Financial Crime World

Compliance Audit Procedures in Hungary: Understanding the Process

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As a business owner in Hungary, it’s essential to understand the compliance audit procedures conducted by the Tax Authority. These audits are designed to ensure that companies are meeting their tax obligations and complying with relevant laws and regulations.

Types of Audits Conducted by the Tax Authority

The Hungarian Tax Authority conducts two main types of audits: tax audits and compliance audits. While both types of audits aim to ensure compliance, they differ in their focus and consequences.

Tax Audit

A tax audit is a thorough examination of a company’s financial records to determine if all taxes have been paid correctly. This type of audit focuses on specific periods or years, and the Tax Authority may impose heavy fines if it finds evidence of tax evasion or incorrect reporting.

Compliance Audit

A compliance audit, on the other hand, focuses on ensuring that companies are meeting their regulatory obligations. This type of audit is typically conducted for ongoing operations and allows companies to correct any mistakes or deficiencies found during the audit process.

Key Differences Between Tax Audits and Compliance Audits

The main differences between tax audits and compliance audits are:

  • Tax audits focus on specific periods or years, while compliance audits cover ongoing operations.
  • Tax audits may result in heavy fines for non-compliance, whereas compliance audits typically impose smaller fines related to data correction.
  • Companies under liquidation may be audited more frequently.

Tax Audits: Who is Affected?

Tax audits mostly affect corporations, but small and medium-sized companies can also be subject to this type of audit. The Tax Authority conducts tax audits to ensure that companies are meeting their tax obligations and complying with relevant laws and regulations.

Reasons for a Tax Audit

Possible reasons for a tax audit include:

  • Operating with a loss for an extended period
  • Engaging in activities deemed risky, such as chain transactions
  • Missing tax returns

Sectors at Higher Risk of Tax Audits

Certain sectors are more likely to be subject to tax audits, including:

  • Selling IT hardware
  • Trading metal
  • Web shops
  • Selling foodstuff
  • Selling vehicles
  • Construction companies
  • Logistics (couriers)

Consequences of a Tax Audit

If the tax audit reveals mistakes in your books, you can expect fines depending on the nature of the mistakes. For example:

  • Unpaid taxes: up to 200% of the taxes unpaid
  • Transfer pricing documentation: as of 2023 up to HUF 5 million (ca. EUR 12,500) / document type
  • Failure to report an employee: HUF 1 million (ca. EUR 2,500)
  • Failure to properly keep electronic invoices: up to HUF 1 million (ca. EUR 2,500) / invoice
  • Mistakes in accounting: up to HUF 500,000 (ca. EUR 1,250)

Conditional Tax Penalty Allowance

Even if your company is fined, you have an option for paying only half of the fine. If you forfeit your right to appeal against the decision and pay the taxes that were found to be missing or overdue, you can apply for a penalty allowance.

By understanding compliance audit procedures in Hungary, businesses can better prepare themselves for potential audits and ensure they are meeting their regulatory obligations.