Határ Diszkont: VAT on Tax-Free Refund Processing Fees

Határ Diszkont concerns a practical issue that frequently arises in “tax-free shopping” for travellers from outside the EU: how should VAT treat a fee charged by a retailer for administering a VAT refund? The Court of Justice had to determine whether the “processing fee” charged by Határ Diszkont should share the VAT exemption applicable to the underlying export supply of goods to non-EU travellers, or whether it constitutes a separate service subject to VAT. Further issues were whether, if that administration activity is a distinct service, it could be exempt under Articles 146(1)(e) or 135(1)(d), and whether the fee should be treated as a net or gross amount for VAT purposes. The Court answered these questions by applying the basic VAT principle that each supply must normally be assessed independently.

Facts and circumstances

Határ Diszkont Kft operated a retail shop in Tompa (Hungary), close to the Serbian border. In 2020, it sold various goods to customers who were not established in the European Union. It is apparent from the file before the Court that these customers took the goods with them on the day of purchase and exported them the same day to a third country. The cash receipts or invoices issued for the sales contained the note “VAT settled”. Once export had taken place and the customs formalities were confirmed, Határ Diszkont reimbursed the customers in full for the Hungarian VAT shown on the invoices and issued a reimbursement receipt signed by both parties. 

For processing this VAT refund, Határ Diszkont charged a separate “processing/handling fee” equal to 15% of the VAT amount to be reimbursed. These fees were invoiced only at the moment the refund was actually paid. Payment was made in cash and evidenced by deposit receipts. In its VAT returns, Határ Diszkont treated these fees as consideration for exempt supplies. The shop displayed and orally communicated information to customers that VAT refunds were subject to such a fee and explained how the fee was calculated. 

The Court also describes the concrete operations forming the handling service. At the moment of sale, Határ Diszkont verified the validity of the customer’s travel document, handed over a standard refund form and the sales invoice, and informed the customer about the refund procedure. When the customer later returned with a customs-stamped form, Határ Diszkont checked the form and verified that the border export formalities had been completed, amended/copied/archived the sales invoice, reimbursed the VAT at the cash desk, and simultaneously issued (i) a reimbursement receipt signed by the customer and (ii) an invoice for the processing fee. It then collected the fee in cash and documented the payment with a deposit receipt signed by the customer.

Legal framework

The request for a preliminary ruling concerned the interpretation of provisions of Directive 2006/112/EC (the VAT Directive), as well as the EU law principle of legitimate expectations. 

First, the Directive sets out the general rule that VAT is chargeable on supplies of services effected for consideration by a taxable person in a Member State (Articles 1(2) and 2(1)(c)). The system is built on the assumption that, as a rule, each supply is to be assessed separately. 

Secondly, as regards the taxable amount, Article 73 provides that the VAT taxable amount is everything which constitutes consideration actually received by the supplier. Article 78(b) clarifies that incidental expenses charged by the supplier to the customer may be included in the taxable amount of the main supply. 

Thirdly, the Directive contains the relevant exemptions. Article 146(1)(b) exempts supplies of goods dispatched or transported to a destination outside the EU by or on behalf of a purchaser not established in the EU. Article 147 sets out the specific framework for exports in the personal luggage of non-EU travelers. Article 146(1)(e) exempts certain services directly linked to exports or imports in specific situations. Article 135(1)(d) provides an exemption for certain financial transactions, including payment and transfer services. 

Finally, the Court refers to Hungarian VAT provisions only insofar as they form part of the national context. A particularly relevant point was that under Hungarian VAT law in force until 31 December 2007, VAT refunds handled by retailers for foreign travelers were expressly treated as exempt; that explicit national rule was later removed. This historical change mattered for the company’s reliance on legitimate expectations.

Positions of the parties and the legal issue

During the audit for 2020, Határ Diszkont advanced several (partly changing) arguments to support exemption of the processing fee. In essence, it argued that the fee should be exempt either because it constituted a financial service corresponding to Article 135(1)(d), or because it was a service directly linked to export corresponding to Article 146(1)(e), or because it was an incidental cost forming part of the exempt export supply of goods and therefore shared that supply’s VAT treatment. In this context, Határ Diszkont also relied on information received from a tax authority “customer relations” unit during the audit suggesting that the fee could be seen as incidental to an exempt supply. 

The tax authority rejected all of these positions. It considered the handling activity to be a separate administrative service which was neither part of the goods supply nor necessary for export, and which did not fall under either the export-related exemption or the financial exemption. It therefore treated the fee as taxable. It further stated that the amounts invoiced without VAT were net amounts on which VAT had still to be added. 

The referring court was uncertain, in particular because the fee was invoiced only after the goods had been sold and exported. It asked the Court four questions. In substance, these were: whether the handling of VAT refunds is a separate service and, if so, whether it can fall within Article 146(1)(e); if not, whether it can be exempt as a financial service under Article 135(1)(d); whether the tax authority is prevented by legitimate expectations from taxing the fee retroactively; and whether the authority may treat the fee as a net price subject to VAT on top.

The Court’s analysis

Separate service or incidental to the export supply

The Court recalls that each supply is normally distinct; only if elements are objectively indivisible, or if one element is purely ancillary (not an end in itself), can a single supply be assumed. Here, although the refund-handling presupposes a prior sale, there is no reciprocal dependence: the export supply is completed at payment/transfer of disposal rights, while the handling service happens later and is not necessary for the sale to exist. This is confirmed by the fact that even if export does not occur, or export proof is missing, the sale remains a completed supply. The service is also factually separable and optional, because customers must return with stamped documents and may choose not to do so. Hence the fee is not an ancillary element or incidental cost under Article 78(b), but an independent taxable service with its own VAT treatment and taxable amount.

No exemption as an export-related service (Article 146(1)(e))

The Court notes first that the file does not show the goods were in any of the specific customs situations covered by Article 146(1)(e). In any event, that exemption applies only to services that directly contribute to the actual export of goods. The refund-handling does not: export is carried out solely by the customer and the service is performed only after export is completed. Therefore Article 146(1)(e) cannot apply.

No exemption as a financial service (Article 135(1)(d))

A service is exempt under Article 135(1)(d) only if it performs the specific and essential functions of a payment/transfer, i.e., it brings about the legal and financial changes characteristic of moving money; purely administrative acts are excluded. Határ Diszkont merely held the VAT paid on purchase pending export proof and refunded it once proof was shown. The activity is administrative operation of the tax-free scheme, not an independent payment service, so the exemption does not apply.

Legitimate expectations and retroactive taxation

Legitimate expectations protect a taxpayer only where a competent authority gave precise, unconditional and consistent assurances. Long-term acceptance of VAT returns, even after audits, is not such an assurance; only exceptionally could a silent practice qualify, and the referring court must check whether any audit record contained concrete promises. The authority had no duty to warn the trader about the post-2007 legislative change, since diligent traders must know the law. Non-binding statements made during an audit after the transactions cannot protect earlier periods. Retroactive taxation is therefore not barred.

Taxable amount: net or gross

Because Határ Diszkont invoiced the fee as exempt and could not later pass VAT on to travellers, Article 73 requires the taxable amount to be based on what was actually received. Under Tulică & Plavoșin, where a price is agreed without VAT being mentioned and VAT cannot be recovered afterwards, the price is treated as VAT-inclusive (gross). Thus the authority may not treat the fee as a net amount with VAT added on top.

Conclusion

The Court’s reasoning sets a clear rule for tax-free refund models: where a retailer charges a separate fee for VAT-refund administration, performs that service only after the goods have been sold and exported, and the customer must take an additional voluntary step (returning with stamped export documents), that activity is normally a distinct taxable service with its own VAT treatment. A functional or economic link to an exempt export supply is not sufficient to treat the fee as ancillary or as an incidental cost under Article 78.

Because the service is independent, it cannot benefit from any of the exemptions argued in this case. It is not exempt under Article 146(1)(e), since that provision is reserved for services that directly contribute to the physical export itself, which refund administration after export does not. It is also not exempt under Article 135(1)(d), because the handling fee reflects an administrative operation of the tax-free scheme and does not perform the essential legal and financial functions of a payment or transfer. The Court further confirms that legitimate expectations cannot arise merely from years of unchallenged VAT returns or the absence of warnings about legislative change, and that non-binding audit statements cannot protect past periods. Finally, if VAT is due and cannot be passed on retroactively, the agreed fee must be treated as a gross VAT-inclusive amount, not as a net price with VAT added on top.

In short, refund-handling fees like those charged by Határ Diszkont are taxable standalone services with no applicable exemption, and VAT is calculated on what the retailer actually collected.

Source: Case C‑427/23 - Határ Diszkont v Appeals Division of the National Tax and Customs Authority, EU VAT Directive