Guidelines for tax authority inspections in 2013 – is my business at risk?

The National Tax and Customs Administration has published its main tax inspection objectives for 2013, the main activities it will be targeting and the selection criteria for inspections in Bulletin No. 4001/2013. Let’s take a look at which companies are “at risk” and have a greater chance of being inspected during the 2013 fiscal year.

In contrast to previous practice, more inspections are expected in relation to the taxes which were transferred from the customs authority to the tax authority from 1 January 2013, such as the environmental product charge, energy tax and the public health product tax.

Being selected for an inspection is particularly justified in the following cases when companies are established:

•    If the foreign managing director of the company does not have a Hungarian-registered address, and only information on the agent for service is registered.
•    If following the establishment of the company (with a rather low amount of registered capital) there is significant turnover or a high level of VAT payable coupled with an almost identical amount of VAT deductible.

The main risk factors following the establishment of a company include, but are not restricted to, the following:

•    Frequent change of registered office, jurisdiction and owner.
•    Companies hiring a large number of workers from a temporary staffing company.
•    Companies operating in labour-intensive sectors without any or an inadequate number of employees, reducing VAT to a minimum.
•    Tax returns which regularly include high amounts of turnover and expenses on a par with income (minimising tax).
•    Companies largely involved in transfers in trade with enterprises in European Union Member States, where there are significant VIES discrepancies in terms of amount and in relation to turnover.
•    Use of de minimis and EU aid.

For the tax authority, pricing between related companies also harbours a significant risk, especially if one of the companies constantly makes a loss because of the transactions. When examining corporate tax the tax authority will focus closely on the company if it records extraordinary amortisation and depreciation on its intangible or tangible assets, or significant impairment on receivables, inventories, securities and investments representing ownership shares. Attention will also be paid to examining application of the new rules on loss carry forwards.

In light of the unlawful taxpayer practices identified in connection with reducing innovation contribution liabilities, the tax authority will continue inspections aimed at collecting data among those preparing studies, which later could have a significant impact on those reducing their innovation contribution liabilities based on such studies.

The information from the tax authority also reveals that “providing information and encouraging prevention will be the approach taken for taxpayers willing to follow tax laws, and this shall be applied in the event of taxpayers committing minor infringements or where the potential for tax implications is lower.” This message is certainly a positive development, and such an official position from the tax authority should be borne in mind during tax inspections. However, the information also highlights that the “use of publicly available data during risk analyses will grow as the volume of data and information on the internet increases”. This demonstrates that marketing information from companies or community news will no longer just be of interest to potential customers and business partners (and presumably demoralising for rivals), it will also be available for tax inspectors to browse through.

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