tax  authorities,  and  that  the 
rationale  for  the  derogation  continues  to  apply.  In  accordance  with  Article  5  of  Council 
Implementing  Decision  2018/1493,  Hungary  has  also  presented  a  report  on  the  percentage 
limit  set  for  the  VAT  deduction.  Hungary  considers  that  the  applied  50  percentage  limit 
remains appropriate. According to the data submitted, the estimated extent of private use of 
leased company cars ranges from around 32% to 53% during the period 2016-2022. Since the 
estimate  is  based  on  indirect  evidence  and  assumptions  and  could  thus  be  overestimated, 
Hungary  considers  that  the  50%  input  VAT  deduction  limit  is  the  most  appropriate. 
Moreover,  experience  from  inspections  by  the  tax  authority  has  shown,  as  in  2021,  that  the 
vast  majority  –  roughly  90-95%  –  of  taxable  persons  inspected  apply  the  mandatory  50% 
deductible proportion. According to Hungary, the reason continues to be that this mandatory 
deductible  proportion  clearly  relieves  taxable  persons  of  the  obligation  to  keep  itemised 
records and that the rate of 50% private use is sufficiently close to the situation in practice. 

Given  the  positive  impact  of  the  special  measure  on  the  administrative  burden  of  taxpayers 
and  of  tax  authorities  alike,  it  is  proposed  to  authorise  the  extension  of  the  current  special 
measure. The authorisation should be valid for another limited period, i.e. until 31 December 
2027, in order to allow for a review of the necessity and effectiveness of the special measure 
and  whether  the  50%  restriction  is  still  a  correct  reflection  of  the  overall  apportionment 
between business and private use. Any extension request should be accompanied by a report 
which includes a review of the percentage applied and should be sent to the Commission by 
31 March 2027. 

• 

Consistency with existing policy provisions in the policy area 

Similar derogations in relation to the right of deduction have been granted to other Member 
States (Estonia4, Latvia5, Croatia6, Poland7, Italy8 and Romania9).  

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Council Implementing Decision (EU) 2021/1774 of 5 October 2021 amending Implementing Decision 
(EU)  2018/1493  authorising  Hungary  to  introduce  a  special  measure  derogating  from  point  (a)  of 
Article  26(1)  and  Articles  168  and  168a  of  Directive  2006/112/EC  on  the  common  system  of  value 
added tax, OJ L 360, 11.10.2021, p. 108. 
Council Implementing Decision (EU) 2021/1998 of 15 November 2021 authorising Estonia to apply a 
measure derogating from Article 26(1), point (a), and Articles 168 and 168a of Directive 2006/112/EC 
on the common system of value added tax, OJ L 408, 17.11.2021, p. 3–5. 
Council  Implementing  Decision  (EU)  2021/1968  of  9  November  2021  amending  Implementing 
Decision (EU) 2015/2429 authorising Latvia to introduce a special measure derogating from point (a) of 

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Article 176 of the VAT Directive stipulates that the Council shall determine the expenditure 
on which the VAT is not deductible. Until such time, it authorises Member States to maintain 
exclusions  which  were  in  place  on  1  January  1979.  There  are  therefore  a  number  of  “stand 
still” provisions restricting the right to deduct VAT in relation to passenger cars.  

Notwithstanding previous initiatives to establish rules on which categories of expenditure may 
be subject to a restriction on the right to deduct VAT10, such derogation is appropriate in the 
awaiting of a harmonisation of these rules at EU level.  

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 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 the procedure for collecting the tax and to  prevent  certain  forms  of 
tax  evasion  or  avoidance.  In  particular,  given  the  potential  for  businesses  to  under  declare 
their  liability  and  the  burdensome  check  of  mileage  data  for  tax  authorities,  the  50% 
restriction would simplify the VAT collection procedure and would prevent tax evasion inter 
alia through incorrect record keeping. 

• 

Choice of the instrument 

Proposed instrument: Council Implementing Decision. 

Under Article 395 of the VAT Directive, a derogation from the common VAT provisions is 
only  possible  upon  authorisation  of  the  Council acting  unanimously  on  a  proposal  from  the 

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Article  26(1)  and  Articles  168  and  168a  of  Directive  2006/112/EC  on  the  common  system  of  value 
added tax, OJ L 401, 12.11.2021, p. 1–2. 
Council  Implementing  Decision  (EU)  2021/1997  of  15  November  2021  amending  Implementing 
Decision (EU) 2018/1994 authorising Croatia to introduce a special measure derogating from point (a) 
of Article 26(1) and Article 168 of Directive 2006/112/EC on the common system of value added tax, 
OJ L 408, 17.11.2021, p. 1–2. 
Council  Implementing  Decision  (EU)  2022/2385  of  6  December  2022  amending  Implementing 
Decision 2013/805/EU authorising the Republic of Poland to introduce measures derogating from point 
(a) of Article 26(1) and Article 168 of Directive 2006/112/EC on the common system of value added 
tax, OJ L 315, 7.12.2022, p. 87–88. 
Council Implementing Decision (EU) 2022/2411 of 6 December 2022 amending Decision 2007/441/EC 
authorising  the  Italian  Republic  to  apply  measures  derogating  from  Articles  26(1)(a)  and  168  of 
Directive 2006/112/EC on the common system of value added tax, OJ L 317, 9.12.2022, p. 120–121. 
Council Implementing Decision (EU) 2024/1641 of 24 May 2024 authorising Romania to apply special 
measures  derogating  from  Article  26(1),  point  (a),  and  Article  168  of  Directive  2006/112/EC  on  the 
common system of value added tax, OJ L, 2024/1641, 6.6.2024. 
COM (2004) 728 final - Proposal for a Council Directive amending Directive 77/388/EEC with a view 
to simplifying value added tax obligations (OJ C 24, 29.1.2005, p.10) withdrawn on 21 May 2014 (OJ 
C 153 21. 05. 2014, p. 3)  

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Commission. A Council Implementing Decision is the most suitable instrument since it can be 
addressed to an individual Member State. 

3. 

• 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

Stakeholder consultations 

No stakeholder consultation has been conducted. 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 is designed to simplify the procedure for charging the tax by removing the need 
for taxable persons to keep records on the private use of leased business cars, and, at the same 
time, to prevent certain form of VAT evasion through incorrect record keeping. The proposed 
measure has, therefore, a potential positive impact for both businesses and tax administration. 
The solution has been identified by Hungary as a suitable measure and is comparable to other 
past and present derogations. 

4. 

BUDGETARY IMPLICATIONS 

The proposal will not adversely affect the Union's own resources from VAT. 

5. 

OTHER ELEMENTS 

The proposal is limited in time and includes a sunset clause set at 31 December 2027.  

In  case  Hungary  would  consider  another  extension  of  the  special  measure  beyond  2027,  a 
report  including  a  review  of  the  percentage  limit  should  be  submitted  to  the  Commission 
together with the extension request no later than 31 March 2027. 

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2024/0273 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

amending Implementing Decision (EU) 2018/1493 authorising Hungary to introduce a 
special measure derogating from point (a) of Article 26(1) and Articles 168 and 168a 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 tax1, and in particular Article 395(1), first subparagraph, thereof, 

Having regard to the proposal from the European Commission, 

Whereas: 

(1) 

(2) 

Articles  168  and  168a  of  Directive  2006/112/EC  establish  taxable  persons’  right  to 
deduct value added tax (VAT) charged on supplies of goods and services received by 
them  for  the  purposes  of  their  taxed  transactions.  Article  26(1),  point  (a),  of  that 
Directive contains a requirement to account for VAT when a business  asset is put to 
use  for  private  purposes  of  taxable  persons  or  their  staff  or,  more  generally,  for 
purposes other than those of their business. 
Council  Implementing  Decision  (EU)  2018/14932,  as  amended  by  Council 
Implementing  Decision  (EU)  2021/17743,  authorises  Hungary  to  apply  until  31 
December 2024, a special measure consisting, on the one hand, in limiting to 50% the 
right  to  deduct  VAT  on  expenditure  related  to  passenger  cars  not  wholly  used  for 
business  purposes,  by  way  of  derogation  from  Articles  168  and  168a  of  Directive 
2006/112/EC,  and,  on  the  other  hand,  in  not  treating  as  supplies  of  services  for 
consideration  the  use  for  non-business  purposes  of  a  passenger  car  included  in  the 
assets  of  a  taxable  person's  business,  where  that  car  has  been  subject  to  a  limitation 
authorised  under  Article  1  of  Implementing  Decision  (EU)  2018/1493,  by  way  of 
derogation from Article 26(1), point (a), of that Directive (‘the special measure’).  

(3) 

By  letter  registered  by  the  Commission  on  26  March  2024,  Hungary  requested  an 
authorisation,  in  accordance  with  Article  395(2),  first  subparagraph,  of  Directive 
2006/112/EC, to continue to apply the special measure (‘the extension request’). 

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OJ L 347, 11.12.2006, p. 1, ELI: http://data.europa.eu/eli/dir/2006/112/oj. 
Council Implementing Decision (EU) 2018/1493 of 2 October 2018 authorising Hungary to introduce a 
special  measure  derogating  from  point  (a)  of  Article  26(1)  and  Articles  168  and  168a  of  Directive 
2006/112/EC  on 
tax  (OJ  L  252,  8.10.2018,  p.  44, 
ELI: http://data.europa.eu/eli/dec_impl/2018/1493/oj). 
Council Implementing Decision (EU) 2021/1774 of 5 October 2021 amending Implementing Decision 
(EU)  2018/1493  authorising  Hungary  to  introduce  a  special  measure  derogating  from  point  (a)  of 
Article  26(1)  and  Articles  168  and  168a  of  Directive  2006/112/EC  on  the  common  system  of  value 
added tax (OJ L 360, 11.10.2021, p. 108, ELI: http://data.europa.eu/eli/dec_impl/2021/1774/oj). 

the  common  system  of  value  added 

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(4) 

(5) 

(6) 

(7) 

(8) 

(9) 

Pursuant  to  Article  395(2),  second  subparagraph,  of  Directive  2006/112/EC,  the 
Commission  transmitted  the  extension  request  to  the  other  Member  States  by  letters 
dated 29 May 2024. By letter dated 30 May 2024, the Commission notified Hungary 
that it had all the information necessary to consider the extension request. 

In  accordance  with  Article  5,  second  paragraph,  of  Implementing  Decision  (EU) 
2018/1493, Hungary submitted, together with the extension request, a report including 
the review of the percentage set for the limitation of the right to deduct VAT referred 
to  in  Article  1  of  that  Implementing  Decision.  Based  on  currently  available 
information, namely tax audit experience and statistical data relating to private use of 
passengers cars, Hungary confirms that the limit of 50% is still justifiable and remains 
appropriate.  

Given  the  positive  impact  of  the  special  measure  on  the  administrative  burden  of 
taxpayers and tax authorities alike by simplifying VAT collection and preventing tax 
evasion  through  incorrect  record  keeping,  the  Commission  therefore  considers  it 
appropriate to authorise Hungary to continue to apply the special measure. 

It is  appropriate to limit the extension of the special measure in time to  allow for an 
evaluation  of  its  effectiveness  and  of  the  appropriate  percentage.  Hungary  should 
therefore  be  authorised  to  continue  to  apply  the  special  measure  until  31  December 
2027. 

The special measure is proportionate to the objectives pursued, namely, to simplify the 
procedure  for  collecting  VAT  and  to  prevent  certain  forms  of  tax  evasion  or 
avoidance, since it is limited in time and scope. In addition, the special measure does 
not  give  rise  to  the  risk  that  fraud  would  shift  to  other  sectors  or  to  other  Member 
States. 

In the event that Hungary considers that an extension of the special measure beyond 
2027  is  necessary,  it  should  submit  to  the  Commission  a  report  which  includes  a 
review of the percentage limit applied, together with the request for an extension,  by 
31 March 2027. 

(10)  The  special  measure  will  only  have  a  negligible  effect  on  the  overall  amount  of  tax 
revenue collected at the stage of final consumption and will have no adverse impact on 
the Union’s own resources accruing from VAT. 

(11) 

Implementing Decision (EU) 2018/1493 should therefore be amended accordingly, 

HAS ADOPTED THIS DECISION:  

Article 5 of Implementing Decision (EU) 2018/1493 is replaced by the following: 

Article 1 

This Decision shall expire on 31 December 2027. 

'Article 5 

Any  request  for  the  extension  of  the  authorisation  provided  for  in  this  Decision  shall  be 
submitted to the Commission by 31 March 2027 and shall be accompanied by a report which 
includes a review of the percentage set out in Article 1.'. 

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This Decision is addressed to Hungary. 

Done at Brussels, 

Article 2 

For the Council 
The President 

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