The Act on Tax Administration Procedure (Act CLI of 2017) and the new Act on the Rules of Taxation (Act CL of 2017) accepted in November 2017 are intended to achieve the above goal without going against the interests of central budget revenues and with all obliged parties taking a share of public burdens in accordance with the provisions of legal regulations. In addition to the above, the general justification defines the following as the purpose of re-regulation:
- the creation of a regulatory environment that is, as much as possible, brief, transparent, easy to understand and easy to follow,
- to strengthen the service provider nature of the tax authority,
- to provide institutionalized support for voluntary compliance with regulations in the fulfilment of obligations,
- through a review of procedural deadlines and the rules of legal remedies, development of procedures that can be closed within reasonable time,
- narrowing down of the cases of personal contact with taxpayer through a more efficient use of the information and data available to the tax authority, and
- reduction of the administrative burdens of taxpayers and making the fulfilment of their tax obligations easier.
New concept, new structure
During the uniform re-regulation of tax administration, the rights and obligations that taxpayers and the tax authorities have in specific tax matters will be laid down in multiple acts. From 2018, taxpayers may receive information from the following sources:
- The Act on Tax Administration Procedure (ATAP) basically includes general procedural rules applicable to tax authority procedures, in particular tax audits.
- The special detailed rules of the tax administration procedures relating to specific tax obligations will be included in a separate act, the Act on the Rules of Taxation (ART).
- Specific detailed rules will be moved from the current ATP to the substantive legal regulation of the given area (e.g. the VAT Act, the Act on Personal Income Tax).
- Rules of execution will also be included in a separate act in the future.
- A number of tax administration rules that have so far been defined at the level of acts will be moved from acts to decrees representing a lower-level of regulation.
Most important changes concerning tax authority procedures as a whole
In line with the Act on Electronic Administration, the new acts make the option of electronic administration comprehensive. In respect of special authorizations (with the exception of a few cases requiring compulsory professional representation) the professional requirements relating to representatives will be moved from the act in order to make it easier for the taxpayers to proceed via a representative. The act however still includes the list of professionals eligible to represent taxpayers in the case of permanent authorizations.
The structure of audits is simplified. Instead of the former seven types, the act only specifies two types of audits.
- Under a compliance audit, the tax authority may inspect whether the taxpayer complied with individual administrative tax obligations prescribed by law, may gather data and may inspect the authenticity of economic events.
- During a tax audit, the tax authority inspects the fulfilment of the taxpayer’s tax assessment and return filing obligations by tax and subsidy types and by periods.
Major changes will enter into force from the first of January of 2018 in respect of audit deadlines.
Basic audit deadlines will remain unchanged: 90/120 days for tax audits, 30 days for compliance audits and the maximum audit deadline of 180 days will also remain in place for taxpayers not having company registration obligation and reliable taxpayers, which deadline can only be exceeded if the taxpayer hinders the audit process.
A very favourable change for enterprises is that an objective audit deadline is not included in the act according to which the duration of the tax audit shall not exceed 365 days. As a result, all reasons for the suspension of audit deadlines will be eliminated, which means that, according to the act, the audit deadline will not be suspended for the duration of, for instance, a relating inspection or a foreign request.
In the calculation of the audit deadline, the so far well-known concept of deadline interruption will be eliminated altogether. An opportunity will be provided to extend the audit deadline based on the former causes for deadline interruption. In justified cases, deadlines may still be extended. An extension of 90 days may be granted by the head of the tax authority performing the audit, an extension of 90 days by the superior body and an extension of 90 days by the head of the Hungarian Tax and Customs Authority (NAV) or, in the case of a municipality tax authority, by the Minister for National Economy. However, even in case of an extension of the deadline, the audit shall not exceed 365 days on an overall basis.
Several changes may have an adverse effect on enterprises
These include, among others the introduction of limitation regarding the deadline for the submission of comments the expiry of which will result in the forfeiture of this right. If the taxpayer misses the deadline, it will only be able to object to the findings of the tax authority in an appeal against the resolution and the tax authority will not be obliged to take the content of these into consideration when making its resolution. This may be critical when penalties or late payment fees are imposed. At the same time, we have to mention that the deadline for the submission of comments increases from 15 to 30 days.
As provided in current provisions, the opportunity to appeal against resolutions and decisions of the tax authority will remain. An important change, however, is that, according to the law, in the appeal or in the procedure initiated based on the appeal, no new facts or new evidence can be presented of which the party entitled to appeal was aware before the date of the decision of first instance but which it failed to present despite the tax authority’s special request to do so.
The scope of measures that the superior body may apply during the review of the appeal against the decision of first instance will be extended. According to the law, if insufficient data is available for decision making to the tax authority of second instance acting based on the appeal or if further clarification of the facts is necessary, the reviewed resolution does not necessarily have to be annulled and the tax authority of first instance does not necessarily have to be ordered to conduct a new procedure. It will be possible for the superior body to take measures of its own in order to supplement the facts of the case as part of which it may instruct the tax authority of first instance to perform the necessary procedural actions without having to restart the whole procedure.
In addition to the above, the act narrows down, both in terms of subject matter and time period, the cases in which a request for supervision measure may be filed. A request for supervision measure may only be filed against the same resolution or decision once within one year of the effective date of the decision.
As to the method of estimation, unlike the current regulation, the act does not contain specific requirements and only prescribes on a general basis for the tax authority to consider the facts, circumstances and evidence relevant from a tax perspective during the estimation.
Changes in the detailed rules of tax procedure
The act regulates in a separate chapter the services most of which are already provided by NAV. Support of start-up companies is introduced as a new service and will represent a 6-month mentoring and professional support period with voluntary participation. During this period, the tax authority will provide the support intended to help establish voluntary compliance with regulations through personal contact. As another new service, NAV would provide an online interface for announcements/change announcements for taxpayers in order to make the fulfilment of their obligations easier.
In order to provide taxpayers an opportunity to seek information on their contracting partners, the tax authority would also publish tax related data of private entrepreneurs in a way similar to the long-established obligation of companies to disclose financial statements. For the same purpose, NAV will make a database for taxpayer rating queries available on its website.
The rules relating to individual penalty types will also change significantly:
- According to the act, NAV would not impose late payment fee not reaching 5,000 forints.
- The rate of the late payment fee remains twice the central bank base interest rate (currently 1.80 percent).
- Self-revision fee will still be charged at 50 percent of the late payment fee or, in the case of a repeated self-revision, 75 percent of the late payment fee.
- The maximum rate of the tax penalty relating to the concealment of income and the falsification of accounting documents, books and records will remain 200 percent. In the future, 200 percent penalty may also be imposed on the taxpayer that uses the false accounting document.
- The benefit of conditional tax penalty is introduced as a new legal concept the point of which is that if the taxpayer concerned does not submit an appeal against the resolution of NAV, i.e. if it waives its right to legal remedy and, as a result, the resolution becomes effective, in this case the taxpayer has to pay 50 percent of the penalty amount imposed. The taxpayer using this penalty allowance will not have the opportunity to apply legal remedy in the future and will not be able to file a request for supervision measure either.
- As the general penalty rule applicable for non-compliance with (tax) obligations, the act maintains the penalty cap of 200 thousand forints for natural person taxpayers and 500 thousand forints for non-natural person taxpayers. However, in line with the concept of a “customer friendly” tax authority, the imposing of default penalty will not be automatic in the case of certain non-compliances and will be preceded by two steps of warnings.
- The act simplifies the regulation of default penalty and eliminates certain cases in which penalty may be imposed such as failure to announce household employees, illegitimate moderation of tax advance, non-compliance with the obligation to keep invoices and the penalty imposed in lieu of shop closing.
- The tax administration procedural penalty is introduced as a new concept in the system of tax procedure that the tax authority intends to use to sanction behaviours based on taxpayer non-compliances. The rate of the procedural penalty is defined in the legal regulation with the smallest penalty amount being ten thousand forints per occasion and the highest penalty amount being five hundred thousand forints for natural persons and one million forints for legal persons or other organisations. Here we have to point out that reliable taxpayers, risky taxpayers and general taxpayers are all judged in the same manner.
Another favourable change from the perspective of enterprises is the elimination of tax authority supervision procedures and the application of the sanction of tax number suspension.
Rules moved from the Act on the Rules of Taxation to individual substantive legal regulations
When developing the concept of the new ART, the legislator moved the rules of fulfilment of certain obligations (mostly data supply and announcement as well as change announcement obligations) to the acts of the individual tax types. We summarize these main changes below:
1. Provisions moved to the Act on Personal Income Tax:
The provisions on the special rules of the taxation of certain incomes of foreign persons will be included from 1 January 2018 in Annex 7 of the Act on Personal Income Tax.
A new annex (Annex 8) will be added to the Act on Personal Income Tax, which will include the rules of taxation of taxpayers paying flat-rate tax or itemized flat-rate tax.
In relation to the transformation of the rules of taxation, the provisions relating to the taxation of income from the leasing of land will also be moved to the Act on Personal Income Tax.
The Act on Personal Income Tax will include certain detailed rules relating to the draft tax return and the rules of subsequent amendment of the tax/tax advance assessed by the employer/payer will also be moved to this act.
The new Act on the Rules of Taxation no longer includes the rules relating to the settlement of tax and contribution differences, which are moved to the Act on Personal Income Tax also.
2. Main rules moved to the VAT Act
The obligation of value added taxpayers to submit recapitulative statements and the detailed rules of this obligation will be included in Annex 4/A of the VAT Act, just like the regulation of the supply of data on intra-Community acquisitions of passenger cars and the sale of new means of transport.
The provision according to which data supply obligation applies to the taxpayers purchasing and selling certain cereals, oil plants and protein plants (Annex 6/A of the VAT Act) and certain steel industry products (Annex 6/B of the VAT Act) will be moved to the VAT Act.
Together with their VAT return, taxpayers also have to file a so-called summary statement on the data of the invoices issued and accepted by them to or from an individual partner in which the amount of input/output tax reaches or exceeds 1,000,000 forints. The detailed rules relating to this reporting obligation are moved by the legislator to Annex 10 of the VAT Act.
Annex 10 of the VAT Act will also include the rules relating to the invoice level supply of data. On the one hand, the value limit for invoices the data of which must be supplied is cut from 1 million to 100,000 forints. On the other hand, in the case of issued invoices, the frequency of the supply of data is tied to the frequency of VAT return filing of the issuer of the invoice and the data shall be supplied with the compulsory data content prescribed in the VAT Act.
We must also point out that in the future the provisions relating to the VAT refund procedure will be found in ART.
3. New provisions regulated in the Act on Corporate Tax
The rules relating to the tax obligations of taxpayers applying a business year different from the calendar year will be moved to the Act on Local Taxes and the Act on Corporate Tax. These were previously included in Annex 6 of ART. In addition, the Act on Corporate Tax will be supplemented to include certain return filing detail rules (domestic construction of a foreign entrepreneur, declaration in lieu of a tax return, income-profit minimum, companies having real estate).
4. Changes concerning acts regulating other tax types
The provision relating to the limitation period relating to the assessment of duty will be moved from 1 January 2018 (with unchanged norm content) to the Act on Duties. The rues relating to the announcement of the acquisition of real estate will also be transferred to the provisions of the Act on Duties together with the detailed rules of announcing legal transactions requiring a property register procedure. The norm content of the new regulation is unchanged but its wording will be simplified.
From 1 January 2018, the new Act on the Rules of Taxation and the Act on Tax Administration Procedure will no longer include provisions relating to jurisdiction and competence regarding the bodies responsible for local tax cases and town tax cases. In local and town tax cases, the tax authority of the municipality introducing the local tax or town tax in a decree will proceed at first instance in local and town tax cases.
The procedural rules relating to the payment of healthcare service contribution will be moved (without any changes of merit) to the Act on the Persons Eligible for Social Security Services and Private Pension and the Coverage of these Services. The provisions relating to the settlement of tax and contribution differences will also be integrated in this act.
An outlook on amendments of ART entering into force during the year
The tax package accepted in the spring of 2017 also concerned the Act on the Rules of Taxation. The most important changes were the following:
- As one of the most important amendments concerning tax obligations we can mention that domestic companies will have to announce the data of all of their effective bank accounts with foreign financial institutions. The companies concerned will have to announce their foreign bank accounts in effect on 01/01/2018 to the tax authority in writing using the form prescribed for this purpose until 31/01/2018. Failure to comply with this obligation may, in contrast to the rule accepted earlier, be sanctioned with a default penalty of up to HUF 500,000. This provision was included in Annex 1 of ART under the data to be announced to the Hungarian tax and customs authority.
- In order to whiten the economy, the act accepted in May intended to tighten the rules of tax registration by introducing the legal concept of tax payment security. The introduction of the tax payment security is important in the case of persons who had decision-making positions in companies not affected by any tax registration obstacles but having a tax debt or which were terminated with a tax debt if such persons intend to take part in a new company. The rule also prescribes the provision of tax payment security if a person satisfying the above conditions enters an existing company.
- In accordance with the act, the private entrepreneurs opting for tax-exempt status must also open a bank account until 31/01/2018.
- The amendment specified the definition of registered office service provider (not only private persons but organizations may qualify as such) and prescribed a one-off announcement obligation for the persons using registered office services before 01/01/2017.
- The amendment relating to the supply of invoice level data already mentioned above was also announced with the amendments of May but the introduction of the obligation to supply detailed data on invoices with an input/output VAT content of at least HUF 100,000 originally intended to be introduced from 01/07/2017 was postponed. The May act also postponed until 01/07/2018 the online data supply of invoicing programs, i.e. the introduction of the obligation to supply real time data in relation to the invoices issued using invoicing programs containing a VAT amount in excess of 100 thousand forints. According to the reasoning of the act, the obligation can be introduced from 01/07/2018 after a 1-year preparation period and voluntary testing.
- From 1 January 2018, Section 133 of ATAP will include the amendment of May representing the breaking of the aggravation ban. According to the rules of the ART currently in force, after a period of one year from the effective date of the resolution in the case of an audit closed with a resolution or from the date of closing of the audit in the case of an audit closed without a resolution, no decision containing provisions more detrimental for the taxpayer may be adopted (aggravation ban). However, the amendment introduced an exemption from the aggravation ban according to which if the adoption of the new resolution is preceded by an audit (re-audit) and the audit (re-audit) minutes are handed over or mailed within the one-year deadline (i.e. if the audit procedure is completed within one year),a resolution prescribing a tax liability of a higher amount than the one imposed in the previous resolution may be adopted after the one-year period also (but within a period of 18 months at the latest).