On 13 July 2023, in its judgement rendered in case C-615/21, the European Court of Justice (the “ECJ”) ruled that the interruption of the statutory limitation period in respect of the right of the tax authorities to assess VAT is in line with the principles of legal certainty and of effectiveness of the EU.
Facts of the case
In the case at hand, following a tax inspection, the Hungarian tax authorities (the “HTA”) considered that certain VAT transactions realised by a Hungarian company (the “Company”) were unrelated to an economic operation and considered as a tax fraud. As a result, the HTA assessed VAT, imposed a fine and a late-payment penalty to the Company.
A long administrative and judicial procedure with multiple iterations followed. The administrative decision taken by the HTA was first set aside by the Budapest Administrative and Labour Court, as being vitiated by contradictory reasoning, and a new procedure was initiated. A second administrative decision, adopted by the HTA, suffered the same fate, since the court considered that it substantially reproduced an identical reasoning. When an appeal against a subsequent, third administrative decision, which was still unfavourable for the taxpayer, was brought before the Hungarian courts, the applicant argued that the repeated adoption of decisions is contrary to the principle of legal certainty which the limitation period is supposed to protect.
The referring court noted in that respect that no limit on the number of times a tax procedure may be repeated by the HTA was foreseen under Hungarian law and that, pursuant to domestic case law, the statutory limitation period is suspended throughout the entire duration of the judicial review of a decision taken by that authority. Accordingly, there is no limit on how long the suspension of the limitation period in cases of judicial review can last, with the result that the tax authority’s right to assess VAT amounts to be repaid could be extended by a number of years or even, in extreme cases, by decades. For that reason, the referring court had doubts as to the compatibility of the Hungarian legislation and administrative practice with the principles of legal certainty and effectiveness.
Key features of the ECJ’s reasoning
The ECJ first noted that, as EU law currently stands, it does not lay down a period within which the right of the tax authorities to assess VAT is time-barred, and it also does not, a fortiori, specify the circumstances in which such a period ought to be suspended. It is therefore for the Member States to establish and apply rules on limitation periods in relation to the right of the tax authorities to assess VAT including the procedures for suspension and/or interruption of that limitation period. When doing so, the Member States must ensure consistency with EU law, which requires reasonable time limits to be laid down which protect both the taxable person and the tax authority.
The ECJ further recalled that the principle of legal certainty is aimed at ensuring foreseeability of situations and requires, inter alia, that the tax position of a taxable person having regard to his or her rights and obligations vis-à-vis the tax or customs authorities should not be open to challenge indefinitely. This principle however is not absolute and must be weighed against other requirements resulting from EU law, such as those to ensure the fulfilment of the obligations arising from acts adopted by the EU institutions, such as the EU VAT directive. Accordingly, the national rules laying down the rules for the suspension of the limitation period in respect of the right of the tax authority to assess the VAT due must be devised in such a way as to find a balance between, on the one hand, the requirements inherent in applying the principle of legal certainty and, on the other hand, those enabling the EU VAT Directive to be implemented effectively and efficiently.
The ECJ found that, although the Hungarian legislation at issue is capable of causing the duration of the limitation period to be extended, it is however not capable, in principle, of causing the situation of the taxable persons concerned to be under challenge indefinitely. By contrast, according to the ECJ, the suspension of the limitation period foreseen under Hungarian law makes it possible to ensure the effective and efficient implementation of the EU VAT Directive.
Conclusion
The ECJ concluded that the principles of legal certainty and effectiveness do not preclude national legislation and administrative practice which provides that the limitation period in respect of the right of the tax authorities to assess VAT is to be suspended for the whole duration of judicial review, regardless of the number of times the administrative tax procedure concerned has had to be repeated following those reviews and with no ceiling on the cumulative duration of the suspensions of that period.
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