Every single investment financed by EU funds requires the prior, case-by-case approval of the European Commission. In regard to the support of the construction of the M43 motorway section between Szeged and Makó as well as the reconstruction of the railway line between Budapest-Kelenföld and Székesfehérvár-Boba the European Commission had come to the decision that they would consent to the projects, however, they had excluded the amount of non-refundable VAT as costs which are financeable from EU funds.

The Government of Hungary appealed against these resolutions to the first instance European legal authority – currently the European Court of Justice – and requested that the provision which bans the financing of non-refundable VAT be repealed.

According to the position of the Government of Hungary, the provisions of community law unambiguously imply that in relevant legal actions the amount of non-refundable VAT is defined as expenditures which are financeable from EU funds, as beneficiaries are not entitled to reclaim VAT. It is a key argument that there are several examples for the EU financing of non-refundable VAT.

During the ongoing legal proceedings, however, the Government of Hungary – in accordance with the resolutions of the European Commission adopted in this regard – does not book EU funds to cover the “disputed” VAT costs of the projects; therefore it does not run the risk of repayment.

As a consequence, as far as the amounts contested by the proceedings are concerned, the Hungarian budget can rather expect a positive future impact. In case of a favourable verdict for Hungary, the currently contested amount can be booked as fiscal revenues.

That outcome would further improve the government budget balance and, at the same time, increase the amount of utilized EU funds.

At the court hearing of 18 April 2012 international experts defended the Hungarian position. The Government of Hungary trusts that the European Court of Justice will eventually deliver a favourable verdict.

(Ministry for National Economy)

Source: kormany.hu