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As part of our services relating to tax audits and tax lawsuits, we are capable of identifying and managing tax risks for taxpayers that contact us, both prior to audits by the Hungarian Tax Authority and during ongoing tax audits, compliance reviews or tax lawsuits. Our tax representation services are not strictly limited to audits by the Hungarian Tax Authority and local tax authorities, but also include solving problems that arise in the course of tax compliance and effectively managing such issues when dealing with the tax authority.
In tax authority procedures initiated based on regulations which are more complex or not yet fully established (e.g. regulations on VAT groups, special taxes, trust regulations, compulsory strike-off, tax reduction or transfer pricing regulations),we are able to effectively and successfully find solutions to questions that may arise with the involvement of our tax experts and tax lawyers through our cooperation with local tax authorities, the directorates of the Hungarian Tax Authority, the Central Management of the Hungarian Tax Authority and the Ministry of Finance.
The tax matters covered by our tax representation and tax advisory services include, amongst others, the following areas:
Our services are targeted at taxpayers (both individuals and businesses) who prefer to be represented by professionals during a tax audit and potential court proceedings who
request a proposal - tax expert, tax lawyer
In many cases, our engagements concerning representation during audits by the Hungarian Tax Authority and other tax matters involve providing professional support in preparing declarations in cases where the state or local tax authority asks questions as to how a business transaction was carried out.
The tax authority will often require companies to submit a declaration or a justification report in connection with a transaction under investigation, even without raising specific questions and instead asking for an explanation of the reason why and the manner in which certain business transactions were carried out by the company.
In doing so, it is crucial that the economic context in which the transaction took place is presented to the tax authority in a way that is understandable and acceptable (with the assistance of a tax lawyer, for example).
The state tax authority has been initiating fewer and fewer tax audits for years, conducting real-time compliance reviews instead. These reviews do not result in periods being closed by an audit, meaning that self-revision is possible during the procedure.
Findings imposing a specific tax liability cannot be made in such a procedure, but the procedure itself can be initiated any number of times without limitation, which may require the company involved to invest significant time and effort. As part of our representation work, we are able to assist you with the efficient and satisfactory conclusion of compliance reviews, ensuring that they are not followed by another compliance review or a tax audit.
When a tax audit is initiated, the tax authority is already in possession of a significant amount of information (which originates from risk analyses, compliance reviews and audits of other taxpayers) and, in the vast majority of cases, will only look to further support its position in relation to the previously identified risks. In the course of our representation work, we initiate a professional dialogue with the tax authority, thereby creating an opportunity for the tax authority to examine the merits of the company's position and to take into account the evidence, motions for evidence and declarations that are in favour of the company.
In the desk audit procedure, the Hungarian Tax Authority carries out a real-time audit in an office environment to examine the risks inherent in the business activity of the company being investigated and identifies possible tax avoidance practices. As part of our representation work, we provide support and help to identify the reasons behind discrepancies between data (online invoice data, returns, etc.) so that errors can be corrected and any omissions can be rectified without a tax audit being initiated.
In the course of our representation work, we are also involved in support procedures in many cases, relying on our expertise to ensure that the company only satisfies those requirements of the Hungarian Tax Authority and other tax authorities which are, in fact, justified and lawful. We also assist with preliminary tax due diligence and identify potential risk points which could cause problems during a subsequent audit or due diligence check, which means that we pinpoint and quantify tax risks for the tax periods, tax types, business transactions and tax liabilities identified in cooperation with our client, and provide help in managing these risks.
During a tax authority procedure, the first opportunity to respond in writing to the proposed findings of the tax authority is to prepare a comment. A key factor to consider when drafting a comment is that, at this stage, it is still possible to bring new information to the attention of the tax authority that could serve as concrete evidence to support the company's position.
However, what is left out of a comment cannot be invoked later on in the procedure, and so a company may lose a strategic advantage by filing a poorly prepared comment.
RSM Hungary provides support throughout the entire tax administration procedure, meaning that if a decision is issued which is unfavourable for the company, we are able to use our expertise to support our clients in preparing not only the comments, but also the appeals against the decision. As part of our work, we assess the tax authority's findings from a professional perspective, devise the strategy to be followed, and defend our clients' position against the tax authority. And if the issued decision is in violation of the law, but the deadline for initiating a lawsuit has passed, then filing a motion for supervisory action should also be considered, which is another area where we can assist our clients.
Other legal remedies that taxpayers are often unfamiliar with or do not exercise are also available to taxpayers during the audits and procedures of the Hungarian Tax Authority.
Legal remedies are also available against taxpayer classification or even against deletion from the database of taxpayers with no public debt and, similarly, there are remedies which can and should be used to object to any unlawful actions of the Hungarian Tax Authority in an enforcement procedure. Our experts can work with the tax authority efficiently and effectively to achieve outcomes and find solutions in the tax representation procedure that are capable of remedying adverse consequences for taxpayers.
There is still a misconception among taxpayers that if a certain period is closed by the tax authority with a tax audit, then there is no chance of "re-opening" or re-examining that period. The law does, in fact, provide an opportunity for opening a period closed by an audit, subject to conditions.
In this situation, we believe it is important to engage an expert who, after examining the relevant facts and circumstances, can provide the taxpayer with useful advice in making a decision in order to ensure that a repeated audit is initiated. In order for the company's request to be approved, the reasons justifying a repeated audit must be presented in a professional, precise and clear manner, and our tax advisors and tax lawyers are able to help our clients prepare such a request.
During audits, we have been seeing an increased focus on local taxes, particularly local business tax (LBT). Due to the detailed rules and the different interpretations of the rules by tax authorities, disputes often arise over the calculation of LBT when determining the value of services provided by subcontractors and mediated services. Our advisors' extensive knowledge of the subject can help clients argue their case against the tax authority, and we are able to support businesses in defending their position against the tax authority while cooperating with the local tax authority.
Please do not hesitate to contact us if you have any ongoing disputes with the local tax authority.
In recent years, transfer pricing investigations have become a priority during tax audits. The tax authority examines not only whether a company has declared its related parties and whether the company was required to prepare transfer pricing reports, but also whether the documentation contains all mandatory data and whether the benchmark (arm's length) price range has been correctly determined. If the tax authority deems that the transfer prices used do not correspond to the arm's length price range, we can examine the validity of the authority's arguments and support companies in substantiating their position.
When it comes to representation in tax litigation, we work with our partner law firm to represent taxpayers during the judicial review of tax authority decisions in administrative lawsuits after a final decision has been issued in tax authority proceedings. Our services include, among others, the preparation and filing of appeals against the second-instance decisions of tax authorities, requests for immediate legal protection and other submissions, as well as in-person participation in court hearings.
Legal representation is mandatory in extraordinary review procedures before the Curia, the supreme judicial forum. Our tax litigation and tax law experts are capable of preparing requests for extraordinary review, which is a task that requires special expertise, and will effectively represent the client's interests at a potential hearing as well.
If a new and complex question arises in a tax dispute before a national court which requires an interpretation of EU law and cannot be answered on the basis of established Community case law, the court may, either ex officio or by request, refer the matter to the Court of Justice of the European Union (CJEU). In the latter case, our experts will assist clients in preparing their requests and other submissions.
Monitoring the mandatory reporting of taxpayers is an area of focus for the tax authority, analysing and detecting errors and deficiencies in RTIR reporting. Errors in online invoice reporting should definitely be examined and handled with the help of experts, as the fine for failure to report invoice data and for incorrect reporting can be as much as HUF 500,000 per receipt. In addition to the fine, an incorrect online invoice XML not only jeopardises mandatory reporting, but is also the basis for VAT refunds.
In many cases, the Hungarian Tax Authority will inform the taxpayer about the incorrect submission which is contested by the tax authority and recorded in a report and communicated over the phone, and the penalties can be significant.
RSM's tax representation and tax IT teams work together to support clients in preventing and rectifying such errors and omissions, and in responding to and dealing with the tax authority's enquiries and requests to submit declarations. In case error messages are received or discrepancies are detected, we are able to provide software solutions through our Invoice Match service.
Effective action can be taken to remedy infringements in a company's operations. Our experts have been involved in successfully terminating compulsory strike-off procedures and in restoring the normal operation of companies in several cases. As the necessary actions need to be taken as a matter of urgency, please contact our colleagues immediately.
It is important to point out in connection with the system of payment facilities that a number of formal and substantive requirements must be met in order for the tax authority to grant the requested payment facility or tax reduction.
After the request has been submitted, we will contact the tax authority and discuss any further actions that the tax authority may require as conditions for approving the request, as the tax authority may impose various conditions for granting payment facilities, such as the payment of a part of the tax debt before a certain date, or the pledging of an appropriate security, guarantee or mortgage.
Although a tax reduction may only be requested in a narrow range of cases and under strict conditions, our tax representation team has, in several cases, successfully substantiated the relevant special and equitable circumstances and the companies' operations returned to normal as a result of the payment facility being granted.
In cases where the tax advance payment required by the tax authority is not yet due, a request for a tax advance adjustment can be submitted to the tax authority, provided that the tax advance is paid on the basis of the data for the previous period and, based on the calculations, the amount of tax is less than the tax advance payable on the basis of the data for the previous period. Given that the request must include detailed reasoning and needs to be supported by information on the company's expected revenues and profits, experts such as RSM Hungary's tax representation team should be involved in the process.
As part of our representation work, we have a successful track record in the reduction and cancellation of late payment penalties. In these cases, we prepare submissions setting out the special and equitable circumstances that justify the reduction of the late payment penalty imposed.
It should be noted that, in many cases, we have successfully obtained a reduction or cancellation of the late payment penalty even before payment was due.
As part of our representation services, we are also involved in enforcement matters related to various enforcement actions (debt collection, garnishments and attachment of claims). In connection with enforcement proceedings, we also draw the attention of clients to other risk factors (such as the loss of the reliable taxpayer status) and propose solutions to these issues.
In several cases, we have managed to obtain a stay of enforcement or enforcement was terminated.
The EKAER reporting obligation may arise whenever a company transports goods with a certain customs tariff number in a reportable quantity by road to a non-end user. Our experts can help you understand what goods should be reported and when, what to do if your company has failed to do so, and what you can do if this omission is discovered during a roadside check.
Our professionals possess considerable experience in issues involving the setup and operation of VAT and CIT groups and in dealing with any special circumstances that may arise. Our experts first assess whether setting up a group is necessary and examine whether the conditions necessary for doing so are met. We then assist you in preparing a request for setting up a VAT or CIT group and, in the case of an existing group, we prepare the documents required for members to join or leave the group or for dissolving the group, as the case may be.
In certain special cases, the state or local tax authority and the Ministry of Finance may need to be contacted quickly. In these situations, our professionals conduct informal and formal discussions with the competent departments of the Hungarian Tax Authority and the Ministry of Finance regarding the interpretation of the legal provisions applicable to the issue in question and the relevant actions to be taken.
Our expert tax advisors and lawyers can work together to provide effective assistance against the tax authority's establishment of the liability of directors.
We help to ensure that the tax authority cannot unlawfully initiate a declaratory lawsuit involving the private assets of the director of a company that had outstanding tax debt and was subject to a compulsory strike-off procedure or went into liquidation.
Having its tax number cancelled for failing to file its financial statements, for instance, is a major issue for any company. The cancellation of a tax number is a reversible process and does not mean the end of a company's operations; however, reversing the process does involve risks. RSM Hungary's highly experienced tax administration team can help reinstate the tax number quickly to ensure that this risky period is kept as short as possible, and can also provide advice to minimise any tax risks incurred.
we can also help you reset your tax number cancellation
Another scenario where RSM Hungary's tax representation and tax law team is able to assist you is when, during the tax registration procedure, the state tax authority establishes that an individual cannot act as a registered director or representative of a company for some reason. In such cases, we can help you submit a request for exemption proving that the tax authority should not refuse to issue a tax number.
Our experts have cooperated with the Hungarian Tax Authority and the Ministry of Finance in the drafting of a number of tax-related laws and draft law amendments that serve the interest of taxpayers and have been adopted by the legislature. Our tax representation team is involved in both the drafting of proposals for procedural and substantive law amendments and their submission to the competent professional forums.
The broad tax, legal and management advisory experience of our tax experts and attorneys, spanning several years, ensures that proposed and already completed transactions are reviewed against a complex set of criteria covering multiple areas of law and multiple tax types. As part of our tax representation practice, we ensure the consistency of economic and business considerations with the requirements of the proper application of the law and substantive compliance along principles established in tax audits and tax litigation, while also taking into account the position statements of the Hungarian Tax Authority and the Ministry of Finance available to us.
An increasingly common element in the findings of tax authorities is when a company is held liable because one of its subcontractors has failed to pay VAT. In these cases, the Hungarian Tax Authority does not allow the deduction of input VAT on the grounds that the subcontractor cannot have been able to supply the goods or services invoiced as it did not have enough registered employees, the necessary permits, etc., and the tax authority deems that these facts and circumstances should have been discovered during a sufficiently thorough preliminary business audit.
But what is the scope of a preliminary audit that a company is expected to conduct, and how should it be documented?
Based on the information provided by the tax authorities and court decisions, RSM Hungary's tax representation team has developed essential audit processes that a company needs to perform, and has also designed a system that minimises the risks involved. If a company implements these in its audit processes, then it has done everything in its power to avoid losing its right to deduct VAT due to errors made by its partners.
The broad tax, legal and management advisory experience of our tax experts and collaborative attorneys, spanning several years, ensures that proposed and already completed transactions are reviewed against a complex set of criteria covering multiple areas of law and multiple tax types.
As part of our tax representation practice, we ensure the consistency of economic and business considerations with the requirements of the proper application of the law and substantive compliance along principles established in tax audits and tax litigation, while also taking into account the position statements of the Hungarian Tax Authority and the Ministry of Finance available to us.
As a member of the RSM Global network, we provide tax services to our partners in over 120 countries. In addition to our tax representation services, we also support our corporate partners through payroll, tax advisory, audit, business valuation and other legal services, amongst others.
