tag: tax litigation

In 2009 the Supreme Court made it clear that the VAT on public-purpose investments related to property developments is deductible if it would not be possible to implement the development without such investment. Recently, however, some alarm was unexpectedly caused by the preliminary opinion of the advocate general of the European Court of Justice (ECJ) in a similar, Bulgarian case, which recommended prohibiting the tax deduction right. Although the ECJ’s judgement published in the middle of last week did not follow the advocate general’s opinion, it did make exercising the deduction right subject to some strict conditions.

New laws taking effect on 1 January next year will transform the tax audit procedure and the way tax lawsuits unfold. While some of the amendments are business-friendly, they also conceal a number of traps that are clearly detrimental to taxpayers’ interests. For example, the rights of taxpayers to defend themselves against the tax authority, and to make use of experts, will be compromised.

One of the most frequent areas of dispute between the tax authority and taxpayers relates to the conditions under which a taxable entity participating in a chain transaction can deduct the VAT passed on to it. The tax authority (NAV) was recently struck another blow in the tussle when the Supreme Court, in a precedent-setting ruling, took issue with the tax authority’s practice of regularly reclassifying the participants in chain transactions as agents. What’s more, the Curia’s ruling goes significantly further, and questions in general the tax authority’s right to reclassify the transactions of taxable entities on a whim.

As it is commonly known, the calculation of the corporate tax liability of Hungarian enterprises is based on the accounting figures. But a nasty surprise could lie in store for those who believe that they can apply the principles of accounting recognition fully in the course of calculating corporate tax.