In the first part of our two-part series launched a month ago we looked into the changes related to tax penalties and late payment interest, some of the sanctions applied in the new Hungarian Act on Rules of Taxation effective from 2018. In this second part we are looking at the default penalty rules, including cases where the default/violation is due to incorrect information provided by the tax authority.
What are the general default penalty rules?
Unlike the itemised list used earlier, the new Act on Rules of Taxation lays down one general rule in Hungary. Namely, unless otherwise provided for in the law, failure to comply with a tax liability means a penalty of up to HUF 200,000 (roughly EUR 600) can be imposed on natural persons, while the maximum amount for entities is HUF 500,000 (roughly EUR 1,500). There are still even weightier violations, for example a penalty of up to HUF 1 million (roughly EUR 3,000) is imposed on taxpayers pursuing activities requiring a tax number or taxable activities without a tax number (so they are virtually invisible in the tax authority’s system). Penalties are really strict if taxpayers fail to fulfil their obligation to keep records, i.e. they do not keep printed invoices and receipts. In such cases, the maximum penalty amount can reach an amount equalling HUF 500,000 (roughly EUR 1,500) multiplied by the number of missing invoices or receipts.
Reminder to rectify problems
Presumably as part of the customer-friendly NAV concept, even rules effective until the end of 2018 enabled taxpayers not obliged to register a company (mainly private individuals) to be exempt from a default penalty in the event of a default, even if they fail to rectify the problem despite being called upon to do so by the tax authority. The new Hungarian Act on Rules of Taxation sets obligations for all taxpayers now, with a mandatory reminder to rectify any deficiencies. For example, failure to submit a VAT return will entail the tax authority sending a reminder to submit the return as soon as possible. In such cases the tax authority sends two reminders, holding out the option of applying sanctions. It is important to note, however, that if the repeated reminder of the tax authority goes unheeded too, the penalty imposed may not be decreased. This means a penalty of HUF 600,000 (roughly EUR 5,200) for companies.
New assessment criteria for imposing penalties
Based on an assessment of the reasons and circumstances, the tax authority can either impose a penalty in line with the severity of the default, and proportional to the conflict of interest, or it can decide not to impose a penalty at all. One new element in the law related to the levying of a default penalty is the tax authority’s assessment of the taxpayer’s tax procedures and general willingness to comply with legislation, either to the advantage or disadvantage of the taxpayer. Another novelty is that the duration of the unlawful conduct is taken into account as an assessment criterion. Under the main rule in the new Act on Rules of Taxation, if the obligation is not duly fulfilled the default penalty can be imposed several times and at a higher rate. NAV guidance (3006/2018) on the penalties imposed by the tax authority is available here in Hungarian.
Time limitation on default penalty
There is a time limit for levying a default penalty, which is one year from the date when the tax authority learns about the violation. No penalty can be imposed after this date. However, this provision may not be applied for violations identified during audits.
Exemption from legal consequences if tax authority provides incorrect information
According to the new Act on Rules of Taxation, no legal consequences can be determined to the detriment of taxpayers if – after 1 January 2018 – they acted according to information disclosed on a page of the tax authority’s website created for this purpose. It is important to note that this rule will not exempt companies from settling tax shortfalls to the tax authority; the tax must be paid even if the NAV provides incorrect information.
The tax experts of WTS Klient Hungary will happily assist you with any questions regarding tax penalties and deliberating on the possibilities for appeal. If authorised, we can take care of all the administration for you.
dr. Tamás Felsmann
tax law specialist