Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision (EU) 2018/789 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: 2024-11-21
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Hungary, VAT, derogation from EU law, goods and services, liquidation, supply, taxpayer

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   EUROPEAN COMMISSION  Brussels, 21.11.2024  COM(2024) 543 final 2024/0302 (NLE)  Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision (EU) 2018/789 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  (‘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 10 June 2024, Hungary requested authorisation 
to continue to derogate from Article 193 of the VAT Directive 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 the VAT Directive, the Commission informed the other Member States by 
letter dated 7 August 2024 of the request made by Hungary. By letter dated 9 August 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 

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).  In  2017,  Hungary  requested  the  extension  of  the  application  of  the 
reverse  charge  mechanism  to  supplies  of  capital  goods  and  to  supplies  of  other  goods  and 
services with an open market value exceeding HUF 100 000 (approximately EUR 250) at the 
time  of  supply,  when  the  taxable  person  supplying  the  goods  or  services  is  subject  to 
liquidation  or any other  proceedings legally  establishing its insolvency. The derogation was 
authorised by Council Implementing Decision (EU) 2018/7892 until 31 December 2021. 

The  measure  was  further  extended  until  31  December  2024  by  Council  Implementing 
Decision (EU) 2021/1775 of 5 October 20213. 

Capital goods are typically high value tools, machinery and objects. Furthermore, according 
to Hungary, there is a large number of transactions exceeding the threshold of HUF 100 000 
carried out by insolvent taxable persons. The liquidator often fails to pay the VAT due, since 
that amount is used to settle earlier claims. At the same time, the purchaser, being  a taxable 
person with  the right of deduction, can still deduct  the VAT incurred, which has a  negative 
impact  on  the  budget.  Hungary  also  registered  cases  of  fraud  whereby  companies  in 
liquidation would issue fictitious invoices to active companies, greatly inflating the amount of 
deductible VAT without the guarantee that the issuer of the invoices would pay the VAT due.  

Hungary therefore argues that there is a 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 

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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)  2018/789  of  25  May  2018  authorising  Hungary  to  introduce  a 
special measure derogating from Article 193 of Directive 2006/112/EC on the common system of value 
added tax (OJ L 134, 31.5.2018, p. 10, ELI: http://data.europa.eu/eli/dec_impl/2018/789/oj).  
OJ L 360, 11.10.2021, p. 110, ELI: http://data.europa.eu/eli/dec_impl/2021/1775/oj. 

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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. 

Pursuant to Article 199a of the VAT Directive, there is the possibility, for all Member States, 
to apply the reverse charge mechanism for specific transactions prone to fraud. That Article is 
in force until 31 December 2026 and the Commission will assess whether supplies of capital 
goods  and  of  other  goods  and  services,  when  the  taxable  person  supplying  the  goods  or 
services is subject to liquidation or any other proceedings legally establishing its insolvency, 
should be included as well in the supplies covered by reverse charge mechanism, should there 
be a new proposal in this respect. 

Consequently,  even  though  Hungary  requested  the  authorisation  to  be  prolonged  until  31 
December 2027, it is proposed to authorise the extension of the derogation until 31 December 
2026.  

A derogation allowing a single Member State making use of the reverse charge mechanism, 
instead of general measures, constitutes a means of last resort and should be limited in time as 
much as possible. Moreover, that period should be sufficient to implement other conventional 
measures  to  reduce  the  losses  to  the  public  budget,  in  particular  for  those  losses  connected 
with fraudulent behaviours, thereby avoiding that this measure is prolonged again. 

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  it  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 tax  collection  and  combat  tax  evasion  or  avoidance.  It  does  not  go 
beyond what is required to fulfil these aims. 

• 

Choice of the instrument 

The instrument proposed is a Council Implementing Decision. 

Under Article 395 of the VAT Directive, a derogation from the common VAT rules is only 
possible upon authorisation by the Council, which is acting unanimously on a proposal from 
the  Commission.  A  Council  Implementing  Decision  is  the  most  suitable  instrument  since  it 
can be addressed to an individual Member State. 

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3. 

• 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

Stakeholder consultations 

No stakeholder consultation has been conducted. The present proposal is based on a request 
made by Hungary and concerns only this particular 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 has effectively simplified tax collection and prevented tax evasion or avoidance.  

According  to  the  Hungarian  tax  authority’s  figures  for  2021–2023,  the  number  of  taxable 
persons  concerned  in  2021  –  following  emergency  measures  introduced  as  a  result  of  the 
COVID-19 pandemic – rose to 380, falling to 335 in 2022 and to 212 in 2023. 

Supplies of goods and services recorded under the reverse charge mechanism stood at HUF 
34 billion in 2021 and HUF 31 billion in 2022. In 2023, the figure rose to HUF 157 billion, of 
which HUF 109 billion was linked to a single large taxpayer. 

Consequently  – assuming  the standard tax rate  –  the tax liability amounted to HUF 8.3–9.3 
billion in 2021 and 2022, rising to an exceptionally high figure of HUF 42 billion in 2023.  

Considering,  therefore,  that  there  is  little  chance  of  recovering  VAT  from  taxable  persons 
subject to liquidation proceedings, the Hungarian tax authority estimates at around HUF 3.6–4 
billion (HUF 5.6 billion in 2023 if we exclude the outlier, or HUF 18 billion if we include it) 
the amount of VAT that would have been lost to the budget each year if the derogation had 
not been maintained for movable tangible property. 

Therefore, the derogating measure has a positive impact. Given this limited impact, Hungary 
should  implement  other  conventional  measures  to  reduce  the  losses  to  the  budget,  which 
could achieve similar results. 

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. 

5. 

OTHER ELEMENTS 

The proposal includes a sunset clause set at 31 December 2026. 

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2024/0302 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

amending Implementing Decision (EU) 2018/789 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 valued added tax1, and in particular Article 395(1), first subparagraph, thereof, 

Having regard to the proposal from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

(5) 

(6) 

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In accordance with Article 193 of Directive 2006/112/EC, any taxable person carrying 
out a taxable supply of goods or services is, as a general rule, liable for the payment of 
value added tax (‘VAT’) to the tax authorities. 
By  Council  Implementing  Decision  (EU)  2018/7892,  Hungary  was  authorised  to 
introduce  a  special  measure  derogating  from  Article  193  of  Directive  2006/112/EC 
(‘the special measure’) as regards the person liable for payment of VAT where certain 
supplies  are  carried  out  by  a  taxable  person  subject  to  liquidation  or  any  other 
proceedings legally establishing its insolvency. 
Council  Implementing  Decision  (EU)  2021/1775  of  5  October  20213  extended  the 
authorisation to apply the special measure until 31 December 2024. 

By  letter  of  10  June  2024  (‘the  request’),  Hungary  requested  the  Commission  to 
further extend the authorisation to apply the special measure until 31 December 2027. 
Hungary submitted a report, including a review of the special measure, together with 
the request. 

Pursuant to Article 395(2), second subparagraph, of Directive 2006/112/EC, by letters 
dated  7  August  2024  the  Commission  transmitted  the  request  to  the  other  Member 
States. By letter dated 9 August 2024, the Commission notified Hungary that it had all 
the information necessary to consider the request. 

Hungary  argues  that  taxable  persons  in  liquidation  or  under  insolvency  procedure 
often 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  public  budget.  Hungary  has  also  registered  cases  of 

OJ L 347, 11.12.2006, p. 1, ELI: http://data.europa.eu/eli/dir/2006/112/oj. 
Council  Implementing  Decision  (EU)  2018/789  of  25  May  2018  authorising  Hungary  to  introduce  a 
special measure derogating from Article 193 of Directive 2006/112/EC on the common system of value 
added tax (OJ L 134, 31.5.2018, p. 10, ELI: http://data.europa.eu/eli/dec_impl/2018/789/oj).  
OJ L 360, 11.10.2021, p. 110, ELI: http://data.europa.eu/eli/dec_impl/2021/1775/oj. 

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(7) 

(8) 

(9) 

fraud  whereby  companies  in  liquidation  would  issue  fictitious  invoices  to  active 
companies and greatly reduce their payable tax, without the guarantee that the issuer 
of the invoices would pay the VAT due. 

In  accordance  with  Article  199(1),  point  (g),  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 judgment debtor in a compulsory 
sale procedure is made (‘the reverse charge mechanism’). The special measure allows 
Hungary to extend the application of the reverse charge mechanism to other supplies 
by  taxable  persons  under  insolvency  procedure,  namely  the  supply  of  capital  goods 
and the supply of other goods or services with an open market value exceeding HUF 
100 000. 

On  the  basis  of  information  provided  by  Hungary,  applying  the  reverse  charge 
mechanism to those types of transactions has effectively simplified tax collection and 
prevented  tax  evasion  or  avoidance.  The  implementation  of  the  measure  has  limited 
losses to public revenues and generated additional budget revenue.  

The requested extension should be limited in time, to allow the tax administration time 
to  introduce  other  conventional  measures  to  tackle  the  respective  problem  and  to 
reduce  the  losses  to  the  public  budget,  in  particular  those  connected  with  fraudulent 
practices,  until  the  special  measure  expires,  thus  making  a  further  extension  of  that 
measure redundant. A derogation from Article 193 of Directive 2006/112/EC to allow 
making use of the reverse charge mechanism is only granted exceptionally for specific 
fraudulent  areas  and  constitutes  a  means  of  last  resort.  Furthermore,  Article  199a  of 
Directive  2006/112/EC  will  remain  in  force  until  31  December  2026.  The 
authorisation to apply the special measure should therefore be extended only until 31 
December 2026. 

(10)  The  special  measure  will  have  no  adverse  impact  on  the  Union's  own  resources 

accruing from VAT. 

(11) 

Implementing Decision (EU) 2018/789 should therefore be amended accordingly, 

HAS ADOPTED THIS DECISION:  

Article 1 

In  Article  2  of  Implementing  Decision  (EU)  2018/789,  the  second  paragraph  is  replaced  by 
the following:  

‘This Decision shall expire on 31 December 2026’. 

This Decision is addressed to Hungary. 

Done at Brussels, 

Article 2 

For the Council 
The President 

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