On our website, we regularly publish brief summaries of recent rulings of the Court of Justice of the European Union (CJEU), primarily concerning VAT and procedural matters. In this article, we will be touching on the legal effects of European court rulings and why businesses should closely monitor them.

The significance of preliminary rulings in tax-related cases

Tax-related judgments are typically given by the CJEU in preliminary ruling procedures. This procedure allows the CJEU to interpret EU law to ensure its uniform application across Member States.

National courts may refer the case for a preliminary ruling (while suspending their ongoing proceedings) if they establish that EU legislation or CJEU case law does not provide clear guidance on a specific issue. Such requests must always pertain to the interpretation of EU law. In its ruling, the CJEU clarifies the meaning of the relevant EU legal provision and assesses whether national regulations or the practice of national courts and authorities align with it. However, the CJEU does not decide the underlying case and lacks jurisdiction to interpret national laws. Nonetheless, the CJEU’s interpretation of EU law is generally binding on national courts and authorities. This means that not only the referring court should apply the CJEU’s interpretation in the pending case, but if the same legal issue arises in other matters, the interpretation provided by the CJEU will also be binding on other jurisdictional bodies.

How do CJEU judgments affect taxpayers?

CJEU rulings form an integral part of EU law, as well as of the Hungarian law. Tax-related judgments can have various practical implications.

If the CJEU declares that a Hungarian tax regulation violates the EU law, the legislator typically responds by amending the relevant legislation. For instance, following the Novo Nordisk ruling, Hungary modified its VAT Act to allow pharmaceutical distributors to reduce their VAT base by the amount of the so-called “pharmaceutical tax.” If a Hungarian tax law is found to be contrary to EU law and no legislative amendment follows, taxpayers may submit a tax refund claim directly based on the CJEU ruling. Such claims must be filed within 180 days from the publication of the judgment. In cases involving VAT, the claim must be submitted through a self-revision of the relevant VAT return periods, including the completion of the designated sheet of the VAT return. The tax authority will review the validity of the refund claim and may conduct audits as necessary. If the claim is justified, the authority must reimburse the unlawfully collected tax, including interest.

The CJEU may not only rule that a national tax law conflicts with EU law but may also established that national court or administrative practices are against the EU law. However, it is important to note that in tax authority proceedings, CJEU rulings cannot be referred to directly. Given the hierarchical structure of the National Tax and Customs Administration (NTCA), uniform application of the law is essential, and the implementation of CJEU rulings is coordinated centrally within the NTCA. In administrative litigation, however, taxpayers can directly refer to the CJEU rulings, and courts are also required to apply EU law ex officio within the scope of the lawsuit. If a court finds that a tax authority decision violates EU law, it may remedy the violation by annulling or modifying the decision and, if necessary, ordering a new administrative procedure. If there is no established CJEU case law on a disputed legal issue, the administrative court hearing the case may request a preliminary ruling from the CJEU, either ex officio or upon the taxpayer’s initiation.

Should you have any questions on the above topic, please do not hesitate to contact our experts.