The rating of taxpayers was the big new thing in 2016. Basically, the NAV evaluates taxpayers based on various statutory parameters and can rate them as either reliable or risky. Depending on the rating, taxpayers are subject to more favourable or less favourable rules, with regard to sanctions imposed after a NAV inspection. The rules for taxpayer ratings changed in the Act on the Rules of Taxation from 2017.
Taxpayer ratings – nothing new under the sun
In its interpretative provisions, the Act on the Rules of Taxation has included a definition of rated taxpayer for quite some time now. The related conditions are very similar to those applied when establishing the reliable taxpayer status introduced from 2016. One marked difference, however, is that the taxpayer has to request its inclusion in the records of rated taxpayers maintained and published by the tax authority, while recording someone as a reliable taxpayer is essentially automatic if the conditions are fulfilled.
The rated taxpayer status was defined for the same purpose as the category of reliable taxpayers introduced in 2016. Namely, the objective is to enable the tax authority to differentiate between groups of taxpayers eluding and intentionally violating taxation rules, and those acting in good faith, striving to comply fully with the law.
In 2010 and 2011 a penalty rate of 20% was ensured for taxpayers who were added to the database of rated taxpayers. From 1 January 2012, however, this favourable assessment was removed from the sanctions of the Act on the Rules of Taxation. According to the related justification from the legislator, the favourable tax rates applied for rated taxpayers were abolished due to the confusion arising in respect of applying the rates in practice, and the intention to adopt a tougher approach to levying fines.
Currently, rated taxpayer status entitles companies to an accelerated procedure regarding payment relief requests and those taxpayers who are listed in the database of rated taxpayers are exempted from providing EKAER collateral. It is a question, whether the database of rated taxpayers shall lose its significance due to the creation of the reliable taxpayer status, or remain an important information for the business community (e.g. for evaluating tender and credit applications).
Taxpayer ratings from 2016
The new provisions of the Act on the Rules of Taxation introducing the notion of reliable and risky taxpayers entered into force in 2016 to define more favourable rules for preferential taxpayers in terms of tax policy (i.e. reliable taxpayers), and less favourable rules for those who are more likely to jeopardise budgetary revenues (i.e. risky taxpayers).
Taxpayers not falling into either category continue to fulfil their obligations according to the general rules. The NAV reviews the conditions for ratings quarterly, and sends notification about this at the first instance; thereafter, notification is only sent if there is a change. Ratings can be retrieved through the government portal and appear among the master data too.
In an earlier newsletter, we touched upon the conditions of reliable/risky taxpayer ratings. It is important for the special rating to apply as of when any violation of law is occurred or recorded (i.e. date of inspection minutes) in order to be able to apply the more favourable tax penalty conditions related to the reliable taxpayer rating. However, please note that the upper penalty limit of 25% that practically related to the reliable status cannot be applied instead of the general 50% limit in cases where tax shortfalls are identified that result in the loss of the reliable taxpayer rating. (The reliable taxpayer rating is subject to the total tax difference of the taxpayer determined by the NAV in the reporting year and in the five preceding years not exceeding 3% of the taxpayer’s tax performance determined for the reporting year.)
Important changes connected with taxpayer ratings from 2017
The list of parameters applicable to reliable taxpayers was supplemented with the requirement that the tax performance of the taxpayer should be positive in respect of the reporting year (the tax authority wants to rule out so-called dormant companies from the favourable rating). The scope of risky taxpayers was also expanded, with those whose registered office is registered at a provider of registered office services and who received a legally binding default penalty for hindering tax authority procedures in the reporting year or in any of the three prior years.
It is important to note that the tax authority will fulfil VAT reclaims of reliable taxpayers of more than HUF 1 million within 45 days from 2017, regardless whether the invoices have been paid or not (it used to be even 75 days). Even more favourable rules apply to reliable public companies limited by shares. In their case, the deadline for disbursement is a standard 30 days (it should be noted that the conditions for ratings are also more favourable for such companies).