A revolution is a staggering and rapidly approaching social phenomenon that completely overturns the system of social and political institutions or, perhaps, achieves a major cultural, economic breakthrough. This latter, the economic, breakthrough is the one that we economic, taxation experts must deal with. In the last 2 years, or from July 2018 to be more precise, a digital revolution has started and was/is progressing at an incredible rate: Hungarian Tax Authority (NAV) is setting a blistering pace. NAV started thinking in such a data structure that has not existed before, whereby the manner of data transmission, and also the ability to audit taxpayers, has changed radically. Ever since it became necessary to provide the data in XML format, sheer economic, financial or advisory knowledge is no longer sufficient to meet tax authority expectations and, moreover, these data can also be used for carrying out analyses.
The introduction of NAV online invoice data reporting system represented such a major breakthrough that, as we thought at that time, is unique and cannot be repeated. However, by now we can both see and be aware that regarding digital taxation we can expect to face even more enormous challenges. A year after the 1.0 XSD template, the 1.1 template appeared and currently we are preparing for the 2.0 template that is set to become mandatory as of 1 April 2020.
This pace of change is very fast for Hungarian economic players, as news regarding the 3.0 template, the draft tax return, and the so-called SAT-F files have already also emerged.
Hungarian tax digitalization deadlines
27 February 2020 – NAV online invoice, the XSD 2.0 template will become an accepted method of reporting
1 April 2020 – NAV online invoice, the XSD 2.0 template will become mandatory
- The requirement to track corrections may present a challenge as it will be necessary to mark in the online invoice’s XML file the occasions on which a specific transaction was amended in the given correcting invoice
- The XML encryption algorithm of the online invoice will change.
- The XML data structure of the online invoice will also change.
1 July 2020 – NAV online invoice, the reporting threshold will be eliminated and the scope of affected tax subjects broadened
- The VAT threshold of NAV online invoice reporting will be lowered to HUF 0 from HUF 100,000 earlier. It will be necessary to provide data about all transactions completed among domestic taxable persons/entities, including reverse VAT transactions and the transactions of taxpayers not registering for VAT.
- Regarding VAT return M-forms, the threshold will be eliminated.
- It will be mandatory to display the tax number of purchasers (accounts receivable - AR) in both the invoice and the XML files, regardless of the threshold. For this reason, it makes sense to review AR data in corporate systems and applications - ERP, accounting system, records - in due time.
- Regarding manual invoices, the reporting deadline will be shortened (from 5 to 4 days). (There will be no change regarding invoices raised with an invoicing application, the prompt reporting obligation will remain in place).
1 July 2020 - The deadline for issuing the invoice will decrease from 15 days to 8 days.
Summer 2020 – NAV online invoice, the XSD 3.0 template will be made public
- Effective from January 2021, Community transactions, export transactions and sale to private persons will also be covered by the online invoice reporting obligation. Due to the widening scope, we must be prepared for a new XSD template (that is for XML modification),it is planned that version 2.0 will be replaced by version 3.0 from January 2021.
1 January 2021 – NAV online invoice, the XSD 3.0 template will become mandatory
- Simultaneously with the introduction of the new XSD 3.0 template, nearly all invoices raised will need to be reported.
- NAV must be prepared to manage many times more real-time online invoice reports, and taxpayers will need to fully report invoices issued to both companies and private persons.
- On the side of taxpayers, for taxpayers and small taxpayers that, until now, did not report online invoice data, the need to enter manual invoices manually into the on-line system will represent a considerable additional administrative burden. As an alternative, they may either purchase and operate a cash register, buy an invoicing application that is capable of sending online invoice reports or must make sure that their invoice data are linked to an external, closed system.
Q1 2021 – NAV will offer the first draft VAT returns
- Regarding the preparation of the first VAT returns, NAV has already announced the planned deadline. Similar to the e-personal income tax system, the first draft VAT returns are also expected to facilitate simpler corporate operation and processes.
- NAV may receive the data about incoming invoices via the online invoice reporting system, and although their accuracy may be questionable, they may still be used as a starting point for the preparation of NAV draft returns.
- (For the time being) the tax authority is not yet knowledgeable about specific situations, the contractual data in place between taxpayers, however, by monitoring the practice of individual companies, the system of NAV may also build up such capabilities.
2022 / 2023 – Introduction of the SAF-T data format
- NAV has started taking the steps that are necessary to introduce in Hungary the Standard Audit File for Tax (SAF-T),- which is a standard XML format file for taxation purposes.
- By developing the Hungarian version of the digital reporting obligation devised by OECD and introducing reporting, NAV will be able to oversee a wider scope of data that is provided by current reporting, using digital data transmission and data analysis.
- The scope of data and tax subjects affected is getting shape currently. However, it is already clear that this may require the corporate sector to take their digital NAV data reporting to an even higher level. The pieces of corporate financial administration - accounting, invoicing, ERP - software will need to prepared (either directly or indirectly) for facing and meeting new challenges presented by digital data reporting. This will also require that employees working in these functions are developed and trained intensively.
How may the companies prepare for NAV’s tax digitalization agenda?
According to experiences gained so far, on the one hand, it would be problematic for taxpayers to lag behind NAV and, on the other hand, it is a constant and justified expectation of corporate managers to minimize tax risks. It makes sense for economic players to focus on the following aspects so as to be able to at least keep pace with NAV:
- The transformation of taxation and accounting processes in a manner facilitating that control points regarded by NAV as expected for due diligence purposes can be incorporated into the processes, by considering the above timing schedule.
- The use of such software and application products that, by relying on a continuously available developer team, can promptly react to NAV expectations.
- The employment of such economic professionals to whom it is not foreign, but rather a need/desire to cooperate with developers.
- In case ERP and/or accounting applications are developed in-house, scheduling and maybe even upgrading IT developer capacities.