A comprehensive tax inspection in Hungary is generally based on all of the business events included in a given accounting system. Thus during the inspection, the primary task of the accounting professionals is to provide data for the inspectors, for example sub-ledgers, contracts, completed tax returns or other documentation. This is why it is important to document all business events appropriately, particularly those that are not part of the daily routine, and which have to be managed differently from the norm. In certain cases, where something can be judged in several ways, it is also important to support not only our decision but also the path that led to our decision.
It can happen of course that the Hungarian tax authority is actually interested in what is not recorded in your systems. Yet apart from providing the necessary documents, statements and information, accountants have nothing else to do in this case, from an accounting perspective, until the comprehensive tax audit is closed.
Familiarising yourself with the decision
Once you have read the findings of the comprehensive tax audit and do not dispute them, or you have used up all the available legal remedies, it is important to interpret the findings and decide what qualifies as a tax shortfall and what will be a legal consequence. The accounting of an error or its impact, essentially a tax shortfall, depends on whether the company qualifies the given error as significant or otherwise based on its accounting policies. In Hungary, however, legal consequences (tax penalty, late payment interest, default penalty) always have to be charged to the profit in the year when the finding was made, so the amount is ignored when the error is qualified.
Significant and non-significant errors
To establish what qualifies as a significant error and what is a non-significant error at a given company, all we have to do is compare the sum of the error detected for the given year and its impact to the significant-error threshold defined in the company’s accounting policies. If the sum of the error and its impact exceeds the given threshold, three-column financial statements must be prepared, but if the amount remains below the threshold, this is not necessary, the errors and the impacts thereof will be included in the data of the financial statements for the reporting year.
In this respect, I would like to draw your attention to two important aspects. On the one hand, although other factors naturally have to be taken into account as well, it is not necessarily worth recording conditions in your accounting policies that are stricter than those defined in Hungarian legal regulations for significant error thresholds. According to the basic assumption of the Accounting Act, an error not exceeding HUF 1 million (approx. EUR 3,200) and its impacts do not qualify as significant. On the other hand, we should not forget that when calculating the error and its impacts, we have to consider the aggregate amount of the sums affecting profit or loss and equity (regardless of their sign). In the majority of cases this means that all errors and their impacts essentially have to be factored in twice. So the set threshold is practically half of what we first thought.
Self-revision – do it, while you can and as soon as you can
After receiving the letter of appointment, no self-revision may be submitted in respect of the period subject to the inspection. So it is crucial to fix the errors that you detect as soon as possible after they come to light. It is also important that if an inspection is closed with a finding, you need to consider whether the given finding can be traced back to a one-off error, or whether your procedures are wrong. In the latter case you should rectify the procedural error, and then for the years not subject to the previous inspection in which the wrong procedure was followed, but which could still be examined by the tax authority in the future, a self-revision should be filed. This way you can significantly mitigate any tax shortfall that could be established during a future tax audit or a comprehensive tax inspection, and the tax consequences thereof.
