As mentioned in our earlier article, the Act on Rules of Taxation will be re-created in two new laws. Professional bodies and all interested parties were able to express their opinions on the draft Act on Tax Administration and the draft Act on Rules of Taxation – which kept its name but has new content – until 18 August 2017, so the final text is not yet available. However, according to the drafts, several detailed rules of tax inspections and tax authority procedures are set to be modified.
What do the Act on Tax Administration and the new Act on Rules of Taxation cover?
Despite its significant length, the current version of Act XCII of 2003 on the Rules of Taxation relies on Act CXL of 2004 on the General Rules of Public Administration Procedures and Services (“Ket.”) as its underlying legislation (both of them available in Hungarian). The regulations which are parallel in many cases but also different in terms of detailed rules created serious dilemmas for those trying to apply the law. Aspects such as legal remedies applicable in tax administration procedures are fully regulated in the Act on Rules of Taxation (so applying the Ket. does not even come into question); this information can only be gleaned from technical commentaries, which are rarely read by the public. The need for ease of comprehension required that this dichotomy be eliminated, and a standard, sui generis tax procedure system of rules be created. According to the official information provided by the Ministry of National Economy (article available in Hungarian), the tax administration law will include general procedural rules, while the Act on Rules of Taxation will contain the specific detailed rules.
Deadlines during inspections may change
Although the current deadlines of the Act on Rules of Taxation essentially define a strict framework for inspections, due to the series of deadline extensions and the procedures not included in the deadline, inspections have, to the point of absurdity, sometimes lasted for years, potentially hindering the disbursement of reclaimed VAT in certain cases. So the draft sets absolute deadlines by which the inspection has to be completed. For example, a tax inspection of a company cannot exceed 365 days, while the checking of companies qualified as reliable cannot last longer than 180 days. The deadline for subsequent checks of tax returns (referred to as “tax inspections” in the draft) would still be 90 days by default, but the deadline for the supplementary inspection performed after delivery of the minutes containing the findings, and based on the comments of the taxpayer, would increase from 15 to 30 days. As for taxpayer comments, it is worth noting that the deadline for this would increase from 15 to 30 days in the case of a tax inspection, after which taxpayers lose their right to comment. The question is how this provision could be applied by the NAV in practice, in light of the fact that taxpayers have the right to make statements during the whole of the procedure.
The devil is in the details
The draft tax administration law includes several provisions and legal institutions modelled on the Ket. These include hearings for example, which are necessary when those participating in a procedure (e.g. witnesses) have to be heard together in order to clarify the facts. The taxpayer subject to the procedure has to be notified of the hearing, who may then initiate a motion for evidence and may ask questions from the person being heard.
The scope of regulations regarding witnesses will also be transferred to the tax administration law. Interestingly, according to the drafts, the call for making statements as per Section 48 of the Act on Rules of Taxation will remain. The witness reports and the statement as per Section 48 of the Act on Rules of Taxation essentially serve the same purpose, i.e. that experiential knowledge can be obtained from people other than the client/taxpayer in question about the facts and circumstances important for the case. The subject of the statement as per Section 48 of the current Act on Rules of Taxation can only be an organisation or private individual that has, or formerly had, a contractual relationship with the taxpayer subject to the inspection. Another important difference to the hearing of witnesses is the taxpayer does not have to be notified of such statements. So the general rule is that taxpayers are only notified in the relevant report of what has been said. It is worth mentioning that the possibility of preliminary notification would return under the plans, in respect of launching inspections, and that the number of specified types of inspections would decrease (e.g. the inspection aimed at collecting data is not separately defined).
Changes for legal remedies
It is definitely reassuring that the basic legal remedies (appeal, supervisory action, judicial review or public administration lawsuit) will remain. The provision of the draft that limits references to new facts and circumstances at the second-instance tax authority is presumably there to prevent procedures being extended. The draft law on tax administration includes legal institutions related to legal remedies/decision reviews such as reminders and action by the prosecutor, and nullity. These legal institutions potentially modifying and nullifying decisions made during procedures launched ex officio can only be enforced between relatively narrow limits, but if push comes to shove, it is worth considering them too, signalling to the prosecutor for example if we think the tax authority is breaching the law.
Legal remedies in tax administration
Customer statement, letter of representation during NAV inspections