European Commission - Press release
Taxation: Commission requests Hungary to amend its VAT rules on open-end leases of passenger vehicles
Brussels, 16 June 2011 – The European Commission has formally requested Hungary to amend its VAT legislation which does not allow lessees to benefit from VAT deductions in open-end leases of passenger vehicles. Under Hungarian law, since 1 January 2008, the VAT charged by the lessor on the open-end lease of a passenger vehicle is not deductible by the lessee. However, the EU VAT Directive 2006/112/EC gives taxable persons the right to deduct the VAT charged on goods purchased and services received. It also authorises Member States to restrict this right to VAT deduction only if these provisions were in place at the time of accession to the EU. As the Hungarian provision in question was introduced on 1 January 2008, i.e. after Hungary's accession to the EU in May 2004, it is contrary to EU rules.
In practice, the Hungarian rules mean that citizens are not able to benefit from VAT deductions to which they are entitled under EU law. The restriction of the right to deduct VAT on the cost of leasing constitutes a charge for the lessee.
The Commission's request takes the form of a reasoned opinion (second step of EU infringement proceedings). In the absence of a satisfactory response within two months, the Commission may refer Hungary to the EU's Court of Justice.
Open-end leases are leasing arrangements where the lessee acquires ownership of vehicle only after making a payment at the end of the lease agreement. The payment amounts to the difference between the estimated lease-end value and the actual market value of the vehicle at the end of the lease.
According to Hungarian VAT legislation applicable from 1 January 2008, the VAT charged by the lessor on the open-end lease of a passenger vehicle is not deductible by the lessee.
The jurisprudence of the EU's Court of Justice (see ruling in case C-78/00, para. 28) has confirmed the right of taxable persons to deduct the VAT charged on goods purchased and services received as provided for by Article 167 of the EU VAT Directive 2006/112/EC. This is a fundamental principle of the common VAT system which, in principle cannot be limited.
However, Article 176 of the VAT Directive authorises exclusions from the right to deduct VAT provided by national law at the time of the accession of the Member State to the EU. Given that the Hungarian restriction was introduced after Hungary’s accession to the EU in May 2004, it is incompatible with EU law.
For press releases issued on infringement proceedings in the area of taxation or customs see:
For more information on EU infringement procedures, see MEMO/11/408.
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