VAT refunds on irrecoverable debts - The deadline is expiring soon

The FGSZ case (C-507/2) reopened two new possibilities for recovering the VAT content of time-barred overdue bad debts (having a performance day which expired more than 5 years ago) for a limited period. As the European Court of Justice stated in its order - contrary to the previous practice of the Hungarian Tax Authority – the limitation period should not be calculated from the original date of performance, but from the date when the debt becomes permanently irrecoverable.

In the FGSZ case in March 2021, a favorable decision has been made for taxpayers by the European Court of Justice. The ECJ ruled that the practice according to which reclaiming the VAT of irrecoverable debts may only be possible within the general limitation period (the limitation period for the right of tax assessment) is contrary to the VAT Directive. Experience has shown that usually several years pass between the date of performance of a transaction and the declaration of final irrecoverability in insolvency proceedings (e.g. liquidation).

To read the whole newsletter below.