As of January 1, 2016, the Act on Taxation introduces rules for reliable and risky taxpayers. Under the new classification scheme taxpayers classified as reliable will be treated more positively, while risky taxpayers will be treated more strictly than under the generic rules.
This article presents the most important information on the classification criteria and on the consequences of being classified as a reliable or as a risky taxpayer.
Let us begin with the good guys.
The 10 criteria for reliability
A taxpayer may be classified as reliable if it meets all of the following criteria:
- It has been active continually for at least 3 years, or it has been a taxpayer registered for VAT for at least 3 years;
- In the year concerned and in the five preceding years:
- The total of its delinquent taxes assessed by the state tax authority was not in excess of 3% of its tax for the year concerned;
- It has not been subject to judicial enforcement by the tax office, excluding transfer between accounts or the execution of the right of retention;
- It has not been subject tobankruptcy, liquidation, or forced de-registration proceedings;
- It has not been subject to suspension of tax number;
- It has not been subject to tax number cancellation;
- It has not been subject to increased supervision by the tax authority;
- It does not have overdue tax liability in excess of net HUF 500,000;
- The total of the default penalties that have become due in the two years preceding the year concerned wasnot in excess of 1% of its tax assessed for the year concerned;
- It is not classified as a risky taxpayer.
If during the five years preceding the year concerned the company did not qualify as a domestic taxpayer (i.e., if a Hungarian firm has not yet been active for 5 years, or if a foreign enterprise has not been registered in Hungary for 5 years), the tax authority will examine the criteria as of the start of the domestic taxpayer status.
Why does it pay to be a reliable taxpayer?
Reliable taxpayers are subject to the following positive discrimination:
- Their audits by the National Tax and Customs Administration may not exceed 180 days;
- The upper limit of the default penalty and tax penalty that may be imposed on a reliable taxpayer is 50% of the default penalty and tax penalty imposable under the generic rules;
- Once a year they receive (i.e., without conditions) an instalment payment option automatically for a maximum of 12 months and exempt from surcharges for the settlement of their tax liability between HUF 10’000 and 500’000.
- As of 2017 their requests for VAT refunds will be met by the authority within 45 days; as of 2018 this deadline will be reduced to 30 days.
The bad guys - who is classified as a risky taxpayer?
A taxpayer is considered risky, if it is not subject to on-going bankruptcy, liquidation, or forced de-registration proceedings, but;
- It is listed in the published roster of taxpayers with considerable tax arrears;
- It listed in the published roster of taxpayers with considerable tax liabilities;
- It is listed in the published roster of taxpayers employing unregistered employees;
- It has been subject to a measure of business closure by the state tax and customs authority within one year;
The taxpayer shall be considered a risky taxpayer for a year from the occurrence of the condition that gives rise to the classification, except if it pays its tax arrears or tax liabilities.
Why does it not worth being a risky taxpayer?
Risky taxpayers are penalised with the following:
- Their VAT remittance deadline is a uniform 75 days;
- Their tax audit deadline is extended by 60 days;
- They are treated more strictly with regard to the assessment of default interest, tax fines and default penalties.
When is the classification performed?
The tax authority will perform the classification first time in the first quarter of 2016, relying on data prevailing on March 31, 2016. The outcome of the first classification shall be effective as of April 1, 2016. No one may lean back thereafter however, as the classification will be reviewed every quarter.
The tax authority will inform companies of the outcome electronically, but there will also be a possibility to coordinate individually via the Client Gateway.
Should a taxpayer dispute its classification by the tax authority it may submit an objection to the outcome within six months.