Lubricating oil and excise tax: whats this about?

When it comes to excise tax, most of us think of the so-called “ABC” products, namely alcohol (wine, beer), petrol (“benzin” in Hungarian, meaning petroleum products used as fuel), and cigarettes (tobacco and cigars). Fewer think of a restrictive measure in the case of a commercial company which acquires oil for example (even engine oil), in small packages with a certain customs tariff heading from an EU Member State, in order then to sell it to its customers in Hungary.

Below we explore this issue in greater detail from an excise tax angle, namely, based on the provisions of the new law on excise taxes that entered into force on 1 July 2017.

lubricating oil

So which products are important from the perspective of excise tax?

Many of us were surprised to see the 2014 tax changes, when the amendments to legal regulations promulgated during the feverish legislative activity in late autumn included the requirement for an excise permit covering lubricating oils. And experts showing an interest in this issue only had the Christmas holidays to check out the transitional rules for the implementation. However, not even these specialists could provide any substantial relief for most of the companies affected: from January 2014, certain products can only be acquired and distributed in Hungary with an excise permit.

According to the new legislation, lubricating oil is an energy product including engine oil, turbine lubricating oil, hydraulic oil, driving gear oil and certain other lubricants, as classified by the Combined Nomenclature.

So what is needed for the activity?

It is important that those who intend to carry out wholesale trading with these products will need an excise permit, and they need to be a trader with excise authorisation. This essentially means that before starting the activity a request has to be submitted to the NAV, now electronically, and other legal conditions have to be fulfilled as well for someone to receive a permit. At each permanent establishment they have to have a warehouse of at least 50 square metres (it can of course be leased as well), and they need to apply for a (generally operating) licence from the competent local authority to start the activity. The NAV may impose a penalty if trade is conducted without a permit.

Expensive excise collateral

It may surprise many of you that one of the conditions for issuing a NAV permit is having excise collateral. The taxpayer can provide this either in cash or with a bank guarantee. If a company only distributes products that qualify as lubricating oil, the collateral is HUF 5 million (approx. EUR 16,100). However, identifying the range of products accurately and setting their correct tariff classification is key when assessing the amount of collateral: if the products include ones that qualify as other controlled mineral oils, the amount of collateral to be paid or provided may amount to HUF 120 million (approx. EUR 387,000).

Tax payments and keeping records

So conducting the indicated activity requires (a) permit(s) but generally speaking no excise tax payment liability arises, no tax return has to be filed.

However, statutory records must be kept, and failure to do so may result in a penalty levied by the NAV.

So, what should you look out for?

It follows from the above that defining the range of products to be distributed, naming the products and checking the classification are the most important tasks: it has to be reviewed whether the products to be traded are even subject to the law on excise tax in the first place. As a first step, you should seek the assistance of an excise tax expert, who can provide effective assistance if required in what needs to be done, how to apply for a permit, and how to fulfil the required legal conditions in Hungary.

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