The product fee regulation in Hungary contains several tools with which the product fee payment liability can be avoided. One such option is the product fee warehouse which was introduced nearly 4 years ago, yet experience shows that companies in Hungary do not really take advantage of it. In this article I endeavour to respond to the important issues related to product fee warehouses, and to highlight the role of a product fee warehouse in the product fee system.
What is a product fee warehouse?
Based on the product fee regulation there are two types of product fee warehouse: industrial and commercial. What is common in both is that they are a domestic property operated with the authorisation of the state tax authority (NAV). The difference, though, is in the transactions and processes that can be carried out with the products subject to a product fee. In an industrial product fee warehouse, products subject to a product fee can be produced, processed and incorporated into other products as a component or part, or they can be prepared for recycling or stockpiled as inventories; in a commercial product fee warehouse on the other hand, products subject to a product fee can only be stored.
What is required to operate such a warehouse?
Operating a product fee warehouse is subject to a licence. This should be applied for at the NAV by completing and electronically submitting form 18TRAKT. Only business entities complying with the strict conditions laid down in the laws and regulations can receive a licence to operate a product fee warehouse in Hungary: for example, if they are the lawful user of the property used to operate the product fee warehouse, they apply a strict record-keeping and accounting documentation system, they are not under bankruptcy, liquidation, voluntary liquidation or forced deletion procedures, they are qualified as product fee administrators or employ an administrator with such qualifications, etc.
The licence application is assessed by the NAV within 30 days, and can be awarded for up to 5 years. After the 5 years, and if the licensing conditions still apply, the licence can be extended for an additional 5 years.
What is the essence of the product fee warehouse?
The legislator introduced the product fee warehouse in Hungary based on other tax warehouses (VAT warehouse, excise warehouse). Essentially, when a product subject to a product fee is entered into or sold within such a warehouse, no product fee payment liability arises. Removing a product subject to a product fee from the product fee warehouse for domestic purposes, and transferring the ownership right, qualifies as its first marketing. This will result in a product fee payment liability. However, if the products are removed from the product fee warehouse to abroad, then no product fee payment liability arises whatsoever.
Generally speaking, the product fee payment liability can be deferred when a product is removed for domestic purposes, but when it is removed to go abroad the payment liability can definitively be avoided.
To understand the above more easily, let’s look at a practical example. Domestic manufacturer “A” produces electronic products subject to a product fee, and sells them to domestic business entity “B”. Then “B” sells the products to companies “C” and “D”, which are also domestic business entities, and will in turn sell all of the products abroad. How will the product fee payment liability change in the case of the individual players with and without the use of a product fee warehouse?
When “A” sells its product subject to a product fee to domestic customer “B”, in principle a product fee payment liability will arise at “A” on the grounds of first marketing, if the parties do not use a product fee warehouse. If “A” pays the product fee, “C” and “D” may reclaim the product fee on the products sold abroad, once the delivery abroad is confirmed and supported with the appropriate records and invoices.
However, let’s assume “A” immediately delivers its products subject to a product fee to a product fee warehouse, then sells them to “B” within the product fee warehouse, and “B” sells them within the product fee warehouse to “C” and “D”. Since both “C” and “D” will be selling the products abroad in the end, not only does no product fee payment liability arise at either party, but the reclaim procedure requiring a lot of extra work and administration can also be avoided.
In light of the above, a product fee warehouse can typically be expedient for transactions involving 3 or more players, where contractual obligations cannot be assumed owing to legal requirements, and where the parties would like to avoid the extra administration related to reclaiming the product fee.
Strict record-keeping, data reporting
However, the legislator in Hungary does not provide the advantages offered by a product fee warehouse free of charge. The product fee warehouse licensee has to keep continuous and updated electronic records of the stocks of products subject to a product fee which are stored at the warehouse, are used for processing, production, installation as a component or part in another product, or are prepared for recycling. The records must also include the products subject to a product fee which are entered into or removed from the warehouse, and it has to report data on the warehouse stocks electronically on a quarterly basis, with specific content to the NAV, by the 20th of the month following the given quarter.
If you participate in a transaction with multiple parties involving products that are subject to a product fee, and the products will be taken abroad, in part or in full, it is definitely worth considering the use of a product fee warehouse. Please do not hesitate to contact our environmental product fee consultants!
