It may seem that the tax authorities increasingly know who is worth auditing as surely as if they have magical or mentalist abilities. The Hungarian National Tax and Customs Administration (NAV) selects taxpayers for investigations with an increasingly sure idea of where they might find some kind of error, discrepancy or, Heaven forefend, fraud.
However, this year, the authority’s mission
is data cleaning to make tax audits even more effective. Taxpayer life cycle
analysis and behavior prediction models can be built on reliable and
unequivocal data that can predict harmful practices.
To facilitate this, some new tax procedures will be introduced this year. A so-called data reconciliation procedure will first be used to “clean” VAT and social security information. If a company and a business partner provide different data, the taxpayers will be requested to clarify the discrepancies within 15 days or face a fine.
As NAV is using artificial intelligence software, the audit will take place without human intervention, and the default fines will also be imposed automatically. Although this is easy money, the primary interest of the authorities is not to accumulate fines but to clean up data discrepancies, which gives additional ammunition to detect large-scale fraud.
Like the reconciliation procedure, the compliance inspections also provide taxpayers with an opportunity to clarify their situation and correct mistakes. One of the most significant differences between compliance and classic inspections is that the compliance check doesn’t close an inspection period. Therefore, this may be carried out more than once in the same period; meanwhile, the taxpayer also has the opportunity to submit a self-revision.
If the investigation reveals a problem, the authority cannot make an incriminating decision or determine a tax difference; only a default penalty may be imposed. However, in the case of a significant error, the investigation may be turned into a classic tax audit.
This year, compliance investigations will also be extended to transactions between affiliated companies and to cover transfer pricing; this will allow NAV to examine the transfer pricing of the ongoing tax year, too.
The authority pays special attention to verifying transfer pricing data reports submitted as part of the corporate income tax returns. This summarises the reports’ conclusions in a well-structured, comparable and analyzable database. Thus, discrepancies may surface, and distorted pricing between related parties can easily be identified.
And this is not the end of the digitalization process. With the introduction of the e-receipt system in July, the transparency of VAT data in Hungary will be complete. The European Union, meanwhile, has begun the launch of its Vida (VAT in the digital age) proposal. By 2030, VAT registration will be standardized and real-time digital reporting will be introduced across the EU, meaning tax authorities will have access to credible transaction data in real-time.
Given all this, companies can no longer postpone reviewing their data provision and compliance processes since incorrect data can result in unpleasant inspections, and the likelihood that processes that ignore the regulations avoid the attention of the authorities will become vanishingly rare.
LeitnerLeitner’s tax experts have
gained extensive experience in introducing digital processes, reviewing online
data services, and transfer pricing in recent years. With its knowledge and
complex services tailored to individual needs, it can provide high security for
your company during inspections, compliance checks, or preliminary health
checks.
Budapest Business Journal: Telepathy and Mind-reading: The Superpowers of Tax Authorities - Budapest Business Journal
