Judgment of the Court of Justice of the European Union related to temporary employment

Further to the subject of our last newsletter in which we referred to  the generalised reverse charge mechanism that could be applied under certain conditions, the Court of Justice of the European Union’s judgment delivered in case C‑434/17 on 13 February 2019 with Hungarian relevance also relates to the reverse charge mechanism. According to the judgment, the application of reverse charge mechanism for temporary employment for the period between 1 January 2015 and 10 December 2015 was contrary to the EU Law.

Pursuant to Article 193 of the Directive 2006/112/EC on Value Added Taxes (“EU VAT Directive”) regarding the persons liable for VAT, VAT is payable by any taxable person carrying out a taxable supply of goods or services. Hungary requested authorisation to introduce a special measure to derogate from this article. The Council Implementing Decision 2015/2349 dated 10 December 2015 of the Council of the European Union (“individual decision”) approved the authorisation request. Accordingly, Hungary was authorised to apply reverse charge mechanism for temporary employment.

The Court’s judgment was based on the dispute between the Hungarian tax authority and a Hungarian taxable person. The issue of the dispute concerned the starting date that the reverse charge mechanism could be applied from. The Hungarian tax authority’s understanding of the individual decision was that the reverse charge mechanism was to be applied retroactively, i.e. from 1 January 2015.

The Court ruled against such understanding and stated that the reverse charge mechanism cannot be applied retroactively based on the fact that the individual decision does not mention the date of its entry into force or the date from which it applies even if Hungary has expressed the wish for that derogation to apply with retroactive effect.