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Hungary says to change VAT rules incompatible with EU law

Hungary's National Economy Ministry on Friday said it would change VAT rules the European Court of Justice said were incompatible with European Union law in a ruling in July.

The ministry said it would submit to the government a proposal to repeal part of the existing law and work out a new procedure for reclaiming VAT that cannot be reclaimed under the rules at present.

The ministry said already in July, after the ruling was announced that it would submit changes to the VAT regulation in question to the government as soon as possible.

The European Commission said in March 2010 that it would refer the VAT regulation to the European Court after Hungary's government failed to take timely action to modify it.

Hungary's VAT legislation grants taxable persons the option to choose between carrying forward their excess VAT (which results from deductible VAT exceeding payable VAT in a tax period) to the next tax period, or immediately claiming a refund for it.

However, the reimbursement of excess VAT cannot be claimed on the basis of input VAT charged on a purchase that has not yet been paid for by the taxable person. As a result, taxable persons whose tax returns consistently show "excesses", are de facto obliged to carry forward the excess input VAT into the following tax period, the European Court said.