An important ECJ case has been issued in relation to the VAT on the investments made free of charge to the municipality.
What kind of transactions are covered by the judgment?
In the case of investments, it often happens that the investing company also has to carry out a development which is required by the municipality and, by realizing the development, the company must pass it to the municipality free of charge (e.g. road, sewerage system, wiring network).
What is the current Hungarian practice of VAT treatment at these transactions?
In Hungary the general interpretation and practice has so far been that the VAT incurred on purchases related to these investments (1) has not been deducted by the investing company and thus VAT has not been paid at the time of the free transfer or (2) has been deducted, and then VAT has been paid at the time of the free transfer of the investment in question. In any case, the municipality did not reimburse VAT in most cases, so the related amount was practically the cost of the investing company.
What does the ECJ case say?
The current ECJ case changes / can change this practice positively from the point of view of the investing company. The judgment states that, if certain conditions are met, the investing company may deduct input VAT in connection with those investments, without paying VAT by handing over the investment free of charge to the municipality.
Who should investigate the case in more details?
In connection with investments in recent years, or in the case of ongoing or planned investments, it is worth examining whether or not the ECJ case can be applied to the investment in question and thus whether or not the "stuck" VAT can be deducted.