Obligation to issue an invoice

The taxable person is required – unless the Hungarian VAT Act provides otherwise – to issue an invoice for the supply of goods or services as defined in the relevant sections of the Act, provided that the recipient is another person or entity different from the taxable person.

An invoice is any document that meets the requirements set out in Chapter 10 of the Hungarian VAT Act. Our previous articles provide more detailed information on the mandatory data content of invoices and the rules on issuing invoices.

However, certain facts or circumstances may come to light only after the invoice has been issued, making its modification necessary. Administrative errors may also occur, requiring correction. If an error is detected in a received invoice, it does not always need to be returned: the correction may be performed by issuing a document qualifying as an invoice, a term defined in Hungarian VAT Act.

What is considered a document qualifying as an invoice?

A document qualifying as an invoice is any document other than the original invoice that meets the statutory requirements and clearly refers to the specific invoice while modifying its data content. It is essentially a collective term for documents that adjust an invoice. A document qualifying as an invoice may be a cancellation invoice (reversal note) or a modifying invoice (correcting invoice with negative or positive amount, or a correcting invoice which does not affect the amount), provided that it meets the legal requirements.

The original invoice and the modifying document qualifying as an invoice are jointly valid and together form the documentation of the transaction.

Another accepted method is the so‑called two‑step modification, in which a cancellation invoice and a new invoice with correct data content are issued. In this case, both the cancellation invoice and the new invoice must refer to the original invoice; the three documents together constitute the valid documentation of the transaction. However, this method is not recommended when the tax base and/or VAT amount change, as it is more difficult to ensure correct electronic data reporting (i.e., Hungary’s online invoice reporting) and compliance in the VAT return.

It is also accepted practice that a supplier modifies the data content of multiple invoices with a single document qualifying as an invoice. In such cases, the document must include:

• references to all invoices whose data it modifies,
• the specific data elements of each invoice affected by the modification,
• the nature of the modification, and
• its numerical impact, if any.

All of these details must be presented clearly and transparently for every modified invoice. It is important to note that this solution can only be used for modifications affecting the tax base and/or VAT amount if all affected invoices must be reflected in the same VAT return period. In practice, this method may be difficult to apply, as not all invoicing systems are capable of generating such documents or ensuring compliant electronic reporting. Therefore, it must be applied with due caution.

When do we issue a document qualifying as an invoice?

A document qualifying as an invoice is required, among others, in the following cases:

If the originally issued invoice contains:

• an incorrect tax base or VAT amount,
• an incorrect VAT rate,
• an advance payment exceeding the total amount of the final invoice,
• a misspelled product or service description,
• an incorrect performance date,
• an incorrect buyer name, address, or tax number,
• or any missing supplementary data.

What requirements apply to such a modifying document?

The minimum data content of such a document is the following:

• the date of issuance,
• a unique serial number enabling unambiguous identification,
• a reference to the invoice whose data the document modifies,
• the specific invoice data being modified, as well as the nature of the modification and its numerical impact, if any.

The Hungarian VAT Act specifies only the minimum data content; any additional information considered relevant by the issuer may also be included.

Furthermore, the provisions applicable to invoices must also be applied to these documents. Therefore, from the date of issuance until the end of the statutory retention period, the following must be ensured:

• authenticity of origin,
• integrity of content and readability,
• and suitability for tax administration identification.

This also means that a document qualifying as an invoice may be issued using invoicing software or pre‑printed forms produced by a printing company.

Key points to keep in mind

Without aiming for completeness, the following aspects should be considered when issuing a modifying document :

• Electronic data reporting with the appropriate content is required even for documents qualifying as an invoice.

• It must be examined in which VAT return period the document should be included.

• Exchange rates may also cause issues; therefore, the exchange rate displayed by the invoicing software should always be verified.

• The performance date of the document qualifying as an invoice has to be the same as the performance date of the original invoice to be modified, unless the performance date itself is being modified.

• As a result of the invoice modification – taking into account both the original invoice and the modifying document – the tax base or VAT amount cannot become negative.

This article focuses primarily on invoices and documents qualifying as an invoice issued through invoicing software. It does not cover cases involving pre‑printed, manually completed invoices or documents qualifying as an invoice. Should you have any questions regarding the issuance of an invoice or a document qualifying as an invoice in Hungary, our highly experienced experts are happy to assist you.

This article provides general information and does not constitute advice.

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Which default penalties are affected in Hungary?

The increase in default penalties affects general penalties and two special types of default penalty: 

• The upper threshold for general default penalties in the case of natural persons has risen from HUF 200,000 to HUF 400,000, while for non-natural persons it is now HUF 1 million instead of HUF 500,000.

• Violations of the rules to register employees can now lead to default penalties for taxpayers of HUF 2 million instead of the previous HUF 1 million.

• Violations of the rules on issuing invoices and receipts as well as the obligation to retain documents now also can be penalised up to HUF 2 million instead of HUF 1 million.

The decree, published in issue 74 of the Hungarian Gazette on 8 July 2024, enters into force on 1 August 2024, and the rules must be applied by the Hungarian Tax and Customs Administration for violations of such obligations due from the following day.

How does the NAV impose the penalties?

The following legal means are at the disposal of the National Tax and Customs Administration in Hungary to enforce the norms formulated by the legislators:

• late payment interest
• tax penalty
• default penalty
• measures

As an administrative sanction, default penalties can be imposed if a taxpayer fails to meet a tax liability, or does so late or incorrectly.

When levying default penalties, the willingness of the taxpayer to adhere to the law must be taken into account, along with the gravity, frequency and duration of the illegal conduct, and whether they acted with the due care expected in the given situation. After weighing up these circumstances, the NAV must levy a penalty commensurate with the presumed damage, even repeatedly and at higher amounts. This is dealt with in more detail by the NAV Guideline 3002/2021 on exercising powers of leniency (available in Hungarian here).

In this context, taxpayers can also ask for circumstances substantiating a request for leniency to be considered, thereby achieving a payment reduction or relief.

When imposing default penalties, another important aspect is whether the taxpayer in question is classified as reliable or risky. If deemed a reliable taxpayer, this is looked upon favourably when the penalties are imposed. For default penalties the maximum punishment is 50% of the upper threshold. Risky taxpayers accordingly find themselves in a worse situation; in their case the smallest amount of any default penalty is 30% of the upper threshold for the penalty.

Who may be most affected by the increase in default penalties? 

The quick answer to this question is everyone, since as mentioned above, one of the increased NAV default penalties is the general penalty, which essentially affects all taxpayers in Hungary who fulfil their tax obligations incorrectly, incompletely, with false data, late, or not at all. Consequently, if you fail to submit your local business tax return, the tax authority can impose a default penalty of up to HUF 1 million.

Those who breach the rules on registering employees find themselves in a special group, as the NAV keeps them in a separate database. The list containing roughly 5,500 taxpayers can be viewed on their website (available in Hungarian here). Most of these employers are self-employed businesses, or work in the commercial, construction and hospitality sectors. These taxpayers can be penalised with default penalties of up to HUF 2 million, if they employ or have employed unregistered staff.

The increase in penalties for taxpayers who breach invoice, simplified invoice or invoice-issuing obligations, or issue invoices, simplified invoices or receipts with the wrong amount or who fail to retain documents for the requisite period will also mainly affect those working in the commercial and hospitality sectors.

Such drastic increases in default penalties in Hungary mean it is even more important to pay close attention to the deadlines set by the tax authority and to fulfilling the prescribed obligations. Should you require any assistance with compliance, please contact the tax consulting team of WTS Klient Hungary who are always happy to help.

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Transformation in accounting

There is no denying that as one of the leading firms on the accounting services market, we (also) need to be at the forefront of digitalisation and robotisation, whilst being guided by prudence, awareness and proportionality. This is because it is not clear what is worth investing in with regard to technological development and robotisation.  For example, it recently transpired that OCR technology (text recognition) has become almost obsolete in the accounting profession thanks to online developments by the Hungarian tax authority (NAV) for processing domestic invoices. So global and local trends and paths need to be monitored, but delaying decisions can also have serious consequences, with the risk of falling permanently behind.

Our profession is undoubtedly undergoing a major transformation. The accountant of the future (and almost of the present) will no longer record data since bank transactions and client invoices are entered automatically, the data content of supplier invoices is downloaded from the NAV online database, and general ledger accounting items (salaries, depreciation, foreign currency revaluations, accruals and deferrals, taxes, etc.) can largely be entered and run in the accounting software.

At the same time, clients legitimately expect us not to lose our focus on personalisation and personal attention.

Robotisation in back-office systems

So how can we keep the personal touch, but also meet the demands of the times in using artificial intelligence, robotisation and the deployment of technology?

The answer is simple: we don’t put AI and robots on the front line, we let them operate more widely and under tight control in our back-office systems.

Today, most of our business divisions are already using, or have the potential to use, some form of artificial intelligence.

What specific development paths are emerging for WTS Klient Hungary?

• In addition to Excel macros, Power Pivot and Power Query, our outsourcing, financial advisory and controlling services have for years been backed by artificial intelligence-driven BI software (business intelligence), which can be integrated with both our in-house accounting systems and our clients’ ERP (enterprise resource planning) systems. In up-to-date accounting, the accounting dimensions employed alongside general ledger figures provide the basis – thanks to intelligent database use – for a dynamic dashboard interface that replaces the use of Excel-based controlling reports. Of course, in addition to financial information, structured information from other database-generating areas of the company, such as production or HR, can also be displayed on this interface to provide the client’s management with the comprehensive information they need to make decisions.

• One of the in-house software solutions used by our accounting division provides a complex document workflow and invoice approval system for complete, integrated and digital processing of supplier invoices. The solution, which also employs artificial intelligence, downloads our clients’ domestic invoice data from the NAV’s online system, and matches the data with the invoice or e-invoice data uploaded in scanned format to the client portal. The software automatically transfers the invoice image and data content to the invoice filing and authorisation system, from where it is sent to the accounting module in a pre-recorded format after digital client approval.

• In our tax advisory division, we are also considering the potential of robotisation and artificial intelligence in an increasing number of areas. These solutions can help in the area of compliance services, pre-screening certain financial comparables, tracking changes in legislation or monitoring tax liabilities. (For more information on these solutions please read the article by András Szadai.)

• In our own recruitment activity, artificial intelligence integrated into our HRM (human resource management) software supports our preboarding process by ranking candidates. The built-in artificial intelligence is trained with keywords and uses parameters to process and evaluate the information in incoming CVs. This kind of robotisation is of huge assistance to our HR department when processing large amounts of data.

Internal or external developments

As mentioned in one of our previous articles, today there are ready-made software solutions – so-called off-the-shelf solutions – for almost any need. But you can also choose to have your own solutions designed by external developers or by your own development team. There is no one-size-fits all solution, it is up to the company leaders and IT managers to figure out what best fits the means and objectives of the company. Mixed solutions are often viable too.

WTS Klient Hungary currently uses the above AI-enabled solutions not as part of in-house developments but by purchasing or leasing off-the-shelf software. That said, we are taking the necessary steps with technological improvements, efficiency gains and business automation through internally-driven RPA (robotic process automation, robotisation) and digitalisation year on year.

WTS Klient Hungary has been supporting the accounting and taxation managers of international companies for more than 25 years. Our professionals experienced in the areas of taxation, process design and IT solutions and well-versed in the world of automation and robotisation can assist you with harmonising diverse needs and designing digital systems affording you an advantage over your competitors. Our IT / Business Automation staff look forward to hearing from you if you need IT solutions to optimise your company’s processes.

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Optional e-invoicing in Poland

A new type of invoicing has been in operation in Poland on a voluntary basis since 1 January 2022, namely electronic invoices issued using the National e-Invoice System (KSeF). E-invoices are generated in xml-format by the local financial and accounting software in accordance with the logical structure published by the Polish Ministry of Finance, and then are sent to KSeF where the purchaser may download them after a verification process in which a unique number is assigned to each e-invoice. When implementing voluntary e-invoicing in Poland, the authorities announced that, as a second step, e-invoicing will become obligatory.

The first draft law on mandatory e-invoicing in Poland

On 1 December 2022 saw the Government Legislation Centre publish a bill to amend the VAT Act and certain other legislation, according to which, as of the beginning of 2024, e-invoicing in Poland will be obligatory. As compared to the current legislation, the solution proposed in the bill is wider in terms of entities obliged to use it and the subject matter covered. The main assumption behind implementing mandatory e-invoicing is to provide tax authorities with insight into all issued invoices and thus facilitate the detection of invoice irregularities. The currently used forms of invoice (paper or electronic, e.g. PDF files) will have marginal importance after the introduction of obligatory e-invoices.

Importantly, in accordance with the bill, electronic invoices will have to be obligatorily used by taxable persons based in Poland or having a fixed establishment in Poland. Entities not covered by the obligatory electronic invoicing system will be able to use e-invoices optionally or to continue issuing invoices based on the current Polish VAT Act (outside KSeF). These entities will also receive invoices from suppliers as agreed with them (including outside the KSeF system).

The e-invoicing requirement will cover the activities that currently require an invoice in accordance with the VAT Act. Therefore, as a rule, entities subject to the e-invoicing requirement will only issue invoices via KSeF. Any invoice issued by such entities outside KSeF will not be considered an invoice according to Polish VAT regulations. Only in the case of KSeF malfunction (after the failure is removed, there are seven days for sending invoices to KSeF) or a crisis (emergency related to geopolitical situation) can invoices be issued outside KSeF. A failure to comply with e-invoicing regulations will trigger severe penalties.

Latest updates and postponement of deadlines

After an intensive public consultation, on 22 February 2023 the Government Legislation Centre published a new draft of the bill. It provides a framework for implementation of the mandatory e-invoicing in Poland. The most important provisions that have changed over the previous version of the proposal:

• Commencement date of mandatory e-invoicing in Poland has been deferred from 1 January 2024 to 1 July 2024.

• New deadline for entities with VAT exemptions to use obligatory e-invoices will be 1 January 2025.

• New deadline until invoices issued via cash registers and of cash receipts will be treated as invoices will also be 1 January 2025.

• Commencement of penalties for issuance of e-invoices outside KSeF in breach of obligation, for issuance of e-invoices not in accordance with required template, and for failure to timely submit invoices issued during KSeF malfunction or in off-line mode will also be postponed to 1 January 2025.

• KSeF e-invoices will not be obligatory in the case of business-to-consumer transactions and motorway toll, bus, train etc. tickets.

• As of 1 July 2024 any invoice changes can only be made by issuing correcting invoices.

• The use of off-line mode in invoice issuance has been extended to include also unavailability of KSeF for reasons on the part of the taxable person – e-invoices to be issued offline according to required template and submitted to KSeF on next business day.

• More precise regulations on the use of exchange rates to translate the taxable amount and VAT on e-invoices – you can use the published midrate applicable on the last business day prior to the issuance date on the invoice. This rate can be used on condition the e-invoice is issued via KSeF not later than next day after it is issued through the accounting software.

• No changes to regulations on invoice issuance before chargeability of tax – e-invoices can still be issued even 60 days prior to the chargeable date. 

Fixed establishments 

Applying the mandatory e-invoicing in Poland also to persons having fixed establishments in the country for VAT purposes exceeds the range of entities first specified in the Council Implementing Decision, which allowed Poland to impose the e-invoicing obligation only on entities based in Poland. But according to unofficial information from the Polish Ministry of Finance, this obligation was later confirmed with the European Commission after the issue was raised during public consultations. It will be introduced together with measures supporting taxable persons in correctly determining if they have fixed establishments in Poland (plans are to publish official tax guidance or a public tax ruling).

If you would like to know more about e-invoicing in Poland, or need any tax advice regarding the country please visit the homepage of WTS&SAJA Sp. z o.o., the exclusive representative of WTS Global for Poland and contact their experts.

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The latest version of SLIM VAT 3, i.e. a draft of amendments to the Polish VAT Act dated 8 November 2022, features, beyond the removal of legacy duties that continue to burden taxable persons but are obsolete and unnecessary in the digital tax age, some important changes over the previous proposal after the Finance Ministry took into account certain solutions proposed during the public consultation process.

SLIM VAT 2 – Tickets treated as invoices

After the introduction of the first SLIM VAT in January 2021, the second package of measures to simplify VAT regulations, has been published in May 2021. The changes of the SLIM VAT 2 affected following areas:

• Invoicing: simplified rules for correcting invoices, longer issuance deadline (up to 60 days before supply), abolition of the use of duplicates.
• Right of deduction: right of deduction through adjustment to be extended to include option to adjust by reference to one of three successive periods in which the deduction was available.
• Cross-border VAT: new rules for how to recognise correcting invoices with downward adjustments for intra-Community acquisitions and imported services.
• VAT in real estate: election of tax treatment can be made in the notarial deed.
• Split payment and relief for VAT on bad debts: funds may be transferred between VAT accounts relating to accounts with different banks, relief for VAT on bad debts will be available for longer (up to 3 years).

SLIM VAT 2 measures included a new regulation regarding the treatment of tickets as invoices. Before for a ticket to be treated as an invoice, it had to be a motorway toll ticket or a one-off ticket for transport over a distance of at least 50 kilometres.

According to the new measure, passenger carriers no longer have to issue separate invoices on request for travel below 50 kms. The customer is allowed to deduct VAT using his ticket regardless of the distance travelled, on condition the purchase is related to taxable activities.

SLIM VAT 3 – The first round 

Public pre-consultations on SLIM VAT 3 started on 31 January 2022. This package included the removal of legacy duties that continue to burden taxable persons but are obsolete and unnecessary in the digital tax age.

The main SLIM VAT 3 proposals included following changes:

• a single currency exchange rate for so-called summary correcting invoices that reduce VAT (the rate to be that ruling on the day preceding issuance of the correcting invoice);
• no more duty to hold the original invoice as evidence if you wish to deduct VAT on intra-Community acquisitions of goods;
• change of the period in which an intra-Community supply of goods must be reported when adjusting your return: from the month of supply to the month in which the tax becomes chargeable;
• no more duty to issue an advance invoice where the advance payment and the supply are made in the same period of account;
• higher threshold for small taxpayers – EUR 2 million;
• increase from PLN 500 (roughly EUR 107) to PLN 10,0000 (roughly EUR 2,130) the threshold that triggers the application of the 100% deductible proportion;
• no more duty to ensure that documents from VAT cash registers are printed on paper;
• reduced rates of penalty VAT (surcharge) related to adjustments of tax return: from 20% to 10% and from 15% to 5%;
• the Director of National Revenue Information to be appointed as the competent authority for the purposes of binding rulings on rates (WIS), excise (WIA) or tariffs (WIT).

SLIM VAT 3 – The second round

After the public pre-consultations, early August 2022, the Government Legislation Centre published the proposal for SLIM VAT 3. Then it was submitted for public consultations.

Major changes in the proposal were:

• the sales limit for establishing the small taxable person status will be increased to EUR 2 million;
• in certain cases the exchange rate to be used for correcting invoices will be the rate prevailing on the day preceding the date of the correcting invoice;
• tax authorities will be able to individually vary penalty VAT (surcharge) rates where specifically warranted by taxable person’s circumstance, maximum penalty rates of 15%, 20% and 30%;
• specification of the period for which a taxable person is to report an intra-Community supply of goods where he has received documentary evidence for the transaction after the statutory time of 3 months;
• the same authority (Director of National Revenue Information) will be empowered to issue binding rate information (WIS), binding excise information (WIA), and binding tariff information (WIT);
• no formal requirement to hold an invoice for an intra-Community acquisition of goods in order to be able to deduct the related input tax;
• no duty to issue a dedicated invoice for an advance payment if the payment is received in the same period of account in which the related supply is made. 

SLIM VAT 3 – New draft

In November 2022, the Polish Finance Ministry has provided a new draft of amendments to the VAT Act called SLIM VAT 3. The new proposal features some important changes over the previous version after the Ministry took into account certain solutions proposed during the public consultation process.

Changes between the new proposal and the previous version are following:

• commencement dated moved from 1 January 2023 to 1 April 2023;
• previously the taxable persons were required to translate currencies at the NBP or ECB rate prevailing on the last business day before issuance of summary correcting invoice (where Polish or foreign party issues a summary correcting invoice due to a discount or price reduction), now they would have the option of doing so; taxable persons could also rely on the general rule and apply the same rate as in the original invoice;
• the authorities resigned from additionally extending the current VAT exemption for investment fund management services onto special investment funds based in other EU Member States;
• the authorities resigned from allowing taxable persons the option to waive issuing an advance payment invoice if they receive all or some of the payment for the transaction in the same month as the transaction;
• changes were made to statement of payment recipient (in the event of creditor change) with respect to exoneration from solidary liability and flow of VAT account funds;
• with respect to quantification of penalty VAT at 100% of input tax in contested invoices, the process was refined by providing that the irregularity must result from intentional conduct of the taxable person or of his counterparty if known to him (previously the irregularity had to result from intentional involvement of the taxable person in a VAT fraud);
• the authorities scrapped the law which allowed them to charge maximum penalty tax where the irregularities resulted from intentional involvement of the taxable person in a VAT fraud;
• the new proposal defers to 1 July 2023 the commencement date of the law that allows VAT account to be used to also pay the so-called sugar tax, additional sugar tax and any interest on the tax.

If you would like to know more about the introduction of the SLIM VAT measures in Poland, please visit the homepage of WTS&SAJA Sp. z o.o., the exclusive representative of WTS Global for Poland.

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Determining the performance date

One of the most frequent questions that crops up when issuing invoices in Hungary concerns the performance date on the invoice. If the performance date differs from the invoice date, this must be indicated separately on the document. Defining the date correctly is important because (unless otherwise provided for by law) this determines when the tax payment liability is incurred. Under general rules, the performance date is the date when the transaction (supply of product or service) takes place. The procedure is different with advance invoices because then the supply of the product or service has not yet happened. In such cases, the performance date is the same as the date when the payment is received or credited.

Issuing invoices for transactions settled periodically 

If business partners in Hungary agree to settle periodically, i.e. invoicing all completed transactions in a given month or quarter together, then according to the rules of issuing invoices the performance date by default is the last day of the settlement period. However, the Act on Value Added Tax contains different provisions that have to be taken into consideration. In these cases, the rules on issuing invoices are as follows:

• If the payment deadline precedes the last day of the settlement period, the performance date is the same as the invoice date.
• If the payment deadline is after the last day of the settlement period, but still within 60 days, then the performance date is the same as the payment deadline.
• If the payment deadline is more than 60 days after the last day of the settlement period, then the performance date is on the 60^th day following the last day of the settlement period.

Let’s take a look at some specific examples to see what this all means, and how we can determine the performance date in different cases:

Exchange rate for foreign-currency invoices

Another common question when issuing invoices concerns foreign-currency invoices. For foreign-currency invoices the amount of VAT must be indicated in Hungarian forints, but it is important which exchange rate is used. Similarly to determining the performance date, here too we must distinguish between transactions settled for a given period and one-off transactions. If the supply of the product or service falls under a periodical settlement procedure, the exchange rate is set based on the invoice date; in all other cases it is set based on the performance date.

Once the date has been established, the applicable exchange rate is the FX selling rate of the chosen Hungarian bank, or if the company has decided to use the exchange rate published by the National Bank of Hungary – and has notified this to the tax authority – then this rate is applied. It can happen that there is no official exchange rate for the given day (for example on public holidays or weekends, or the daily rate has not yet been released), and in these cases, under the rules for issuing invoices, the last applicable exchange rate must be used.

The accountants at WTS Klient Hungary have more than 20 years’ experience in accounting invoices on the most varied of transactions, and are as prepared as they can be to answer questions from our clients with regard to issuing invoices. We look forward to hearing from you should you need a reliable team of accountants to provide solutions specifically tailored to your and your company’s needs, but also if you are already a client of ours, and need help with issuing invoices.

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As of 1 July 2018, data reporting on online invoicing was introduced in Hungary by the tax authority. You can remember we were afraid because we knew nothing about it, neither as taxpayers nor as tax specialists. Explicitly or implicitly, we knew that the NAV would possess even more taxpayer data. In the four years since its introduction, we can say our software reports data on every outbound invoice, and this has all become part of every taxpayer’s life, so maybe it is not so terrible after all.

OECD recommendation and the purpose of SAF-T data reporting

The latest idea from the tax authority, based on an OECD recommendation, is the so-called Standard Audit File for Tax, SAF-T for short. The point of SAF-T is that, according to the plans, all company information related to accounting, invoicing and taxation will have to be submitted digitally to the tax authority, in one standard file. In practical terms, SAF-T is a well-formatted XML data file containing data from the entity’s various ERP systems and sub-systems. The data content is divided into master data and transactional data, and it refers to a given financial or settlement period. The standard file is created in a standardised format in XML language, respecting only the validation scheme in the available XSD files.

Obviously, the main aim is to enable the tax authority to conduct inspections more effectively based on the information received, or, on a more positive note, to provide support for the work of taxpayers in a more specific way focusing on the individual taxpayer. Furthermore, the purpose of or ways to use SAF-T data reporting include supporting external and internal audits, and making the data transferrable between companies and government bodies.

Foreign examples

It is also heard that the Hungarian tax authority wants to introduce data reporting with a broader primary dataset than that laid out in the international recommendation. There are two versions to the OECD recommendation, and in Hungary the latest SAF-T draft was prepared based on version 2.0. This data structure was primarily developed to support tax authority inspection procedures, and it only supports ad hoc data requests, in its current form it is not (yet) suitable for regular data reporting.

The tax authority’s vision in Hungary is not unprecedented, in several countries – such as Portugal, Poland and Norway – the idea has been introduced in one form or another in recent years.

Timing of SAF-T data reporting 

So far we have talked about subsequent data reporting, but for lack of a decision from the legislator it is not clear when the standard file will need to be created. One version is that companies will need to generate the SAF-T files following the preparation of the balance sheet, and they must be kept throughout the retention term for the given period. The data reporting contains both mandatory and optional elements. It is possible, though, that the file might only have to be created at the request of the tax authority based on a taxpayer notice for the start of a tax inspection, in which case the number of this notice will be a mandatory element of the data reporting. 

When does it start?

As mentioned above, no decision has yet been made about the time for introducing the SAF-T, about any deadlines and the exact nature of the data reporting; what seems to be presumable is that the VAT module will be introduced first. Until then, it is worth familiarising yourself with the thought, the ideas of the tax authority, and that a solution hopefully beneficial for taxpayers will be realised when the legislator’s regulation finally becomes available for taxpayers and professionals alike.

Changing the IT systems and invoicing software of companies to facilitate the SAF-T data reporting system and the new format may pose challenges for the IT and finance experts of Hungarian companies, just like during the previous transitions. WTS Klient Business Automation will gladly help you with the transition and with developing the digital systems necessary to fulfil the new data reporting obligation.

A SAF-T data reporting bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.

Discovering Benford’s Law

The first discoverer of Benford’s Law was the Canadian-American astrophysicist Simon Newcomb. In 1881, while thumbing through logarithm tables in the library, he found that there are more signs of wear and tear on the initial pages than near the end, which means numbers starting with a lower-value digit were definitely looked up more often than numbers starting with a higher-value digit. After some research he created a formula according to which a logarithmic distribution was evident in the occurrence of the first digits of numbers. Accordingly, numbers starting with 1 occur six times more frequently than those starting with 9. The discovery fell into obscurity until 1938, when American Frank Benford picked it up again and published the topic, but presenting it on a set of nearly 20,000 figures taken from real life. The physicist/engineer confirmed the connection with samples taken from numerous real-life fields, datasets related to population, economics, geography, chemistry etc., which then became known as Benford’s Law.

Applications of Benford’s Law

Benford’s Law works excellently on business datasets, but cannot be used, for instance, on random numbers (lottery numbers, etc.) or data with limited values (body height). One key area of application in business is fraud investigations. The US tax authority has been using this method to identify suspect cases since the 1980s. The figures of business entities based on real activities are likely to display Benford’s distribution, but randomly made-up, artificially generated data does not. If a business dataset does not comply with Benford’s distribution, it does not automatically mean that there is a fraud or error, but it is a great indicator of what is worth investigating in more detail.

At first, Benford’s Law may seem contrary to our feelings, so I suggest you try it on your own datasets, if possible. For example, if you have at least a thousand invoices with total amounts, the analysis can be carried out in an Excel spreadsheet within seconds. To help you, you can download a sample spreadsheet from here, which contains the real dataset of a company account including 33,000 items (the table can be used freely, only the first column needs to be populated with your own dataset). By visualising the results in a graph, you can see that the examined data almost completely corresponds to the values forecast by Benford’s Law.

If you are curious how much your dataset “approximates” Benford’s distribution, you have to move beyond graphic visualisation to statistical methodologies. There are several tests which examine correspondence with Benford’s Law, the most frequently used of which are the z-test, the Chi-squared test, the mean absolute deviation (MAD) test and the summary test. These tests enable you to decide precisely how much a dataset matches expectations, yet a detailed description of them is beyond the scope of this article.

Benford’s Law can be applied in diverse ways and in various places. You can read, for instance, about the analysis of election results or the testing of the data related to the coronavirus pandemic. It is a method that can be used in numerous areas where datasets with great numbers of data are available, to examine if the data has been manipulated or was indeed generated by real-life events.

Discovering and preventing business fraud is a key interest of all business entities. The WTS Klient Business Automation division is here to help should your accounting or any other areas of your business operation need review.

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Self-billing with a foreign partner

In addition to Hungarian domestic VAT transactions, self-billing is a common method for cross-border transactions. In these cases, the foreign buyer issues the invoice for the Hungarian purchase on behalf of its supplier. According to the rules on online invoice data reporting in force from 4 January 2021, from that date onwards both Community supplies and export invoices are subject to the reporting obligation (in addition to sales to private individuals). We discussed this earlier.

What is the challenge?

According to the relevant rules, it is essentially the taxpayer in the other country who is required to fulfil the online invoice data reporting obligation, while the partner issuing the invoice and the taxpayer assigning this task are jointly and severally liable for any failures. However, the fulfilment of this obligation and its practical implementation raise a number of issues. For example, one of the most common questions related to the online data reporting of self-billing is whether it is necessary to implement any IT development in the foreign partner’s invoicing software so that it can provide data on the invoice to the Hungarian tax authority, or do the supply chain and invoicing procedure have to be completely reconsidered?

Temporary grace period for penalties

The Hungarian authority recognised the complexity of the issue related to self-billing, and as a result, the Ministry of Finance extended the moratorium until 30 June for cases where the invoice is issued by the buyer on behalf of the distributor, by agreement with the buyer of the product, provided that the buyer of the product is not established in Hungary for economic purposes, while it does not, and does not need to, have a Hungarian tax number. Up to now, the Hungarian tax authority has therefore refrained from imposing any default penalties if the taxpayer obliged to provide the invoice data has not, or not properly, complied with the online reporting obligation. Both the legislator and the taxpayers and their partners involved in self-billing were given some time to work out a solution.

What has changed with this amendment?

The solution was finally reached by the end of June. According to the legislative amendment that entered into force on 26 June, if a taxpayer fulfils its invoicing obligation with the help of a proxy, and this proxy is a customer who is not established in Hungary and is not registered for VAT purposes in Hungary in relation to the transaction underlying the invoice, then the online data reporting obligation does not have to be fulfilled from the customer’s invoicing software. The data reporting obligation may also be fulfilled from another computer system, provided that it is carried out electronically via a machine-to-machine connection. The data must be provided within six days following the issue of the invoice or document qualifying as an invoice.

If you want to know how your company will be affected by the changes in the online data reporting of proxy invoicing, including self-billing, please contact the tax experts at WTS Klient Hungary.

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Automation for outgoing and incoming invoices

The administration of invoice processing is particularly important for all businesses. It is easy to implement automation for the handling of outgoing invoices. This is because these invoices are generated within the business: they are most often produced from an underlying document, for example a waybill and, with pre-set bookkeeping rules, even the bookkeeping can be performed automatically.

However, the processing of incoming invoices is time consuming without exception. Incoming invoices can arrive at the recipient in several forms, and through several channels, this varies almost by supplier. Thus it is impossible to develop a general processing procedure, instead of automation, invoices have to be processed manually. The introduction of electronic invoices in 2004 did not help this situation because the concept did not spread as was expected, and the data content was not standardised either. Systems digitising the invoice view and then processing it by way of text recognition and interpretation appeared as a promising new tool. Some even apply artificial intelligence during the processing, but nearly 5-10% of the invoices are still erroneous or remain unprocessed. Searching for an error often requires more energy than recording 5-10 new pieces of data. So in the case of an average business, the aggregate benefit is not significant.

Role of the online invoicing system in automation

The online invoice system of the Hungarian Tax and Customs Administration (NAV) gave new impetus to this business area, where automation has been planned for a long time anyway. The online invoice system standardised the data content of the invoice, i.e. it defined an XML format that can be processed by computer and must be applied upon the issuance of each invoice. The NAV made it possible for invoice recipients to download the XML files sent as part of the mandatory data reporting. From July 2020 data reporting is mandatory in Hungary for each invoice issued to domestic taxpayers, so from this date, businesses access all their incoming invoices through this interface.

What is missing to make automation complete? Currently, the XML file of the data reporting enables almost all data that appears on the invoice to be saved. At the same time, only the invoice data elements defined in Section 169 of the Hungarian VAT Act must be reported, the inclusion of other data is optional, and left for the invoice issuer to decide. Invoices issued through cash registers cannot be queried yet (online invoice data reporting is not applicable here) but the necessary development is already planned.

XML file as an invoice

One important development has been realised in online invoice 3.0, which will be launched in Hungary at the beginning of 2021. The system and the planned legislative environment will enable the data reporting XML file to function as an electronic invoice at the same time. This is only an option though, applying it is not mandatory. In the case of electronic invoices, the XML file is the invoice itself, which must include all data to the full. This is what should be presented in the event of a tax inspection, or archived, or sent to the customer (the legal responsibility for sending the invoice remains with the invoice issuer). The integrity of the data content is guaranteed by a hash code also sent to the NAV. Generating and using this is much simpler than the procedures required earlier with digital signatures and time stamps.

The XML file is hard to understand with the human eye, it is rather suitable for machine processing. So it is worthwhile preparing a legible and printable pdf file from the invoice, and making this available for the customer. The NAV is also initiating a development for this, and it is expected that the electronic invoices derived from all the data reporting will have a completely similar invoice print view. This will accelerate data processing by recipients, even for those not thinking about an automated system. It is important to note that in this case the PDF file, neither in its electronic nor in its printed format, counts as the invoice itself, it is just a representation of it. The invoice recipient can still decide not to accept electronic invoices, so it is worth keeping traditional invoicing for these situations.

Advantages of switching to electronic invoicing based on data reporting

As an invoice issuer, if your business partner does not object, it is worth switching to electronic invoicing based on data reporting. The data must definitely be reported with the required data content, which with a minimal development can also function as an electronic invoice.

As the invoice recipient, all the incoming invoice files can be processed together with the mandatory data content. In the case of partners providing electronic invoices or voluntarily reporting the whole data content, all the invoice data is available for full processing. The reconciliation of invoices, i.e. matching recorded invoices with those received through the NAV, can be introduced as a basic function, enabling missing invoices for example to be identified. The dates and amounts included in the invoices can be checked, and errors minimised as a result. Automation becomes possible by partially or fully recording the data of incoming invoices in the IT system. If the algorithms allow, the bookkeeping of invoices can be completed or prepared.

The future

Thanks to the possibilities inherent in data reporting, many new applications will certainly be prepared in the future. Having received NAV access, even external service providers can process the data of a company’s outgoing and incoming invoices. This allows the development of independent applications based on invoice data, including turnover reports, analyses, management decision support, fraud investigations, group consolidation, etc.

To sum up, by implementing the online invoice 3.0 system, business automation receives its long-awaited boost. The approach of the NAV in the project is exemplary since they not only set requirements but also provide major services for taxpayers. Naturally, as with all processes, things are not always smooth. Aligning the system and the continuous version controls is a serious challenge for software developers since the system has already seen three versions in just a short time.

Changing the IT systems and invoicing software programmes of companies to facilitate the online invoice 3.0 data reporting system and the new format may pose challenges for the IT technicians and finance experts of Hungarian companies, just like during the previous transitions. WTS Klient Business Automation will gladly help you with the transition and with developing the digital systems necessary to fulfil the new data reporting obligation.

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