A tax authority inspection is usually closed with the handover of the inspection report, or if it is posted, then as of the postage date. Completing the operative phase of a comprehensive inspection unfortunately often means resorting to legal assistance, even when the taxpayer acted as prudently as possible. In our article we discuss what legal remedy tools are available for audited taxpayers if they do not agree with the tax authority’s findings.
Of course, the legislator ensures audited taxpayers have rights even before the inspections are completed, to ensure a balanced hierarchy between the tax authority and the taxpayer. So, for example, taxpayers are entitled to be present during the inspection activity, to request information regarding potential findings as well as to initiate motions for evidence.
After the completion of a tax inspection, taxpayers have the right to submit comments within 15 days (within 30 days from 2018) of receiving the inspection report. This right enables taxpayers to assert their claims without being subject to any duty payment. If the tax authority accepts the taxpayer’s remarks, it modifies the findings of the inspection report accordingly.
Appeal, as an ordinary legal remedy
If the tax authority does not accept the arguments and adopts its first-instance decision, an appeal can be submitted at the same tax authority within 15 days, or in the case of an ex post tax assessment, within 30 days. One important change from 2018 compared to the previous rules is that no new facts can be brought up, or no new evidence can be presented if the taxpayer was aware of these before the first-instance decision, but chose not to submit them, despite requests from the tax authority. In light of this, it is recommended to proceed very carefully as well as to collect and disclose the most information possible during the first-instance procedure. In contrast to making comments, however, an appeal is subject to a duty payment. The duty is HUF 400 (approx. EUR 1) for every HUF 10,000 (approx. EUR 32) of the disputed amount or part thereof, but no less than HUF 5,000 (approx. EUR 16) and no more than HUF 500,000 (approx. EUR 1,600). An appeal is a legal remedy with a devolutive effect subject to conditions, i.e. if the first-instance tax authority agrees with the content of the appeal, they withdraw the challenged decision or modify, correct or supplement it in line with the appeal. Otherwise, they submit the appeal together with all the documents of the case to the second-instance tax authority within 15 days of receipt of the appeal. The second-instance tax authority reviews the challenged decision and the conducted procedure. They have 30 days for this after the submission of the documents, or 60 days in the case of an ex post tax assessment.
Judicial review, as an extraordinary legal remedy
The taxpayer can initiate a judicial review of the second-instance decision. Here, the case moves from being a public administration matter to the judicial system, where the court makes a decision on the lawfulness of the public administration authority’s decision. The court’s right in this respect is derived directly from Hungary’s Fundamental Law.
As a general rule it is important that this legal remedy may only be used against a second-instance decision since this opportunity is only available for taxpayers if an appeal has already been submitted. The legal action has to be submitted to the body that adopted the first-instance public administration decision, within 30 days of the disclosure of the second-instance decision. The legal action can only be submitted with reference to a violation of the law. Filing the legal action does not suspend the enforcement of the tax authority’s decision, but it is possible to request that the enforcement of such decision be suspended simultaneously.
Supervisory action, as an extraordinary legal remedy
If the decision or ruling (action) of the tax authority acting in the case, which can be challenged with an independent appeal, is in violation of the law, or if any action was not taken and this violates the law, we can request supervisory action as an extraordinary legal remedy. The duty applied for supervisory action is the same as that for an appeal. Such requests can be submitted against both first-instance and second-instance decisions. During supervisory action, no decision can be made that changes the tax liability to the detriment of the taxpayer.