For a long time now the government has talked about developing a customer-friendly, service-providing tax authority. The “dream NAV” for company managers differentiates between good and bad taxpayers in Hungary like the good fairy, while directing citizens and companies lost in the forest of taxation rules back onto the right path, with some kind words and understanding instead of NAV inspections or tax penalties. Below we look at what can actually come out of this during a cooperative procedure.
Brief summary of cooperative procedure
Both companies and tax consultants have long since lobbied for the tax authority not to launch inspections immediately when it detects a risk, but instead attempt to encourage taxpayers to interpret tax rules correctly and eliminate administrative errors through dialogue and cooperation, like a service provider.
The cooperative procedure, a new element of the customer-friendly NAV concept, is presumably the result of these efforts. However, some aspects of the system is not completely new.
The previous framework ensured by procedural law also provides an opportunity for a softer procedure. In such cases, the Hungarian tax authority does not examine tax returns and related documents with an inspection aimed at subsequently reviewing tax returns, but rather with a less stringent inspection focusing on the settlement of tax liabilities.
As opposed to the subsequent review of tax returns, also referred to as reviews of individual tax types, the great advantage of the softer procedure is that after any inspection is launched, it is still possible for taxpayers to correct any errors or shortcomings through a self-revision, paying a self-revision charge that is much lower than the tax penalty or default charge that can be levied as a result of an inspection.
This NAV procedure gives us one last chance to take the necessary measures to avoid an inspection as well as serious sanctions. So it is well worth preparing for disputes with the tax authority, or even to request the assistance of an expert in the various tax procedures, such as WTS Klient.
Government agencies now understand that it is much easier to remedy some violations of the law or other anomalies through dialogue with taxpayers, without conducting formal inspections. This is what is now called the cooperative procedure.
How can you fall under the cooperative procedure in Hungary?
The NAV’s selection process and the decision as to which taxpayers it will focus on remain an internal procedure for them, and are essentially decided on during risk analyses. In such cases, the tax authority checks the data available (such as mandatory data supplied, tax return data). The exact details of these evaluations are not public, but it is presumably marked differences and logical contradictions that may focus the tax authority’s attention on individual companies. After the risk analysis and assessing the weight and nature of the risks identified, the tax authority decides whether to
- launch a cooperative procedure,
- select the taxpayer for inspection,
- contact the investigative authority of the NAV indicating a possible crime.
What happens in the cooperative procedure?
During a cooperative procedure, the Hungarian tax authority
- makes a direct request to the taxpayer to conduct a self-revision (presumably in cases when an issue can be judged easily based on data in the system), or
- contacts the taxpayer to remedy the detected errors and shortcomings together, using the professional support of the tax authority.
Participation in the cooperative procedure is voluntary, companies can decide for themselves whether to avail of the opportunity offered by the NAV. Passing up on it would not be very wise, however, because on the one hand, no sanctions can be applied on violations of law identified and resolved during the procedure, while on the other hand, if the cooperative procedure is not successful, the tax authority can resort to a proper inspection at any time.
Similar to all human and business relationships, the key to the success of dialogue between the NAV and taxpayers is mutual trust. This cannot be earned just by creating the legal framework for dialogue through the cooperative procedure, what is also needed is sustained and consistent tax authority practice. If companies and private individuals see tax inspectors striving to find genuine solutions within the framework of the cooperative procedure, taking their role of service provider seriously, and not just falling under the spell of numbers and figures, then they too will likely search for opportunities to present problems to the NAV in an open and transparent way.
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