Tuesday, 5 January 2016

Taxpayer’s qualification: the reliable and the risky ones

One of the major novelties of the Hungarian tax procedural rules as of 2016 is the introduction of the taxpayer’s qualification. During the qualification process, the Hungarian Tax Authority (HTA) distinguishes reliable and risky taxpayers. A taxpayer is qualified as reliable upon simultaneously meeting ten different conditions listed beneath. To be characterized as a risky taxpayer; however, it is enough to meet one of the given four conditions.

For taxpayers grouped neither in the reliable nor in the risky category, stays in the „normal/general” tax status implicitly, and remains within the already known circumstances.

Reliable taxpayers:

  • The taxpayer has continuously been operating for at least 3 years or it has been a registered taxable person for at least 3 years AND
Within the current and the previous 5 tax years:

  • The total amount of its tax differences determined by the HTA, did not exceed 3 % of the taxpayer’s tax capacity assessed in the current tax year,
  • The taxpayer was not / has not been falling under enforcement procedure (aside from the tax authority’s right of withholding and transfers),
  • The taxpayer did not undergo / has not undergone bankruptcy-, liquidation-, winding-up proceedings,
  • Its tax number was not / has not been under suspension, which can happen when the taxpayer failed to comply – upon receipt of notice from the tax authority – with the obligation of declaration or tax payment liability within 365 days from the statutory deadline or from the original due date.
  • Its tax number was not / has not been withdrawn,
  • The taxpayer was not / has not been subjected to enhanced regulatory supervision AND
  • The taxpayer does not have a tax debt exceeding HUF 500,000 AND

  • In the previous 2 tax years the amount of the overdue default penalties did not exceed 1 % of the taxpayer’s tax capacity assessed in the current tax year AND
  • It is not qualified as a risky taxpayer.
Risky taxpayer

Provided that at least one of the undermentioned conditions exists:
  • The taxpayer is listed within those who have substantial tax arrears (in case of individuals, over HUF 10 million, for other taxpayers over HUF 100 million) OR
  • The taxpayer is listed within those who have substantial tax debt (in case of individuals over HUF 10 million, for other taxpayers over HUF 100 million) OR
  • The taxpayer is listed as having employees not registered; OR
  • The HTA sentenced the taxpayer to store closure repeatedly within one year.
Regarding the risky taxpayers, the current qualification is obtained for one year (in some cases it might be avoidable).

Being a reliable taxpayer results in some defined advantages, however the law prescribes stricter rules to be applied in connection with the risky taxpayers.

The reliable taxpayers will count upon shorter deadlines in connection with tax assessment and the refund of taxes, and they can expect – even when they make mistakes – some advantages in reference to default penalty and tax penalty. 
  • For example for them, the period of the tax assessment will be limited in 180 days at the longest, provided that during the assessment they are still qualified as reliable and they cooperate with the tax authority.
  • They are given moratorium for revision to comply obligations in connection with registration, data disclosure and tax returns (excluding obligations which concern notification of employment and EKAER). For reliable taxpayers, the tax authority will only impose default penalty, if the advanced appeal to comply with the tax authority’s request for remedying deficiencies and fulfilling obligations expired. 
  • The abovementioned regulations cannot be applied in case of such defaults which result in the termination of the current qualification.
Eventually the reliable taxpayers can apply for the allowance of automatic instalment payment once a year, which enables them to apply a 12-month-long instalment free of interests on a debit between HUF 10,000 - 500,000 (apart from the cases of personal income tax, custom advances, local taxes). The refundable VAT may also be reclaimed with a shorter deadline (30/45 days) according to the common terms.

The risky taxpayers will face more severe rules regarding both penalties and tax assessment. In their case, the period of the tax assessment is automatically extended by 60 days, the deadline of VAT refund is 75 days without the possibility of reduction, and the level of late payment interest will be quintuple of the prevailing central bank base rate.

The qualification will take place quarterly, and the first qualification will pertain the first quarter of 2016. In the meantime the current qualification (in some cases) may change and as long as the taxpayer takes objections to it, the current qualification can be contested. The qualification of risky taxpayer obtains for one year counting from the day on which the conditions that had resulted in the qualification occurred or obtains until the next quarter of qualification if the tax arrears in question and the related penalties, surcharges and tax debts have already been paid.

Depending on their qualification, the taxpayers may expect more permissive or more severe penalties, which are summarized in the table below:

For further information about the Hungarian tax system, please see our series of “Guidelines to taxation in Hungary” by our present blog. Further up-to-date material is also available on our Hungarian blog

The number of tax audits and their intensity is increasing both in Hungary and in our region, tax authorities work closely together regarding national and international issues. Is your company carefully prepared for a possible tax audit of the Hungarian Tax Authority?

Be prepared with the help of LeitnerLeitner. 

We offer:
  • Tax due diligence before a tax audit and implementation of corrections
  • Representation during the tax audit and expert knowledge
  • Support in the appeal procedure, tax litigation 
  • We also assist you to get rid of aggressive tax structures.

For further information, please visit our website  or contact us via e-mail at office@leitnerleitner.hu.