Compliance Audit Procedures in Hungary: A Guide for Taxpayers
Changes to Hungarian Tax Administration Procedures
The Hungarian government has implemented significant changes to the country’s tax administration procedures, effective from January 1, 2018. The new Act on Rules of Taxation (ART) and the Act on Tax Administration Procedure have streamlined the tax audit process, making it more transparent and easier for taxpayers to comply with their obligations.
Understanding the Taxable Period
Corporate Income Tax (CIT) is taxed on a calendar-year basis in Hungary. Taxpayers must file their tax returns by May 20th of each year, with payment due by June 20th.
Key Dates to Remember:
- Tax return filing deadline: May 20th
- Payment due date: June 20th
The Tax Audit Process
The Hungarian tax authority will focus on the following areas during audits:
- Aggressive Tax Planning: Protecting revenue for the central budget.
- Risky Taxpayers and Activities: Targeting taxpayers with high-risk activities, such as construction companies, catering businesses, motor vehicle sales, black market excisable products, and fruit and vegetable trade transactions involving potential VAT fraud.
Special Taxpayer Categories
Taxpayers are classified into three categories: reliable, general, and risky. The taxpayer status is quarterly revised by the tax authority.
Reliable Taxpayers:
Reliable taxpayers receive benefits and fall under less stringent rules if they meet specific criteria, including:
- At least three years of continuous operation or VAT registration
- No more than HUF 500,000 net tax debt
- Not classified as a risky taxpayer
- Positive balance of total tax liability
- Not under foreclosure procedure started by the state tax authority in the previous four years
Benefits for Reliable Taxpayers:
Reliable taxpayers can opt for a 12-month payment relief once per year up to HUF 3 million.
Risky Taxpayers
Taxpayers are classified as “risky” if they meet specific criteria, including:
- Being publicly listed due to high tax deficit or debt
- Employing an unreported workforce
- Having business closure measures applied by the tax authority repeatedly within a year
- etc.
The classification of a risky taxpayer lasts for one year but may be cancelled in subsequent quarters if the taxpayer settles their tax deficit, penalty, and late payment interest, and tax debt.
Statute of Limitations
The statute of limitations is five years from the end of the calendar year in which the tax return should be filed. Certain self-revisions interrupt this term.
Dispute Resolution
In case of a dispute, the tax assessment may be appealed and challenged before the second-instance tax authority, which has the right to annul the first-instance resolution and decide on the merits of the case or instruct the first-instance tax authority to carry out a new audit if facts and circumstances have not been appropriately and fully developed. The decision of the second-instance tax authority is final and binding.
Taxpayers may litigate the case before the courts in Hungary after receiving this decision. The court may uphold, amend, or annul the Resolution of Second Instance and order a new process in relation to the tax audit if necessary.
Mentoring Program
New companies are eligible for assistance as part of a six-month mentoring period. Participation is based on individual taxpayer decision and comprises free information on taxpayer’s tax obligations and personal consulting sessions with the taxpayer.
Taxpayers can seek guidance from the Hungarian Tax Authority or consult with a qualified tax professional to ensure compliance with all requirements.