Péter Barta

The tax authority (NAV) has recently published its audit schedule for 2023, which shows that it has adapted remarkably quickly to changes in the market. While the focus of its audits this year will continue to be on the high-performing perennial favourites and on large taxpayers, there’ll also be a strong focus on “support” procedures.

The perennial favourites

Sectors at risk of being audited continue to include the construction industry, computer product sales, online stores, vehicle and parts sales, and the food industry. It is also “traditional” for security, cleaning and building management companies, as well as recruitment consultancies to be audited. These segments have been at the focus of NAV’s attention for years now, and so the question is, whether they’ll ever be scratched out of its little black book. For the moment, there doesn’t seem to be much chance of that.

At the same time, a few new, profitable sectors could also “enjoy” some special attention from NAV from 2023: fuel distributors, air conditioning sales and installation companies, dietary supplement sellers, marketing, advertising, media and film production companies, IT and administrative service providers and consultancy firms. Companies in these sectors should therefore choose their business partners with great care and should check them regularly and thoroughly.

Large taxpayers: tax benefits and transfer pricing

Because of their importance to the government’s coffers, NAV still wants to keep large taxpayers (i.e. the top taxpayers and the taxpayers with the highest performance) on a tight leash. These are likely to come to the attention of NAV mainly in relation to tax benefits and transfer prices.

This will also be facilitated by the transfer-pricing reporting obligations introduced on 1 January 2023, which taxpayers will have to comply with as early as when submitting their 2022 tax returns (which is generally in May). From this year, the data collected will allow NAV to quickly and easily analyse and evaluate the transfer prices applied by the companies. In the second half of the year, therefore, we can expect to see more transfer pricing audits conducted, with the tax authorities no longer selecting candidates at random, but on a more targeted and informed basis. So this may now be the last moment for companies to review their transfer pricing policies.

MRPs in the crosshairs

Employee share ownership schemes, known as MRPs in Hungary, have proliferated in recent years. And not surprisingly, since they allow companies to remunerate their employees at a 15% tax rate as distinct from the standard, higher rate usually charged on earned income. Of course, the “wild shoots” of these MRPs, which, let’s face it, were generally in line with the regulations in but name only, have since grown into ungainly shrubs in need of a prune.

NAV intends to check in future whether the favourable tax treatment of payments to employees provided through MRPs was consistent with the purpose of the law and not a thinly disguised aspect of some other, less honourable activity. It will also be examining whether the MRPs have been run in line with the legal regulations and with the companies’ own remuneration policies.

Support procedures are all the rage

In recent years, the tax authority has recognised that it’s easier to persuade taxpayers to pay tax voluntarily than to go through a long and costly tax procedure and then try to recover the tax debt. This is why we can expect to see a flurry of compliance investigations and so-called support procedures this year. The support procedure is not a full-blown audit, though it can turn into one if the taxpayer and NAV cannot resolve a discrepancy between their respective databases. But don’t be alarmed if you get a letter from NAV this year: there’ll probably still be time to correct any mistakes you may have made.


Suspicious circumstances

According to NAV’s audit schedule, taxpayers to whom the following circumstances apply are also at greater risk of an audit:

  • suspicious changes in personnel at the company (for example, if the Hungarian MD is replaced by an MD from a third country);
  • if the taxpayer is registered with a registered-office service provider;
  • if the taxpayer requests a refund or a transfer of reclaimed VAT (the best solution is therefore to leave the overpayment in the tax account and “use” it in a later period);
  • a big jump in turnover in a company’s first year of business (NAV still doesn’t believe in big jumps in sales at successful new businesses);
  • persistently loss-making and tax-minimising taxpayers;
  • additional businesses of directors of companies that have a high-risk taxpayer history (e.g. a cancelled tax number).