C-615/21 Napfény-Toll

JUDGMENT OF THE COURT (Fifth Chamber)

13 July 2023 ( *1 ) ( i )

(Reference for a preliminary ruling – Value added tax (VAT) – National legislation providing for the possibility of suspending, without any temporal limit, the limitation period for action by the tax authorities in the event of court proceedings – Repeated tax procedures – Regulation No 2988/95 – Scope – Principles of legal certainty and effectiveness of EU law)

In Case C‑615/21,

REQUEST for a preliminary ruling under Article 267 TFEU from the Szegedi Törvényszék (Szeged High Court, Hungary), made by decision of 4 October 2021, received at the Court on 4 October 2021, in the proceedings

Napfény-Toll Kft.

v

Nemzeti Adó- és Vámhivatal Fellebbviteli Igazgatósága,

THE COURT (Fifth Chamber),

composed of E. Regan (Rapporteur), President of the Chamber, K. Lenaerts, President of the Court, acting as a Judge of the Fifth Chamber, D. Gratsias, M. Ilešič and I. Jarukaitis, Judges,

Advocate General: A. Rantos,

Registrar: I. Illéssy, Administrator,

having regard to the written procedure and further to the hearing on 10 November 2022,

after considering the observations submitted on behalf of:

Napfény-Toll Kft., by L. Detvay, O. Kovács, P. Nagy and Gy. Tiborfi, ügyvédek,

the Hungarian Government, by M.Z. Fehér and R. Kissné Berta, acting as Agents,

the Spanish Government, by A. Ballesteros Panizo, acting as Agent,

the European Commission, by F. Blanc, J. Jokubauskaitė, and A. Sipos, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 2 February 2023,

gives the following

Judgment

Legal context and the dispute

1This request for a preliminary ruling concerns the interpretation of the principles of legal certainty and effectiveness of EU law in the context of the application of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1).

2The request has been made in proceedings between Napfény-Toll Kft. and Nemzeti Adó- és Vámhivatal Fellebbviteli Igazgatósága (Appeals Directorate of the National Tax and Customs Authority, Hungary) concerning that company’s right to deduct from the amount of value added tax (VAT) for which it is liable the amount of VAT due in respect of various acquisitions of goods made in June 2010 and between November 2010 and September 2011.

Legal context

European Union law

Directive 2006/112

3Recital 8 to Directive 2006/112 provides:

‘Pursuant to Council Decision 2000/597/EC, Euratom, of 29 September 2000 on the system of the European Communities’ own resources [(OJ 2000 L 253, p. 42)], the budget of the European Communities is to be financed, without prejudice to other revenue, wholly from the Communities’ own resources. Those resources are to include those accruing from VAT and obtained through the application of a uniform rate of tax to bases of assessment determined in a uniform manner and in accordance with Community rules’.

Regulation (EC, Euratom) No 2988/95

4Article 1 of Council Regulation (EC, Euratom) No 2988/95 of 18 December 1995 on the protection of the European Communities financial interests (OJ 1995 L 312, p. 1), provides:

‘1. For the purposes of protecting the European Communities’ financial interests, general rules are hereby adopted relating to homogenous checks and to administrative measures and penalties concerning irregularities with regard to Community law.

2. “Irregularity” shall mean any infringement of a provision of Community law resulting from an act or omission by an economic operator, which has, or would have, the effect of prejudicing the general budget of the Communities or budgets managed by them, either by reducing or losing revenue accruing from own resources collected directly on behalf of the Communities, or by an unjustified item of expenditure.’

5Article 3(1) and (3) of that regulation provides:

‘1. The limitation period for proceedings shall be four years as from the time when the irregularity referred to in Article 1(1) was committed. …

In the case of continuous or repeated irregularities, the limitation period shall run from the day on which the irregularity ceases. In the case of multiannual programmes, the limitation period shall in any case run until the programme is definitively terminated.

The limitation period shall be interrupted by any act of the competent authority, notified to the person in question, relating to investigation or legal proceedings concerning the irregularity. The limitation period shall start again following each interrupting act.

However, limitation shall become effective at the latest on the day on which a period equal to twice the limitation period expires without the competent authority having imposed a penalty, except where the administrative procedure has been suspended in accordance with Article 6(1).

…

3. Member States shall retain the possibility of applying a period which is longer than that provided for in paragraphs 1 and 2 respectively.’

Decision 2007/436/EC

6Council Decision 2007/436/EC, Euratom of 7 June 2007 on the system of the European Communities’ own resources (OJ 2007 L 163, p. 17), which repealed and replaced Decision 2000/597, provides in Article 2(1)(b):

‘Revenue from the following shall constitute own resources entered in the general budget of the European Union:

…

… the application of a uniform rate valid for all Member States to the harmonised VAT assessment bases determined according to Community rules. …’

Hungarian law

Legislation relating to the suspension of limitation periods in tax matters

7Paragraph 164 of the az adózás rendjéről szóló 2003. évi XCII. törvény (Law No XCII of 2003 establishing a Code of Tax Procedure) [Magyar Közlöny 2003/131 (XI. 14.)], in the version applicable to the dispute in the main proceedings (‘the former Code of Tax Procedure’) provides:

‘(1) The right to make a tax assessment is time-barred after five years from the last day of the calendar year in which the declaration or notification relating to that tax should have been made or, where there is no such declaration or notification, in which the tax should have been paid.

…

(5) In the event of judicial review of the decision of the tax authority, the limitation period in respect of the right to establish the correct amount of tax due ceases to run from the date on which the decision of the second-level tax authority became final until the date on which the court decision becomes final and therefore, in the event of an appeal, until the date when a ruling is given on that appeal.’

8The former Code of Tax Procedure was repealed and replaced, with effect from 1 January 2018, by the provisions of the az adóigazgatási rendtartásról szóló 2017. évi CLI. törvény (Law No CLI of 2017 on the organisation of the tax authorities) (Magyar Közlöny 2017/192), in the version applicable to the dispute in the main proceedings, and those of the az adózás rendjéről szóló 2017. évi CL. törvény (Law No CL of 2017 establishing a Code of Tax Procedure) (Magyar Közlöny 2017/192), in the version applicable to the dispute in the main proceedings (‘the new Code of Tax Procedure’).

9Paragraph 203(3) of the new Code of Tax Procedure reproduces, in essence, the content of Paragraph 164 of the former Code of Tax Procedure. Under that Paragraph 203(3), if the taxpayer has brought an administrative appeal against a decision of the tax authority, the limitation period for the tax authority to be entitled to establish the correct amount of the tax due is suspended from the date on which the decision of the second-level tax authority becomes final until the date on which the court decision becomes final or, in the event of an appeal, until the date when a ruling on that appeal is given.

10Paragraph 203(7)(c) of that new code provides that that limitation period is to be extended by 12 months, inter alia, if, in the context of examining an administrative appeal brought against a decision of the tax authority, the court before which the dispute is brought orders a new procedure to be initiated.

11In accordance with Paragraph 271(1) of the new Code of Tax Procedure, the provisions of that new code, including those of Paragraph 203(7)(c) of the new code, are to be applied to procedures initiated or repeated after the entry into force of the new code.

The case-law concerning the application of the legislation relating to the suspension of limitation periods in tax matters

12In the judgment Kfv.I 35.343/2019/11, the Kúria (Supreme Court, Hungary) stated, as regards the objective pursued by the legislation relating to the suspension of limitation periods in tax matters:

‘In the context of the former Code of Tax Procedure, it is the very fact of “judicial review”, and not the content of the decision which concludes that review, which is a condition for the suspension and extension of the limitation period to apply. Judicial review commences with the bringing of the action … No ex tunc legal effect may attach to a null and void decision once a finding of such nullity has been made; however, the tax authority, on account of the judicial review, may take a decision specific to producing legal effects within the period referred to in the former Code of Tax Procedure.’

13By a decision of 25 January 2022, that is to say, delivered after the request for a preliminary ruling had been made, the Alkotmánybíróság (Constitutional Court, Hungary) annulled Paragraph 271(1) of the new Code of Tax Procedure in so far as it included the term ‘repeated’, on the ground, in essence, that that term had the effect of making the extension of the limitation period laid down in Paragraph 203(7)(c) of that new code applicable, retroactively, to repeated procedures already in progress.

The dispute in the main proceedings and the question referred for a preliminary ruling

14Napfény-Toll deducted from the amount of VAT which it was liable to pay the amount of VAT due in respect of various acquisitions of goods made during June 2010 and between November 2010 and September 2011.

15In December 2011, the Nemzeti Adó – és Vámhivatal Dél-budapesti Igazgatósága (National Tax and Customs Authority – Directorate of Budapest South, Hungary) initiated, as first-level authority, a tax inspection which was notified to Napfény-Toll on 13 December 2011.

16Following that tax inspection, that directorate took the view that part of the amount of tax deducted by Napfény-Toll in respect of the periods concerned ought not to have been deducted, since some of the invoices relied on for that purpose did not correspond to any real economic transaction and some others were part of a tax fraud of which Napfény-Toll was aware. Accordingly, by a decision dated 8 October 2015 (‘the administrative decision at the first level’), that directorate ordered Napfény-Toll to pay tax arrears totalling 144785000 Hungarian forint (HUF) (approximately EUR 464581) and imposed a fine on it of HUF 108588000 (approximately EUR 348433), as well as a late-payment penalty of HUF 46080000 (approximately EUR 147860).

The first administrative decision at the second level

17By decision of 11 December 2015, notified on 14 December 2011 (‘the first administrative decision at the second level’), the Nemzeti Adó – és Vámhivatal Közép-magyarországi Regionális Adó Főigazgatósága (National Tax and Customs Authority – Directorate-General of the Central Hungary Region, Hungary) (‘the Directorate-General of the Central Hungary Region’), now the Appeals Directorate of the National Tax and Customs Authority, before which Napfény-Toll had lodged a complaint, acting as the second-level administrative tax authority, overturned the administrative decision at the first level as regards the late-payment penalty imposed on Napfény-Toll and dismissed that complaint as to the remainder. Napfény-Toll brought an action against the first administrative decision at the second level.

18By judgment of 2 March 2018, which became final on the same day, the Fővárosi Közigazgatási és Munkaügyi Bíróság (Budapest Administrative and Labour Court, Hungary) set aside the first administrative decision at the second level and ordered a new procedure to be initiated. As grounds for its judgment, the Fővárosi Közigazgatási és Munkaügyi Bíróság (Budapest Administrative and Labour Court) stated that it had found that that first administrative decision was vitiated by contradictory reasoning. The court stated that the second-level administrative decision set out facts which were different from those found in the administrative decision at the first level, but at the same time that the first-level tax authority had correctly established the facts.

The second administrative decision at the second level

19By a decision of 5 March 2018, served on Napfény-Toll on 7 March 2018 (‘the second administrative decision at the second level’), the Directorate-General for the Central Hungary Region, in essence, confirmed the administrative decision at the first level. However, it reduced the amount of the late-payment penalty imposed on Napfény-Toll.

20By judgment of 5 July 2018, which became final on the same day, the Fővárosi Közigazgatási és Munkaügyi Bíróság (Budapest Administrative and Labour Court), before which Napfény-Toll had brought an action, set aside the second administrative decision at the second level and ordered a new procedure to be initiated, on the ground that (i) the second administrative decision at the second level, which was taken on the first business day following the delivery of the judgment of 2 March 2018, reproduced, largely word for word, the first administrative decision at the second level, without however demonstrating the extent to which that second administrative decision amended the finding made in the administrative decision at the first level, since the consequences of that judgment of 2 March 2018 were accordingly only formal, and, (ii) the second administrative decision at the second level still contained contradictory observations with regard to whether the transactions concerned were real.

21By a judgment of 30 January 2020, the Kúria (Supreme Court, Hungary), before which the tax authority had brought an appeal, upheld the judgment of 5 July 2018 for two reasons. First, in so far as the statement of reasons for the second administrative decision at the second level was a reproduction of the first administrative decision at the second level, the Kúria (Supreme Court) held that the Fővárosi Közigazgatási és Munkaügyi Bíróság (Budapest Administrative and Labour Court) had been fully entitled to find that the Directorate-General of the Central Hungary Region had failed to comply with the binding guidance established in the judgment of 2 March 2018. Admittedly, that directorate-general, as it had submitted, had only a short period of time before the right to make a tax assessment and, consequently, to establish the amount of VAT to be repaid would be time-barred, but such a circumstance did not exempt it from performing its legal obligations. Second, the Kúria (Supreme Court) held, as the Fővárosi Közigazgatási és Munkaügyi Bíróság (Budapest Administrative and Labour Court) had done, that the second administrative decision at the second level was vitiated by contradictory reasoning.

The third administrative decision at the second level

22By decision of 6 April 2020 (‘the third administrative decision at the second level’), the Directorate-General of the Central Hungary Region upheld the administrative decision at the first level, although it modified the amount of the late-payment penalty imposed on Napfény-Toll. As grounds for its position, that Directorate-General stated that its findings of fact were no different from those established in the administrative decision at the first level, which had correctly established those facts.

23The applicant brought an appeal before the Szegedi Törvényszék (Szeged High Court, Hungary), the referring court, against that third administrative decision at the second level on the ground, inter alia, that, pursuant to Paragraph 164(1) and (5) of the former Code of Tax Procedure, the tax authority’s right to assess VAT amounts to be repaid is time-barred after five years from the last day of the calendar year in which the declaration or notification relating to that tax should have been made or, where there is no such declaration or notification, in which that tax should have been paid. The tax authority’s right to assess VAT amounts to be repaid in respect of the periods concerned had ceased to exist before the date when the third administrative decision at the second level was adopted. The applicant takes the view that the repeated adoption of decisions is contrary to the principle of legal certainty which the limitation period is supposed to protect. That is all the more so since, in the case at issue in the main proceedings, while the second initiation of a new procedures took place, that was on account of the failure of the Directorate-General of the Central Hungary region to comply with the guidance contained in the first court decision. It was therefore due to the fault of that directorate-general that the procedure at issue in the main proceedings has gone on for almost 10 years since the beginning of the tax inspection notified to Napfény-Toll.

24In that context, the referring court notes that Paragraph 164(5) of the former Code of Tax Procedure lays down no limit on the number of times a tax procedure may be repeated by the tax authority or the total duration of suspension of that procedure. Under the case-law of the Kúria (Supreme Court), limitation is suspended throughout the entire duration of the judicial review of a decision by that authority. Accordingly, there is no limit on how long the suspension of the limitation period in cases of judicial review can last, with the result that the tax authority’s right to assess VAT amounts to be repaid could be extended by a number of years or even, in extreme cases, by decades. For that reason, the referring court has doubts as to the compatibility of the legislation at issue in the main proceedings and the administrative practice relating to it with the principles of legal certainty and effectiveness.

25In those circumstances the Szegedi Törvényszék (Szeged High Court) decided to stay the proceedings and to refer the following question to the Court of Justice for a preliminary ruling:

‘Are the principles of legal certainty and of effectiveness, which form part of [EU] law, to be interpreted as not precluding legislation of a Member State which does not allow the courts to exercise any discretion, such as [that provided for in] Paragraph 164(5) of [the former Code of Tax Procedure], and the practice based on that legislation, under which, in matters of [VAT], the limitation period in respect of the right of the tax authorities to make a tax assessment is to be suspended for the whole duration of judicial review, regardless of the number of repeat administrative tax procedures, with no ceiling on the cumulative duration of the suspensions where there are several rounds of judicial review, one after another, including in cases where the court ruling on a decision of a tax authority taken as part of a repeat procedure following on from an earlier court decision finds that the tax authority failed to comply with the guidance contained in that court decision, that is to say, where it is due to the fault of that authority that the new court proceedings took place?’

The proceedings following the submission of the request for a preliminary ruling

26Following the request for a preliminary ruling being lodged, the referring court sent the Court of Justice, by letter of 3 May 2022, a copy of the decision of the Alkotmánybíróság (Constitutional Court) of 25 January 2022, by which the latter court annulled Paragraph 271(1) of the new Code of Tax Procedure in so far as that provision included the term ‘repeated’, as well as a copy of a second decision of the Alkotmánybíróság (Constitutional Court) dated 26 April 2022 also to that effect.

27By letter of 30 June 2022, the Court asked the referring court to confirm, having regard to certain information initially provided, that, following the decision of the Alkotmánybíróság (Constitutional Court) to annul Paragraph 271(1) of the new Code of Tax Procedure in so far as that provision included the term ‘repeated’, the proceedings at issue in the main proceedings were not, in any event, time-barred.

28By letter of 7 July 2022, the referring court stated, in essence, that the sole effect of the decision of the Alkotmánybíróság (Constitutional Court) was to time-bar the tax authority’s right to assess the amount of VAT collected which had to be repaid in respect of the 2010 tax year. By contrast, as regards the 2011 tax year, that court stated that it will assess whether or not that right of the tax authority is time-barred in the light of the answer which will be given by the Court in relation to the question referred.

Consideration of the question referred

29By its question, the referring court is, in essence, asking whether the principles of legal certainty and effectiveness of EU law must be interpreted as precluding legislation of a Member State and the administrative practice related to it, under which, in relation to VAT, the limitation period in respect of right of the tax authorities to assess that tax is to be suspended for the whole duration of judicial review, regardless of the number of repeat administrative tax procedures following those reviews and with no ceiling on the cumulative duration of the suspensions of that period, including in cases where the court ruling on a decision of the tax authority concerned taken as part of a repeat procedure following on from an earlier court decision finds that that tax authority failed to comply with the guidance contained in that court decision.

30As a preliminary point, it should be noted that, as EU law stands, EU law does not lay down a period within which the right of the tax authorities to assess VAT is time-barred, and it also does not, a fortiori, specify the circumstances in which such a period ought to be suspended.

31It is true that Regulation No 2988/95, which was referred to at the hearing before the Court, lays down certain requirements for calculating and suspending the limitation periods for proceedings in respect of the irregularities referred to in that regulation. However, it is apparent from Article 1(2) of that regulation that it is to apply only in the event of prejudice to the EU budget by reducing or losing revenue accruing from own resources ‘collected directly on behalf of the Union’. While it follows from recital 8 of Directive 2006/112 and Article 2(1)(b) of Decision 2007/436 that revenue from the application of a uniform rate valid for all Member States to the harmonised VAT assessment bases constitutes own resources of the European Union, with the result that, according to the case-law of the Court, there is a link between the collection of VAT revenue in compliance with the EU law applicable and the availability to the EU budget of the corresponding VAT resources (judgment of 26 February 2013, Åkerberg Fransson, C‑617/10, EU:C:2013:105, paragraph 26), the fact remains that VAT cannot be regarded as collected directly on behalf of the European Union within the meaning of Article 1(2) of Regulation No 2988/95.

32First, that tax is collected by the taxable persons and only subsequently paid by them to the Member States. Second, in accordance with Article 1 of Council Regulation (EEC, Euratom) No 1553/89 of 29 May 1989 on the definitive uniform arrangements for the collection of own resources accruing from value added tax (OJ 1989 L 155, p. 9), the European Union’s own resources based on VAT are not made up of simply of a percentage of the revenue from that tax actually collected, but result from the application of a uniform rate to the VAT assessment base of the Member States, itself calculated in accordance with Article 3 of that regulation and subject to various adjustments laid down in the provisions of that regulation.

33In that regard, it is true that the Court has recognised the applicability of the Convention drawn up on the basis of Article K.3 of the Treaty on European Union, on the protection of the European Communities’ financial interests, signed in Luxembourg on 26 July 1995 (OJ 1995 C 316, p. 48) to cases of fraud concerning revenue accruing from the application of a uniform rate to the harmonised VAT assessment base determined according to EU rules. However, Article 1 of that convention does not, it is clear, include a condition regarding direct collection of the revenue concerned on behalf of the European Union, contrary to the clear wording of Article 1(2) of Regulation No 2988/95 (see, to that effect, judgment of 8 September 2015, Taricco and Others, C‑105/14, EU:C:2015:555, paragraph 41).

34In the absence of applicable provisions of EU law, it is for Member States to establish and apply rules on limitation periods in relation to the right of tax authorities to assess VAT due, including the procedures for suspension and/or interruption of that limitation period (see, by analogy, judgment of 21 January 2021, Whiteland Import Export, C‑308/19, EU:C:2021:47, paragraph 45).

35However, while establishing and applying those rules falls within the competence of the Member States, the Member States must exercise that competence in a manner consistent with EU law, which requires reasonable time limits to be laid down which protect both the taxable person and the authority concerned (see, by analogy, judgment of 8 September 2011, Q-Beef and Bosschaert, C‑89/10 and C‑96/10, EU:C:2011:555, paragraph 36).

36In that regard, the Court has found that a five-year limitation period, applicable to applications for reimbursement of VAT overpayments which began to run from the end of the calendar year in which the time limit for paying the tax expired was consistent with EU law (see, to that effect, judgment of 20 December 2017, Caterpillar Financial Services, C‑500/16, EU:C:2017:996, paragraph 43).

37In the light of that case-law, a limitation period regarding the right of the tax authority to assess the VAT due which, as in the case in the main proceedings, ran for five years from the last day of the calendar year in which the declaration or notification relating to that tax should have been made, or, where there is no such declaration or notification, after the last day of the calendar year in which the tax should have been paid, must, by analogy, be regarded as compatible with EU law.

38That is the context in which the referring court asks whether the principles of legal certainty and effectiveness must be interpreted as precluding such a limitation period from being able to be suspended for the whole duration of judicial review.

39In the first place, it should be recalled that the principle of legal certainty forms part of the EU legal order and that, as such, must be observed by the Member States in the exercise of the competences referred to in paragraphs 31 and 32 of the present judgment (see, to that effect, judgments of 10 December 2015, Veloserviss, C‑427/14, EU:C:2015:803, paragraph 30 and the case-law cited, and of 20 May 2021, BTA Baltic Insurance Company, C‑230/20, not published, EU:C:2021:410, paragraph 45).

40In accordance with settled case-law, that principle is aimed at ensuring foreseeability of situations and legal relationships and requires, inter alia, that the tax position of a taxable person having regard to his or her rights and obligations vis-à-vis the tax or customs authorities should not be open to challenge indefinitely (judgment of 10 December 2015, Veloserviss, C‑427/14, EU:C:2015:803, paragraph 31 and the case-law cited), which means that, in order for that taxable person to be able effectively to rely on that principle being applicable, that taxable person must be able to rely on a specific legal situation.

41Since before the expiry of the limitation period laid down for that purpose, the tax authority has notified the taxable person concerned of its intention to re-examine that taxable person’s tax position and, thereby, implicitly, to withdraw its decision to accept that taxable person’s declaration, that taxable person can no longer rely on the situation which arose on the basis of that declaration, with the result that the principle of legal certainty cannot, in such a case and in the absence of other circumstances, be infringed (see, to that effect, judgment of 9 July 2015, Cabinet Medical Veterinar Dr. Tomoiagă Andrei, C‑144/14, EU:C:2015:452, paragraph 40).

42Moreover, since the requirements arising from the application of the principle of legal certainty are not absolute, the Member States must ensure they are weighed against the other requirements inherent in their membership of the European Union, in particular those set out in Article 4(3) TEU, to take any appropriate measure, general or particular, to ensure the fulfilment of the obligations arising from the Treaties or from acts adopted by the institutions under those Treaties. Accordingly, the national rules laying down the rules for the suspension of the limitation period in respect of the right of the tax authority to assess the VAT due must be devised in such a way as to find a balance between, on the one hand, the requirements inherent in applying that principle and, on the other hand, those enabling Directive 2006/112 to be implemented effectively and efficiently, since it is necessary to evaluate that balance by taking into consideration all elements of the national limitation rules (see, by analogy, judgment of 21 January 2021, Whiteland Import Export, C‑308/19, EU:C:2021:47, paragraphs 49 and 50).

43While national legislation and administrative practice such as those described by the referring court – the foreseeability of the application of which vis-à-vis individuals is not contested in the dispute in the main proceedings – are capable of causing the duration of such a limitation period to be extended, they are, however, not capable, in principle, of causing the situation of the taxable persons concerned to be under challenge indefinitely. By contrast, such a suspension makes it possible to ensure the effective and efficient implementation of Directive 2006/112 cannot be jeopardised by dilatory actions being brought and therefore that such implementation is not undermined by reason of a systemic risk that acts constituting infringements of that directive may go unpunished (see, by analogy, judgment of 21 January 2021, Whiteland Import Export, C‑308/19, EU:C:2021:47, paragraphs 53 and 56).

44Accordingly, it must be held that the principle of legal certainty does not preclude national legislation and administrative practice which provides that the limitation period in respect of the right of the tax authorities to assess VAT is to be suspended for the whole duration of judicial review, regardless of the number of times the administrative tax procedure concerned has had to be repeated following those reviews and with no ceiling on the cumulative duration of the suspensions of that period.

45In the second place, as regards the principle of effectiveness, to which the referring court also referred in its question, it should be recalled that that principle circumscribes, with the principle of equivalence – compliance with which has not been called into question by the referring court – the procedural autonomy which the Member States enjoy in defining the detailed rules for the implementation of rights which the EU legal order confers on individuals, where EU law does not contain any specific legislation in that regard.

46Rules of national law concerning (i) the time limits in which the rights and obligations laid down by Directive 2006/112 and (ii) the conditions for suspending those time limits, constitute rules for the implementation of the provisions of that directive and are therefore, on that basis, required to comply with the principles of effectiveness and of equivalence (see, to that effect, in particular, judgments of 20 December 2017, Caterpillar Financial Services, C‑500/16, EU:C:2017:996, paragraph 37; of 26 April 2018, Zabrus Siret, C‑81/17, EU:C:2018:283, paragraph 38; of 14 February 2019, Nestrade, C‑562/17, EU:C:2019:115, paragraph 35; and of 23 April 2020, Sole-Mizo et Dalmandi Mezőgazdasági, C‑13/18 and C‑126/18, EU:C:2020:292, paragraph 53) which is not disputed in the present case.

47Therefore, in accordance with the principle of effectiveness, those procedural rules must not be framed so as to make it, in practice, impossible or excessively difficult to exercise the rights conferred by the EU legal order (see, to that effect, judgments of 19 July 2012, Littlewoods Retail and Others, C‑591/10, EU:C:2012:478, paragraph 28, and of 28 June 2022Commission v Spain (Breach of EU law by the legislature), C‑278/20, EU:C:2022:503, paragraph 33).

48However, the fact that national legislation or national administrative practice provides that the limitation period in respect of the right of the tax authorities to assess VAT is to be suspended for the whole duration of judicial review, regardless of the number of times the administrative tax procedure has had to be repeated following those reviews and with no ceiling on the cumulative duration of the suspensions of that period, is not such as to make it, in practice, impossible or, at the very least, excessively difficult to exercise the rights conferred by the EU legal order.

49The suspension of the limitation period in respect of the right of the tax authorities to assess that tax for the whole duration of judicial review in no way prevents that taxable person from relying on the rights conferred by the EU legal order and, in particular, by Directive 2006/112, but by contrast is intended to enable that taxable person effectively to assert the rights which he derives from EU law, while at the same time preserving the rights of the tax authorities.

50Moreover, in the present case, it is apparent from the description of the facts set out in the request for a preliminary ruling that the applicant in the main proceedings was able to bring appeals against the successive decisions taken by the tax authorities and, on those occasions also renewed, and was able to assert its rights under EU law. In particular, despite the existence of the legislation and administrative practice at issue in the main proceedings, that applicant was able to rely, based on the principle of legal certainty, on the obligation, on the part of the Member States, to lay down a reasonable limitation period within which those authorities may reopen the procedure examining the situation of a taxable person. Accordingly, it is apparent from the documents before the Court, and it was confirmed, moreover, at the hearing before the Court both by the Hungarian Government and by the applicant in the main proceedings, that the right of the tax authorities to assess the VAT due on transactions which occurred in June 2010 had ceased to exist, without the tax authority having managed to issue an amended notice in accordance with the provisions of Directive 2006/112.

51Therefore, it must be held that the principle of effectiveness also does not preclude national legislation and an administrative practice which provides that the limitation period in respect of the right of the tax authorities to assess VAT is to be suspended for the whole duration of judicial review, regardless of the number of times the administrative tax procedure has had to be repeated following those reviews and with no ceiling on the cumulative duration of the suspensions of that period.

52In the third place, it should be noted, as the Advocate General observed in points 60 to 65 of his Opinion, that the fact that neither the principle of legal certainty nor the principle of effectiveness prevent such legislation or such administrative practice does not preclude EU law, in certain circumstances, from requiring certain inferences to be drawn from the repetition of an excessive number of tax procedures before a decision is reached which complies with Directive 2006/112 or from the excessive duration of the cumulative duration of the suspensions of the limitation period in respect of that right of the tax authorities.

53Where a national administration implements EU law in respect of a person, that person enjoys, by virtue of the right to sound administration which reflects a principle of EU law, the right to have his or her situation dealt with within a reasonable period of time (see, to that effect, judgment of 14 May 2020, AGROBET CZ, C‑446/18, EU:C:2020:369, paragraph 43), and then, in the event of legal proceedings, the right to have his or her case heard within a reasonable period of time, in accordance with the second paragraph of Article 47 of the Charter of Fundamental Rights of the European Union.

54Therefore, once the procedure for examining the situation of a taxable person in the light of the rules of the common system of VAT has been reopened, the principle of sound administration and Article 47 of the Charter of Fundamental Rights require that the duration of such a review and, where appropriate, subsequent judicial review must not be unreasonable in the light of the particular circumstances of each case.

55Although any unsuccessful attempt by the tax authorities to comply with a court decision applying provisions of EU law and the resulting subsequent extension of the duration of the administrative procedure cannot constitute an infringement of EU law, that could, by contrast, be the case where that administrative procedure has had to be repeated on account of the manifest infringement, by that authority, of a decisive ground of a court decision concerning that administrative procedure, in so far as that ground was clearly and explicitly stated in that court decision.

56However, it should be recalled that the excessive length of proceedings, whether administrative or judicial, is capable of justifying the annulment of the decision taken at the end of that procedure only where that length has had an effect on the ability of the person concerned to defend him or herself (see, to that effect, judgments of 26 November 2013, Gascogne Sack Deutschland v Commission, C‑40/12, EU:C:2013:768, paragraph 81, and of 8 May 2014, Bolloré v Commission, C‑414/12 P, not published, EU:C:2014:301, paragraph 84).

57In so far as, during the limitation period, taxable persons must expect that their legal situation which arose based on their tax return may be challenged, then, when the tax authority informs them of the reopening of the procedure examining that situation, that that may mean they must justify the information contained in their tax return and, lastly, when they bring an action against the amended notice issued at the end of that procedure, that they must establish that their claim is well founded by means of an offer to prove, it is for them to ensure that they keep all the relevant supporting documents relating to their tax return until the tax decisions become final. Given the predominant role of the tax return and the documentary evidence in the common VAT system for the purposes of establishing the accuracy of taxable persons’ returns, it is therefore only in exceptional circumstances that it could be established that the excessive length of an administrative or judicial procedure is capable of having had an impact on the ability of the person concerned to defend him or herself.

58In the present case, it is not apparent from the file before the Court that the referring court’s assessment of the validity of the third administrative decision at the second level depends exclusively on evidence not covered by the obligation referred to in the preceding paragraph and which, because of the tax procedures being repeated or the cumulative duration of the suspensions of the limitation period, has since ceased to exist.

59It is nevertheless for that court to determine whether, in the light, in particular, of the facts of the case, those multiple repetitions of the administrative procedure and suspensions of the limitation period may constitute a breach, by the tax authorities or by the national courts, of their obligations of sound administration and to give a ruling within a reasonable time period respectively, which has, moreover, had an impact on the ability of the person concerned to defend him or herself.

60In the light of all of the foregoing, the answer to the question referred is that the principles of legal certainty and effectiveness of EU law must be interpreted as not precluding legislation of a Member State or the related administrative practice, under which, in relation to VAT, the limitation period in respect of the right of the tax authorities to assess that tax is suspended for the whole duration of judicial review, regardless of the number of times the administrative tax procedure has had to be repeated following those reviews and with no ceiling on the cumulative duration of the suspensions of that period, including in cases where the court ruling on a decision of the tax authority concerned taken as part of a repeat procedure, following on from an earlier court decision, finds that that tax authority failed to comply with the guidance contained in that court decision.

Costs

61Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.

Operative part

On those grounds, the Court (Fifth Chamber) hereby rules:

The principles of legal certainty and effectiveness of EU law must be interpreted as not precluding legislation of a Member State or the related administrative practice, under which, in relation to value added tax, the limitation period in respect of the right of the tax authorities to assess that tax is suspended for the whole duration of judicial review, regardless of the number of times the administrative tax procedure has had to be repeated following those reviews and with no ceiling on the cumulative duration of the suspensions of that period, including in cases where the court ruling on a decision of the tax authority concerned taken as part of a repeat procedure, following on from an earlier court decision, finds that that tax authority failed to comply with the guidance contained in that court decision.

Signatures

[Signatures]

( *1 ) Language of the case: Hungarian.

( i ) The wording of paragraph 31 of the present document was modified after it was first published online.

OPINION OF ADVOCATE GENERAL

RANTOS

delivered on 2 February 2023 ¹

(Reference for a preliminary ruling – National taxation procedure – Value added tax – National legislation providing for the suspension of the limitation period relating to taxation matters, in the context of judicial review, without any temporal limit, regardless of the number of repeat tax procedures – Principles of legal certainty and of effectiveness of EU law)

Introduction

1This request for a preliminary ruling concerns the interpretation of the principles of legal certainty and effectiveness of EU law in the context of the application of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax ² (‘the VAT Directive’).

2The request has been made in proceedings between Napfény-Toll Kft. (‘the applicant’) and the Hungarian tax authority regarding amounts of value added tax (VAT) deducted by the applicant as VAT due on various acquisitions of products entitling it to deduction made in June 2010 and between November 2010 and September 2011.

Legal context

European Union law

3Article 1 of Council Regulation (EC, Euratom) No 2988/95 of 18 December 1995 on the protection of the European Communities financial interests, ³ provides:

‘1. For the purposes of protecting the European Communities' financial interests, general rules are hereby adopted relating to homogeneous checks and to administrative measures and penalties concerning irregularities with regard to Community law.

2. “Irregularity” shall mean any infringement of a provision of Community law resulting from an act or omission by an economic operator, which has, or would have, the effect of prejudicing the general budget of the Communities or budgets managed by them, either by reducing or losing revenue accruing from own resources collected directly on behalf of the Communities, or by an unjustified item of expenditure.’

4Article 3 of that regulation provides:

‘1. The limitation period for proceedings shall be four years as from the time when the irregularity referred to in Article 1(1) was committed. …

In the case of continuous or repeated irregularities, the limitation period shall run from the day on which the irregularity ceases. …

The limitation period shall be interrupted by any act of the competent authority, notified to the person in question, relating to investigation or legal proceedings concerning the irregularity. The limitation period shall start again following each interrupting act.

However, limitation shall become effective at the latest on the day on which a period equal to twice the limitation period expires without the competent authority having imposed a penalty, except where the administrative procedure has been suspended in accordance with Article 6(1).

2. The period for implementing the decision establishing the administrative penalty shall be three years. That period shall run from the day on which the decision becomes final.

Instances of interruption and suspension shall be governed by the relevant provisions of national law.

3. Member States shall retain the possibility of applying a period which is longer than that provided for in paragraphs 1 and 2 respectively.’

5Article 4(1) and (4) of the regulation states:

‘1. As a general rule, any irregularity shall involve withdrawal of the wrongly obtained advantage:

by an obligation to pay or repay the amounts due or wrongly received,

…

4. The measures provided for in this Article shall not be regarded as penalties.’

6As set out in Article 6(1) of the same regulation:

‘Without prejudice to the Community administrative measures and penalties …, the imposition of financial penalties such as administrative fines may be suspended by decision of the competent authority if criminal proceedings have been initiated against the person concerned in connection with the same facts. Suspension of the administrative proceedings shall suspend the period of limitation provided for in Article 3.’

Hungarian law

7Under Paragraph 164 of the adózás rendjéről szóló 2003. évi XCII. Törvény (Law XCII of 2003 establishing a code of tax procedure), ⁴ in the version in force at the date of the tax inspection at issue (‘the former Code of Tax Procedure’):

‘(1) The right to make a tax assessment is time-barred after five years from the last day of the calendar year in which the declaration or notification relating to that tax should have been made or, where there is no declaration or notification, in which the tax should have been paid.

…

(5) In the event of judicial review of a decision of a tax authority, the limitation period in respect of the right to assess the correct amount of tax due ceases to run from the moment when the decision of the second-level tax authority became final until that when the court decision becomes final or, in the event of an appeal, until a ruling has been given on that appeal.’

8As of 1 January 2018, the former Code of Tax Procedure was repealed and replaced by the provisions of the az adóigazgatási rendtartásról szóló 2017. évi CLI. törvény (Law CLI of 2017 setting out a code of tax administration; ‘the Code of Tax Administration’) ⁵ and the az adózás rendjéről szóló 2017. évi CL. törvény (Law CL of 2017 establishing a code of tax procedure; ‘the new Code of Tax Procedure’). ⁶

9Paragraph 203(3) of the new Code of Tax Procedure reproduces, in essence, the content of Paragraph 164 of the former Code of Tax Procedure. Under that provision, if a taxpayer has initiated an administrative court action against a decision of a tax authority, the limitation period in respect of the right to assess the correct amount of tax due is suspended from the moment when the decision of the second-level tax authority became binding until that when the court decision becomes final or, in the event of an appeal, until a ruling has been given on that appeal.

10Paragraph 203(7)(c) of the new Code of Tax Procedure states that the limitation period in respect of the right to make a tax assessment is to be extended once by 12 months if, in the context of an administrative court action against a decision of a tax authority, a court orders that a new procedure be conducted.

11Pursuant to Paragraph 271(1) of the new Code of Tax Procedure, whose wording is identical to that of Paragraph 139(1) of the Code of Tax Administration, the provisions of that law, and therefore of Paragraph 203(7)(c) of the new Code of Tax Procedure, must be applied to procedures which are begun or repeated after the entry into force of that law.

The dispute in the main proceedings, the question referred for a preliminary ruling and the procedure before the Court

12The applicant deducted from the VAT for which it was liable the amount of that tax due in respect of products that it had acquired in June 2010 and in the course of the period from November 2010 to September 2011.

13In December 2011, the Nemzeti Adó – és Vámhivatal Dél-budapesti Igazgatósága (National Tax and Customs Administration – Tax and Customs Directorate for Budapest South, Hungary, ‘the defendant tax authority’) as the first-level tax authority, began a review that was communicated to the applicant on 13 December 2011.

14At the conclusion of the review, the authority ruled that some of the VAT that had been deducted should not have been, because some of the invoices put forward for that purpose did not, in its view, correspond to any real economic transaction and others related to a tax fraud of which the applicant was aware. Therefore, by a decision dated 8 October 2015, the defendant tax authority ordered the applicant to pay tax arrears of a total of 144785000 Hungarian forint (HUF) (approximately EUR 464581) and imposed a fine on it of HUF 108588000 (approximately EUR 348433), and a late-payment penalty of HUF 46080000 (approximately EUR 147860).

First second-level administrative decision

15Having received a complaint from the applicant, by decision of 11 November 2015, notified on 14 December 2015, the Nemzeti Adó – és Vámhivatal Közép-magyarországi Regionális Adó Főigazgatósága (National Tax and Customs Administration – Principal Regional Tax Directorate for Central Hungary, Hungary), the predecessor of the defendant tax authority, as the second-level administrative tax authority, reversed the first-level decision with regard to the late-payment penalty imposed, while upholding it as to the remainder. The applicant brought an action against that decision.

16By a judgment of 2 March 2018, which became final on the same day, the Fővárosi Közigazgatási és Munkaügyi Bíróság (Budapest Administrative and Labour Court, Hungary) set aside the second-level decision by the administrative tax authority and ordered that authority to conduct a new procedure. The court indicated that the basis for its judgment was that the decision was vitiated by contradictory grounds. The court said that the second-level decision set out facts which were different from those found in the first-level decision, but at the same time stated that the first-level tax authority had correctly established the facts.

Second second-level administrative decision

17By decision of 5 March 2018, notified to the applicant on 7 March 2018, the defendant tax authority adopted a second second-level administrative decision that, in essence, confirmed the decision at first instance. Nonetheless, the decision reduced the amount of the late-payment penalty imposed.

18By a judgment of 5 July 2018, which became final on the same day, the Fővárosi Közigazgatási és Munkaügyi Bíróság (Budapest Administrative and Labour Court), before which the applicant had brought an action, set aside the second second-level decision by the defendant tax authority and ordered that authority to conduct a new procedure. As grounds for its decision, the court indicated that, first, the second second-level decision, taken on the first business day following the delivery of the judgment of 2 March 2018, repeated largely word for word the first second-level decision, without showing to what extent it was amending the finding made by the first-level tax authority. Consequently, that court took the view that the tax authority satisfied only as a matter of form the obligations arising from the said judgment. Secondly, the second second-level decision still contained contradictory findings with regard to whether the transactions concerned were real.

19By a judgment of 30 January 2020, the Kúria (Supreme Court, Hungary), ruling on an appeal brought by the tax authority, upheld the judgment of 5 July 2018 on the substance. First, in so far as the statement of reasons of the second second-level decision reproduced those of the first second-level decision, the Kúria (Supreme Court) held that the Fővárosi Közigazgatási és Munkaügyi Bíróság (Budapest Administrative and Labour Court) was right to have held that the defendant tax authority had failed to comply with the binding guidance established in the judgment of 2 March 2018. Admittedly, that authority, as it had submitted, only had a short period of time before the right to make a tax assessment and, consequently, to establish the amount of VAT to be repaid, would be time-barred, but in the Kúria’s (Supreme Court’s) view such a circumstance could not exempt it from performing its legal obligations. Moreover, as the Fővárosi Közigazgatási és Munkaügyi Bíróság (Budapest Administrative and Labour Court) had found, the second second-level decision was vitiated by contradictory grounds.

The third second-level administrative decision

20On 6 April 2020, the defendant tax authority adopted a new decision, upholding the first-level decision, whilst amending the late-payment penalty imposed. As grounds for its position, the tax authority indicated that its findings of fact were no different from those established by the first-level tax authority in its decision, and that that authority had satisfied its obligation to establish the facts.

21The applicant brought an appeal against this third decision before the Szegedi Törvényszék (Szeged High Court, Hungary), the referring court, on the ground, among others, that, pursuant to Paragraph 164(1) and (5) of the former Code of Tax Procedure, the tax authority’s right to assess VAT amounts to be repaid is to be time-barred by five years from the last day of the calendar year in which the declaration or notification relating to that tax was made or, where there is no declaration or notification, during which the tax should have been paid. It argues that the tax authority’s right to assess VAT amounts to be repaid in respect of the periods at issue ended before the date of the third second-level decision (namely 6 April 2020). The applicant takes the view that the repeated adoption of decisions is contrary to the principle of legal certainty that the limitation is intended to protect. Such a view is only strengthened if, in the main proceedings, the second repeated procedure took place because of the fact that the tax authority had failed to comply with the guidance contained in the first court decision. The applicant argues that it is therefore due to the fault of the tax authority that the procedure has gone on for nearly 10 years from the start of the review.

22The referring court states that Paragraph 164(5) of the former Code of Tax Procedure makes no provision for an upper limit with regard to the number of repeat procedures that the tax authority may conduct or the total duration of the suspension. Under the case-law of the Kúria (Supreme Court), limitation is suspended throughout the duration of the judicial review of a decision by the tax authority. As a result, there is no time limit on the suspension of the limitation period in cases of judicial review, and therefore the tax authority’s right to assess VAT amounts to be repaid could be extended by several years or even, in extreme cases, by decades. For this reason, the referring court expresses doubts as to the compatibility of the relevant national legislation and related case-law with the EU principles of legal certainty and effectiveness.

23In those circumstances the Szegedi Törvényszék (Szeged High Court) decided to stay the proceedings and to refer the following question to the Court of Justice for a preliminary ruling:

‘Are the principles of legal certainty and of effectiveness, which form part of [EU] law, to be interpreted as not precluding legislation of a Member State which does not allow the courts to exercise any discretion, such as [that provided for in] Paragraph 164(5) of [the former Code of Tax Procedure], and the practice based on that legislation, under which, in matters of [VAT], the limitation period in respect of the right of the tax authorities to make a tax assessment is to be suspended for the whole duration of judicial review, regardless of the number of repeat administrative tax procedures, with no ceiling on the cumulative duration of the suspensions where there are several rounds of judicial review, one after another, including in cases where the court ruling on a decision of a tax authority taken as part of a repeat procedure following on from an earlier court decision finds that the tax authority failed to comply with the guidance contained in that court decision, that is to say, where it is due to the fault of that authority that the new court proceedings took place?’

24Subsequent to the lodging of this request for a preliminary ruling, the referring court sent the Court, by letter of 3 May 2022, a copy of the decision of the Alkotmánybíróság (Constitutional Court, Hungary) of 25 January 2022 by which that court removed the reference to repeat procedures appearing in Paragraph 271(1) of the new Code of Tax Procedure, as well as a copy of a second decision of the Alkotmánybíróság (Constitutional Court), to the same effect, of 26 April 2022.

25By letter of 30 June 2022, the referring court was requested by the Court, in a request for information, to confirm, having regard to certain information initially provided, that, following the decision of the Alkotmánybíróság (Constitutional Court) to remove the reference to repeat procedures appearing in Paragraph 271(1) of the new Code of Tax Procedure, the main proceedings were not, in any event, time-barred.

26By letter of 7 July 2022, the referring court indicated, in essence, that the sole effect of the decision of the Alkotmánybíróság (Constitutional Court) was to time-bar the right of the tax authority to assess the amount of VAT collected that had to be repaid in respect of the period subject to review in 2010. However, with regard to the tax year 2011, the Court’s response would determine whether or not the tax authority’s action was time-barred.

27Written observations were lodged by the applicant, the Hungarian and Spanish Governments and the European Commission. Those parties also presented oral argument at the hearing on 10 November 2022.

Analysis

Preliminary observations

28First of all, it must be observed that the main proceedings do not relate to the compatibility, as such, with EU law of a limitation period during which, on the one hand, the taxable person may exercise his or her right to make deductions nor, on the other hand, that during which the tax authority may question the declarations made by a taxable person, but rather to the compatibility with EU law of the suspension of such a period in the event of court proceedings, without any restriction on time and irrespective of the reasons for which, where applicable, such proceedings have had to be repeated.

29In this case, it must be stated that the present case takes place in a specific context in which, within the framework of the same tax dispute, several administrative and court proceedings have followed each other, but it has not been possible to settle the case definitively for reasons which are, according to the referring court, the fault of the tax authority, without the tax legislation applicable providing for such a scenario and being able to offer a remedy.

30The referring court submits, in this regard, that it is the practice of the Member State in question, when there are several rounds of judicial review, for there to be no ceiling on the cumulative duration of the suspensions, even if the court ruling on a decision of a tax authority taken as part of a new procedure following on from an earlier court decision finds that the tax authority failed to comply with the guidance contained in the prior court decision and that it is due to the fault of that authority that the new court proceedings took place.

31In such a scenario, the referring court questions the compatibility with EU law of the Hungarian legislation and practice regarding the suspension of limitation periods for an essentially unlimited time and the extent to which such legislation and practice may adversely affect the principles of legal certainty and effectiveness. The referring court notes, furthermore, that the exercise of the right of deduction laid down by the VAT Directive could prove to be excessively difficult, particularly in cases such as those in the main proceedings, where the tax authority adopts new decisions but does not comply with the previous decisions delivered by the competent courts, within a short period of time following the decisions ordering new procedures, and thus the limitation period in respect of the right to make a tax assessment could be extended significantly as a result of the suspension of limitation during judicial review.

32In such a context where it is not clear that the situation at issue is caused solely (and directly) by the legislation at issue in the main proceedings but may rather be due to the conduct, or failings, of the tax authority, and potentially of the national courts, I consider it appropriate to examine these two aspects separately within this Opinion.

Compatibility of the legislation on the suspension of the limitation period with EU law

33Before analysing the compatibility of the Hungarian legislation with the principles of effectiveness and legal certainty of EU law, as the referring court asks, it is appropriate to examine whether this legislation does indeed fall within the scope of specific provisions of EU tax law.

Applicability of the VAT Directive

34First of all, it must be noted that despite the fact that the present case has been brought in connection with a dispute linked to VAT, the question for preliminary ruling does not relate to the interpretation of any provision of the VAT Directive. In that regard, the directive restricts itself to setting out the substantive and formal conditions concerning the right to deduct VAT, ⁷ but does not lay down a period within which taxable persons may submit an application for the refund of VAT ⁸ or within which, once the existence of a right to a refund of a certain amount of tax paid has been recognised, the refund must take place.

Applicability of Regulation No 2988/95

35It should be noted, first, that it is clear from the scope of Regulation No 2988/95 that it covers any ‘irregularity’ identified by the authority and ‘any infringement of a provision of [EU] law resulting from an act or omission by an economic operator’ which would have the effect of prejudicing the general budget and own resources of the European Union.

36The Court has held that the European Union’s own resources include revenue from application of a uniform rate to the harmonised VAT assessment bases determined according to European Union rules and that there is a direct link between the collection of VAT revenue in compliance with the EU law applicable and the availability to the EU budget of the appropriate VAT resource, since failure to collect the first potentially causes a reduction in the second. ⁹ It could be deduced from the above that a limitation period during which the national tax authorities may assess the correct amount of VAT to be repaid for a specific period falls within the scope of Regulation No 2988/95.

37With regard, secondly, to limitation periods, Article 3(1) of Regulation No 2988/95 provides for a limitation period for proceedings of four years with regard to the ‘irregularities’ covered by the regulation. According to the Court’s case-law, the limitation period set in the abovementioned article is applicable both to irregularities leading to the imposition of an administrative penalty for the purposes of Article 5 of that regulation and to irregularities which are the subject of an administrative measure for the purposes of Article 4 of the regulation, a measure which is intended to withdraw the wrongly obtained advantage without however constituting a penalty. ¹⁰

38It should be noted, however, that by adopting Regulation No 2988/95, in particular the first subparagraph of Article 3(1) thereof, the EU legislature decided solely to define a minimum period that must be applied in all Member States. Indeed, pursuant to Article 3(3) of the regulation, Member States may apply limitation periods which are longer than the four-year period set out in Article 3(1) of the regulation. ¹¹ As that possibility is implicitly, but necessarily, subject to the condition that the periods chosen must be reasonable, any longer duration must therefore be examined in the light of the same principles as those applicable to periods that do not fall within the scope of the abovementioned Regulation. ¹²

39Thirdly, it is important to note that the first subparagraph of Article 3(1) of Regulation No 2988/95 sets rules on the calculation of the limitation periods. First, the third subparagraph of Article 3(1) of the regulation provides that the limitation period for legal proceedings, a term which has been assimilated by the case-law to cover more generally any form of action by the authorities, shall be interrupted by any act relating to investigation or legal proceedings concerning the irregularity. Secondly, the fourth subparagraph of Article 3(1) of the regulation states that the limitation shall become effective at the latest on the day on which a period equal to twice the limitation period expires without the competent authority having imposed a penalty, and this provision has been interpreted by the Court as setting an absolute limit, ¹³ with the sole exception that has been recognised being suspension in the event of criminal proceedings, pursuant to Article 6(1) of Regulation No 2988/95. That is not the case here, as is apparent from both the order for reference and the reply provided on that point by the Hungarian Government at the hearing.

40Moreover, the regulation only applies to administrative proceedings and none of its provisions cover the length of judicial proceedings brought by a party on whom an administrative penalty has been imposed nor the suspension of the limitation periods in the event of judicial review.

41It follows from the foregoing that, although Regulation No 2988/95 may apply with regard to the national rules laying down the limitation period within which the national tax authorities may make a tax assessment, legislation such as that at issue in the present case providing for the suspension of the limitation period for the assessment of the VAT amount for the entire length of the judicial reviews does not fall within its scope.

Analysis of the legislation at issue in view of the general principles of EU law

42In the absence of EU legislation on this area [and since neither the VAT Directive nor Regulation No 2988/95 contains specific rules making it possible to reply to the question for preliminary ruling], in accordance with the Court’s settled case-law it is for the domestic legal systems of Member States to set the rules on the limitation of judicial proceedings and the suspension of such limitation periods, in accordance with the principle of procedural autonomy of the Member States and in particular the principles of equivalence and effectiveness, provided that the Member States exercise their competences in compliance with EU law. ¹⁴

43In that regard, although the wording of the referring court’s question for preliminary ruling refers solely to the principles of legal certainty and of effectiveness, that is no obstacle to taking into account, both as part of this analysis and in the analysis that the Court is to carry out, other general principles of EU law that may be relevant within the context of the present case.

44With regard, in the first place, to the principle of equivalence, it requires the procedural rules for the implementation of EU law laid down by national law not to be more restrictive than those concerning the implementation of national law with a similar purpose or rationale. In the case of rules governing limitation periods, respect for that principle implies the existence, in addition to the rule on limitation periods at issue, of a rule on limitation periods applicable to domestic situations that, having regard to their purpose and essential characteristics, may be considered similar. ¹⁵

45It should be noted, in this regard, that it is not apparent, from the facts described by the referring court, from the written observations of the parties or from the clarifications made at the hearing, that the procedural system in the Hungarian Code of Tax Procedure (including the regulation at issue in the main proceedings) is less favourable in terms of limitation periods than that applicable to domestic situations. It appears that the system applies both to actions based on the infringement of EU law and on those, of the same kind, alleging the infringement of national law.

46In the second place, the principle of effectiveness means that the provisions governing the national procedure must not be such as to render impossible in practice or excessively difficult the exercise of rights conferred by the EU legal order. ¹⁶

47It should be recalled, first, that within the context of the VAT Directive the Member States have two obligations. On the one hand, they must ensure that taxable persons may effectively exercise their right to deduct VAT without being prevented from doing so by rules of procedure or substantive rules that are incompatible with EU law and, in particular, with the VAT Directive. On the other, they must adopt all legislative and administrative measures necessary to ensure collection of all the VAT due on their territory and to prevent tax fraud and evasion. ¹⁷

48While, in the present case, the applicant submits that its right to deduct VAT has been restricted, it is apparent from the order for reference that the tax authority found that tax evasion was present and that that conclusion does not yet seem to have been challenged in the judgments to date delivered in the main proceedings. It should be noted, in that regard, that, according to the Court’s case-law, a Member State may, in principle, suspend the refund of VAT until the dispute has been definitively resolved by an administrative procedure or by judicial proceedings, inasmuch as the right to deduction must always comply with the principle of proportionality, ¹⁸ which is a matter for the national courts to verify.

49Secondly, in tax matters, the existence of a limitation period is of interest both to the taxable person and to the tax authority, in so far as setting reasonable limitation periods is designed to protect both the taxable person and the tax authority by not rendering impossible or excessively difficult the exercise of the rights conferred by the EU legal order.

50In that regard, a distinction should be drawn between the period within which taxable persons may exercise their right to deduct VAT and the limitation period within which the tax authority may act. ¹⁹ Thus, in some judgments, the Court has acknowledged that the periods in which authorities may take action may be different from those applicable to individuals. ²⁰ With regard to the limitation period applying to the tax authority, the Court has previously held that a five-year limitation period beginning to run on the date on which the declaration should in principle have been made was consistent with the principle of effectiveness. ²¹

51It should be clarified, however, that although the issue of a possible restriction of the exercise of the applicant’s right to deduction was highlighted in the present case, the case does not directly relate to the compatibility with EU law of the procedural rules governing that right but rather to the national legislation governing the limitation period applicable to the tax authority’s actions.

52Thirdly, in relation to the suspension of the limitation period during judicial proceedings, it should be noted that reasons for interrupting the limitation period are set out precisely in order to ensure compliance with the principle of effectiveness by guaranteeing that the limitation period does not expire during the judicial proceedings, at the very time when rights conferred by the EU legal order are being exercised by the taxable person. In addition, the aim of suspending the limitation period during judicial proceedings is to enable the tax authority to take account of the outcome of the judicial review. In the absence of such legislation, the right to redress could be abused because, should the limitation take place during any judicial proceedings (the length of which is not determined in a precise manner and which, in any event, depends not on the measures taken by the tax authorities but on the judicial proceedings) the tax authority would be unable to make any findings even if its decision were held to be consistent with the law in both procedural and substantive terms.

53In the third place, with regard to the principle of legal certainty, it should be recalled that a limitation period, in general, fulfils the function of ensuring legal certainty and that, in order to fulfil that function, the rules setting out those periods must be fixed in advance and be sufficiently clear and precise to ensure that situations and legal relations are foreseeable. ²² In addition, in tax matters, the rules on limitation periods are designed to ensure that the tax position of a taxable person vis-à-vis the tax authority is not open to challenge indefinitely. ²³

54In the present case, it is not a matter of dispute that the rules on limitation and the suspension of limitation periods are known by the taxable persons, who are aware that the fact of exercising the guarantees available to them, such as the right to lodge an appeal, may result in the suspension of the limitation period.

55In addition, it should be noted that the rules on limitation are designed precisely to prevent a legal situation being indefinitely open to challenge. Limitation periods are designed not to leave rights indefinitely uncertain and to sanction the abandonment of rights by the rights holder. However, this mechanism requires the existence of reasons for interrupting the limitation period, particularly in the event of the exercise of rights by rights holders and, more specifically, through the bringing of appeal proceedings, since such a mechanism is based on the fact that the rights holders are not exercising their rights or, if they decide to do so, that such a decision involves a delay in the procedure. It follows that the fact that limitation periods are suspended when a taxable person exercises such rights cannot, in principle, be considered to be an element that (indefinitely) leaves those rights open to challenge, since the suspension is linked to the initiation of a new procedure separate from the administrative procedure, namely that of judicial review, which is governed by different rules, including with regard to the time periods applicable to its procedures. ²⁴

56In addition, the Court has held that the principle of legal certainty does not preclude a practice of the national tax authorities whereby, within the limitation period, they revoke a decision by which they granted the taxable person the right to deduct VAT and then, following a fresh investigation, order him or her to pay that tax together with default interest. ²⁵ If such a practice by the tax authority within the context of an administrative procedure (and without a court decision intervening) has been held not to render the tax position of the taxable person open to challenge indefinitely, there is no doubt that the adoption by the tax authority of new decisions for the purposes of enforcing judgments delivered cannot in itself constitute an infringement of the principle of legal certainty.

57It follows from the foregoing that the principles of legal certainty and of effectiveness do not preclude national legislation providing that the limitation period is to be suspended for the whole duration of the review procedure, in the event that a taxable person exercises his or her right to redress, and that it is to be extended in the event that the tax authority is ordered to carry out a new procedure. If it were otherwise, a time-bar might intervene even during the review procedure, including when that procedure is linked to a reference for a preliminary ruling (and even in a scenario where the tax authority’s decision is completely well founded), which would make the procedure purposeless, would deprive the taxable person of the option to exercise his or her right to redress and, in addition, would prevent the tax authority from ruling, pursuant to the national court’s decision, on the taxable person’s tax position.

The Hungarian authority’s practice regarding the suspension of the limitation period

58It is apparent from the findings made by the referring court that the extension of the procedure is due, in part, to the tax authority because it failed to comply with the guidance supplied in the relevant court decision when it adopted a new decision. In the opinion of that court, the result of such an unjustified extension, for a period which is impossible to predict, of a tax procedure intended to examine the financial and material conditions of the right of deduction is that it renders the exercise of the right of deduction (of VAT) excessively difficult. ²⁶

59In such a context, and although the referring court made no request in that regard, it is appropriate to examine, in the first place, the relevance to the present case of the principle of sound administration.

60In its case-law, the Court has previously held that, where a Member State implements EU law, the requirements pertaining to the right to sound administration, which reflects a general principle of EU law, and in particular the right of every person to have his or her affairs handled impartially and within a reasonable period of time, are applicable in a tax inspection procedure. ²⁷ The Court has also stated that that principle of good administration requires administrative authorities, such as the tax authority in question in the main proceedings, when carrying out their inspection duties, to conduct a diligent and impartial examination of all the relevant matters so that they can be sure that, when they adopt a final decision, they have at their disposal the most complete and reliable information possible for that purpose. ²⁸

61It is therefore a matter for the referring court (which alone is aware of all the circumstances of the main proceedings) to determine whether the complexity of this case may have led to the lengthening of the procedure, or whether the repetition of tax procedures and the many suspensions of the limitation period may be ascribed to a failure by the tax authority; it is also for the referring court to examine the extent to which that practice may have caused harm for the applicant. However, any error by the tax authority or any unsuccessful attempt by it to comply with a court decision, even where it has taken place more than once, does not, as such, constitute negligence on the authority’s part of such a kind as to cast doubt on the applicability of the provisions on the suspension of the limitation period.

62In the second place, it is important to note that at the hearing the Hungarian Government argued that national courts had the means necessary to enable them, in principle, to remedy a situation such as the one in the present case. Thus, should the tax authority not comply with the instructions given to it by a national court (for reasons which may be directly ascribed to it), the national court could, according to the government, ‘take control’ of the case brought before it and rule on it by amending a decision taken by the tax authority, thus definitively resolving the dispute.

63It should be recalled, in that regard, that the second subparagraph of Article 47 of the Charter of Fundamental Rights of the European Union states, inter alia, that everyone is entitled to a hearing within a reasonable time. It is apparent from the Court’s case-law that the reasonableness of the period taken for the judgment must be appraised in the light of the circumstances specific to each case and, in particular, the importance of the case for the person concerned, its complexity and the conduct of the applicant and of the competent authorities. ²⁹

64It is therefore for the competent national court to verify the extent to which the lengthening of the procedure could be ascribed to the national courts, if it were to be found that, although such courts had the means to remedy such a situation, they did not make use of those means. In such a scenario, it is for the competent national court to examine whether there are grounds for awarding compensation to the applicant for a delay or a failure that may be ascribed not only to the tax authorities but also to the national courts.

65It follows from the foregoing that it is for the competent national court, taking into account all the circumstances of the case, such as its complexity, to assess whether the repetition of the tax procedure and the judicial reviews concerned were mainly due to failures by the tax authority or whether the delay may be ascribed to the national courts, and to draw the requisite conclusions, including whether the taxable person concerned is entitled to any compensation.

Conclusion

66In the light of the foregoing considerations, I propose that the Court should respond to the question referred for a preliminary ruling by the Szegedi Törvényszék (Szeged High Court, Hungary) as follows:

The principles of legal certainty and of effectiveness of EU law must be interpreted as not precluding legislation of a Member State under which, in matters of value added tax, the limitation period in respect of the right of the tax authorities to make a tax assessment is to be suspended for the whole duration of the judicial review concerned, even where the review concerns consecutive decisions made by a tax authority and concerning the same tax.

However, it is for the competent national court, taking into account all the circumstances of the case, such as its complexity, to assess whether the repetition of the tax procedure and the judicial reviews concerned were mainly due to failures by the tax authority or whether the delay may be ascribed to the national courts, and to draw the requisite conclusions, including whether the taxable person concerned is entitled to any compensation.

¹ Original language: French.

² OJ 2006 L 347, p. 1.

³ OJ 1995 L 312, p. 1.

⁴ Magyar Közlöny 2003/131, 14 November 2003, p. 9990.

⁵ Magyar Közlöny 2017/192, 22 November 2017, p. 31694.

⁶ Magyar Közlöny 2017/192, 22 November 2017, p. 31586.

⁷ The VAT Directive governs both substantive and formal conditions in Title X, in Chapters 1 (‘Origin and scope of right of deduction’, Article 168 et seq.) and 4 (‘Rules governing exercise of the right of deduction’, Article 178 et seq.), respectively.

⁸ Judgment of 14 February 2019, Nestrade (C‑562/17, EU:C:2019:115, paragraph 35).

⁹ Judgments of 26 February 2013, Åkerberg Fransson (C‑617/10, EU:C:2013:105, paragraph 26), and of 8 September 2015, Taricco and Others (C‑105/14, EU:C:2015:555, paragraph 38).

¹⁰ Judgments of 24 June 2004, Handlbauer (C‑278/02, EU:C:2004:388, paragraphs 33 and 34), and of 17 September 2014, Cruz & Companhia (C‑341/13, EU:C:2014:2230, paragraph 45).

¹¹ See judgment of 7 April 2022, IFAP (C‑447/20 and C‑448/20, EU:C:2022:265, paragraph 48 and the case-law cited).

¹² See, to that effect, judgment of 17 September 2014, Cruz & Companhia (C‑341/13, EU:C:2014:2230, paragraph 59 and the case-law cited).

¹³ See, to that effect, judgment of 2 March 2017, Glencore Céréales France (C‑584/15, EU:C:2017:160, paragraph 54 and the case-law cited).

¹⁴ Judgment of 28 July 2016, Astone (C‑332/15, EU:C:2016:614, paragraph 34 and the case-law cited).

¹⁵ Judgment of 20 December 2017, Caterpillar Financial Services (C‑500/16, EU:C:2017:996, paragraph 38 and the case-law cited).

¹⁶ Judgment of 15 March 2017, Aquino (C‑3/16, EU:C:2017:209, paragraph 52).

¹⁷ See Article 273 of the VAT Directive and judgment of 26 February 2013, Åkerberg Fransson (C‑617/10, EU:C:2013:105, paragraphs 25 and 26).

¹⁸ Judgment of 18 December 1997, Molenheide and Others (C‑286/94, C‑340/95, C‑401/95 and C‑47/96, EU:C:1997:623, paragraph 54 and 55).

¹⁹ On the one hand, in relation to a taxable person, the existence of a limitation period in the context of the exercise of his or her rights enables him or her to challenge the tax authority’s decisions in order to request and, where applicable, to obtain, refunds of undue payments or of payments provided for by the legislation specific to each tax. On the other hand, the limitation period enables tax authorities to carry out the checks necessary to determine the tax situation of a taxable person and to identify any irregularities or abuse that may have taken place, and their consequences, in order to prevent the loss of VAT revenue.

²⁰ See, inter alia, judgment of 8 May 2008, Ecotrade (C‑95/07 and C‑96/07, EU:C:2008:267, paragraphs 49 to 54), in which the Court held that the principle of effectiveness is not infringed in the case of a national limitation period allegedly more advantageous for the tax authority than that applicable for individuals.

²¹ Judgments of 8 September 2011, Q-Beef and Bosschaert (C‑89/10 and C‑96/10, EU:C:2011:555, paragraph 37), and of 20 December 2017, Caterpillar Financial Services (C‑500/16, EU:C:2017:996, paragraph 43).

²² Judgment of 5 March 2019, Eesti Pagar (C‑349/17, EU:C:2019:172, paragraph 112 and the case-law cited).

²³ Judgment of 20 May 2021, BTA Baltic Insurance Company (C‑230/20, not published, EU:C:2021:410, paragraph 46).

²⁴ The period applicable to the judicial proceedings whose initiation results in the suspension of the limitation period is governed not by tax legislation but by the rules on judicial proceedings.

²⁵ See, to that effect, judgment of 9 July 2015, Salomie and Oltean (C‑183/14, EU:C:2015:454, paragraphs 40 and 41).

²⁶ That opinion is shared by the applicant, who argues that the slow pace of the procedure was due to shortcomings in the examination of the facts by the tax authority, which in the end led to suspensions of the limitation period.

²⁷ Judgment of 14 May 2020, Agrobet CZ (C‑446/18, EU:C:2020:369, paragraph 43).

²⁸ Judgment of 14 May 2020, Agrobet CZ (C‑446/18, EU:C:2020:369, paragraph 44).

²⁹ See, to that effect, judgment of 9 September 2008, FIAMM and Others v Council and Commission (C-120/06 P and C-121/06 P, EU:C:2008:476, paragraph 212 and the case-law cited).