Pitfalls of online invoice reporting
Experience shows that the internal audit practice related to online invoice reporting is not yet mature on the taxpayers' side, while the tax authority, following European trends, rapidly progresses towards the most comprehensive and extended reports possible.
It is the taxpayers’ own responsibility to subsequently verify the data they submit via the online invoice reporting interface of National Tax and Customs Administration, Hungary (NAV), but not all taxpayers have taken steps to ensure this. However, it is highly recommended to detect and correct any errors. Partly because the ultimate, and not very distant goal of the tax authority is to be able to prepare tax returns(s) based on invoices reported. On the other hand, given that it is the taxpayer’s responsibility to correct both the invoice and its reporting for invoices not accepted by NAV, if they fail to perform this, they may face fines.
The most common online invoicing faults – HUF 500,000 per invoice
1. Failed invoice reporting
Our experience shows that there are still taxpayers with failed real-time invoice reports. One year after the introduction of online invoices, this is no longer a matter of discretion. In such cases, the tax authority may use its powers set out by law, and impose a default penalty of HUF 500,000 after every invoice not reported. The tax authority's system technologically provides an opportunity for taxpayers to subsequently report any missing data, thereby avoiding the risk of future sanctions. However, as of 4 June 2019, subsequent data reporting for a former period is allowed using the new of XSD (1.1) version only; the use of the former XSD 1.0 version is excluded.
2. Failure to check NAV receipts returned
For each invoice XML submitted on the online invoicing interface, taxpayers are returned an NAV message. The receipt/notification tells whether the invoice reported has been accepted by the tax authority, and if so, certain details are checked by the tax authority and errors are reported back. Based on our experience, there are still companies that either fail to or cannot read the notifications returned by the tax authority. These messages are important because if they contain any error requiring correction, it must be addressed in all cases, in order to avoid fines.
3. Incorrect reporting of corrective invoices
We still find a lot of mistakes on the taxpayers' side for corrective invoices. These are attributable
- partly to incorrectly issued invoices (the issued corrective invoice itself fails to comply with the VAT Act),
- partly to correctly issued, but incorrectly reported invoices (where the structure or content of the submitted XML schema fails to comply with the regulatory requirements).
For corrective invoices, particular attention must be paid to the details of the original transaction affected by the correction. These data must appear on both the invoice and the associated XML schema. It is a common mistake when a correction is posted as an ordinary transaction instead of a correction, while this results in an invoice and invoice reporting with incorrect content for the tax authority.
4. Incorrect tax numbers specified
As regards tax numbers, the tax authority defines which characters of the tax number should be included in the XML schema (country code, number of digits). It is important that there is a difference between the definitions of the Hungarian and Community tax numbers, which results in issues for many taxpayers when they include the incorrect format. The tax number is of particular importance as, amongst others, the tax authority uses these to associate an invoice report submitted by the issuer of the invoice with the M-sheet submitted by the invoiced party. It may result in unnecessary inspections by the tax authority if the authority's risk analysis team indicates the need for an inspection due to different or missing tax numbers.
5. Incorrect dates specified
For invoices reported by taxpayers, the reported date and the one actually specified on the invoice often fail to match. In such cases, the tax authority may suspect that the data was not reported in real time or via exclusively a machine-machine interface. The tax authority’s system provides an opportunity to remedy the error, but this basically requires the detection of the error.
Recommended internal audit
The above errors can be controlled by monitoring the returned NAV online invoice report notifications, and a software solution is also available. As NAV checks the contents of invoice reports in an automated way, it is advised to run a test at least periodically, in order to detect and enable the addressing of risks and possible differences associated with online invoices before they are found by NAV. It is worth considering the above since a failure to report invoice data in real time can result in a fine of half million forints per invoice, which may lead, in a given case, to the risk of a tax penalty exceeding the VAT content of the invoice. What is more, NAV is already working on version 2.0 of the XSD foreseen for 2020, which builds on version 1.1, whereby compliance with the latter cannot be avoided.
The tax authority is planning to reduce the current limit value of invoice reporting (HUF 100,000),whereby taxpayers need to be prepared for controlling the increased reporting obligations and the growing number of possible associated errors. We recommend that you should incorporate such control and corrective measures in your everyday billing invoicing procedure now that will enable you to easily monitor the accuracy of your online data reporting. Our digital solution enables you to verify your data reporting on a monthly, weekly or even daily basis. Thus, errors can be remedied before attracting the attention of the tax authority's risk analysis team.