Even the control has not yet been started though a taxable person may already be focused by the officials, in case of suspicious conditions one can receive enhanced taxation authority supervision. Upon the establishment of new enterprises or in case of a change in ownership, the Hungarian Tax Authority (“HTA” or “NAV” in Hungarian) carries a risk analysis within one year from the creation of the tax identification number. In the frame of this risk assessment, the HTA investigates the taxation history of the lead officers and owners, and also scrutinize the planned activities and their preconditions available to the enterprise by a questionnaire.
For the investigation the planned activity, the amount of employees, their type of employment, the operation tools and equipment, the place(s) of operation (e.g. office or plant), the title of use to such and also the financial resources shall be presented to the authorities. If the authority finds the taxable person risky on this basis, then by a resolution puts it under enhanced tax authority supervision for maximum one year. Within the supervision period, VAT statements should be presented more frequently, and together with the reports also the copy of the supporting documents and invoices must be submitted.
Even if a taxable person does not get into this circumstance, it is worth to review the possible tax authority control procedures relevant in Hungary.
In our country, the following posterior tax authority measures – types of control are applicable:
- Posterior investigation of tax statements
- Investigation the completion of certain tax liabilities
- Data collection and investigation of the originality of certain economical events
- Repeated tax authority control for a period already closed by a tax audit
- Control of the exercise of state guarantee
- Investigation of the completion of duty obligations.
Any of these investigations may be divided to the following phases:
Former notice is not obligatory and also may be sent by electronic way. If the tax authority omits the former notice then the control starts by transmitting a copy of the credential.
The credential nominates the tax inspectors who are responsible for the control and also the controlled taxpayer, in addition it determines as well what kind of obligations in which period are controlled. The tax audit may only be commenced when the taxable person, its representative or power of attorney is present.
2. The control process
It is important to highlight that both parts have to cooperate during the tax audit process, so the taxable person should allow the control to run and it should not be pulled back. The process may be carried in the premises of the tax authority, in the office of the controlled person or even at its legal representative.
However, even the tax authority has obligations during the procedure, such as to clarify and proof the facts during the control. Proofs may be documents, professional opinions, statements, depositions, reveals from site-visit, trial shopping, trial production, or data from another investigation, other’s declaration. The tax authority is also obliged to reveal the facts and circumstances which are not against but for the benefit of the taxable person. Both during the audit and after in a closing meeting, the authority should also keep the person under control informed about the potential statements deriving from the control. Last, but not least it is also bound to assess the evidences submitted by the controlled person, it should investigate them and consider for its decision making, and should also justify the potential rejection of such evidences.
In contrary, the taxable person under control is entitled to be present during the procedure, to undertake a representation, to look into the collected documentation, and to make copies of the investigation papers – this latter may be limited in certain cases. The controlled person may also ask for information about the statements, may also make comments about them, may initiate evidences, and complain about procedural mistakes.
The general deadline for tax audit would be 30 days in Hungary; however, this may be postponed for many reasons. For posterior and repeated inspections the deadline is 90 days, while for the biggest taxpayers it is already 120 days. A refund procedure may take 45/75 days. Moreover, these deadlines may be extended once by the investigation leader with 90 days, by the supervisory authority with 90 days and by the head of the tax authority by 120 days.
The connected inspections in a cross-border, or international audit shall not be calculated within the above deadlines; while the investigation in the original procedure may still keep going. While in a domestic connected inspection, the original investigation is dormant. About the beginning and end of such connected inspections the taxable person under control should be informed.
4. Finish of the tax authority audit
The control ends with the takeover of the minutes of the investigation. Then remedy processes may be started, if necessary – the details of these will be introduced in the next article. However, even here, we would like to emphasize that the controlled taxpayer has right to make comments and observations against the minutes in 15 days, it may file its evidences – the rejection of such the tax authority must justify verbally or in writing. The observation is not subject to any procedural fees; therefore, it is suggested to apply and take time by the forelock. Upon delay, only the appeal procedure remains as remedy. To further investigate the evidences and comments of the taxable person during the observation, the tax authority may start an additional audit that lasts up to 15 days.
With the difficulties of the audit even up to this point may not only the taxable person should face, it is allowed to involve a professional representative tax expert from the beginning of the investigation. However, many turn to a tax advisor at this point only. Naturally, it is not too late even this time; however, the situation may be more complicated – as it is only 15 days remained for the professional to take over the procedure and look over the documentation. The professional recognizes the “traps”, assesses the risk connected to the papers to submit, prevent the procedural mistakes and collect supporting arguments – thus the participation of a tax expert provides many advantages.
If you are interested in the further remedy processes, please read our next article.
LeitnerLeitner offers the following assistance for tax authority audits:
- Health check: due diligence before a tax audit, preparation of necessary corrections
- Representation before fiscal authorities and comprehensive tax advisory services
- Participation in observation and appeal procedures
- Tax expert support in even in court proceedings, litigation.