tag: tax audit

A common solution to the chronic workforce shortage seen in the entire region nowadays is that one company provides labour to another. However, one should be careful with these agreements: depending on the circumstances, the tax authority (NAV) may reclassify these contracts, which could result in major tax expenses.

The rules on VAT-exempt intra-Community supplies of goods have long been a source of worry for businesses. It is not uncommon for the tax authority to deny tax exemption on such transactions on the grounds that the goods never left the country. Although a recently accepted proposal by the EU clarifies the rules, complying with them entails a great deal of bureaucracy for companies that deliver to EU markets.

Due to a seemingly trivial error, a series of NAV decisions are being overturned in court: a good many of them don’t contain the proper signature. This procedural error, however, could be useful not only in ongoing lawsuits, but possibly in past, closed procedures too – hundreds of businesses could claw back the tax forints they thought were lost for good.

Since the start of the year there have been new laws in place regulating tax audits and tax lawsuits. The stakes are pretty high: the National Tax and Customs Administration (NAV) conducts almost 30,000 audits annually, assessing tax deficiencies of about HUF 500 billion and imposing fines of almost the same amount. Therefore it is important to know the rights taxpayers have under the new rules and the most efficient ways to fight NAV.

Winning a tax lawsuit is a difficult and lengthy process, and often there are no guarantees of victory even when you’re totally confident that you correctly accounted for every transaction. So it’s worth paying particular attention to the opportunities for triumphing over the tax authority relatively easily and without any complications. What is more, recent case law has expanded the range of these options.

There is no use of winning a lawsuit against the tax authority if the enterprise goes bankrupt before the judgement is rendered. And such an outcome is by no means uncommon, as under the current laws the tax authority can initiate enforcement proceedings against a business while the suit is still in progress. What’s more, experience shows that the tax authority doesn’t shy away from enforcement even in the absence of the solid legal grounds for pursuing that route.

In its latest decision, the European Court of Justice (ECJ) has ruled that the Hungarian tax authority (NAV) unlawfully refused to allow VAT deduction to taxpayers who could not have known that the invoice’s issuer was implied in tax fraud. A special twist in the so-called Signum case is that it was the court of first instance who referred the case to the ECJ, as opposed to the guidelines of Hungary’s supreme court. The decision will have a significant bearing on ongoing tax audits and tax-authority findings, especially in the agricultural and trade sectors.