EU: CJEU judgments on denial of VAT deduction for nonexistent transaction, taxation of VAT refund administration services (Hungary)

The Court of Justice of the European Union (CJEU) on August 11, 2025, published its judgment in C-501/24 (Klinka-Geo Trans), that tax authorities may refuse a value added tax (VAT) deduction if a transaction did not occur, without assessing the invoice recipient's knowledge of VAT fraud.

In addition, the CJEU on August 1, 2025, held in C-427/23 (Határ Diszkont) that administering VAT refunds for non-EU customers is a taxable supply, distinct from VAT-exempt exports, and are subject to VAT.

• The CJEU clarified that such services do not qualify for exemptions under Articles 146(1)(e) or 135(1)(d) of the VAT Directive. In particular, for a service to be exempt as a financial transaction (such as payment or transfer), it must result in a legal and financial change in the ownership of funds. In this case, the taxpayer merely withheld the VAT amount until the customer provided the necessary export documentation, after which the amount was refunded. This process did not involve the transfer of ownership of funds in the sense required for a financial service exemption.
• The CJEU further clarified that, although the VAT refund service is related to the export transaction (since it can only occur if export has taken place), this link is not sufficient to treat the two as a single, inseparable supply for VAT purposes. The export of goods and the VAT refund administration are not mutually dependent; the export is completed independently of the refund service.
• Furthermore, the principle of legitimate expectations does not prevent tax authorities from taxing these services despite prior acceptance of VAT-exempt status.

For further information, contact a KPMG tax professional in Hungary:

Zsuzsanna Ablonczy | zsuzsanna.ablonczy@kpmg.hu