The question in the title of our article was asked at the third national tax consultation held on 4 October, namely, how you would rate the Hungarian tax authority. The answers at the event were provided by tax advisors, not taxpayers. We will reveal what they said at the end of the article, along with the views about the Hungarian tax authority (NAV), considering the steps they are planning to take in the future and what we can look forward to regarding the sometimes excessive tax administration.
Adat data atad
Let’s play with words: the Hungarian term “adat” is the equivalent of the English term “data”, and the EU guidelines against tax evasion consist of the same letters (ATAD, anti tax avoidance directive). Information is power and the Hungarian tax authority has been aware of this for a long time, but large-scale data handling, processing and evaluation as well as the identification of risky taxpayers will be taken to a new level in the near future. And the data must be provided by the taxpayers, which in the short term will result in increased tax administration. The positive aspects of the Hungarian EKAER system are indisputable, but it increases the costs of certain taxpayers even today, and the default penalties also seem to be easy prey at a Hungarian company generating a significant number of transactions, as according to the law of averages, mistakes can occur even in the best corporate administration systems. From 1 July 2018, online invoicing further enhanced the complexity of corporate administration with the threat of a default penalty amounting to HUF 500,000 (roughly EUR 1,500) for incorrect invoice reporting.
Online invoicing
Nearly 15 million invoices have been reported since the introduction of the online invoicing system, including more than 6 million successfully reported items. Under certain circumstances some sanctions could be avoided in July, but from August the NAV can penalise taxpayers (weighing up and assessing all the circumstances according to the information provided at the national tax consultation). If online invoicing becomes part of daily routines and is automatic for each taxpayer thanks to IT solutions, I think it can have a positive effect for both the tax authority and taxpayers. Even if this will not be enough to eliminate tax cheats in the Hungarian economy in one swift blow, it could provide the ammunition for targeted tax audits that will increase tax revenues and relieve good taxpayers from the administrative burden of unnecessary tax audits.
E-additives
The letter “e” that often appears on food packages is not a good sign. E-return, e-data reporting, e-audit, e-paper: these are currently megatrends at the Hungarian tax authority, the question is whether we are all glad about them. One of the key issues of the second national tax consultation last year was electronic administration; Hungarian tax trends show that digitalisation is one of the NAV’s main goals and that the tax authority is progressive (in many cases more progressive than taxpayers themselves, and companies with minor resources can encounter difficulties following the changes). E-returns may turn out to be a really good initiative. The tax authority realised that they can make taxpayers’ lives easier using the data available, and thus reduce tax administration. In my opinion, draft personal income tax returns (e-szja) are milestones, and one of the greatest success stories in recent years for the NAV as well as for taxpayers. Extending the use of e-returns can also have positive impacts (just think about excise tax returns), and further tax types might also become involved. Taxpayers, tax advisors and now the tax authority based on the national tax consultation all agree, however, that the freedom of choice for taxpayers in taxes offering various options must be maintained, along with the option to fill in and submit their corporate tax returns themselves.
E-audits also work in practice, which means you don’t need to appear in person with boxes of documents, the audit can be performed without you being present. The administration process can be carried out without personal presence using “e-papers”, from receipt of the letter about starting a tax inspection through the delivery of the documentation and the electronic delivery of the minutes of the inspection, even during appeals.
Based on the experiences of the national tax consultation there is still room for improvement
As tax advisors we can say that the positive change from the tax authority is clear. We particularly welcome that real discussions can emerge, as we still find a number of statutory references interpreted in different ways by tax advisors/taxpayers and by the NAV.
Besides the positive changes and the IT developments (also) made in the interests of taxpayers, there are some areas that need further improvement, as confirmed by the fair criticism levelled by Hungarian taxpayers. On the one hand, it might be necessary for the NAV to make it clear to its thousands of employees that a different attitude is required in the case of compliant taxpayers and for taxpayers intentionally avoiding tax.
The significant IT developments require a particular effort both from the tax authority and taxpayers, and here again we can say that when launching the online invoicing system for example the NAV performed well, taking into consideration the remarks and suggestions of taxpayers, tax advisors and developers. On the strength of remarks from taxpayers, during e-audits it will be possible in the near future to upload unlimited quantities of data in batches of 500 megabytes (NAV is also familiar with the term “spam”, so it is better to send only the required and necessary information to the NAV).
The role of the business gate will increase in 2019 as it will become the primary contact platform with the tax authority (the government portal is still applicable for liaising with the NAV in 2018). For this reason it is very important to make preparations during the remainder of the year. You need to determine who is authorised to use the business gate and to what extent, and clarify responsibilities: it is important to know who will receive the letter in the future about a tax authority inspection, and when, and then hopefully the subsequent report without any findings. Clients receiving such reports will probably give excellent ratings to the tax authority (tax advisors were somewhat stricter during the national tax consultation). So it is clear that if your processes are good and you comply with the legislative requirements (even with the help of a tax advisor), these steps will contribute to you seeing the authority through rose-tinted glasses.
Feel free to contact us if you are interested in further details about the tax consultation, or if you would like to know in exactly which areas your company is affected; we will be happy to prepare tailored guidance for you covering each relevant taxation issue.
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