April 20, the deadline for filing of product charge returns for the first quarter is approaching. As I have already reported in an earlier post, from 2013 environmental product charge audits were transferred back to the tax authority as a result of which the authority now has easy access to both VAT and product charge returns. It will not be difficult, for instance, to identify entities declaring importation and domestic supplies of goods in the same return (or transactions of this kind for earlier periods). If the taxpayers concerned are not registered for product charge purposes, they will soon hear the inspectors knocking on their door to check on the fulfilment of the obligation to pay product charge on imported packaging materials.
Audits are most likely in the case of enterprises not declaring any liability and perhaps not even registered as, if it is established that they should have registered for product charge purposes, the tax authority will not be obliged to perform an in-depth analysis of the relevant transactions and review the underlying analytical records and documents but penalties may be charged immediately.
Products and transactions should be reviewed, above all, in the case of transactions combining importation and the domestic supply of goods (concerning importers primarily) and if environmental product charge payment obligation arises, the taxpayer should register for product charge purposes and file the quarterly product charge return to the Hungarian Tax and Customs Authority as soon as possible otherwise very high penalties may be imposed on them.
The enterprises concerned have to file the returns for the first quarter in accordance with the old rules until April 20.
Important aspects, experiences
1. Product review
By the main rule, products for which product charge is payable are identified based on customs tariff numbers. However, the definitions in the annex to the Act on Environmental Product Charge have to be considered in the identification of the products also for, if the abbreviation “ex.”is included in the annex, not all products under the given customs tariff number are subject to product charge. Nevertheless, products should be reviewed annually as the list changes from year to year.
Whether the given packaging is subject to product charge or not should also be examined in the case of unusual packaging such as, for instance, metal boxes, wooden barrels, plastic cases as the customs tariff number of these is often not even listed in the catalogue of packaging materials and they are not subject to product charge, not even if they are not multi-way.
2. Advertising papers
Special attention should be paid to the definition of advertising papers as this will most likely cover a wider scope of products if the proposed amendment to be filed in spring is accepted.
3. Product charge payment obligation and the time factor
Time is an important factor in the case of the product charge also. If there is a first release for home use and a first application for own consumption, the environmental product charge is payable with regard to (and by the entity performing) the earlier of the two. If these take place at different companies, the product charge is payable by the one who first released the goods for home use or first applied them for own consumption.
Previously, the customs authority took the view several times that in the case of the release of goods for home use the criterion is that the goods must be located in Hungary at the time of the sale. In the case of companies with a tax registration having only a VAT number in Hungary, for example, if the goods imported from abroad are immediately delivered to the buyer’s warehouse and the sale is performed also, based on the earlier approach of the customs authority, the product charge would not be payable by the tax registered entity although this party would be the first to declare the domestic supply of goods to the tax authority.
Similarly, if a tax registered entity acquires goods subject to product charge from Hungary but these are transported abroad and the seller is certain that the goods will leave the country, no product charge payment obligation arises for the domestic seller irrespective of the fact that the exporter is a tax registered entity.
If the product charge on the transaction is paid by the tax registered entity, the transaction should be examined and a ruling should be requested from the tax authority to make sure that the taxpayer pays the prescribed environmental product charge or to avoid unnecessary payment. Requesting a ruling from the tax authority may also be worthwhile for such arrangements in retrospect as unduly paid product charges may be reclaimed if the tax authority approves the request.
4. De-registration for product charge purposes
As a result of the changes in 2012, product charge no longer applies to a large number of companies:
- either because they acquire their packaging materials from Hungary and the product charge on the packaging is not payable by them,
- or because the customs tariff number in question was deleted from the annex to the act or the government decree regulating the environmental product charge.
These companies are not obliged to file a return declaring zero liability. Instead, they have to de-register for product charge purposes. If later they become subject to product charge again for any reason, they will have to re-register and may file returns again.
5. Assumption of product charge – updating of contracts
If a company concluded a contract with a supplier or buyer on the assumption of the product charge for several years, the contract should be reviewed as both the references to titles and the codes of the Catalogue of Packaging Materials (CPM) may have changed. If the CPM codes or the titles changed, a modification of the contract is necessary.
6. Reusable packaging, palettes
Reusable packaging may still be dealt with for the year 2012 but only until the new government decree is published.
Multi-way packaging qualifies as reusable if it is registered with the National Inspectorate for Environment, Nature and Water (NIENW) as reusable packaging and exemption from the payment of environmental product charge is only possible if a compulsory deposit system is applied. If the packaging is not registered as multi-way, product charge is payable for each first release for home use or first application for own consumption.
7. Supply of data to NIENW – other legal regulations relating to product charge
Data shall be supplied to NIENW at the release for home use of packaging and certain electronic products. Please note that the data supply applies to packaging and not packaging materials as in the case of the product charge.
8. Waste management
The enterprises generating a large volume of waste during their operation should get in touch with a waste collection organization. Such organizations pay for the waste submitted as they also receive a subsidy for collection from the National Wage Management Agency (NWMA). In the case of large quantities of waste, the company may even receive 100 percent of the NWMA subsidy from the waste collector!
9. Declaration of product charge – rounding
Figures have to be rounded to 2 decimals in the new product charge return. Although the difference is minimal, the default can be identified by the tax authority easily.
Summarizing the above, we can say that tax authority audits of environmental product charge can be expected this year and everyone should consider whether they choose to spend some time on product charge in order to avoid easily imposed default penalties of high amounts.
The products subject to environmental product charge and the relevant product charge rates are presented in the following table.