The "Achilles’ heel" of Online Invoice Reporting: hidden sources of errors for corrective invoices
Companies doing business with each other issue invoices on a daily basis, and most companies have well-established processes and routines for doing so. The Online Invoice reporting obligation has also become commonplace for businesses. However, based on our experience, there are still companies that find it challenging to fully comply with the Online Invoice reporting obligation. Our several years of experience as a service provider suggests that problems often arise in connection with the reporting of corrective invoices. Taxpayers that fail to prepare for the change to be implemented by the Hungarian Tax Authority in a timely manner can expect to see a whole host of error messages when cancelling or correcting their invoices.
Common errors in invoice reporting related to corrective invoices
Errors in reporting can arise for various reasons and, in many cases, limited understanding of the rules and requirements is what causes issues. We will now look at a few common errors that should be identified and avoided to make the invoice reporting process more efficient:
- Errors/deficiencies in invoice reference data: A typical error is an incorrect reference to the original invoice number (‘originalInvoiceNumber’) or failure to provide a reference altogether.
In addition, during online invoice reporting, several pieces of information need to be included in the XML files submitted to the Tax Authority which are not among the mandatory content elements of invoices but are still technically required for successful reporting. For corrective invoices, such information includes the serial number of the correction within the invoice chain and an indication of whether the original invoice associated with the corrective invoice has been reported in the Online Invoice System.
- Misrepresenting corrective invoices: It is not uncommon to see companies report their corrective invoices as regular invoices, omitting the additional fields and references required in the case of corrective documents. Although the system of the Tax Authority accepts these submissions (with a WARN message),they are regarded as incorrect reports and, as a result, they could serve as grounds for imposing a default penalty in the event of an audit by the Tax Authority.
- Incorrect exchange rate and date of performance: Based on the VAT rules, the date of performance and, in the case of items denominated in foreign currency, the applied exchange rate displayed on a corrective or cancellation invoice should normally be identical to the same data of the relevant original invoice. However, these data are often incorrectly indicated on documents equivalent to invoices. This may occur when, for instance, a different date of performance (typically the date when the corrective invoice is issued) is displayed on the corrective document instead of the date of performance indicated on the original document, or when the exchange rate effective at the time of issue of the corrective document is used for calculating amounts in HUF. In this case, taxpayers will not always encounter an error during invoice reporting, but the documents issued will be incorrect from a VAT perspective. This is one of the reasons why companies should review their invoicing practices, the associated reporting process and the reported data themselves from time to time.
- Place of the line items of the invoice within the invoice chain and the logic of corrections. Until now, two options have been available to taxpayers when carrying out the correction or cancellation of an invoice. One possible approach was to include in the corrective invoice a reference to the line of the original invoice to be corrected, while another method was to record changes in a new (so-called "fictitious") line item within the invoice chain. To illustrate the latter case, consider an example: let’s suppose that we issue an invoice that contains five line items (products). In the end, we are only able to deliver four out of these five products to the customer as the first one is currently not in stock. In this case, the originally issued invoice obviously needs to be corrected.When reporting the correction, the line item of the out-of-stock (first) product needs to be provided, whose value must be negative. In this case, the numbering of the invoice chain must be incremented by using a special reference. In the example, if the correction in question was not preceded by an earlier correction, the special (technical) reference item will be assigned the value 6 (as the next item in the invoice chain) in the first line of the corrective invoice during reporting.
This shows why invoice reporting causes such a headache for many taxpayers and developers when it comes to corrective invoices. This is because the invoicing application needs to be able to record the number of items in an invoice chain for all invoice chains (including additional invoice items from previous corrections). Fortunately, the Tax Authority allows running queries in the Online Invoice System, which makes life easier for developers.
Change in the logic of invoice corrections
Ever since the launch of the Online Invoice System, the Tax Authority has been implementing both minor and major changes to the platform from time to time. Accordingly, in January this year, the Hungarian Tax Authority announced an important change that will go live on 18 September 2023 instead of 15 May 2023 as originally planned.
As the change is also necessary for the eVAT system to function properly, the go-live cannot be postponed any longer.
The new deadline is 18 September, which means that companies still have time to prepare for the new requirements. Implementing the changes in a timely manner allows companies to make preparations and to ensure that the transition is seamless.
The most recent change concerns the logic of line items in connection with the reporting of corrective and cancellation invoices. In the future, when reporting data for documents of this type, you will no longer be able to refer to the line number of the original invoice that you would like to correct. This means that, of the two options mentioned above, only the second one remains available.
Taxpayers who continue to use the old logic after 18 September and fail to make preparations in a timely manner should expect to encounter error messages and invalid reports.
Make sure that your online invoice reporting is correct
In online invoice reporting, the reporting of corrective invoices continues to remain a priority. Avoiding errors and properly handling the changes implemented by the Hungarian Tax Authority not only improve the efficiency of invoicing processes, but also significantly reduce the risk of incurring a default penalty.
If you encounter difficulties in reporting (e.g. incorrect reports or failed submissions),or if you would simply like to make sure that the data you report do indeed comply with the current requirements, you should seek help from an expert.
Experienced professionals are not only able to assist you in identifying and resolving errors quickly and effectively, but can also provide developers of invoicing software with recommendations and advice on permanent solutions to such issues from a tax and IT perspective to ensure correct reporting, bridging the communication gap between the two areas.