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Changes in the Rules of Taxation

The most important elements of the proposed changes in the Act on the Rules of Taxation (ART) are aimed at curbing tax fraud and the black economy and moderating the risk of infringements for taxpayers and also address taxpayer qualifications and the preparation of draft tax returns.

Amendments aimed at curbing the black economy and tax fraud

The proposed amendment of ART would preclude the possibility of receiving reliable taxpayer classification in the case of so-called "dormant" companies which have no positive tax performance in the given year. From 1 January 2017 the pursuing of actual economic activity and having positive tax performance in the given year is a condition for receiving this classification.

In relation to registered office services, the proposal includes a definition of registered office service provider and prescribes compulsory announcement of the use of registered office services. Taxpayers registered to a registered office service provider may expect stricter judgment in the system of taxpayer classification as the proposal classifies as risky taxpayers the taxable persons who are registered to registered office service providers and to whom a default penalty was effectively charged due to the obstruction of a tax administration procedure started after 1 January 2017. Enterprises falling in this category may first be classified as risky taxpayers at the time of the Q2 2017 classification.

In the future, persons concerned in criminal proceedings and persons prohibited by the court of registration from performing executive office (during the term of such prohibition) shall not be allowed to act as proxies in front of the tax authority.

In order to curb tax frauds relating to passenger cars, in accordance with the amendment, VAT-able persons would have to supply data in their VAT returns on the chassis number of the cars in respect of which they reported tax payable under the titles of importation of goods, intra-Community acquisition of goods and supply of goods in the tax return.

Support procedure

From 1 January 2017, if the tax authority identifies a risk or an infringement at the taxpayer or find that a risk or tax infringement at the taxpayer is likely, it will have the option of performing reconciliation in cooperation with the taxpayer without starting an audit.

As part of this support procedure, any taxpayer may be called to perform self-revision. In addition, the tax authority may also contact the taxable person for the purpose of remedying the identified errors or deficiencies by other means with the professional support of the tax authority.

Participation in the procedure is voluntary and the tax authority closes the procedure with the issuing of a record, which not only describes the errors identified but the result of the procedure. In the case of a successful procedure, no sanction would have to be applied. If the procedure fails, the tax authority may order the audit of the taxpayer.

Electronic Trade and Transport System (EKAER)

As part of the authority's fight against tax evasion, the rules relating to the obligation to provide risk collateral are amended also. For "new EKAER participants" (who qualify as inactive taxpayers for the purposes of the EKAER registration obligation) the amendment prescribes an obligation to provide collateral for a period of at least 180 days but at least until submission of the first 10 EKAER announcements irrespective of the taxpayer's classification. According to the amendment, a new obligor / new EKAER participant is an enterprise, which made no EKAER announcements and submitted no VAT returns and was not subject to tax number suspension in the given year and in the preceding two years.

A new legal remedy would be introduced in relation to the application of official seizure by the state tax and customs authority for the purpose of ensuring the identity of goods. In the future, the person concerned by the official seizure or the person whose right or rightful interest is infringed by the official seizure may submit a complaint within 8 days against the application of the official detention.

From 2017, a new legal concept, that of official supervision would be introduced. In the case of goods for which no credible documents are available during an EKAER or other site inspection, the tax and customs authority may apply seizure or may transport the goods under official supervision. The state tax and customs authority shall adopt a resolution on the ordering of official supervision and communicate the resolution in an announcement. The amendment would serve the clarification of the identity of the addressees of goods presumably concerned in violations of law, the circumstances of the acquisition of the goods and the persons having the right to dispose of the goods, prevent the alienation and transport of the goods under official supervision and ensure the fulfilment of sanctions and payment of costs.

Process relating to draft tax returns

The rules relating to the draft personal income tax return procedure already accepted last year but only planned to be entered into force from 1 January 2017 changed. This form of taxation would be available to a wider group of taxpayers this way. The main point of the regulation is that the tax authority would prepare the personal income tax returns of the private persons, who did not request the preparation of their tax returns by their employers or whose employees refused to prepare their tax returns. The tax authority would make the draft tax return available through an interface created specifically for this purpose on the taxpayer's online public administration portal (ügyfélkapu) until 15 March of the year following the tax year.

Those who do not have an Ügyfélkapu account, may request the Hungarian Tax and Customs Authority until 15 March by mail, SMS or email (stating their data of birth and tax ID) to send them their draft tax return on paper by mail. We must point out that private entrepreneurs, small-scale traditional agricultural producers and private persons obliged to pay VAT will not be able to use the option of requesting a draft tax return prepared by the tax authority.

If the person concerned disagrees with the data stated in the draft tax return, he may correct or supplement the data until the deadline prescribed for the filing of the tax return or may submit a tax return himself using the form for this purpose.

If the taxpayer does not correct the draft tax return or otherwise file a tax return until 20 May, the draft tax return will qualify as a return filed by the taxpayer and the data in the draft tax return will be regarded as data declared by the taxpayer. If multiple tax returns are filed, the first submitted return will be deemed as the private person's tax return even if this tax return is prepared by the taxpayer's employer.

Amendments concerning taxpayer qualification

As part of the automated payment relief system, the cap on instalment payment would increase from HUF 500,000 to HUF 1,500,000 from 1 January 2017 in the case of reliable taxpayers. As the amendment only includes the expression "payment relief", reliable taxpayers will not only enjoy the option of instalment payment but also an opportunity to defer payment by a maximum of 12 months.

In relation to the qualification of taxpayers, the entities not accepting their qualification will only have three months from 2017 instead of the six months so far to challenge it.

From 1 January 2017, one-stop-shop registration will be extended to all organizations obliged to register with the court.

Other important amendments

Data supply obligation would be introduced from 2017 in relation to food vending machines. In addition, a special default penalty (similar to the one relating to online cash registers) would be introduced in relation to the Automated Supervision Unit to be integrated in the vending machines selling food without operating staff.

In the tax registration procedures, the rules of tax number definition and rejection would become differentiated in relation to member shareholders. If this person certifies that he does not qualify as an executive officer, company manager or a member authorized to represent the taxpayer and that he did not hold either directly or indirectly voting rights exceeding 25 percent in the taxpayer or did not hold either directly or indirectly voting rights exceeding 50 percent in the taxpayer and used every expected effort to eliminate the hindrance specified by law, the tax authority shall withdraw the resolution adopted on the rejection of providing a tax number. The deadline for the filing of request for exemption will be extended from 8 to 15 days.

From 1 January 2017, tax payment will become easier for taxpayers as they will be able to fulfil their payment obligation relating to online tax returns concerning multiple tax types aggregately with just one transaction through an internet interface using their bankcards. This will also apply to private person taxpayers.

From 1 January 2017, only requests for court revision (but no appeal) may be submitted against the decisions adopted in procedures for determining arm's length prices.

As, according to the tax package accepted during the year, the compulsory supply of data regarding the data content of invoices issued using invoicing programs already enters into force from 1 July 2017, a default penalty will also be imposable in this regard in the case of failure to supply or the supply of incorrect invoice data. The cap on the default penalty would be the product of the number of invoices and the highest rate of penalty prescribed by law for the given taxpayer.

The proposal would introduce a new legal concept, that of the taxpayer's representation in the case of the subsequent audit of tax returns of private persons. Within 15 days of the audit start, the tax authority would call the taxpayer to send to the tax authority within 15 days (this deadline being extendable once by maximum 15 days) his taxpayer's representation presenting his financial, earnings and other circumstances material from the perspective of tax base assessment. If the taxpayer does not submit a taxpayer's representation, the tax authority will carry out the audit based on the data available to it. 

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