The NAV guideline indicates the start of a new era as it applies and orders the application of previously elaborated standpoints of the tax profession as a standard, coherent collection of the “rules of the game”. The summary and the consistent interpretation of the legislative background relating to the aspects and areas of inspection addressed in the guideline is a solid foundation, which, I am convinced, will serve effectively the fight against tax fraud and abuse and fraud committed by limited presence in Hungary.
By elaborating the rules pertaining to foreign enterprises not having a business establishment but pursuing VAT-able activity in Hungary, NAV created a new standard of tax audit rules. The legal references supporting the guideline include paragraphs from an act of 1988 as well as an amendment from 2013. Leveraging on all of the important experience gathered in the previous years, the guideline enables tax inspectors to perform targeted and competent audits:
- inspecting the existence of branch offices of foreign enterprises in Hungary,
- and requesting the submission of
- the contracts concluded on the transactions serving as the basis of the Hungarian tax returns (NAV may request authentic Hungarian translations of agreements in languages other than English, German and French),
- accounting documents,
- inventory records and
- shipping and customs documents substantiating the tax exemption of Community and export supplies.
NAV is prepared for the tax season of 2013! The question is whether the documentation of the many thousands of VAT-registered enterprises is up-to-date also? This issue is current also because the entities registered in Hungary for VAT purposes are audited by NAV’s Directorate of Exclusive Taxpayers, which means that the experiences of the tax audits of the entities with VAT registration in Hungary are accumulated within one organizational unit. The truth is that the announcement of this new type of tax audit means urgent and important tasks for most of these enterprises.
A part of the foreign taxpayers registered in Hungary for VAT purposes still keep documents relating to taxation in Hungarian abroad, and they file Hungarian VAT returns from abroad often with the help of an employee speaking Hungarian but not necessarily competent in tax matters. They are the ones most directly concerned by the rule emphasized in the NAV guideline that enterprises have to present the documents and records substantiating the data reported in their Hungarian tax returns within 3 days otherwise “default penalty may be imposed” as the guideline provides.
For the VAT-registered enterprises keeping documents relating to their Hungarian taxation in Hungary, the most urgent and most important task is probably to check and review whether their activity commenced perhaps years ago may still be carried out, based on the aspects defined in the NAV guideline, under a VAT registration. The involvement of a tax consultant in this assignment may be justified and necessary.
The provisions of the NAV guideline will also give a thing or two to do to those VAT-registered entities which operate compliantly on a certified and controlled basis. After last year’s failed attempt at demanding records in line with the provisions of the Act on Accounting, this year, NAV will “only” require, as declared in the guideline, what it may demand in accordance with the relevant regulations: comprehensive, detailed and separate records. This is no retreat, merely a step back and a closing of lines. It is now the turn of entities with VAT registration to do the same.