Goods subject to reporting obligation according to new EKAER decree 

According to the new EKAER decree, from 2021 the obligation to request an EKAER number may only arise with regard to goods deemed risky under the previous regulation. These typically include food products and clothes as well as other products subject to reporting as defined in a separate decree.

So Hungarian businesses are now exempt from the reporting obligation with regard to goods deemed non-risky under the previous regulation.

Exemptions 

When assessing the reporting obligation, the weight and value of the transported products are still a major aspect for consideration. This is because no EKAER number is required for transporting goods subject to reporting and transported from the same dispatcher to the same recipient in the same vehicle not exceeding HUF 1 million (roughly EUR 2,800) in value and 500 kilograms in gross weight. These thresholds are the same as the ones previously applicable for transporting risky goods.

One important difference, however, is that contrary to the previous regulation, based on the new EKAER decree the reporting obligation is applicable not only for road transportation with tolled vehicles weighing over 3.5 tonnes, but it may be applicable for road transportation with any type of vehicle.

Risk collateral 

Besides the previous exemptions, no risk collateral has to be paid by reliable taxpayers according to the Act on Rules of Taxation, and the obligation to provide risk collateral for the transportation of products subject to the 5% tax rate no longer applies either.

Exemption for short-range transportation 

Special exemption from requesting an EKAER number with respect to short-range transportation (i.e. less than 20 km) will now be available for any transport direction. The authorisation is valid until withdrawn.

Voluntary reporting 

The new EKAER decree enables taxpayers to make voluntary EKAER reports even if they are not subject to a reporting obligation. In these cases too it is important to make sure the reported data is accurate, but there is no collateral obligation in the case of voluntary reporting.

To sum up, the majority of Hungarian businesses will be relieved from a significant administrative burden from 1 January 2021. This is because the scope of transportations subject to reporting shrank to a fraction of the previous range as the new EKAER decree took effect. Given the positive changes of the default penalty rules announced earlier, the EKAER system has seen the most favourable amendments in recent years. Nevertheless, the EKAER rules should still not be taken lightly since if a reporting obligation does arise, data reporting must be accurate and detailed and the deadlines complied with to avoid any detrimental legal consequences.

If you wish to learn more about the details of the new EKAER decree, and you need help from experienced professionals regarding the registration and processing of data in the EKAER system, as well as in handling system messages, and implementing and operating solutions to facilitate communication with the EKAER system, feel free to contact us.

A New EKAER decree from 1 January bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.

Scope of transports subject to reporting according to EKAER amendments 

Based on official information, the Hungarian EKAER amendments are necessary to comply with European Union law. Accordingly, the approved amendment took into consideration the concerns raised by the European Union regarding the principle of proportionality, on top of the audit experiences in Hungary since the introduction of the EKAER system as of 1 January 2015.

Although the detailed rules have not yet been formulated, it is already certain that EKAER-related administration will be greatly simplified from 1 January 2021. This is because only risky goods exceeding the value or weight threshold set by the ministerial decree will be subject to the reporting obligation. Consequently, for goods not deemed risky, the business entity may disregard the previous weight and value thresholds and is relieved from any reporting obligation.

Default penalty 

The principle of proportionality will improve significantly with regard to default penalties payable in relation to EKAER reporting. With regard to the penalty ceiling, the current regulation in Hungary does not differentiate between small and severe administrative errors in content or missing the reporting deadline. At present, the legislation provides grounds for a relatively hefty default penalty of up to 40% of the value of the goods if any of the failures above materialise. In line with the EKAER amendments, from 2021 a default penalty of 40% may only be applied for errors related to weight and value data and to the failure to report.

The approved bill defines the unit of goods and details the cases where the higher default penalty may be levied as follows.

• If the taxpayer does not meet their EKAER reporting obligation with regard to transported goods of a specific unit, a default penalty of up to 40% of the value of the goods not reported less tax can still be levied.
• If the reported amount of a single transported unit differs from the actual amount of the transported goods, then a default penalty of up to 40% of the value of the goods not reported, or reported but not actually transported less tax, can still be levied.
• If the reported value of the transported goods of a single unit differs from the actual value less tax, then a default penalty of up to 40% of the difference between the reported value and the actual value less tax may be levied.

Based on the new EKAER amendments and in contrast to the former regulation, however, in other cases where the report contains errors not related to the amount and value data, then the general default penalties as defined in the Hungarian Act on Rules of Taxation shall be applied. These can total up to HUF 200,000 (roughly EUR 566) for natural persons, and up to HUF 500,000 (roughly EUR 1,415) for entities.

Another possible benefit for taxpayers is that, based on the rules, no default penalty may be applied if the taxpayer proves that they acted with the due care expected in the given situation.

If you wish to learn more about the EKAER amendments, and you need help from experienced professionals regarding the registration and processing of data in the EKAER system, as well as in preparing system messages, and implementing and operating solutions to facilitate communication, feel free to contact us.

A Favourable EKAER amendments from 2021 bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.

Frequency of inspections

The frequency of tax authority inspections is greatly influenced by the industry the company operates in and its tax capacity. Every year the tax authority publishes information on its inspection guidelines for the given year, describing the principles guiding the audits and highlighting which industries will receive special attention. (In 2017, among others, the sharing economy, waste management and the use of online electronic cash registers were the key goals.) Inspections are probably more frequent in the case of taxpayers with a larger tax capacity, particularly if there is a significant change in their tax capacity. We frequently meet tax inspectors as well if we regularly claim back relatively high amounts from the tax authority (e.g. if a company reclaims significant VAT owing to its business).

What to look out for during inspections?

Depending on the quantity of documents, tax inspectors may take a look at accounting receipts and supporting documents either in detail or on a test basis, but they also frequently examine contracts and their economic content.

The various tax types and audits require different review practices, but generally speaking the calculations supporting declared tax must be transparent and traceable during inspections; this greatly assists the tax authority, and consequently, our own lives too.

Inspections of VAT obligations primarily include unjustified VAT reclaims, the legitimacy of VAT-free invoicing, and supporting accounting records for intra-Community and export sales. Additionally, it is also checked whether incoming invoices comply with legal requirements and permit the deduction of VAT. Reviewing compliance with the EKAER reporting obligation is closely related to VAT reviews.

Checking corporate tax calculations is often related to a detailed audit of the various tax-base adjustment items and tax allowances. Transparent and clear calculations are important in this case too, since the amount of the individual adjustment items and tax allowances often cannot be supported by invoices or other tangible documents.

Transfer prices applied for related companies and the supporting documentation are also targeted by comprehensive tax inspections, and this is a “lucrative” area for the tax authority from the perspective of penalties. The information included in transfer pricing documentation often includes subjective factors, making it easy for the tax authority to reach findings. This is why it is important during inspections that you can confidently justify the information included in the transfer pricing documentation and the reason for choosing the information.

What should you look out for?

It is important to prepare calculations and documentation supporting tax liabilities in a manner that is clear not only for you but for outsiders too. Although tax inspectors always start the audit by mapping out the company’s activity, it is not certain that they will immediately know how to manage transactions in a company or industry-specific way. It is worth maintaining a good relationship with the tax inspectors since this can also influence the outcome of the review.

And even if you agree with their findings it is worth commenting on the tax authority’s inspection report because you can perhaps share a mitigating circumstance with the tax authority that they are not aware of. If you disagree with any of the tax authority’s findings but feel you cannot advocate your position confidently, it is definitely advisable to involve a tax consultant or a tax lawyer in the procedure.
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A Tax implications of inspections bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.

Who pays the penalty?

The tax authority identified some kind of problem in almost all of the EKAER audits we are aware of. At first it may seem obvious who has to pay the default penalty, but there are cases where the party reporting the goods and the beneficial owner are not one and the same.

The EKAER reporting obligation applies to Hungarian companies doing contract work – who are not the beneficial owners of the goods – on the grounds of ‘other intra-EU imports’, and they also need to request an EKAER number as recipients of the goods. As a result, they risk receiving a fine which is often disproportionate to the value of the contract work performed (the value of the goods which these companies work on can be several times the value of the service completed).

Another legal consequence is that the NAV can seize the goods. This sanction affects the beneficial owner, who does not even have to report anything (so evidently there are several strands to follow in deciding which company is obliged to report the transportation and which company takes the penalty). It is difficult to imagine how the constitutionality and proportionality of a penalty can be justified if it is imposed on companies subject to the reporting obligation but which are not the owner of the goods, while the penalty is based on the assumption that these companies possess goods of unverified origin. Based on the above, we made a recommendation to the Ministry for National Economy that the default penalty rules be reconsidered, taking into account the cases where ownership of the product is not transferred to the taxpayers subject to reporting obligations for the transportation, contract work or import for other purposes. The system should differentiate between penalties as to whether the owner of the unreported goods or another person (e.g. contract-work entity) is obliged to make the report.

Lack of subsequent corrections and possibility to make subsequent amendments

For companies transporting large consignments and on a regular basis, it can easily happen that the EKAER number is not requested because of an administrative error, or that the data submitted is incorrect. It makes no difference if logistics companies are entrusted with this, both they or the programmes used for bulk data uploading can make mistakes. However, there is no option to subsequently file EKAER reports or correct them after 15 days. Why is there no option to make subsequent modifications, almost as a self-revision, for issues related to an EKAER number? We know the tax authority’s answer to this: the system could subsequently be circumvented in this case.

However, it can also happen that the company itself identifies a shortcoming during an internal audit years later (while there was no real-time roadside check regarding the shipments in question). In these cases though, there is no option to subsequently request an EKAER number without receiving a fine, because the transportation could only have been completed with a valid EKAER number, so the only option for voluntary compliance is “to report ourselves” to the tax authority. Consequently we think the possibility to request an EKAER number subsequently and the method for doing so are missing from the regulation. Such modifications are justified because deciding whether a transportation needs an EKAER number or not requires great care in certain cases – or even a professional to help make the decision – and if so, then who should request the number. Chain transactions are a good example here. For instance, a foreign end-client takes over the goods at the site of the Hungarian seller, and the transportation is arranged by the foreign end-client (who does not have a Hungarian tax number). In this case, by law, the EKAER number must be requested by the foreign intermediary buyer (who has to ask for a Hungarian tax number too), even though this company is not involved in the transportation.

Furthermore, due to the closed system, if a company has already requested an EKAER number, but it turns out that the data provided (license plate number, weight of the product, etc.) was incorrect, there is no option to make subsequent corrections after 15 days

For this reason we have mentioned several times that reliable taxpayers should be allowed to subsequently modify data. How nice it would be if legislators agreed with such recommendations, and next year we would be able to read the following regulation in the Act on Rules of Taxation.

“If a taxpayer subject to the reporting obligation is considered a reliable taxpayer according to Section 6/A of the Act on Rules of Taxation, the reporting can be completed or modified on the EKAER electronic platform within 5 years of the last day of the calendar year when the taxpayer should have requested an EKAER number.”

Possible solutions

To summarise the anomalies above, as tax consultants we would be happy to see the following changes:

• Lowering and differentiating the sanction rate. A penalty that can total up to 40% of the value of the goods transported is disproportionate to the set objective, and especially unfair in cases where the owner of the goods and the person obliged to report to the EKAER system are not one and the same.
• We should consider introducing a reduced, specific penalty instead of a percentage penalty for “good” taxpayers, even on a tax-performance basis. The 40% fine should not be imposed on mistakes that were made without the intention of avoiding tax.
• We would gladly accept a system that understands the fact that the EKAER is a tool for immediate checks. Accordingly, we suggest, for example, that if there is no immediate inspection and the NAV has not examined the reliable taxpayer from an EKAER perspective either, then no sanctions should be able to be imposed from one year after the transaction (especially because the “self-revision” option is not available).
• Making subsequent corrections should be permissible for reliable taxpayers.

We would like to highlight that as tax consultants we are aware the NAV weighs up all the circumstances based on the provisions of the Act on Rules of Taxation when imposing penalties. However, during repeated inspections, the tax authority can cause significant losses not just to small companies in the case of successive mistakes that cannot be corrected – the EKAER penalty system can cause unpleasant surprises even for large taxpayers too (losing their reliable taxpayer status for example).

A EKAER number – the wound that never heals II. bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.

NAV, ÁFA (VAT), EKAER: the Hungarian hits

Nowadays, reading and understanding a letter written by a tax adviser can be a challenge in itself, considering the special terminology and the rapidly changing environment of international taxation. Clients also expect us to provide brief, concise and comprehensible articles. This is not helped by EU and OECD tax bodies, since incredible amounts of material have been prepared during the past 3-4 years to prevent tax fraud and aggressive tax planning, and of course, new terminology means new abbreviations.

We can happily add Hungarian specialities to this. Investors coming to Hungary are not familiar with many Hungarian abbreviations, but as they quickly learn about Hungarian tax regulations they know that if they hear 27%, that is surely the world record holder of value added tax in Hungary, the VAT rate. They also know that if they receive a letter from the NAV (National Tax and Customs Administration) it rarely means good news. Those who know the abbreviation EKAER (Electronic Public Road Trade Control System) understand that tax administration in Hungary is not negligible by any means (and although there is a common interest to fight against the black economy, unfortunately the extra administration involved definitely increases costs).

BEPS, ATAD, AEOI and other newcomers from abroad

Having learned the most common Hungarian abbreviations, let’s take a look at the terminology created by the EU and OECD to please taxpayers. There is no need for further explanation in the case of BEPS (base erosion and profit shifting), we already know this includes actions related to direct taxes and against tax evasion. The European equivalent of the Action Plan is ATAD I and ATAD II (the anti-tax avoidance directives). We have already written about MLIs (multilateral instrument). This instrument provides a practical and effective “facelift” solution for bilateral agreements reached between countries.

We already know the legal framework of the fight against tax evasion, but what is even more important is how tax authorities will be able to collect information about transactions in which more than one country is involved. We should never think that the NAV will not gather information about incomes arriving from abroad. There are a number of tools facilitating the automatic exchange of information on bank accounts. AEOI (automatic exchange of information) and CRS (common reporting standards) supplemented by FATCA (foreign account tax compliance) regulations of the United States of America provide enough munition for tax inspectors. It is perfectly conceivable that we might receive a reminder letter from the Hungarian tax authority about declaring the income sitting on our foreign bank account.

DAC: abbreviated directives

EU Member States also exchange information about transactions previously made bulletproof by conditional agreements. This is all the result of Directive DAC3, and supplemented by CbCR (country by country reporting), which is based on the BEPS Action Plan and Directive DAC4, as well as the obligation to provide information about beneficial owners as stated in Directive DAC5, we can happily say that the lives of taxpayers will be an open book in the case of companies as well now.

Based on our short and hopefully light summary, in keeping with the summer season, we can now translate the title: The BEPS Action Plan supplemented and supported by EU regulations against tax evasion spell good news for the Hungarian tax authority too. The question is how much fun taxpayers will have due to the increasing administrative burden, and whether they will be able to follow the turbulent changes in legislation?

A BEPS = ATAD + NAV – LOL? letters against tax fraud bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.