As I emphasised in the first part of the article, the introduction of the EKAER number considered a success story by the Hungarian authorities, and the consequences of the system, are causing difficulties for more and more taxpayers not only because of the increasing administrative burden but also as a result of higher wage costs.
Who pays the penalty?
The tax authority identified some kind of problem in almost all of the EKAER audits we are aware of. At first it may seem obvious who has to pay the default penalty, but there are cases where the party reporting the goods and the beneficial owner are not one and the same.
The EKAER reporting obligation applies to Hungarian companies doing contract work – who are not the beneficial owners of the goods – on the grounds of ‘other intra-EU imports’, and they also need to request an EKAER number as recipients of the goods. As a result, they risk receiving a fine which is often disproportionate to the value of the contract work performed (the value of the goods which these companies work on can be several times the value of the service completed).
Another legal consequence is that the NAV can seize the goods. This sanction affects the beneficial owner, who does not even have to report anything (so evidently there are several strands to follow in deciding which company is obliged to report the transportation and which company takes the penalty). It is difficult to imagine how the constitutionality and proportionality of a penalty can be justified if it is imposed on companies subject to the reporting obligation but which are not the owner of the goods, while the penalty is based on the assumption that these companies possess goods of unverified origin. Based on the above, we made a recommendation to the Ministry for National Economy that the default penalty rules be reconsidered, taking into account the cases where ownership of the product is not transferred to the taxpayers subject to reporting obligations for the transportation, contract work or import for other purposes. The system should differentiate between penalties as to whether the owner of the unreported goods or another person (e.g. contract-work entity) is obliged to make the report.
Lack of subsequent corrections and possibility to make subsequent amendments
For companies transporting large consignments and on a regular basis, it can easily happen that the EKAER number is not requested because of an administrative error, or that the data submitted is incorrect. It makes no difference if logistics companies are entrusted with this, both they or the programmes used for bulk data uploading can make mistakes. However, there is no option to subsequently file EKAER reports or correct them after 15 days. Why is there no option to make subsequent modifications, almost as a self-revision, for issues related to an EKAER number? We know the tax authority’s answer to this: the system could subsequently be circumvented in this case.
However, it can also happen that the company itself identifies a shortcoming during an internal audit years later (while there was no real-time roadside check regarding the shipments in question). In these cases though, there is no option to subsequently request an EKAER number without receiving a fine, because the transportation could only have been completed with a valid EKAER number, so the only option for voluntary compliance is “to report ourselves” to the tax authority. Consequently we think the possibility to request an EKAER number subsequently and the method for doing so are missing from the regulation. Such modifications are justified because deciding whether a transportation needs an EKAER number or not requires great care in certain cases – or even a professional to help make the decision – and if so, then who should request the number. Chain transactions are a good example here. For instance, a foreign end-client takes over the goods at the site of the Hungarian seller, and the transportation is arranged by the foreign end-client (who does not have a Hungarian tax number). In this case, by law, the EKAER number must be requested by the foreign intermediary buyer (who has to ask for a Hungarian tax number too), even though this company is not involved in the transportation.
Furthermore, due to the closed system, if a company has already requested an EKAER number, but it turns out that the data provided (license plate number, weight of the product, etc.) was incorrect, there is no option to make subsequent corrections after 15 days
For this reason we have mentioned several times that reliable taxpayers should be allowed to subsequently modify data. How nice it would be if legislators agreed with such recommendations, and next year we would be able to read the following regulation in the Act on Rules of Taxation.
“If a taxpayer subject to the reporting obligation is considered a reliable taxpayer according to Section 6/A of the Act on Rules of Taxation, the reporting can be completed or modified on the EKAER electronic platform within 5 years of the last day of the calendar year when the taxpayer should have requested an EKAER number.”
Possible solutions
To summarise the anomalies above, as tax consultants we would be happy to see the following changes:
- Lowering and differentiating the sanction rate. A penalty that can total up to 40% of the value of the goods transported is disproportionate to the set objective, and especially unfair in cases where the owner of the goods and the person obliged to report to the EKAER system are not one and the same.
- We should consider introducing a reduced, specific penalty instead of a percentage penalty for “good” taxpayers, even on a tax-performance basis. The 40% fine should not be imposed on mistakes that were made without the intention of avoiding tax.
- We would gladly accept a system that understands the fact that the EKAER is a tool for immediate checks. Accordingly, we suggest, for example, that if there is no immediate inspection and the NAV has not examined the reliable taxpayer from an EKAER perspective either, then no sanctions should be able to be imposed from one year after the transaction (especially because the “self-revision” option is not available).
- Making subsequent corrections should be permissible for reliable taxpayers.
We would like to highlight that as tax consultants we are aware the NAV weighs up all the circumstances based on the provisions of the Act on Rules of Taxation when imposing penalties. However, during repeated inspections, the tax authority can cause significant losses not just to small companies in the case of successive mistakes that cannot be corrected – the EKAER penalty system can cause unpleasant surprises even for large taxpayers too (losing their reliable taxpayer status for example).
