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Audit of tax registrations: there will be no witch-hunt

However, despite these reliefs, the Hungarian Tax and Customs Authority (NAV) may audit these taxpayers more frequently. Both the audit practice of the tax authority and the communication relating to the drafts of next year’s tax laws suggest enhanced audits of these enterprises in respect of the records prescribed by the Hungarian Act on Accounting.

Does this mean that these companies will have to keep their books in compliance with Hungarian accounting regulations? – the question arises. Well, the answer to this is uncertain at this point. Based on the regulations of the Act on the Rules of Taxation regarding the keeping of books and records, the inspectors of NAV already demanded documents meeting the requirements of the Hungarian Act on Accounting at this year’s tax audits from taxable persons to whom this act does not even apply. So far, the tax authority has not replied to the letters challenging this interpretation of legal regulations. However, we already see that the drafts of next year’s tax laws specify the challenged provision: accordingly, this requirement will only apply to foreign enterprises which have their place of management in Hungary. According to the specification, the foreign enterprises having a Hungarian tax number “only” may continue to substantiate the data declared in their Hungarian tax returns with records maintained in line with the provisions of the state in which they have their seat.

Another issue relating to audits of Hungarian tax registrations is that the so-called Kockerd questionnaire applied in tax registration procedures also has to be filled out by these enterprises. However, an argument, also confirmed by the experiences of NAV, against making stricter audits following the issuing of tax numbers and the reporting of changes common is that the taxpayer discipline of foreign enterprises having financial or fiscal representations in Hungary is above average and their operation and presence does not represent a risk to public revenues. This conviction is also reflected in the proposed tax law amendments published, which do not extend the scope of application of the risk assessment questionnaire to this group of taxpayers.

Accordingly, the registering of the Hungarian tax registrations of foreign enterprises and this year’s tax authority requests relating to their operation are no longer included in the recently published version of next year’s tax laws. It seems that NAV applies no scrutiny where not necessary and that the audit priorities of 2013 will be defined with a view to the most efficient use of audit resources. At least, for now.

What you should know about companies having a tax registration is that they mostly only fulfil VAT obligations in Hungary (but may, in certain cases, also be subject to other tax types such as the environment protection product fee, for example) but as long as they do not have a site in Hungary, they pay corporate income tax on their Hungarian transactions according to foreign rules.

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