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The Advocate General of the ECJ recently gave its opinion on a case involving the Hungarian tax authorities charging penalties on the output VAT side of a reverse charge purchase and disregarding the input VAT side.
The case involved the purchase of a mobile hangar from an insolvent company. The customer was charged VAT whereas reverse charge should have been applied. The customer then deducted the VAT amount in its VAT return. The Hungarian tax authorities denied the deduction of this VAT and charged penalties at 50% of the output VAT side of the reverse charge that should have been applied in this purchase.
The case was brought forward to the ECJ in March 2016 and the AG issued its opinion last 10 November 2016. According to the AG, the principle of neutrality prevents the Hungarian tax authorities from disallowing the deduction of input VAT on a reverse charge purchase due to the late reporting of the client when there is no evidence of VAT fraud.