Preparing and filing tax returns always means a lot of work for companies. Tax advisers and accountants take great care to ensure that tax returns are prepared accurately and on time in order to comply with the law and avoid tax penalties. However, the preparation of VAT returns is often complicated and difficult to check by human means, especially when there are a lot of invoices. The Hungarian Tax Authority wishes to make the process of tax administration easier and more transparent; therefore they are moving taxpayers to a digital - machine-to-machine - communication path.
EVAT M2M XML: This new format of the VAT return is the latest technological development in the field of taxation.
Technological progress in the field of taxation continues with the introduction of the eVAT return. The eVAT M2M XML is a new type of VAT return format, which is validated and submitted via a machine-to-machine connection, similar to online invoice data reporting.
The new system will simplify the tax filing process for businesses and make it easier for the tax authority to review taxpayers. The eVAT M2M contains the VAT analytics for a given period and the additional information required for the VAT return.
Even though the eVAT is not compulsory, it is a package of services that is beneficial to both taxpayers and the tax authority.
The role of the eVAT M2M link and VAT analytics in tax filings and tax audits
If a company submits its VAT return through this system, the VAT analytics are also part of the return. This also means that, for example, in case of a tax audit, if the VAT analytics are complete, the tax inspector cannot request additional data as part of the VAT analytics. However, in addition to the VAT analytics, the tax inspector may still include source documents, contracts and other documents in the procedure.
EVAT M2M as a service package
Preparing a tax return and VAT analytics can be a long and complicated process. However, the eVAT M2M system provides a wealth of information for VAT filing. The system consists of several services, the most prominent of which is the "data pool", where data from online invoice data reporting, online cash register log files and the customs rulings system can be accessed and queried.
In addition, the system stores a range of data, which supports automated data processing or other business processes, such as the ability to retrieve tax code summaries for an invoice or to download web-based VAT analytics provided by the Hungarian Tax Authority.
There are several ways for users to finalise their VAT analytics. They can use the Hungarian Tax Authority data to complete and compare their VAT analytics, or they can use the information returned by the Tax Authority to prepare their VAT return. Thus, the wide functionality of the eVAT M2M system allows users to fulfil their VAT return obligations in a more efficient way.
Process of eVAT M2M communication
The machine communication of the eVAT itself is as follows:
- uploading the eVAT XML and finalising the upload
- validation of the uploaded data file
- query of the XML return (data file returned by the tax authority)
- approval of XML VAT return
The eVAT M2M system subjects each uploaded XML file to a validation process, which consists of two parts. The first part is the technical validation, which checks the format of the file and the required data. The second part is the business validation, which checks the correlation between the VAT analytics and data reporting and looks for anomalies. The system alerts the taxpayer if there is an error in the file and does not allow the incorrect return to be filed.
The validation of the XML VAT return can be initiated via machine-to-machine communication. The taxpayer is then required to make a decision on the approval via the associated mobile application.
The benefits of implementing eVAT M2M
The digitisation of the Hungarian tax system started earlier with the introduction of online cash registers and online invoice reporting, which has greatly reduced tax evasion and increased the control efficiency of the tax authority. The introduction of eVAT M2M promises similar results in the area of VAT returns.
The new system will allow transaction-based reporting, providing much more accurate and comprehensive data on the activities carried out by taxpayers. However, the transition to eVAT M2M will bring significant benefits not only to the tax authority, but also to businesses, as the currently known “ÁNYK” return will no longer need to be completed, and the content of the VAT analytics can be checked on the basis of several aspects, which may result in more accurate VAT returns and also reduce the time needed for tax audits on the part of taxpayers, the number of tax audits and the number of hours spent on preparing VAT returns.
Challenges of the eVAT M2M system for companies
The eVAT M2M system offers taxpayers many benefits, but it also poses some challenges. Businesses need to understand how the system works and ensure that data is uploaded correctly. To prepare a VAT return, the data must be compiled in the administrative system or in an accounting programme as an XML file.
One of the challenges is that the Hungarian Tax Authority needs a standard data structure and has published a standard tax code table. This means that a standard tax code needs to be assigned to the transactions in the VAT analytics, based on which the system will automatically aggregate the tax return lines. Taxpayers therefore need to establish a link between the company tax codes and the standard tax codes in order to connect.
Furthermore, to develop a proper eVAT M2M system on the business side, it is important to properly process and interpret the responses from the Hungarian Tax Authority in order to ensure efficient machine communication and data processing. Data cleansing and data structuring are also key for connecting to the eVAT M2M system, as proper machine-to-machine communication and eVAT XML generation are essential.
The development of eVAT communication is more complex than the online invoicing system, as it requires the comprehensive analysis and mapping of VAT analytics and the interpretation of the responses of the Hungarian Tax Authority to the complete VAT analytics. Due to the complexity of the task, taxpayers and software developers face a greater challenge to connect to the VAT M2M system than when implementing online invoice data reporting.
How much time do companies have to prepare?
According to the timetable planned by the tax authority, a test run will start in autumn 2023, allowing taxpayers to test the operation of the eVAT M2M system. The live environment could be opened in the first half of 2024 and, although the use of the new system is not mandatory, taxpayers and software developers should prepare for the introduction of eVAT during this period.