The Legal Background and Practical Significance of Issuing a Performance Certificate

In commercial practice—especially in the construction industry—a critical point of the parties’ relationship is documenting contractual performance and the related financial settlement. A performance certificate is not merely an administrative annex to the contract, but a document capable of producing legal effects, fundamentally determining civil-law enforcement and tax obligations. Issuing a performance certificate, for instance, may reverse the burden of proof: if a party seeks to contest the statements recorded in the performance certificate (e.g., that the works were not performed, or not in the stated quantity), that party must prove the contrary.

The purpose of this article is to provide a comprehensive overview of the institution and operation of performance certification, its tax-law implications, as well as the role of the special forum established to resolve disputed situations—the Performance Certification Expert Body (Teljesítésigazolási Szakértői Szerv, “TSZSZ”)—and the related case law.

1. Concept, role, and practical issues of the performance certificate

Generally, a performance certificate is the document-based acknowledgement of performance under contracts for work (vállalkozási szerződés). The most straightforward reason is that such obligations typically culminate in a result. In practice, however, it is not always clear whether issuing a performance certificate qualifies as a technical confirmation, a document recording contractual performance, or a tax-relevant instrument. Its function is therefore multi-layered.

From a civil-law perspective, the customer (megrendelő) acknowledges by this document that the contractor (vállalkozó) has performed the service in accordance with the contract—or, as the case may be, with certain defects or shortcomings. From a financial and accounting perspective, the document establishes the basis for issuing the invoice and making payment.

In practice, a performance certificate must be issued where the parties have stipulated it in the contract as a condition for acknowledging performance, or where the nature of performance (e.g., a technical handover and acceptance procedure) requires it. It is especially important that the document—at least by reference—contain the technical content defined by the contract, the quantitative and qualitative indicators, the exact time of performance, and any other circumstances treated by the contract as essential. The practical significance of this level of detail is that by issuing the performance certificate the customer does not merely acknowledge contractual conformity in general terms, but makes a unilateral, addressed legal declaration that expressly extends to acknowledging compliance with the contractual obligations—especially compliance with performance and interim deadlines—and the technical content (including material quality and technical parameters).

Consequently, in the present context the performance certificate, under Section 6:26 of the Hungarian Civil Code (Act V of 2013; “Ptk.”), may function similarly to an acknowledgement of debt—if and insofar as the legal declaration also includes the value of performance.

The dogmatic necessity of the institution of performance certification is rooted in the classic distinction between obligations to give (dare) and obligations to do/provide a service (facere). In sale-type contracts, the primary focus of the transaction is the transfer of ownership and possession of a thing, and the fact of performance typically becomes clear through physical delivery. It should be noted, however, that while the transfer of possession may constitute the act of performance, it does not necessarily mean that performance is contractually compliant. If a seller were to issue a performance certificate in such a scenario, it would serve as an express acknowledgement that the buyer’s performance is contractually compliant.

By contrast, in contracts for work and agency-type relationships, the subject matter of the service is more complex: either the creation of a specific result (contract for work, obligation of result) or the exercise of due care (mandate/agency, obligation of due care). In these contract types, the customer’s obligation to provide consideration does not arise automatically upon conclusion of the contract or merely with the passage of time; rather, it presupposes substantive approval and express acceptance of contractual conformity. At the same time, it must be noted that in private-law relationships there is generally no statutory obligation to issue such a document.

A performance certificate thus becomes a fundamental “instrument” primarily in these two contract types because performance is not a momentary transaction (a “prompt” deal), but rather the closing of a process or the attestation of an outcome—where the customer must expressly declare whether the work created by the contractor (e.g., a building, software) or the intellectual activity performed by the agent meets the professional and contractual expectations in quantity and quality, thereby establishing the legal basis for the consideration to become due.

Ultimately, the performance certificate is a document attesting acceptance of performance in accordance with the contract. There are no strict statutory requirements as to its form. As a general rule, it may be issued upon conclusion of the process, including where performance occurs by way of early performance and the obligee accepts the tender. If the parties agree on partial performance, then in respect of each partial performance—given the transfer of the work and proportionate payment—it is also reasonable to issue a performance certificate. This is particularly significant where substantial payments are linked to performance stages, because the legal basis for such payments becomes clearly verifiable for the obligee.

In civil litigation, issuing and accepting a performance certificate is of particular importance for proving that performance took place, because the fact of performance typically falls within the sphere of interest of the claimant—usually the contractor—who bears the burden of proof. The Hungarian Code of Civil Procedure determines the bearer of the burden through the concept of “interest in proof”: facts relevant to the dispute must be proven by the party in whose interest it is that the court accept them as true. Accordingly, absent a performance certificate, the obligor must prove performance—i.e., must demonstrate that it performed the contractual tasks as agreed and is entitled to consideration. If a performance certificate has been issued, the obligation to prove shifts: the obligee must substantiate the non-performance of specific tasks.

The fact of performance becomes presumed on the basis of the performance certificate, resulting in a “reversal” of the burden of proof. In such cases, it is no longer the contractor who must prove that performance took place; instead, the customer must prove that the certified works, or part of them, did not in fact occur or did not occur in accordance with the contract. The consequences of failure of proof are borne by the customer, since it is in the customer’s interest to demonstrate that the previously acknowledged and paid performance did not, or only partially, take place. The burden becomes even heavier where the customer issued the performance certificate and paid the certified consideration. Therefore, if the parties did not regulate performance certification in their contract, no private-law statutory obligation will impose the issuance of such a document on the customer.

However, in relation to reversal of the burden of proof, the Curia’s decision Pfv.V.20.344/2019/10 contains an apparently contradictory statement, holding that “in the enforcement of a warranty claim, documents submitted by a party (contract with the repair contractor, its budget, performance certificate, invoice, etc.) do not, in themselves, ‘reverse’ the burden of proof.” Although the performance certificate and the related invoices prove that payment to the third party performing the repair has occurred, this alone does not prove vis-à-vis the opposing party in the litigation that the repairs were technically justified, the costs were realistic, and the repair actually served to remedy the warranty defect.

It must be emphasized, however, that the evidentiary value of a performance certificate should be assessed not in abstract, but based on the level of detail in its content. This supports the conclusion that the function of performance certification extends beyond purely procedural questions of proof: a properly detailed document, as a unilateral addressed legal declaration, may in practice produce legal effects similar to an acknowledgement of debt. This is relevant not only in civil-law relationships but also necessarily raises the question of the tax-law assessment of the performance certificate.

2. Tax-law aspects of the performance certificate

Issuing the performance certificate (completion notice—final handover/acceptance—issuance of performance certificate—issuance of invoice) has a direct impact on the occurrence of VAT liability under Act CXXVII of 2007 on Value Added Tax (“Áfa tv.”). From the parties’ perspective, an important factor is the nature of the transaction: in the case of “normal” (output) VAT, the tax liability arises on the contractor’s side, while under reverse charge VAT (Fordított adózás; “FAD”) the liability arises on the customer’s side—typically aligned with the date stated in the performance certificate.

In contracts for work where the performance certificate (minutes, handover documentation) arises as an accessory to the contract, as a general rule the date indicated in the performance certificate qualifies as the time of supply. This date also establishes the deadline for the invoice issuance obligation, which the taxable person must fulfil within the contractual deadline calculated from performance.

Issuing the performance certificate may be complicated by the emergence of additional works. Works falling within the scope of the contract but not accounted for when the contractor’s fee was determined may easily lead to a blockage in the performance process. In disputes arising from this, the customer may be entitled to withhold the consideration, which typically manifests as refusal to issue the performance certificate. Failure to conduct the handover and acceptance procedure also prevents issuance of the performance certificate, the most significant consequence being that possession of the worksite or the completed work—and the associated responsibility—remains with the contractor. As a legal consequence, the risk of loss and liability for damage continue to burden the contractor until handover and acceptance occur.

It is an important circumstance that with the handover and acceptance of the work or site, the risk passes to the customer. This legal effect, however, is linked not to issuance of the performance certificate but to the fact of handover and acceptance itself. The obligee does not fulfil its contractual obligation by invoicing, but by performing its own service; thus, the claim for payment of consideration may arise even without an invoice.

In the case of supplementary work (pótmunka), the situation differs, because this refers to work ordered subsequently by the customer. Accordingly, the original consideration becomes claimable following contractual performance on the basis of the performance certificate, whereas the consideration for supplementary work may be claimed by the contractor after the supplementary work has been performed, upon a later completion notice and subsequent performance certification.

Under Section 55(1) of the Áfa tv., the VAT liability is triggered by the fact which constitutes performance in terms of the statutory elements (on the contractor’s side in the case of normal VAT, and on the customer’s side in the case of reverse charge). Based on the above, it can be established that where a performance certificate is issued following handover and acceptance, the tax liability clearly arises. It should also be noted that a performance certificate is not a mandatory element of performance for VAT purposes; rather, it typically appears only as an accessory to the contractual performance. For this reason, as a general rule, the contractor’s fee remains due at the time of performance.

3. Performance certification in the private sphere and in public procurement relationships

The question arises whether the legal significance of the performance certificate carries the same weight in private-law and public procurement relationships, or whether it fulfils different functions and produces different legal effects in these areas. While the institution has uniform private-law roots, its functional significance and regulatory environment historically differed sharply depending on whether the relationship was a purely market-based private-law relationship or a public procurement relationship tied to the use of public funds. This duality primarily aimed to ensure heightened protection for the management of public money and reflected administrative prudence.

Recognizing the redundancy of parallel regulation, the legislator eliminated the previously differing practices relating to performance certification and developed a more unified approach. The rationale was that the process of performance, the legal effects of completion notice, and invoicing are already comprehensively governed by the background rules of the Ptk. and the Áfa tv.; therefore, a parallel regime in Act CXLIII of 2015 on Public Procurement (“Kbt.”) complicated application and hindered market processes.

At the same time, public procurement regulation continues to pay special attention to financing balance in terms of performance scheduling and related financial settlement. Section 135(5) of the Kbt. generally allows parties—where justified by the nature of the contract and factual circumstances—to agree on payment in instalments. The policy objective is for payments to occur proportionately to actual performance, in a staged manner, avoiding undue concentration of financial burdens and performance risks at a single point in time. Compared to this general rule, construction investments enjoy special protection.

Section 32 of Government Decree 322/2015 (X. 30.) on the public procurement rules of construction investments imposes a mandatory obligation on the contracting authority to ensure interim invoicing where the contract duration exceeds six months and the net consideration exceeds HUF 50 million. In these cases the contracting authority has no discretion: it must provide for interim invoicing at periods or construction stages suitable to the technical characteristics of the investment. Interim invoicing and staged payment thus ensure the liquidity of the tenderer and transparent financial performance aligned with technical progress; settlement may occur proportionately to actual performance and risks are not concentrated unjustifiably in a single performance stage.

A significant difference compared to private-law relationships is that in public procurement settings an obligation to issue performance certification may arise. Under Section 57 of Government Decree 368/2011 (XII. 31.) implementing the Act on Public Finances (Áht. vhr.), the legitimacy and amount of expenditures must be certified, including in cases of commitment involving reciprocal performance. Accordingly, due to enhanced requirements of transparency in public finances, an obligation to issue performance certification exists where the public body’s internal regulations make it mandatory. Where such an obligation exists, withholding certification is not merely suspected as an abuse of rights but constitutes a practice contrary to law and internal rules.

As a result of these regulatory developments, the legal function of performance certification has largely become uniform across private-law and public procurement relationships. The significance of former differences has decreased; thus, with regard to determining performance, its legal effects, invoicing, and the due date of payment obligations, the general rules of the Ptk. and the relevant provisions of the Áfa tv. are primarily applicable. Public procurement law mainly retains supplementary requirements concerning performance scheduling and ensuring financial balance.

This, however, raises the question of how the parties’ legal position is shaped where issuance of the performance certificate is omitted or becomes disputed. In such cases, the procedure of the Performance Certification Expert Body (TSZSZ) may come to the fore as a specific instrument for determining actual performance and accelerating dispute resolution.

4. The role and operation of the Performance Certification Expert Body (TSZSZ)

To curb construction industry chain debts and to resolve disputes rapidly, the legislator established the Performance Certification Expert Body (TSZSZ), regulated by Act XXXIV of 2013 (the TSZSZ Act; “Tszszt.”) and Government Decree 236/2013 (VI. 30.).

The TSZSZ’s competence extends to construction investments implemented in Hungary, including design and construction contracts. The body may act where:

• no performance certificate has been issued,

• issuance of the performance certificate is disputed, or

• a performance certificate has been issued but payment has not been made.

The TSZSZ decision is treated similarly to an expert opinion appointed by the court. It is important to emphasize that the expert opinion issued by TSZSZ is not equivalent to a performance certificate and, in itself, does not serve as a basis for issuing an invoice. The task of the expert panel appointed by TSZSZ is exclusively to assess technically whether the contractor lawfully and well-foundedly claims the consideration for the disputed performance. The expert body may not take a position on legal questions.

In decision Gf. 40.185/2018/5, the Budapest Court of Appeal took TSZSZ’s expert opinion into account even though it also contained legal qualification. On the basis of the expert opinion, the applicant may primarily initiate settlement negotiations with the other party; if this does not lead to a result, the applicant may enforce its claim in court relying on the TSZSZ opinion. The expert opinion is therefore significant as evidence, but it does not replace contractual performance certification and does not create a direct entitlement to invoice.

The TSZSZ’s function within the legal system is fundamentally gap-filling. Its primary purpose is to clarify disputed factual issues arising during construction by producing an objective, technical expert opinion—“whitening” the facts—so as to facilitate the parties’ financial settlement. Through this activity, the body serves a dual purpose: (i) preventing litigation by encouraging out-of-court settlement based on the expert findings, and (ii) accelerating later litigation by technically preparing a special, expedited court procedure.

The TSZSZ operates through three-member expert panels, focusing strictly on the factual elements of contractual performance under the construction contract. The panel’s tasks include determining whether performance took place, comparing quantitative and qualitative parameters with contractual and normative requirements, and precisely determining the value performed.

Although the boundaries of competence may blur in practice, TSZSZ’s review may also extend to the enforceability of accessory obligations securing the contract (such as guarantees, pledges, surety), but even within this scope the panel’s competence remains confined to factual questions. Accordingly, the review may not cover issues requiring purely legal assessment—such as establishing delay or entitlement to penalty—because deciding such issues falls exclusively within the competence of the court applying the law. Otherwise, TSZSZ’s expert opinion qualifies as evidence of the same value as an expert opinion by a court-appointed forensic expert.

Within the system of evidence in civil procedure, TSZSZ’s opinion enjoys a privileged procedural status because it is deemed equivalent in value to the expert opinion of a court-appointed expert. In practice, this means that—if the opinion is free of doubts—the court may rely on it with factual certainty. A key guarantee, however, is that the privileged status does not preclude further evidence: the parties remain entitled, under the general rules on the burden of proof, to request other or different forms of expert evidence on technical questions that remain unclear.

One of the most significant creditor-protection institutions in lawsuits based on TSZSZ opinions is a specific form of interim measure. In the special lawsuit under the Tszszt., if the claimant submits a request for interim measures based on the expert opinion, the court may order the deposit into court of the amount corresponding to the contract value of design, construction, and implementation works that the TSZSZ has established as performed with full certainty. In such cases the court’s review is limited to checking the formal statutory conditions, and the court is not afforded the discretionary powers otherwise typical under the Code of Civil Procedure. If the conditions are met, the court must order the measure, ensuring payment or deposit of the disputed amount.

Finally, regarding the “issuability” of performance certification, the principle of “intended use” (rendeltetésszerű használat) should be highlighted. Case law is consistent that initiating a lawsuit based on a TSZSZ opinion cannot be considered premature merely because performance was not flawless. A lawsuit based on a TSZSZ expert opinion is not premature if the TSZSZ opinion confirms performance, except for insignificant defects or shortcomings that do not affect, or affect only slightly, intended use. If the expert opinion essentially confirms performance and the identified defects are insignificant—i.e., they do not affect, or only minimally affect, intended use—then refusing to issue the performance certificate and refusing payment is not justified, and the legal effects of performance set in.

5. The significance of TSZSZ’s decision in disputes

TSZSZ’s expert opinion has specific legal effects secured by the Tszszt. and the rules of civil procedure. On the basis of the TSZSZ opinion, the aggrieved party may initiate a special lawsuit. Although the earlier “priority lawsuit” status has been abolished, the current regulation still contains several acceleration provisions, such as:

• expedited (priority) procedure,

• short deadlines (e.g., 60 days to file the claim from receipt of the expert opinion, 8-day intervals between hearings),

• immediate enforceability of the judgment up to the amount determined in the expert opinion.

The purpose of the expert opinion is to clarify, comprehensively and objectively, what design and construction tasks burdened the contractor (or subcontractor) under the technical content of the contract, which works can be established with full certainty as performed and in what quantity and quality, and which tasks remain demonstrably unperformed. Based on this, the expert also determines the monetary value of performed and unperformed works, taking into account the contractual budget items or, in the case of lump-sum settlement, the proportionate part.

In the lawsuit, TSZSZ’s expert opinion is treated as evidence equivalent to an expert opinion prepared by a court-appointed forensic expert. This is a significant advantage because the claimant can already appear before the court with an expert piece of evidence. However, if it is not used in the special TSZSZ lawsuit but in a general civil lawsuit, then according to case law it qualifies only as a private expert opinion or documentary evidence, and its probative value may be weaker.

The court may, by interim measure, order payment or deposit of the amount that, according to the expert opinion, corresponds to work performed “with full certainty.” In this, the court has no discretion: if the conditions exist, it must order the measure.

Case law has also highlighted the limitations of TSZSZ expert opinions, particularly in distinguishing supplementary works and additional works. While the expert may determine whether a given work forms part of the technical content, its legal qualification (e.g., whether it is supplementary work) is for the court. In several decisions, the Budapest Court of Appeal considered expert opinions problematic where they exceeded the competence and took a position on legal questions. Nevertheless, courts strive to preserve the content of the opinions: if the factual findings are correct, the court may correct the legal qualification in the course of evaluating the evidence. TSZSZ’s opinion concerns whether contractual performance occurred or did not occur and the amount of consideration affected by the performance (including accessory obligations defined in the contract, such as bank guarantees).

6. Conclusion

The examination of the institution of the performance certificate shows that this document is primarily significant from a civil-law and tax-law perspective. By acknowledging performance, it may reverse the burden of proof—thus providing a substantial procedural advantage to the contractor—and, from a tax-law perspective, it fixes the time of performance, thereby determining the onset of tax obligations. In private-law and public-law relationships, the function of performance certification has largely become uniform, while the background rules of the Ptk. and the Áfa tv. ensure the general legal framework.

In practice, it is not uncommon that issuance of the performance certificate is omitted or becomes disputed; in such cases the TSZSZ fulfils a gap-filling role by facilitating dispute resolution on a professional and technical basis and by supporting swift and effective judicial enforcement. It should be emphasized that TSZSZ does not, in itself, replace the performance certificate; however, litigation based on its expert opinion—with its procedural specialities (e.g., 8-day hearing intervals and interim measures to secure consideration)—supports the rapid resolution of disputes and the completion of contractual performance.