According to the tax authority, three systems will operate simultaneously in the near future to complete VAT returns. Let's take a look at them.
- ÁNYK VAT return: the existing and well-known system, used by many
- Web-based VAT return offers: we described this in detail in a previous post of the blog.
- eVAT M2M XML: the new type of extended VAT analytics in XML structure, which is a pre-defined data structure containing the VAT analytics of the companies for a given period and the additional information required for the VAT return in XML format.
In the following, we look in more detail at the new acronym and how the new system will help companies with their eVAT analytics.
Who benefits from M2M VAT and why?
The first question about M2M VAT for any company is probably how much it costs. Why is it good? Or will it simply be mandatory, without which the company could be penalised?
The good news is that the Hungarian Tax Authority has been in regular consultation with taxpayers and accountancy and tax advisory firms over the last few years. Therefore the tax authority is not only shaping its VAT and invoicing requirements based on its own perspective, but it increasingly focuses on its service provider role.
Thus, the introduction of M2M XML will offer features that are beneficial for companies:
- Reduced administrative burden for taxpayers.
- Taxpayers are provided with more data in a complex service package: This includes an audit package currently used by inspectors for validation purposes. This validation package will be offered to businesses when they upload the eVAT M2M XML to help them comply with the regulations. A new feature of this package is the possibility to query current tax account data and in the future machine-to-machine queries in certain taxpayer databases (e.g. taxpayers without public liability, unregistered employees, etc.) will also be available. In addition to the already available tax authority online account data, it will be possible to query cash register data, customs declaration processing system data, VAT return offer data, and tax codes. Thus, the VAT analytics data will be validated and checked in several aspects, helping companies to prepare more accurate VAT returns. As we know, there has always been a strong emphasis on correct online data reporting to the tax authority, so it is recommended that you check all your online data reporting both for invoices issued and received. This is because a missing or untruthful report may not only result in a fine, but also in a discrepancy between the information provided by a company and the information recorded in the tax authority's system.
The new system will also bring many advantages to the tax authority:
- Reduced administrative burden for the tax authority: The unified eVAT system will eliminate the issue for the tax authority of having to deal with a multitude of various VAT analytics for a multitude of businesses. If the tax authority receives VAT analytics from all businesses in the same data structure, it will be sufficient for inspectors to learn and apply the scheme and the related control function once.
- Further risk analysis protocols introduced at the tax authority: This will also eliminate unnecessary tax authority questions and checks, freeing up capacity on both the authority and the business side.
How can we move fastest through the eVAT M2M highway?
What we call the "motorway" function of the eVAT M2M is implemented by running for a considerable period of time in parallel with the ÁNYK VAT declaration, now considered the main road. So no one should
be alarmed, the new digital VAT declaration method will be introduced first in a test run and then in parallel with the current ÁNYK VAT declaration. This will allow each company to decide which solution is optimal for them.
However, the tax authority has already indicated that companies that submit eVAT M2M XML VAT returns will probably face fewer tax authority enquiries in the future and will not have to bother with the M forms of the VAT return. This is because the VAT return with the M2M option will contain much more information than the current VAT return with the ÁNYK option. In the M2M XML, the company submits its VAT analytics and additional information to the tax authority, whereas currently the tax authority can only obtain this information in a compliance or tax audit after the VAT return has already been submitted.
Even with the digitisation of data, the expertise of accountants and consultants will be important: translating tax authority expectations into IT developments and translating them for IT developers by interpreting github material is still challenging.
VAT analytics extended to include new elements
An astute reader may ask: if VAT analytics will be pre-defined in M2M XML, how will this be implemented for other businesses using ÁNYK or web-based VAT return offers? Fair question and the tax authority has given the answer.
Contrary to previous practice, it is now laid down in law exactly what data a Hungarian taxpayer's VAT analytics must contain. This is welcome news for all those who like to work with standardised data, thus making comparability and control easier.
A detailed paper published by the Hungarian Tax Authority on M2M was published on github in early September, in which we read that currently, the vast majority of businesses probably include fewer data in their VAT analytics than M2M XML expects. The documentation published on github is not yet final, but it shows that improvements will be needed in most cases to prepare VAT returns.
Challenges of the new eVAT XML expectations and opportunities
Of course, as with any new system, the introduction of eVAT M2M XML will bring changes on the corporate side. Let's take a look at what companies need to pay attention to.
- The tax authority will ask for data in M2M that have not yet had to be included in the VAT analytics, and these will have to be linked in the accounting systems.
- There will be a tax code structure issued by the tax authority to which the company's own transactions and tax codes will have to correspond. This has to be done for each new type of transaction, and if the tax authority effects changes, you need to track these changes.
- The possibility of incorporating the service package (extra data that can be obtained in API queries) planned by the tax authority should be considered and developed.
- You need to interpret the feedback messages of the control functions implemented by the tax authority and improve the associated data set, if necessary.
- It should be developed how the information retrieved from the Hungarian Tax Authority’s database will be incorporated by the company or its accountant in the course of daily work and what conclusions will be drawn from that information.
- The new function of the VAT return system and the related responsibilities need to be developed within the company.
- And last but not least, the company must apply the new structure and analyse the new type of data in each VAT return period.
Online account reports and queries all through Europe
It is not only the Hungarian Tax Authority that is introducing online account reports and data queries, the European Union is also aiming to do so. In the European context, the difficulty for businesses is that while they have to comply with the rules of the Hungarian Tax Authority for domestic transactions, there is no uniform EU regulation for foreign transactions. This too will soon change. The EU Commission plans to introduce the DRR (Data Reporting Requirements) system for Community trading in 2024-25. DRR will include invoices for Community transactions in a way similar to the Hungarian Tax Authority’s online invoice report system, but in a larger, EU-wide framework.
RSM Hungary's experts will also provide support in the implementation of the new VAT filing system and DRR, as they did for the introduction of the online invoice. As accountants and tax advisers, we also feel that, in addition to knowledge of the law, there is work to be done in the application of the law and in the coordination of companies' processes. The Hungarian Tax Authority is at the forefront of tax digitisation, so companies need to constantly think and adapt to new digital challenges simultaneously with the tax authority. Fortunately, we can now say that these are no longer just expectations, eVAT M2M can open up a wider range of data queries in the tax area.