One of the main taxation challenges in 2013 is likely to be implementing all the rules on domestic summary reports in practice. It is important to know that the domestic summary report forms part of the VAT return, and is therefore subject to provisions of the Act on the Rules of Taxation regarding default penalties, meaning that errors in returns can be penalised. That said, we are confident that the tax authority will take the challenges of the new system and its features into account when deliberating on penalties for mistakes at this early stage.
Initially, the domestic summary report must be applied for transactions where the start of the tax assessment period falls on 1 January 2013 or later. In practice, this means that invoices issued prior to 1 January 2013 and where the payable tax is assessed on or after 1 January 2013 must also be included in the domestic summary report, whereby taxpayers may take advantage of the law and exercise their tax deduction right in 2013.
The domestic summary report for the given period must contain an itemised list of vendor invoices and of customer invoices, aggregated by partner, where the tax chargeable reaches or exceeds HUF 2 million. The information that the taxpayer, in a customer or vendor capacity, must include in the itemised and aggregate reports is provided on the NAV website and in the user guides for completing tax returns.
Let us take a look at the tax authority’s stance on some of the most interesting questions from taxpayers:
1. It is not recommended for taxpayers to send all the invoice data from the entire VAT sub-ledger to “facilitate” the submission of the return. It is not possible for the taxpayer to include all its invoices in the domestic summary report that do not reach the threshold, this is monitored by the internal processing programme too. Such mistakes can be sorted during correction discussions, where the data of items falling below the threshold are deleted from the report. If the return includes a refund request, the payment period commences from the date the errors are corrected.
2. If there are several corrections to one original invoice, either in earlier return periods or in the current tax assessment period, then the entire series of invoices must be given, i.e. alongside the original invoice and the last correction invoice(s) the intermediate correction invoices must also be stated, preferably in the order of issuance.
3. Wrong invoices that were not sent to the customer do not have to be included in the summary report.
4. If, during a given assessment period, the vendor amends (corrects) an issued invoice within the same assessment period, and the partner receives both invoices (invoice may be important for lowering taxable base), and the VAT chargeable in one or even both invoices exceeds HUF 2,000,000, then both invoices must be included in the domestic summary report for the VAT return in this assessment period.
5. In the case of collective invoices the date of performance of any item included therein may be indicated as the date of performance, but it is expedient to state the date of the last performance in the invoiced period.
6. It is also conceivable that there is an invoice with VAT in excess of HUF 2,000,000, which must be included individually in the itemised report (provided that the taxpayer exercises a tax deduction right for any amount based on the given invoice), and besides this invoice there are other purchase invoices from the given partner with tax amounts that individually are lower than HUF 2,000,000. In such cases, it is possible that the taxpayer reaches the threshold for a domestic summary report after aggregating the items. In these cases, the individual invoices reaching a VAT sum of HUF 2,000,000 must be indicated on the itemised page and in row 04 of page 1365M, while the remaining VAT chargeable on the “smaller” invoices must be aggregated and reported in row 6 on page 1365M.
7. If the VAT in the advance invoice and in the final invoice reach the HUF 2,000,000 mark, then based on Section 31/B of the Act on the Rules of Taxation – if the taxpayer took the transaction affected by the given invoice into consideration when settling its taxes in the tax assessment period – both the advance invoice and the final invoice must be included in the summary reports.
Given that domestic summary reports have to be prepared for the first time by 20 February 2013, the problems addressed in articles so far only reflect the issues expected to arise. The real challenge, however, will be managing the individual problems arising when implementing the rules in practice during business operations.
It is also doubtful how much the domestic summary report will make tax authority inspections more expedient and more efficient, and how effective they will be in tracking differences between tax payable and paid for example, given the fundamental discrepancy that arises from VAT payable at the invoice issuer appearing in the period of performance while the date the deduction right is actually exercised depends on the decision and settlement period of the entity receiving the invoice.
