HUNGARY: COMPANIES FACE MORE SERIOUS TAX PENALTIES
Next year the number of various taxes and other payment obligations – presently exceeding forty – will continue to grow. Companies are facing more aggressive measures from the tax authority and the relevant legal consequences will become more stringent: the amount of penalties will increase, the responsibility of company owners and managers will grow and criminal accountability may also be applicable.
Fictitious companies established to evade taxes have already been targeted by tax authority audits, but now they can reckon with even more aggressive measures. In the context of the new tax registration procedure, tax auditors are trying to filter the establishment of fictitious companies already at an early stage. If future managers or majority owners – and the companies under their control – have excessive tax liabilities, they won’t receive a tax number and, as a result, the court of registration will deny their registration. Already registered fictitious companies also have reason to be more concerned: the tax authority may punish them with the immediate cancellation of their tax number.
Shrewd founders cannot sit back and relax, even if their company is not filtered out during the tax registration procedure. The tax authority performs a risk analysis of newly registered companies and, if a company doesn’t pass through the filter, it must provide detailed information about its activities and conditions of operation. If such data are not sufficiently convincing, the tax authority may place the company under close scrutiny and may order that it submit its VAT returns more frequently, present the underlying receipts or have its tax returns be checked by a tax expert. These measures may pose a significant extra burden and extra costs on taxpayers.
It is generally accepted that steps must be taken against companies abusing the intended purpose of establishing companies; however, what about companies that carry on regular activities and do not wish to evade any tax laws? The bad news is that as of next year they can face more stringent punitive sanctions as well. The amount of penalties that may be imposed on them will significantly increase. As opposed to the currently applicable 50% tax penalty, next year an amount of up to 200% of the tax deficit may be required to be paid by those who are found to have a deficit by the tax authority. Failing to meet the obligation to keep documents may be punishable with a default penalty of up to HUF 1 million, whereas infringement of the obligation to keep a record of transactions between associated companies may cost a taxpayer who is not adequately cautious up to HUF 4 million.
“Companies should prepare for the increasingly stringent tax authority measures in advance. There are several methods available for taxpayers to choose from, according to their size and possibilities, in order to gain efficient protection. Large companies may request the newly introduced permanent conditional tax assessment, which may offer protection for a period of three years despite the continuous changes in the law. The conditional tax assessment may be adopted in the future too, which does not grant protection against changes in the law, but it is capable of specifying the obligation to pay tax, or the absence of such obligation, for a long period in the event that the facts and circumstances remain unaltered. Small taxpayers may use the less expensive institution of the uncertain tax law position, reducing their risks.” – says Dr. Balázs Békés, tax partner of Faludi Wolf Theiss Attorneys-at-Law.
Large taxpayers have already applied for conditional tax assessment, but this is extremely expensive, its procedural fee coming to a minimum of HUF 1 million. If we consider that a possible change in the law may render the statements of the decision useless, the taxpayer will think twice whether to pay this procedural fee.
The newly introduced conditional tax assessment procedure is also very costly, but it may be worthy for large companies to consider using it. The decision received through it provides security against changes affecting corporate taxes for a period of three years. As a result, companies are less exposed to untraceable changes in the regulation, which are virtually introduced each week.
There is a solution for small companies too. They may indicate in their tax return to be sent to the tax authority that, due to the uncertain interpretation of the tax law concerned, the amount of the tax returned may be mistaken. If the tax authority subsequently establishes a tax deficit, it may not impose a fine even though the tax deficit must be paid by the taxpayer. Although such declaration may not relate to VAT, contribution for innovation, customary market price and the use of tax allowance, it may in each other case reduce the tax-related risks of small companies. Minutes countersigned by a lawyer, tax advisor, tax expert, or chartered tax expert must be attached to the tax return.
“Changes in the 2012 tax law provide several new means for companies to reduce their risks deriving from the continuous changes in the tax laws and to protect themselves in advance against possible attacks by the tax office. It is important to note, however, that such steps are suitable for reducing only financial risks, and possible errors continue to involve civil law liability or even serious criminal law penalties. Minimizing the legal consequences deriving from the inappropriate application of the tax laws and, if necessary, seeking the advice of a lawyer or tax consultant are especially important for financial managers, managers and company owners” – warns Dr. Balázs Békés.
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