The European Commission has formally requested Hungary to amend its VAT legislation, which in the Commission's view; do not allow lessees to benefit from VAT deductions in open-end leases of passenger vehicles.

Under Hungarian law the VAT charged by the lessor on the open-end lease of a passenger vehicle is not deductible by the lessee. However, the EU VAT Directive 2006/112/EC gives taxable persons the right to deduct the VAT charged on goods purchased and services received. It also authorises Member States to restrict this right to VAT deduction only if these provisions were in place at the time of accession to the EU. As the Hungarian provision in question was introduced on 1 January 2008, i.e. after Hungary's accession to the EU in May 2004, it is contrary to EU rules.

According to the Commission, the Hungarian rules mean that citizens are not able to benefit from VAT deductions to which they are entitled under EU law.

The Commission's request takes the form of a reasoned opinion (second step of EU infringement proceedings). In the absence of a satisfactory response within two months, the Commission may refer Hungary to the EU's Court of Justice.