Hungary imposes VAT inspection demands

Perhaps partly as a measure to identify and stamp out the country’s excessive levels of VAT fraud, Hungary issued tough guidelines in February this year, aimed directly at non-resident businesses. The companies targeted are those which require to be VAT registered in Hungary as a result of making taxable transactions in the country. The demands relate to tax inspections of non-resident companies. The purpose is for the tax inspectorate to have immediate access to all relevant records, particularly in cases where VAT refunds are to be made.

The guidelines provide a list of documentation to be provided within three days, which is an extremely short notice period if the paperwork is held outwith Hungary in the taxpayer’s own home country.

The documents required are not just the ledgers and sales & purchase invoices, but are even more demanding, demonstrating the tax office’s intention to look at some of the general commercial aspects of the non-resident’s enterprise. In addition to the usual intra-community delivery documentation to support zero VAT dispatches, signed goods received transfer papers on EU acquisitions are required. Export and Import certifications must be in order, together with evidence that import VAT has been settled. If there are unusual differences between sales and purchase prices, one way or another, these have to be explained. The guidelines also mention that separate books have to be kept for all Hungarian activity using acceptable double-entry bookkeeping.

Given the short notice, it would appear imprudent for EU businesses not to appoint local agents to represent them in Hungary. Whilst Hungary’s VAT fraud combat measures make good sense, this new demand counters the principles of the European Commission to reduce the VAT burdens involved for businesses trading cross-border in Europe. While the single market represents an opportunity for small and occasional business in these difficult economic times, these obligations represent an administrative cost barrier to be hurdled. Experience of the tax authority’s strength of purpose will no doubt become apparent in due course, so that assessment can be made of the actual level of the requirements.